Ten Against the Swan: Nassim Nicholas Taleb's 10 Theses
by Tom
on April 08, 2009
Nassim Nicholas Taleb, author of The Black Swan and Fooled by Randomness, which were already bestsellers but have found sustained interest thanks to the ongoing economic unpleasantness, posted yesterday his "Ten principles for a Black Swan-proof world" on FT.com (the modern equivalent of nailing them to a church door, I guess), and they've already swept around the blog world. (In part they've been swept along by bloggers who think they are ludicrous, wrong, and/or impractical: see Henry Blodget and Felix Salmon, for instance.)
Here are the basics--Taleb provides a little more commentary in the original piece [via Sullivan]:
- What is fragile should break early while it is still small.
- No socialisation of losses and privatisation of gains.
- People who were driving a school bus blindfolded (and crashed it) should never be given a new bus.
- Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks.
- Counter-balance complexity with simplicity.
- Do not give children sticks of dynamite, even if they come with a warning .
- Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”.
- Do not give an addict more drugs if he has withdrawal pains.
- Citizens should not depend on financial assets or fallible “expert” advice for their retirement.
- Make an omelette with the broken eggs.
--Tom
aloysiusmiller on April 09, 2009 at 12:30 PM
This is socialist prattle. No black swans equals no white swans.
clazy on April 09, 2009 at 01:00 PM
Have YOU ever seen a black swan, aloysius?
edh on April 09, 2009 at 01:14 PM
What is fragile should break early while it is still small.
-what if it's big before it is fragile? Does this apply to govt too?
No socialisation of losses and privatisation of gains.
-so private gains belongs to the govt?
People who were driving a school bus blindfolded (and crashed it) should never be given a new bus.
- nor should the party and the union that gave them the keys in exchange for votes. Just let that blindfolded driver (Fannie and Freddie) continue to drive until they crash!
Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks.
- so who would you let manage, a protected govt union employee, perhaps?
Counter-balance complexity with simplicity.
- good point, preferable substitute when possible.
Do not give children sticks of dynamite, even if they come with a warning.
- ya think?
Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”.
- not even in the govt's own actions?
Do not give an addict more drugs if he has withdrawal pains.
- sell them to, or tax them from, him!
Citizens should not depend on financial assets or fallible “expert” advice for their retirement.
- work until you die?
Make an omelette with the broken eggs.
- a good way to spread food poisoning.
M. Simon on April 09, 2009 at 01:17 PM
Re: #8
Since most drug users are self medicating giving one in withdrawal more drugs is not a bad idea.
So I would change #8 to: find out what the real problem is. Do not go with conventional wisdom. Sometimes it is wrong.
Micha Elyi on April 09, 2009 at 01:48 PM
Sigh. Taleb's maxims are stated metaphorically, edh.
I'll allow that his 2nd maxim, "No socialisation of losses and privatisation of gains," could be more precisely stated. Still, I doubt that Taleb is the socialist your rhetorical question implies, edh. So, I take Taleb's meaning to be that there be no state intervention to socialize losses and privatize gains. A careful reader would have noticed, edh, that the words "socialization" and "privatization" imply state action. Socialization is antithetical to the operation of a fully and truly free market and in such a market there is no meaning to the word "privatization" because everything is already privately owned. (Duh.)
Review your other replies to Taleb's maxims to see if they also depend on interpreting them ungenerously or unreasonably, edh.
Leo Linbeck, Jr. on April 09, 2009 at 01:52 PM
As to number 5 on the list, a good place to start is to replace the current income/payroll tax system with the FairTax. The current income/payroll tax system nurtures Black Swans!!!
T. Hoffman on April 09, 2009 at 01:56 PM
It sounds like the sage idiocies of Chauncey Gardiner.
Pishabh Badmaash on April 09, 2009 at 02:25 PM
I once said that the greatest loss in society is the loss of the innocent wanderers. We have lost them today
junyo on April 09, 2009 at 02:29 PM
"Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks."
