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I always get a little tingle deep inside me whenever I hear about this black swan theory, whats more, suggesting principles for a black swan proof world (I know

by froo 18y ago

I always get a little tingle deep inside me whenever I hear about this black swan theory, whats more, suggesting principles for a black swan proof world (I know it's just the title, sensationalism never solved anything) is like pissing into the wind. It will only come back to haunt you. "black swans" are just one of those facts of life, The sun rises in the morning, water is wet, shit happens. Best anyone can do is attempt to minimise the factors that cause Black Swan events, you can never completely eliminate them. Offtopic point, the black swan is actually the symbol for the West Australian flag (my home state) http://media-2.web.britannica.com/eb-media//21/5021-004-C61F3D04.gif http://media-2.web.britannica.com/eb-media//21/5021-004-C61F... So these topics always give me a giggle, because I've seen many, many black swans in my lifetime (actually, probably many more black swans than white swans)

cameldrv 18y ago
Taleb's point is not to reduce the probability of having a black swan, which he essentially assumes to be fixed, but to reduce the impact when they happen. His point is that if you are leveraged 30:1, there will always be black swans that your model says will virtually never happen, but do, and cause your assents to go down by say, 5%, and wipe out your equity and cause you to default. What Taleb is getting at is that you just shouldn't leverage 30:1, and so if you hit a black swan, maybe your assets go down by 10% or 20% instead of 100% and then defaulting to bondholders as well.
- froo 18y ago
  Taleb's point is not to reduce the probability of having a black swan, which he essentially assumes to be fixed But the probability isn't fixed, given black swan events are dependent on taking bigger risks. If you minimise risk, you can essentially completely avoid black swan events. To explain it using the core idea, the black swan was discovered in these regions of Australia. If explorers never took the risk to explore these parts, then they would have never been discovered. So no, the probability isn't fixed. The probability of a "black swan event" occurring is more or less proportional to the complexity of the system that it relates too and the risk that an organisation is willing to take. Using the horrible september 11 attacks as an example, Al Qaeda more than likely wouldn't have attacked if they didn't see their way of life as being threatened in some way. This was, for all intensive purposes, an intensely complex political matter which was created as a result of risks taken by previous governments. Do I think what happened is right? Hell no, lives were lost on both sides as a result of people taking risks that they perhaps shouldn't have. Human error at it's worst.
  - flipbrad 18y ago
    You open your argument with the implicit statement that we can consciously (thus should) control and minimise risk (to the point where black swans are eliminated) - and that it would be desirable to do so. but using your swan argument, to minimise that risk the explorers would have to have know about the risk - how could they? - and then decided that in light of it, it wasn't worth going to australia. now, i have no particular affinity for australia nor its brash and smelly inhabitants, but frankly, i don't see either of those positions as logically tenable!
    - swombat 18y ago
      I don't think australians are that brash...
    - froo 18y ago
      Well, to explore unexplored areas involves risk of some form, it is just the magnitude of that risk that is unknown. So then to simply avoid unexplored areas and as such, minimising risk, therefore it could have been possible to never see a black swan. Now, on a more personal note as an Australian. Black Swans are primarily and originally were native to the Western side of the country in the southern areas, but are also found on the Eastern coast of Oz as a result of human interference. When Australia was "discovered" and originally settled, that was done on the Eastern coast of Australia (hence why the east coast of Australia has about 80% of the total population of the country) and only through risk of magnitude unknown would it have been possible to discover the black swans. So no, you're assertion is wrong sir. Thank you for insulting a country you know sweet FA about.
tokenadult 18y ago
A lot of people maybe haven't heard Taleb's illustration (spoken in a conference of which the video was posted to HN) about what he means by avoiding harm from black swans. He points out that if you live in Florida, you can't be sure when the next hurricane will come or how strong it will be. But you can build a hurricane-proof house, resistant to any strength of hurricane. That's what he means by avoiding harm from black swans in general: not that black swan events won't happen, but that prudent investors invest in a way such that when they happen, they don't cause irreparable damage.

by froo 18y ago

cameldrv 18y ago

Taleb's point is not to reduce the probability of having a black swan, which he essentially assumes to be fixed, but to reduce the impact when they happen. His point is that if you are leveraged 30:1, there will always be black swans that your model says will virtually never happen, but do, and cause your assents to go down by say, 5%, and wipe out your equity and cause you to default. What Taleb is getting at is that you just shouldn't leverage 30:1, and so if you hit a black swan, maybe your assets go down by 10% or 20% instead of 100% and then defaulting to bondholders as well.

froo 18y ago
Taleb's point is not to reduce the probability of having a black swan, which he essentially assumes to be fixed But the probability isn't fixed, given black swan events are dependent on taking bigger risks. If you minimise risk, you can essentially completely avoid black swan events. To explain it using the core idea, the black swan was discovered in these regions of Australia. If explorers never took the risk to explore these parts, then they would have never been discovered. So no, the probability isn't fixed. The probability of a "black swan event" occurring is more or less proportional to the complexity of the system that it relates too and the risk that an organisation is willing to take. Using the horrible september 11 attacks as an example, Al Qaeda more than likely wouldn't have attacked if they didn't see their way of life as being threatened in some way. This was, for all intensive purposes, an intensely complex political matter which was created as a result of risks taken by previous governments. Do I think what happened is right? Hell no, lives were lost on both sides as a result of people taking risks that they perhaps shouldn't have. Human error at it's worst.
- flipbrad 18y ago
  You open your argument with the implicit statement that we can consciously (thus should) control and minimise risk (to the point where black swans are eliminated) - and that it would be desirable to do so. but using your swan argument, to minimise that risk the explorers would have to have know about the risk - how could they? - and then decided that in light of it, it wasn't worth going to australia. now, i have no particular affinity for australia nor its brash and smelly inhabitants, but frankly, i don't see either of those positions as logically tenable!
  - swombat 18y ago
    I don't think australians are that brash...
  - froo 18y ago
    Well, to explore unexplored areas involves risk of some form, it is just the magnitude of that risk that is unknown. So then to simply avoid unexplored areas and as such, minimising risk, therefore it could have been possible to never see a black swan. Now, on a more personal note as an Australian. Black Swans are primarily and originally were native to the Western side of the country in the southern areas, but are also found on the Eastern coast of Oz as a result of human interference. When Australia was "discovered" and originally settled, that was done on the Eastern coast of Australia (hence why the east coast of Australia has about 80% of the total population of the country) and only through risk of magnitude unknown would it have been possible to discover the black swans. So no, you're assertion is wrong sir. Thank you for insulting a country you know sweet FA about.

tokenadult 18y ago

A lot of people maybe haven't heard Taleb's illustration (spoken in a conference of which the video was posted to HN) about what he means by avoiding harm from black swans. He points out that if you live in Florida, you can't be sure when the next hurricane will come or how strong it will be. But you can build a hurricane-proof house, resistant to any strength of hurricane. That's what he means by avoiding harm from black swans in general: not that black swan events won't happen, but that prudent investors invest in a way such that when they happen, they don't cause irreparable damage.