Nassim Nicholas Taleb

Nassim Nicholas Taleb
Born	1960 Amioun, Lebanon
Known for	Scholar of randomness and knowledge, bestselling books
Scientific career
Fields	Scholar, Essayist, Trader, and Risk Engineer

Nassim Nicholas Taleb (born 1960 in Amioun, Lebanon) (Arabic: نسيم نيقولا نجيب طالب) (alternative spellings of first name: Nessim or Nissim) is a literary essayist, epistemologist,polymath scholar of randomness and knowledge, researcher, and former practitioner of mathematical finance. As a pioneer of complex financial derivatives, he held a "day job" in a lengthy senior trading and financial mathematics career in a number of New York City's Wall Street firms, before starting a second career as a scholar in the epistemology of chance events to focus on his project of mapping how to live and act in a world we do not understand, and how to come to grips with randomness and the unknown —which includes his black swan theory of unexpected rare events.

Taleb's extremely idiosyncratic literary approach consists in providing a modern-day brand of philosophical tale by mixing narrative fiction, often semi-autobiographical, with erudition and scientific commentary.

Biography

Taleb originates from Amioun, Lebanon. His political Greek Orthodox Levantine family saw its prominence and wealth reduced by the Lebanese Civil War which began in 1975. He is the son of Dr. Najib Taleb, an oncologist and researcher in anthropology, and Minerva Ghosn. Both sides of his family were politically prominent in the Lebanese Greek Orthodox community: on his mother's side, his grandfather and his great-grandfather were both deputy prime ministers of Lebanon; on his father's side, his grandfather was a supreme court judge and, in 1861, his great-great-great-great grandfather was a governor of the Ottoman semi-autonomous province of Mount Lebanon.

Taleb holds an MBA from the Wharton School at the University of Pennsylvania, and a Ph.D. in management science from the University of Paris (Dauphine) under the direction of Hélyette Geman . He is currently Distinguished Professor of Risk Engineering at New York University's Polytechnic Institute and Visiting Professor of Marketing (Cognitive Science) at London Business School. He was the Dean’s Professor in the Sciences of Uncertainty at the Isenberg School of Management at the University of Massachusetts Amherst, Adjunct Professor of Mathematics at the Courant Institute of New York University, and affiliated faculty member at the Wharton Business School Financial Institutions Center.

Empirica LLC, the firm formerly owned by Taleb, owns interests in hedge funds and operates a research laboratory, but the bulk of the business consists in providing portfolio protection strategies for hedge funds called "Black Swan Protection Protocol".Taleb is an advisor of Universa Investments, an investment firm specializing in asymmetric payouts, power-law distributions, and behavioral biases where former Taleb Associates run a "Black Swan Protection Protocol".

As a trader, Taleb has said he took a skeptical and anti-mathematical approach to risk and uncertainty and had a severe distrust of models and statisticians and a contempt for finance academics especially economists. He has held the positions of:

• managing director and proprietary trader at Union Bank of Switzerland (UBS)
• worldwide chief proprietary arbitrage derivatives trader for currencies, commodities and non-dollar fixed income at CS-First Boston
• chief currency derivatives trader for Banque Indosuez
• Managing Director and worldwide head of financial option arbitrage at CIBC-Wood Gundy
• derivatives arbitrage trader at Bankers Trust, proprietary trader at BNP Paribas, as well as independent option market maker on the Chicago Mercantile Exchange.

Taleb considers himself far less a businessman than an epistemologist of randomness who used trading to attain his independence and freedom from authority, as he writes in his book, Fooled by Randomness, which became a cult book on Wall Street after it was first published in 2001. It was translated into 23 languages.

Taleb, a polyglot, has a literary fluency in English, French, and classical Arabic, a conversational fluency in Italian and Spanish, and reads classical texts in Greek, Latin, Aramaic, and ancient Hebrew, as well as the Canaanite script.

