Wednesday, February 8, 2017

Nicholas Nassim Taleb Looks at the World

A decade or so ago Nicholas Nassim Taleb rose to intellectual prominence by promoting the theory of Black Swans. By that he meant that whatever you or the government are preparing for, whatever you have predicted, is unlikely to happen.

Thus, when a catastrophic event happens it will most likely be something that no one imagined before. If our government officials had had sufficient imagination to predict 9/11, they would have been prepared and could have prevented the attack. If that had been the case, the nation, Taleb’s theory suggests, would simply have suffered a different kind of attack, one that we had never imagined.

Taleb is a serious if not a great thinker. Currently, he teaches risk engineering at NYU. He predicted the financial crisis of 2008, the Brexit vote and the American presidential election. 

One enjoys reading him because one always enjoys reading people who think clearly and well. The following remarks come from an interview he did for an Indian newspaper, The Hindu. We discovered them in the Zero Hedge blog.

We begin with Taleb on Barack Obama. Did Obama fix the financial system and save the American economy? Have we entered a new age of economic prosperity? Has Donald Trump inherited a great economy?

Taleb does not think so:

The last crisis [2008] hasn’t ended yet because they just delayed it. [Barack] Obama is an actor. He looks good, he raises good children, he is respectable. But he didn’t fix the economic system, he put novocaine [local anaesthetic] in the system. He delayed the problem by working with the bankers whom he should have prosecuted. And now we have double the deficit, adjusted for GDP, to create six million jobs, with a massive debt and the system isn’t cured. We retained zero interest rates, and that hasn’t helped. Basically we shifted the problem from the private corporates to the government in the U.S. So, the system remains very fragile.

Why did Trump win? What was his appeal? Taleb suggests that whereby an Obama spoke over and above people, Trump spoke directly to them. Obama was a master of obfuscation, who larded it over with noble sentiments. Trump is down-to-earth:

When Trump was running for election, I said what he says makes sense to a grocery store owner. Because the grocery guy can say Trump is wrong because he can see where he is wrong. But with Obama, he can’t understand what he’s saying, so the grocery man doesn’t know where he is wrong.

And also:

Whereas Obama behaved like the Archbishop of Canterbury, and was going to do good but people didn’t feel their lives were better. As I said, if it was a shopkeeper from Aleppo, or a grocery store owner in Mumbai, people would have liked them as much as Trump. What he says makes common sense, asking why are we paying so much for this rubbish or why do we need these complex taxes, or why do we want lobbyists. You can call Trump’s plain-speaking what you like. But the way intellectuals treat people who don’t agree with them isn’t good either. I remember I had an academic friend who supported Brexit, and he said he knew what it meant to be a leper in the U.K. It was the same with supporting Trump in the U.S.

Taleb also agrees with an idea, proposed here and in other places, that politics is now being defined by a revolt against intellectual elites:

The intellectual class of no more than 2,00,000 people in the U.S. don’t represent everyone upset with Trump. The real problem is the ‘faux-expert problem’, one who doesn’t know what he doesn’t know, and assumes he knows what people think. An electrician doesn’t have that problem.

He sees a problem in the class of people who believe that they are experts and intellectuals, but who aren’t. One suggests humbly that the function of a magazine like The New Yorker is to persuade people that they are intellectuals and experts when they are not.

Taleb continues, suggesting that the revolt against the ruling elites is not the same as fascism:

Well, with Trump, Modi, Brexit, and now France, there are some similar problems in those countries. What you are hearing is people getting fed up with the ruling class. This is not fascism. It has nothing to do with fascism. It has to do with the faux-experts problem and a world with too many experts. If we had a different elite, we may not see the same problem.

And also:

I think you have to draw the conclusion that there is a global riot against pseudo-experts. I saw it with Brexit, and Nigel Farage [leader of the U.K. Independence Party], who was a trader for 15 years, said the problem with the government was that none of them had ever had a proper job. Being a bureaucrat is not a proper job.


