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Comment by povertyworld | Hacker News Reader

Weird interview. He starts out angry that someone insulted risk takers who lose money. Then by the end of the interview he says people should just get jobs and make super conservative investments like gold and short term bonds. Waste of 20 minutes.

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I think you're comparing apples and oranges here, and leaving out details. He says the entrepreneurs as risk takers are important, because they are doing something that benefits the economy if they win and don't really impact anything but themselves if they lose.

That's completely different from what he's talking about in the second half, which is the focus on financial markets. He's advising that people who don't know how to hedge themselves should stay out of the financial markets. He didn't specifically say it, but I think the rationale for that perspective is that the risk taking in the financial markets takes a very different form than the risk that an entrepreneur faces; the risk taking in financial markets can fail spectacularly and cause a lot more problems than bankrupting a single person. The best example is the LTCM crisis, where a single company's failure was so impactful and sudden that it threatened destabilizing the entire market.

Especially since gold is only actually a conservative "investment" if you store it yourself and that is expensive if you want low risk. Otherwise you don't have a safe asset at all due to counter-party risk on your notional gold holdings.

Honestly Taleb's cult is pretty disconcerting.

Can somebody please ELI5 his whole phenomenon? I don't really understand who are the targets (other than Nate Silver) of all his polemic. From my limited exposure, he's basically making age-old conservative points, arguing that the Enlightenment ideal of human knowledge has strong (but unidentified) limits.

Why is he so popular? And how did he get so rich on Wall Street if he just thinks randomness blows all the statistical experts out of the water? I know I'm missing something.

No: he does not say that statistics are useless. He says that the assumption of normality does not hold in real life: fat tails and the absence of means are ubiquitous. That is all the “black swan” means and how he got rich: taking risks which are nonsense under normal distributions but not so under, for instance, the Cauchy distribution.

Taleb's basic claim is that options that are way out of the money are underpriced. So he set up a fund, Empirica, which bought options a long way from the current value. This strategy does extremely well in years of a sudden downturn, and loses money in all other years. He and his investors did really well in 2008. He doesn't talk about the other years. Solid numbers for Empirica are really hard to find. Whether this is a win as an ongoing strategy is a big question. If you'd bought into that strategy in 2009, after it worked once, you'd have lost money for a decade.

Not trying to argue (wp is not a source) but it says he closed down in 2004?

Right, Empirica was the first "black swan" fund, which caught the crash of 2000. Universa was the next round, starting in 2007. That caught the 2008 crash.

As a strategy, this depends on a rough prediction of when the next crash will occur.

> this depends on a rough prediction of when the next crash will occur

If you think the tails are mispriced (and you have some kind of alternative distribution), and markets are liquid, can't you just keep on making Kelly bets? Maybe you need to model third-party investors bailing too, though...

OK thanks for the info.

Thanks. Ok, so is he creating strawmen everywhere, then? I know people working in government, biotech, climate research, and none of them seem to think that the normal distribution is the only model out there, or that the mean is a very meaningful (no pun intended) statistic.

The problem is: the normal assumption is just an assumption with a very interesting asymptotic property. That makes it good for computations.

However, Nature and more specifically economic events have little asymptotics in them (mainly isolated things like crises, earthquakes, crashes, accidents...).

I tend to agree with him on this.

He is not against science. He is mostly against economic modellers.

Some of his books contain pretty interesting insights, unfortunately his huge ego and his unwavering admiration for other egomaniacs like Trump gets tiring and leads to obvious contradictions that he doesn't explain. One of his main thesis is that people having "skin in the game" leads to a better society, but then somehow being critical of someone who makes horrible bets on real estate & casino using billions of other people's money (bank's) and not suffering any consequences, is sacrilege.

I don't get your last point - I think he is clearly in favor of "if you take the risk, you deserve both the win and the loss" - explicitly calling out that people who risk other people's money and take their cut whether it wins or loses are the worst.

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