So I should let someone without any stake in the game manage risk for me? That seems fairly stupid. I can't think of many worse ideas than making my well-being an abstraction to the people to whom I choose to delegate some of the tasks for it's safekeeping.
The premise ignores the reality that beyond the financial, a nuclear plant manager operates with the very real threat of a gruesome death over his head if he screws up(Most of the crew on shift at Chernobyl died over the course of three weeks). I would imagine that that focuses the mind quite effectively. The problem isn't "incentive", it's one sided incentive; people that share in my gains but not my losses. If the upside of successfully managing my portfolio is wealth, and the consequence of failure was poverty and potential jailtime, I'd imagine financial managers would find a fine balance between aggressive risk taking and caution.
junyo on April 09, 2009 at 02:30 PM
"Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks."
So I should let someone without any stake in the game manage risk for me? That seems fairly stupid. I can't think of many worse ideas than making my well-being an abstraction to the people to whom I choose to delegate some of the tasks for it's safekeeping.
The premise ignores the reality that beyond the financial, a nuclear plant manager operates with the very real threat of a gruesome death over his head if he screws up(Most of the crew on shift at Chernobyl died over the course of three weeks). I would imagine that that focuses the mind quite effectively. The problem isn't "incentive", it's one sided incentive; people that share in my gains but not my losses. If the upside of successfully managing my portfolio is wealth, and the consequence of failure was poverty and potential jailtime, I'd imagine financial managers would find a fine balance between aggressive risk taking and caution.
Monger of War on April 09, 2009 at 02:32 PM
edh, Taleb explains in greater detail his maxims. For instance for #2:
"Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal."
Click over to the article for his explanations.
David Feeson on April 09, 2009 at 02:46 PM
Mr. Taleb is pretty pompous and often makes too much out of too little, but he definitely has some useful insights, and the soul of a true fiduciary. If Henry Blodget is critical of these insights, that just adds to Mr. Taleb's credibility in my view.
Jeremy Wa on April 09, 2009 at 03:05 PM
"Citizens should not depend on financial assets or fallible “expert” advice for their retirement."
Of course, if you asked for supporting evidence or data, you would not receive any.
Most of these oracular statements are merely high-flown nonsense from the mouthpiece-of-the-moment exercising his 15 minutes of fame. Read these statements in 6 months and you will be laughing.
Darren on April 09, 2009 at 03:42 PM
Seeing as I've been reading Mr. Taleb's stuff for at least a couple of years, this isn't his first dance.
The evidence regarding #9 is evident to anyone who does their own research, which is the whole point of #9. What happened to the world financial system as a whole this past couple of years happened before -- it was called Long-Term Capital Management. It would be harder to find more expert people than Nobel prizewinners in economics, and they had two in their brain trust. They made a ton of money on highly-leveraged hedges, then completely blew up and nearly took down some large US and international banks with them. It appears the only thing the survivors of the LTCM debacle took away from the experience was that you could make a lot of money when you bet, heavily leveraged, the right way. They seem to have elided the multiple billions in losses as LTCM was forced into bankruptcy.
They were *experts*. The people running the biggest off-track betting book in the world (credit default swaps) and the people who built this entire financial edifice, then set it alight,are *experts*. Knowledge is great, I have it and seek more. But often (and this is one of Taleb's big and surprisingly helpful points), what you don't know is more important than what you do know. And you don't know that much -- and neither does the *expert* when it comes to market behavior.
the man with no name on April 09, 2009 at 06:50 PM
No socialisation of gains and privatisation of losses.
yo on April 10, 2009 at 05:13 AM
chuck norris can kill a black swan with his bare hands!
the part about no private gains and socialist losses is the second biggest lie the liberals have been spreading since this whole thing began. the truth: gov't has taxed up to fifty percent of gains and leaving corporations with the losses for decades. given that, how could anyone but a peabrain make taleb's point number two?
Forbes on April 10, 2009 at 06:36 AM
Henry Blodget--didn't he get sanctioned by the SEC?