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"A system that is over-reliant on prediction (through leverage, like the banking system before the recent crisis), hence fragile to unforeseen “black swan” even
by magicsmoke 6y ago
"A system that is over-reliant on prediction (through leverage, like the banking system before the recent crisis), hence fragile to unforeseen “black swan” events, will eventually break into pieces."
This here is crucial. Investment in capitalism resolves around predicting future profits and committing yourself to those predictions via debt and leverage. However, the heavier your commitments or the further the future swings from your predictions, the more of today's production you've wastefully dumped into a hole.
- chrisco255 6y agoInvestment of any kind revolves around prediction of future benefits. That's not unique to capitalism. Risk is inherent in nature.
- magicsmoke 6y agoTaleb's works usually revolve around how people making those investment decisions offload the risk onto others instead of eating the entire cost themselves, and as a result don't have an incentive to moderate their risk taking.
- ed312 6y agoThat is precisely the point of limited liability companies. We have decided, as a society, that we like the benefits of these over the risks. We could certainly have a discussion around scoping the limits to liability but the fundamental fact is society wants the benefits of risky projects.
- abakker 6y agoI think Mervyn King's take in "The end of Alchemy" is a better approach from a practical perspective than Taleb's though. Essentially that we just need to stop kidding ourselves that we can predict the tails, and to build greater buffers into all our assumptions from the beginning. He calls this "Radical Uncertainty" which I think is better as a practical foundation than attempts to model black swan events. Definitely worth considering both, though.
- raihansaputra 6y ago> Essentially that we just need to stop kidding ourselves that we can predict the tails, and to build greater buffers into all our assumptions from the beginning. He calls this "Radical Uncertainty" which I think is better as a practical foundation than attempts to model black swan events. I haven't read The End of Alchemy, but Taleb also doesn't even think modelling black swan events is possible or even useful. Any attempts that claims can predict black swan events is assumed as harmful. And he would also propose the same to build greater buffers into assumptions or even assume that it will fail in time. Antifragile is the book that explores this more on how fragile are predictions and it's far more useful to know where is the risk exposure and compensate for that instead of calculating the risk and trying to avoid it.