Tag Archives: Black Swan

Bad Omen? Black Swan And Doom

Is this some kind of an Omen? The Black Swan guy, Nassim Taleb and Nouriel “Dr. DoomRoubini, together in a photo, with a smile stretching from ear to ear. Well, I can certainly understand the smile – they’ve both made a fortune by telling other people that there was going to be a serious financial crisis. Looking at this picture that Mr. Roubini himself uploaded on Twitter recently, make me wonder what those two geniuses are up to this time?

Nassim N. Taleb - Nouriel Roubini

Nassim Taleb, who recently published a second edition of his former bestseller The Black Swan, hasn’t made much money lately following his by betting against almost everyone and everything with his bearish hedge fund – Universa Investments LP.

But Mr. Taleb doubled his fortune in 2008 when the markets took a haircut of more than 50% (October 2007 – March 2009). In 2009 – when the stock market bounced back about 60%, Taleb and his clients lost 4%, according to the wall Street Journal.

The profit of 2010 wasn’t much better, sources says.

However the strategy is still the same, and the goal is to make at threefold profit of every percent the market drop.

And while waiting for that to happen, the professor/trader/author/philosopher is growing olives in Lebanon.

Mr. Roubini have been busy lately, buying real estate at bargain prices in New York, while calling for another round of quantitative easing by the US Federal Reserve.

There’s a good chance that he’ll get what he’s asking for…

Meanwhile – let’s just see what happens, okay?

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Nassim Taleb And The Violation of Reality

This week famous author, philosopher and fund manager, Nassim Nicholas Taleb, release his new book; “The Bed of Procrusters.” It’s a story about the ancient Greek and the so-called “Procusters.” According to Nassim Taleb the story is a metaphor of our modern life, and the way we try to force our lives into something it’s not. Professor Taleb is one greatest thinkers of our time, and (unfortunately) one of the few who dare to investigate the true mysteries of our time.

Pharmaceutical companies are better at inventing diseases that match existing drugs, rather than inventing drugs to match existing diseases.”

Nassim Nicholas Taleb

I guess most of you connect Professor Taleb with his bestselling book,” The Black Swan” and perhaps his first, “Fooled by Randomness.” In the new book Taleb goes deeper, explaining who the Greek Procrustes was, how the story is a metaphor for our modern age, and why he decided to write the book in the way he did. However, it’s still revolving around his basic ideas on how we deal, and should deal, with what we don’t know.


“The Bed of Procrustes” is a collection of “philosophical and practical aphorisms,” according to the author.

The story is a metaphor for our modern age, he says, and explain:

Procrustes, in Greek mythology, was the cruel owner of a small estate in Corydalus in Attica on the way between Athens and Eleusis, where the mystery rituals were performed.

Procrustes had a peculiar sense of hospitality; he abducted travelers, provided them with a generous dinner, then invited them to spend the night in a rather special bed. He wanted the bed to fit the traveler to perfection.

Those who were too tall had their legs chopped off with a sharp hatchet; those who were too short were stretched  – his name was said to be Damastes, or Polypemon, but he was nicknamed Procrustes, which meant “the stretcher.”

In the purest of poetic justice, Procrustes was hoisted by his own petard. One of the travelers happened to be the fearless Theseus who slayed the Minotaur later on in his heroic career. After the customary dinner, Theseus made Procrustes lie in his own bed. Then, to make him fit in it to the customary perfection, he decapitated him. Theseus thus followed Hercules’ method of paying back in kind.

In more sinister versions, such as the one in Pseudo-Apollodorus’ Bibliotheca, Procrustes owned two beds; one small, one large; he made short victims lie in the large bed, and the tall victims in the short one.

“Every aphorism here is about a Procrustean bed of sorts—we humans, facing limits of knowledge, and things we do not observe, the unseen and the unknown, resolve the tension by squeezing life and the world into crisp commoditized ideas, reductive categories, specific vocabularies, and prepackaged narratives, which, on the occasion, has explosive consequences,” professor Taleb says.

“Further, we seem unaware of this backward fitting, much like tailors who take great pride in delivering the perfectly fitting suit—but do so by surgically altering the limbs of their customers.”

“For instance few realize that we are changing the brains of schoolchildren through medication in order to make them adjust to the curriculum, rather than the reverse,” Taleb states.

“Since aphorisms lose their charm whenever explained, I only hint for now the central theme. I relegate further discussions to the postface.”

The new book by Nassim Taleb is full of quotes and anecdotes that really gives you something to think about.

Here are some of them:

The person you are the most afraid to contradict is yourself.


An idea starts to be interesting when you get scared of taking it to its logical conclusion.


Pharmaceutical companies are better at inventing diseases that match existing drugs, rather than inventing drugs to match existing diseases.

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To understand the liberating effect of asceticism, consider that losing all your fortune is much less painful than losing only half of it.

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To bankrupt a fool, give him information.

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Academia is to knowledge what prostitution is to love; close enough on the surface but, to the nonsucker, not exactly the same thing.

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In science you need to understand the world; in business you need others to misunderstand it.

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I suspect that they put Socrates to death because there is something terribly unattractive, alienating, and nonhuman in thinking with too much clarity.

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Education makes the wise slightly wiser; but it makes the fool vastly more dangerous.

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The test of originality for an idea is not the absence of one single predecessor, but the presence of multiple but incompatible ones.

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Modernity’s double punishment is to make us both age prematurely and live longer.

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An erudite is someone who displays less than he knows; a journalist and consultant, the opposite; most others fall somewhere in between.

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Your brain is most intelligent when you don’t instruct it on what to do—something people who take showers discover on occasion.

