Thursday, July 31, 2008

Nassim Taleb: My points of disagreement

This post is directed at those who are somewhat familiar with Nassim Taleb's writings "The Black Swan" and "Fooled by Randomness", or even articles by him which talk about these ideas. So I dare say I am looking at quite a niche audience, not unlike my other posts.
I am in complete agreement with the "trunk" of his ideas regarding funds with better than market returns often taking blow up risks, which in expectation doesn't leave you better off than market returns etc. I however disagree with a number of "branches".

Specifically I can't help thinking Taleb goes overboard to placate pseudoscience and religion, merely because as he rightly points out, a good deal of financial analysis and recommendations performs no better than random guesses and is probably bordering on pseudoscience too.

Taleb describes his typical fool of randomness as one whose views match say that of Richard Dawkins with regard to the claims of religion, astrology, faith healing, miracles, the paranormal etc., which is to be highly skeptical of all of these since there isn't an iota of evidence for them. I firstly see no evidence to believe that these people are greater suckers for financial markets than the non-skeptics. He claims to be involved in some research on this and I predict that he would see a tiny positive correlation between general skepticism and financial market skepticism.

Another fatal premise that he bases a lot of his views on his the following. He asserts that it takes humans enormous mental effort to disbelieve anything and that that humans have a fixed capacity for disbelieving. From this, he concludes that belief in religion, astrology, miracles etc. can often be harmless and assets without justification asserts that belief in financial analysts is worse for society. And since disbelief in religion, astrology, miracles etc. consumes some of the fixed disbelief resources, we would be in a bad position to be skeptical of financial analysis!

In reality, skepticism is readily transferred from one field to another, and the whole "fixed bag of skepticism" hypothesis is utterly absurd. This is exactly why scientists who are skeptical of fantastic scientific claims (such as cold fusion) are also much more skeptical on average of religious claims, and claims of the paranormal.

Saturday, July 19, 2008

Existential Crisis

It has been on my mind for sometime that the so called philosophical idea, the existential crisis is not caused by the lack of an inherent purpose to life. It is merely thrown up when the person is unhappy for other reasons. This is a nice post on overcoming bias on the very same thing.