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View Diary: The Black Swan by Nassim Nicholas Taleb: A review (32 comments)

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  •  Thanks, plf. I like math examples ... (3+ / 0-)
    Recommended by:
    gogol, onanyes, plf515

    ... that resonate on personal experience or are at least easy to visualize. The Li Cupola Equation, used by Wall Street firms to evaluate the risk of defaults on mortgages, assumed that each person in the burning building must smell the smoke individually and make an individual decision to leave the building. Oops.

    •  The real problem is not David Li's work. (3+ / 0-)
      Recommended by:
      kurt, wilderness voice, NCrissieB
      Like "Fresh water" monetarism, the assumptions of a Gaussian copula include symmetric dependence among variables.

      During booms, everything does move together. These modeling systems work well enough.

      The economy is connected rationally. Raise interest rates, you'll see the stock market fall by several times the percentage change.

      No surprise. Works over and over. Works in both directions.

      (I've fine tuned access to quant engines that do the Li calculations. These are special computers that can be run using extproc connections out of Oracle. Combining types of computers is not unique to this problem. Years ago we had analog computers -- not digitals -- that we ran out of the 80286 PCs to simulate engineering and chemical experiments.)

      Then you get to Koo's Balance Sheet Recession after a national boom/bust event. A Taleb black swan.

      Companies stop hiring. Profits are far less important than trying to survive. Fear rules.

      There's also no way to "model" seeing $11- to $20-trillion in assets stolen. The career criminals have done amazingly well. David Li never claimed to understand a system where Greenspan/Bernanke/FOMC encouraged Big Bubbles and The Bureau and DoJ went on bankers' holidays.

      Career criminals + Angry White Males + KKK wannabes + Personality Disorder delusionals + Pro-Life Christians =EQ= The GOPer Base

      by vets74 on Mon Aug 30, 2010 at 05:42:11 AM PDT

      [ Parent ]

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