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If your anger decreases with time, you did injustice; if it increases, you suffered injustice.

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I wonder if those who advocate generosity for its rewards notice the inconsistency, or if what they call generosity is an attractive investment strategy.

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Those who think religion is about “belief” don’t understand religion, and don’t understand belief.

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Work destroys your soul by stealthily invading your brain during the hours not officially spent working; be selective about professions.

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In nature we never repeat the same motion. In captivity (office, gym, commute, sports), life is just repetitive stress injury. No randomness.

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Using, as excuse, others’ failure of common sense is in itself a failure of common sense.

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Compliance with the straightjacket of narrow (Aristotelian) logic and avoidance of fatal inconsistencies are not the same thing.

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Economics cannot digest the idea that the collective (and the aggregate) are disproportionately less predictable than individuals.

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Don’t talk about “progress” in terms of longevity, safety, or comfort before comparing zoo animals to those in the wilderness.

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If you know, in the morning, what your day looks like with any precision, you are a little bit dead—the more precision, the more dead you are.

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There is no intermediate state between ice and water but there is one between life and death: employment.

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You have a calibrated life when most of what you fear has the titillating prospect of adventure.

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Nobody wants to be perfectly transparent; not to others, certainly not to himself.

Regular visitors of the econotwist’s sites would probably know my own humble contribution to the Black Swan Theory:

“The Brown Horse – The Impact of the Highly Impossible.”

There is no such thing as a failed experiment, only experiment with unexpected outcome

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Investors Should Sue Central Bank of Sweden, Taleb Says

One of the things that makes Nassim Nicholas Taleb one of the most interesting author and thinker of today is his ability to come up with totally different views on the economy  – and life in general. Now, author of the bestseller “The Black Swan” says investors who lost money in the financial crisis should sue the Swedish Central Bank for awarding the Nobel Prize to economists whose theories have brought down the global economy.

“If no one else sues them, I will.”

Nassim Nicolas Taleb

Nassim Nicolas Taleb

The Swedish Central Bank’s Nobel Prize in Economic Sciences was yesterday awarded to Peter A. Diamond (US),  Dale T. Mortensen (US)  and Christopher A. Pissarides (UK) for their “analysis of markets with search frictions”. However, the controversial professor, philosopher and author, Nassim Taleb, is not happy about the whole Nobel-Prize-of-Economics-thing that he believes give legitimacy to useless and invalid economic theories.

“I want to make the Nobel accountable,” Taleb says in an interview with Bloomberg last week.

“Citizens should sue if they lost their job or business owing to the breakdown in the financial system,” he says.

According to Taleb, has the Nobel Prize for Economics conferred legitimacy on risk models that caused investors huge losses and taxpayers billions in bailouts.

The Royal Swedish Academy of Sciences

Sweden’s central bank announced this year’s award, yesterday, October 11th.

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The “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel” for 2010 was awarded to Peter A. Diamond, (Massachusetts Institute of Technology, Cambridge, USA), Dale T. Mortensen, (Northwestern University, Evanston, USA) and Christopher A. Pissarides, (London School of Economics and Political Science, UK) for their “analysis of markets with search frictions”.

“Why are so many people unemployed at the same time that there are a large number of job openings? How can economic policy affect unemployment? This year’s Laureates have developed a theory which can be used to answer these questions. This theory is also applicable to markets other than the labor market,” The Royal Swedish Academy of Sciences writes in the press release.

(More on the Swedish 2010 Prize in Economic Science here).

The Nobel prizes in physics, chemistry, medicine, peace and literature were established in the will of Alfred Nobel, the Swedish inventor of dynamite who died in 1896.

The first awards were handed out 1901.

The Swedish Central Bank founded the economics award in 1968 in memory of Nobel.

Previous winners of that prize include Milton Friedman, Amartya Sen, Paul Krugman, Robert Merton and Myron Scholes, the last two for inventing the option pricing formula, the Black-Sholes model, still used by most derivative traders.

The former derivatives trader, Nassim Taleb, is a professor of risk engineering and advises the California-based fund, Universa Investments LP,  that bets on extreme market moves.

Giving Invalid Legitimacy

Taleb single out the Nobel award to Harry Markowitz, Merton Miller and William Sharpe in 1990 for their work on portfolio theory and asset-pricing models.

“People are using Sharpe theory that vastly underestimates the risks they’re taking and overexpose them to equities,” Taleb says.

“I’m not blaming them for coming up with the idea, but I’m blaming the Nobel Prize for giving them legitimacy, he says.

Adding: “No one would have taken Markowitz seriously without the Nobel stamp.”

“No one would have taken Markowitz seriously without the Nobel stamp.”

William Sharpe

Markowitz, a professor of finance at the Rady School of Management at the University of California, San Diego, didn’t return a phone call seeking comment.

Miller, who was a professor at the University of Chicago, died in 2000 at the age of 77.

“People used the theory and assigned numerical forecasts to the algebra,” says professor of finance William Sharpe at the Graduate School of Business at Stanford University,over the phone.

“But I’m not going to take the blame for the numbers they put in,” he says.

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“If no one else sues them, I will”

"The Brown Horse: The Impact of The Highly Impossible"

In his 2007 bestseller “The Black Swan: The Impact of the Highly Improbable,” Taleb described how unforeseen events can roil markets.

He warned then – and he warns now – that bankers are relying too much on the probability models, and disregarding the potential for unexpected catastrophes.

“If no one else sues them, I will,” Taleb says, but declined to say where or on what basis a lawsuit could be brought.

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(h/t: The Collector)

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2010 Analysis: “11 Black Swans”

2010 Analysis: The Road to Disaster

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