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

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  •  Great book. (1+ / 0-)
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    I think the point is not that things are modeled mathematically that can't be modeled, but rather that models that are used make assumptions that are flawed, and that uncertainties resulting from these models are systematically underestimated.

    I think the point of the coin flipping example is to show that academics are trained to think in terms of their assumptions (i.e., the coin behaves randomly) and they will stick with flawed assumptions even when the evidence indicates that something is wrong with their model, that reality and the model are diverging.

    Trained academics assume that the divergence is a "fluke" and that with time, the observed and expected behavior will converge. Thus the problem is not with the model they've been trained to use (i.e. the coin flip not being a random event), the observed behavior is just a temporary deviation from the model that can be neglected.

    Thus if academic economists (Bernanke et al.) are trained in a neoclassical synthesis, and believe that economic problems can be resolved through self-correcting markets combined with active government intervention, and that therefore there is no need for strong interventionist regulation of markets--these academics (who determine our fiscal policy) don't look for new models that are more accurate, instead they keep trying more stimulus and more quantitative easing.

    These same academics with their flawed theories continue to be empowered to repeat the same mistakes again and again, until their theories lead to such an unmitigated economic disaster that most likely the entire political regime is wiped out.

    You cannot depend upon American institutions to function without pressure. --MLK Jr.

    by Opakapaka on Sun Aug 29, 2010 at 08:50:50 AM PDT

    •  No-no-no. (2+ / 0-)
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      kurt, linkage
      Academics have nothing to do with allowing criminals and criminal enterprises to generate fraudulent contracts.

      Big Boom excesses 2003-2008 were easily tripled by criminal behavior.

      The calculations for "quant" bets on derivatives have been around since the 1970s.

      Changing the formulas was important for specialists, but had nothing to do with the 2003-2008 disasters.

      Fraud amounted to $4-trillion.

      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 05:47:16 AM PDT

      [ Parent ]

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