Random Thoughts On Nicolas Nassim Taleb

Been thinking a lot about unpredictability, and more specifically Nassim Taleb‘s work on markets and “the black swan”.*

Nassim Taleb was a pretty successful hedge fund manager, now he styles himself a philosopher. I haven’t read Taleb’s book yet, but from what I can gather, his theory is basically this:

In options trading, the conventional thinking is you want a mixture of bets. Some in which you’re betting that things remain the same and (generally) a smaller number of bets in which you think things will change dramatically.**

Taleb, basically, only makes the bets that things will change. This means that on the day to day he loses little bits of money. But, when things change big, he makes a pile of money. He seems to think that what holds true for markets holds true for other events. You can never discount the long shot because seeing any number of white swans doesn’t mean there aren’t any black swans, but one black swan proves all swans are not white***

Taleb’s books seems to be making a lot of waves, but I think it might be much ado about nothing. He may be right that people overestimate the predicability of life. But, I think, in markets at least, those willing to bet on things staying the same tend to do pretty well. Those who only bet on things going real bad tend to not do as well.

I have no great conclusion to this right now, but it has me thinking about human behavior and what kind of lessons can be extracted from market behavior for other parts of life, and what lessons can’t

anyone else have any thoughts on this?

*The man in love with funny little theories, Malcolm Galdwell wrote a piece on Taleb, that might be helpful in explaining this.

**meaning, in most cases, you think Sony will make roughly the same amount of money it did last quarter, and a smaller number of bets you think Apple will tank and its value will drop dramatically.

** Hey! That’s Hume!

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