{"id":529,"date":"2009-04-08T23:35:12","date_gmt":"2009-04-08T23:35:12","guid":{"rendered":"http:\/\/meeseeks:5080\/blog\/?p=529"},"modified":"2009-04-08T23:35:12","modified_gmt":"2009-04-08T23:35:12","slug":"black-swans-of-trespass","status":"publish","type":"post","link":"https:\/\/vukutu.com\/blog\/2009\/04\/black-swans-of-trespass\/","title":{"rendered":"Black swans of trespass"},"content":{"rendered":"

\"gould-blackswan\"
\nNassim Taleb has an article<\/a> in the FinTimes presenting ten principles he believes would reduce the occurrence of rare, catastrophic events (events he has taken to calling black swans<\/em>).\u00a0 Many of his principles are not actionable, and several are ill-advised.\u00a0 Take, for instance,\u00a0# 3:<\/p>\n

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus<\/em>.<\/p><\/blockquote>\n

If this\u00a0principle was applied, the bus would have no drivers at all.\u00a0\u00a0 All of us are driving blindfolded, with our only guide to the road ahead being what we can apprehend from the rear-view mirror.\u00a0 Past performance, as they say, is no guide to the future direction of the road.
\nOr take #6:<\/p>\n

6. Do not give children sticks of dynamite, even if they come with a warning<\/em>.\u00a0 Complex derivatives need to be banned because nobody understands them and few are rational enough to know it. Citizens must be protected from themselves, from bankers selling them \u201chedging\u201d products, and from gullible regulators who listen to economic theorists.<\/p><\/blockquote>\n

Well, what precisely is “complex”?\u00a0 Surely, Dr Taleb is not suggesting the banning of plain futures and options, as these serve a valuable function in our economy (enabling the parceling and trading of risk).\u00a0 But even these are too complex for some people (such as those farmers, dentists, and local government officials currently with burnt fingers), and surely such people need protection from themselves much more so than the quant-jocks and their masters on Wall Street.\u00a0 So, where would one draw the line between allowed derivative and disallowed?
\nOnce again,\u00a0it appears there has been a mis-understanding of\u00a0the cause of the recent problems.\u00a0 It is not complex derivatives per se<\/em> that\u00a0are the problem, but the\u00a0fact that many of these financial instruments\u00a0have, unusually,\u00a0been highly-correlated.\u00a0 Thus, the failure of one instrument (and subsequently, one bank)\u00a0brings down all the others with it — there is a systemic risk as well as\u00a0a participant risk involved in their use. \u00a0\u00a0Dr Taleb, who has long been a critic of the unthinking use of Gaussian models in finance, I am sure realises this.<\/p>\n","protected":false},"excerpt":{"rendered":"

Nassim Taleb has an article in the FinTimes presenting ten principles he believes would reduce the occurrence of rare, catastrophic events (events he has taken to calling black swans).\u00a0 Many of his principles are not actionable, and several are ill-advised.\u00a0 Take, for instance,\u00a0# 3: 3. People who were driving a school bus blindfolded (and crashed […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23,25,28,82],"tags":[],"class_list":["post-529","post","type-post","status-publish","format-standard","hentry","category-decision-theory","category-economics","category-forecasting","category-uncertainty","p1","y2009","m04","d08","h23"],"_links":{"self":[{"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/posts\/529","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/comments?post=529"}],"version-history":[{"count":0,"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/posts\/529\/revisions"}],"wp:attachment":[{"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/media?parent=529"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/categories?post=529"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/tags?post=529"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}