Ares Olympus said...

Nicholas Nassim Taleb is an interesting character, and anyone who "predicted" the 2008 financial crisis automatically deserves some consideration, and his book antifragile is certainly a serious effort at understanding something paradoxical.

And its interesting that Taleb as an apparent expert enjoys dismissing other experts so consistently. I can understand reasoning, basically the world is a complex place, and any ideas we have about it are most certainly wrong.

Well, like my coworker has a poster with a quote from George Box "All models are wrong but some are useful". That's worth remembering.

And the other worthy quote, from Wolfgang Pauli, is "That is not only not right; it is not even wrong," so there are coherent ways to be wrong, and there are incoherent ways to be wrong, and science has a possibility to learn from the first, but the second is where psuedoscience exists, and where you can't even be self-correcting, rather you're just in a chaotic place, trying to put together a puzzle pieces that don't even belong to the same puzzle.

So Taleb lives in that world, although not even necessarily the scientific version of it, but the statistical side of it, and while he knows well that we see patterns in randomness and assume randomness in patterns that are too complex to see, he is still ultimately like the rest of us, lost at sea, trying to make sense of things, and perhaps like me, he finds it easier to tear things down that are wrong, than bother rejecting things that are "not even wrong", so apparently Trump is good and Obama is bad, because people understand why Trump is wrong, and ordinary people can't understand why Obama was wrong.

Here's one blog I've noticed in recent years, "QUIXOTIC FINANCE: To protect our windmills against Don Quixote and his Knights of the Holy Black Swan", that doesn't like Taleb, and at least it gives me some sense of how his colleague see him

Like this long blog on the conflict between Pinker's surprising claim that violence is decreasing in the world, and Taleb's rejection of it.

And it gives a procedure for Taleb's style, which looks more about ego and status than truth. And apparently its a team sport, so tribal self-deceptions are involved too. And don't forget to bring your strawmen to the fight.

The logic of academic warfare
1. Scholar says A.
2. Taleb hears B, takes offense and declares war.
3. After firing a first salvo of noisy blanks and stray bullets, Taleb decides it’s time to hire a mercenary.
4. Looking forward to fighting at the side of a famous warlord, mercenary accepts the mission.
5. Taleb & mercenary pull out an impressive arsenal of missiles, and launch them in an all-out attack against their enemy.
6. When the dust settles, it turns out they’ve been bombing an undisputed patch of land in the desert. None of their missiles ever came close to the target.
7. Impressed by the huge clouds of smoke, Taleb’s followers cheer at their leader’s glorious victory.

Certainly if the ordinary person had a chance to look at the vanity and petty fights among the so-called experts of the world, they could instantly feel superior. But as long as we have President Trump, we can all sudddenly feel superior, whatever side we're on.

Trigger Warning said...

SS: "By that he meant that whatever you or the government are preparing for, whatever you have predicted, is unlikely to happen..."

Well, no. Taleb's focus was on the underlying assumptions of the modeling used by the forecasting and prediction industry. All too often, those models are based on, for example, Monte Carlo simulation models with convenient and closed solutions that, in fact, do not comport with reality. They may do "well enough" most of the time, but when they fail, they can fail catastrophically. In AI, this phenomenon is sometimes called "brittleness". In fact, climate models suffer from the same disease (e.g., assumed mathematical independence of partial derivatives that are not, in fact, independent).

Taleb's observation is made crystal clear by the predictive accuracy of Fed economic modeling or CBO taxation modeling. They're always wrong to some degree, it's simply a matter of how wrong they are in any given case. And, as Taleb argues, there's no way to know how wrong they will be for any given extrapolation about the future; c.f., Bernanke's comments about the future of mortgage lending... "With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly." Indeed.

Ignatius Acton Chesterton OCD said...

Ares, pray tell, what did you actually SAY in your comment here?

It vexes me. I am truly vexed.

Olympus Ares said...

Ignatius: You're asking the wrong guy.