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MattG comments on Open thread, 11-17 March 2014 - Less Wrong Discussion

3 Post author: David_Gerard 11 March 2014 10:45PM

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Comment author: [deleted] 12 March 2014 01:33:01AM *  0 points [-]

When I mention black swan theory, I guess I'm talking more about Talebs thoughts on the consequences of the fact you mentioned above (mostly mentioned in [This Wiki Page[(http://en.wikipedia.org/wiki/Black_swan_theory).

Basic Tenets as I understand them:

  1. Most historical change is driven by black swans which were unpredictable in their nature or magnitude.
  2. IN hindsight, it seems like black swans could have been predicted... but they could not have.
  3. The best way to deal with black swans is to : 3a. Build systems that can handle and in fact gain from disorder. 3b. Invest in systems in such a way that you would gain dispropoartionately from a black swan event. 3c. Avoid investing in systems in such a way that you would lose disproportainately from a black swan event.
Comment author: Lumifer 12 March 2014 01:58:59AM *  1 point [-]

I would like to see evidence for (1) which goes beyond "future is uncertain and large-impact events are important".

(2) is just part of the definition of what a black swan is.

(3a) is Taleb's idea of antifragility. I am not sure it's practical. For any system that you can build I can imagine an improbable event which will smash it.

As to (3b) Taleb ran a hedge fund for a while, if I recall correctly. It did badly. Taleb doesn't like to mention it.

(3c) is just good risk management and again, see (3a). I don't know what are the practical suggestions beyond diversification. Hedging against disaster (typically by buying volatility or selling short) implies losses if the disaster does not happen.

Comment author: ChristianKl 12 March 2014 01:01:22PM 1 point [-]

I don't know what are the practical suggestions beyond diversification.

Have you read the book?

Comment author: Lumifer 12 March 2014 03:30:10PM 0 points [-]

I have read The Black Swan, I have not read Antifragile.

Comment author: NancyLebovitz 12 March 2014 02:57:51AM 1 point [-]

I think anti-fragility makes sense if you think of it as existing over a range of stressors rather than being an absolute quality.

Comment author: ChristianKl 12 March 2014 12:59:54PM 0 points [-]

As to (3b) Taleb ran a hedge fund for a while, if I recall correctly. It did badly. Taleb doesn't like to mention it.

Wikipedia says:

The investment strategy of the fund has been explained in a New Yorker article.[3][4] One of Empirica's funds, Empirica Kurtosis LLC, was reported to have made a 60% return in 2000 followed by losses in 2001, 2002, and single digit gains in 2003 and 2004.

Without having the number for 2001 to 2004 it's hard to say how badly it run.

Universa the hedge fund Taleb is currently advicing seems to run well enough to have $6 billion in assets under management but I can't easily find numbers of return.

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