Fooled by the black swan

To be able to forecast what the next global shock will be, we need to be able to make predictions about geopolitics, war, terrorism, extreme weather events, earthquakes and pandemics.

A growing body of theory and evidence suggests that making accurate forecasts about rare catastrophic events is inherently impossible. But it also suggests a practical solution to mitigate the dangers -- detailed scenario-planning by imaginative analysts who do not cling too tightly to mathematical models of reality.

Systematic forecasting requires a model that approximates reality. But is this feasible? Many models assume simple linear relationships between variables, but there are plenty of reasons to believe that in the real world, variables often react in a complex, volatile and non-linear way, particularly where extreme events are concerned.

you want to learn from success, not hear about “lessons learned” from a guy who hasn’t yet learned those lessons himself

“survivor bias” — drawing conclusions only from data that is available or convenient and thus systematically biasing your results

When a published paper proclaims “statistically, this could only happen by chance one in twenty times,” it is quite possible that similar experiments have been performed twenty times, but have not been published.

“I’m a hyper-conservative ecologically,” Mr. Taleb said. “I don’t want to mess with Mother Nature. I don’t believe that carbon thing is necessarily anthropogenic.”

By the “not necessarily” I meant that I don’t need expert models and proof that we are harming it to STOP POLLUTING the planet. This is part of my idea that one does not need rationalization to the edict: DO NOT DISTURB A COMPLEX SYSTEM, since we do not know the consequences of our actions owing to complicated causal webs.

I also said “leave the planet the way we got it”. So my “super Green” position or hyperecologist was somehow lost in translation: they probably thought “conservative” meant loves to pollute or something like that. “Perhaps the worst of this story,” Mr. Taleb added, “is the fan mail I’ve been getting from right-wing anti-environmentalists.”

In the public mind an arrogant profession has been humbled.

Paul Krugman, winner of the Nobel prize in economics in 2008, argued that much of the past 30 years of macroeconomics was “spectacularly useless at best, and positively harmful at worst.”

Barry Eichengreen, a prominent American economic historian, says the crisis has “cast into doubt much of what we thought we knew about economics.”

the character of neoliberal economics is essentially religious

neoclassical economics appears scientific. This is because it deploys huge quantities of complex mathematics, giving it the veneer of being what it has long hoped to be, a kind of social physics.

Neoclassical economics looks like physics because the equations were those of physics. Its history is a history of problematic borrowings from the natural sciences, leading to a mathematical sophistication increasingly divorced from reality.

Nationalise the banks, limit the rewards to those who work in what he calls the “utility” part of the system and have a completely uninsured second leg that can take all the risks it wants and lose its shirt

You can’t have capitalism without punishment

The same people who did not see the financial crisis coming are still in charge.

The financial system needs to be more robust against "black swans." This will require living with less debt.

We need to eliminate the socialization of risk, privatization of profits.

I don’t see the stock market as a great place to be in the next two to three years, maybe even the next decade.

As for the dollar, “we’re going to have a currency crisis probably this fall or the fall of 2010,”

“The only place I know where the fundamentals are getting better is raw materials,” he explains. “We’re going to have serious food shortages. … Prices are going to go through the roof.”