Posts tagged Taleb

Consider the following as a rule. Whenever you have nonlinearity, the average doesn’t matter anymore. Hence:

The more nonlinearity in the response, the less informational the average.

For instance, your benefit from drinking water would be linear if ten glasses of water were ten times as good as one single glass. If that is not the case, then necessarily the average water consumption matters less than something else that we will call “unevenness”, or volatility, or inequality in consumption. Say your average daily consumption needs to be one liter a day and I gave you ten liters one day and none for the remaining nine days, for an average of one liter a day. Odds are you won’t survive. You want your quantity of water to be as evenly distributed as possible. Within the day, you do not need to consume the same amount water every minute, but at the scale of the day, you want maximal evenness.

From an informational standpoint, someone who tells you “We will supply you with one liter of water liter day on average” is not conveying much information at all; there needs to be a second dimension, the variations around such an average. You are quite certain that you will die of thirst if his average comes from a cluster of a hundred liters every hundred days.

via https://medium.com/@nntaleb/where-you-cannot-generalize-from-knowledge-of-parts-continuation-to-the-minority-rule-ce96ca3c5739

The best example I know that gives insights into the functioning of a complex system is with the following situation. It suffices for an intransigent minority –a certain type of intransigent minorities –to reach a minutely small level, say three or four percent of the total population, for the entire population to have to submit to their preferences. Further, an optical illusion comes with the dominance of the minority: a naive observer would be under the impression that the choices and preferences are those of the majority.

via https://medium.com/@nntaled/the-most-intolerant-wins-the-dictatorship-of-the-small-minority–3f1f83ce4e15

There are serious differences between predictions, bets, and exposures that have a yes/no type of payoff, the “binaries”, and those that have varying payoffs, which we call the “vanilla”. Real world exposures tend to belong to the vanilla category, and are poorly captured by binaries. Vanilla exposures are sensitive to Black Swan effects, model errors, and prediction problems, while the binaries are largely immune to them. The binaries are mathematically tractable, while the vanilla are much less so. Hedging vanilla exposures with binary bets can be disastrous – and because of the human tendency to engage in attribute substitution when confronted by difficult questions, decision-makers and researchers often confuse the vanilla for the binary.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2284964

An antifragile way of life is all about finding a way to gain from the inevitable disorder of life. To not only bounce back when things don’t go as planned, but to get stronger, smarter, and better at continuing as a result of running into this disorder.

https://medium.com/better-humans/c02337782a89

In thinking about system design, it’s important to avoid the temptation to develop detailed top down blueprints for systems. Taleb observes that “if about everything top-down fragilizes and blocks antifragility and growth, everything bottom-up thrives under the right amount of stress and disorder.” Nevertheless, there are certain design principles that emerge from Taleb’s work that can help reduce the fragility of the systems we design.

http://edgeperspectives.typepad.com/edge_perspectives/2013/04/getting-stronger-through-stress-making-black-swans-work-for-you.html