Comments for The Unbearable Lightness of Nassim Taleb

The Unbearable Lightness of Nassim Taleb

2009-04-08T20:36:30Z

As Conor notes, Nassim Taleb offered up some less than sage advice in a recent "article" in the Financial Times. The article, which takes the form of a talismanic list, was crafted in order to the deliver humanity from its suffering by pointing our mind's eye towards the failures of our regulatory dogma. Wielding powerful metaphors such as "Make an omelette with the broken eggs," Taleb fails to meet even the lowest of standard for a statement on regulatory policy. "Counter-balance complexity with simplicity" might be an acceptable policy position for Deepak Chopra. But it is certainly unacceptable for an economist.

Looking beyond Taleb's absurd delivery, the substance of his policies is, in large part, absent, and where present, addresses the real issues at play in a superficial and borderline whimsical fashion. It is unclear whether this is the product of haste, or the product of a complete lack of command over the issues and concepts. For example, Taleb states that:]]>

7. Only Ponzi schemes should depend on confidence. Governments should never need to "restore confidence". Cascading rumours are a product of complex systems. Governments cannot stop the rumours. Simply, we need to be in a position to shrug off rumours, be robust in the face of them.

To say that only Ponzi schemes depend on confidence -- they don't, since they're the product of fraud and misrepresentation -- is factually incorrect and suggests intellectual laziness. The extension of credit and contracting depend on confidence in the ability of a counterparty to perform. In a broader sense, the organizational structure of society depends on people being able to rely on the predictability of certain events around them (e.g., bus, train, and plane arrivals, banks maintaining deposits, etc.).

This organizational structure is itself a product of confidence. I am confident that the train will arrive shortly after I get to the train station in the morning, and as a result, I plan on taking the train to work each day. I am confident that my bank will maintain my deposit level, and so I don't have a mattress full of cash. When confidence is eroded, the incentives of individuals become misaligned.

Take, for example, the case of a bank run. Each depositor has an incentive to withdraw its deposits based solely upon the assumption that all other depositors are doing so, since we have a fractional reserve banking system. Yet each would be better off if none of them withdrew their deposits. When the assumption rings true in the minds of enough depositors, that is, when confidence breaks down, the bank will experience a run. To deal with this problem, we have deposit insurance, which the Government provides to create and maintain confidence in the banking system.

Comment from ezberry on 2009-04-08

2009-04-08T21:15:34Z

Great points!

Comment from Schooner on 2009-04-08

2009-04-09T03:56:23Z

Have you actually read his books???

You are missing the whole point and you talk about intellectual laziness!!!

He uses concrete information to point to his conclusions; you offer gaussian nothingness.

Comment from Schooner on 2009-04-09

2009-04-09T04:13:34Z

Just read your bio, now I understand why you're so dim.

Comment from DaveinHackensack on 2009-04-09

2009-04-09T04:51:11Z

"Taleb fails to meet even the lowest of standard for a statement on regulatory policy. "Counter-balance complexity with simplicity" might be an acceptable policy position for Deepak Chopra. But it is certainly unacceptable for an economist."

I have my own take on Taleb's top ten list ("Has Nassim Nicholas Taleb Jumped the Shark?"), but if you're looking for coherent, actionable policy ideas, I suggest you read John Hussman.

Comment from Vicious Virtue on 2009-04-09

2009-04-09T14:52:38Z

"you offer gaussian nothingness"? He certainly offered nothing Gaussian. Where did he mention the man or his scientific theories? Dropping smart-sounding adjectives the definitions of which you clearly do not understand in a post about intellectual laziness is either trolling too clever & subtle for these forums or proof that you are a petulant child whose invective springs forth from intolerable ignorance.

Taleb offered absurd aphorisms and horribly mixed metaphors that fail to address (or completely ignore) the intricacies of the current crisis. He even amazingly advocates banning derivatives because "nobody understands them." I had the pleasure of attending a cocktail hour with a few his fellow FT contributors a few months back, and I assure you that their existence disproves the assertion of ignorance on which he bases an extreme and ridiculous call for banning useful financial tools.

Mr. Davi's piece may also be a bit short on supporting evidence, but at least he bothered to come to the right conclusions and spared us so much superfluous sophistry.

Comment from JMcLeod on 2009-04-18

2009-04-18T04:17:59Z

Charles, your arguments are well-worded, detailed but utterly theoretical. You are a typical quant who is talking his game. Many of the problems we are facing today are due to people like you who got decision makers in the financial industry impressed so that they were too shy to ask the relevant questions for fear of being perceived as inadequate for the roles they played in their organizations. The way you berate contributors who oppose your views reveals a lot about your personality. It is this arrogance that helped your kind to intimidate the people who should have asked critical questions. You are smart - no doubt - but being smart is not necessarily (in fact hardly ever) the best for the furthering of a system that serves more than just your own interests. Nassim Taleb may not be the best communicator, but the majority of his assertions are in line with my observations and conclusions after many years in the industry.

Comment from Tea Shop on 2009-04-21

2009-04-22T01:34:36Z

I agree with JMcLeod. I also agree with Charles Davi regarding delivery. I hardly expect any accountant or FASB representative to scribble down notes from Mr. Taleb (to whom he is not addressing, by the way) and produce any kind of policies, legislation, or regulations.

Now is not the time to be listening to executives shouting down dissent - I would say we've had a good dose of that from private and public sectors. Now is the time to heed simple messages made simple. I don't want to hear arguments for over-levering a "hedgeable" economic operating point that no longer exists! I want decision-makers, both high and low, to hear a message they can understand.

Dressing up naked emperors with elaborate incomprehensible speech and thought is what got us into this ruinous state, I'll take a high-decibel, blunt, blast from Mr. Taleb if it'll raise some eyelids.