Research and theories of randomness

Taleb calls himself a "skeptical empiricist", and believes that scientists, economists, historians, policymakers, businessmen, and financiers are victims of an illusion of pattern; they overestimate the value of rational explanations of past data, and underestimate the prevalence of unexplainable randomness in that data. He follows a long lineage of skeptical philosophers, including Socrates, Sextus Empiricus, Al-Ghazali, Pierre Bayle, Montaigne, David Hume and Karl Popper in believing that we know much less than we think we do, and that the past should not be used naively to predict the future.

Taleb now focuses on being a researcher in the philosophy of randomness and the role of uncertainty in science and society , with particular emphasis on the philosophy of history and the role of fortunate or unfortunate high-impact random events, which he calls "black swans", in determining the course of history.

Taleb believes that most people ignore "black swans" because we are more comfortable seeing the world as something structured, ordinary, and comprehensible. Taleb calls this blindness the Platonic fallacy, and argues that it leads to three distortions:

1. Narrative fallacy: creating a story post-hoc so that an event will seem to have an identifiable cause.
2. Ludic fallacy: believing that the structured randomness found in games resembles the unstructured randomness found in life. Taleb faults random walk models and other inspirations of modern probability theory for this inadequacy.
3. Statistical regress fallacy: believing that the structure of probability can be delivered from a set of data.

He also believes that people are subject to the triplet of opacity, through which history is distilled even as current events are incomprehensible. The triplet of opacity consists of

1. an illusion of understanding of current events
2. a retrospective distortion of historical events
3. an overestimation of factual information, combined with an overvalue of the intellectual elite

Taleb, an anti-Platonist, believes that universities are better at public relations and claiming credit than generating knowledge. Knowledge and technology are generated by what he calls "stochastic tinkering", rarely by top-down directed research. [2] [3] paragraphs 32 & 33 & 54

Taleb stands against grand theories in social science. He supports experiments and fact collecting, but opposes the idea of directing our thinking into general Platonic theories that are not supported by hard data.

Consistent with his anti-Platonism, Taleb doesn't like to see his ideas called "theories". As he stands against general theories and top-down concepts, he never mentions theory in conjunction with the Black Swan. The phrase "Black Swan theory" is, to him, a contradiction in terms, and he urges his readers not to "Platonify" the Black Swan. Rather, Taleb would call his Black-Swan idea an "anti-theory" or the "Black Swan conjecture".

He opposes the academic aura around economic theories, which in his view suffer acutely from the problem of Platonicity. In an article titled "The pseudo-science hurting markets", Taleb called for the cancellation of the Nobel Memorial Prize in Economics, saying that the damage from economic theories can be devastating.

Ludic fallacy

Taleb's exposition of the Ludic fallacy:

We love the tangible, the confirmation, the palpable, the real, the visible, the concrete, the known, the seen, the vivid, the visual, the social, the embedded, the emotional laden, the salient, the stereotypical, the moving, the theatrical, the romanced, the cosmetic, the official, the scholarly-sounding verbiage (b******t), the pompous Gaussian economist, the mathematicized crap, the pomp, the Academie Francaise, Harvard Business School, the Nobel Prize, dark business suits with white shirts and Ferragamo ties, the moving discourse, and the lurid. Most of all we favor the narrated.

Alas, we are not manufactured, in our current edition of the human race, to understand abstract matters — we need context. Randomness and uncertainty are abstractions. We respect what has happened, ignoring what could have happened. In other words, we are naturally shallow and superficial — and we do not know it. This is not a psychological problem; it comes from the main property of information. The dark side of the moon is harder to see; beaming light on it costs energy. In the same way, beaming light on the unseen is costly in both computational and mental effort.

Warning of the Global Banking Crisis

In 2006, in The Black Swan

Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial Institutions have been merging into a smaller number of very large banks. Almost all banks are interrelated. So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks – when one fails, they all fall. The increased concentration among banks seems to have the effect of making financial crisis less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur ….I shiver at the thought.

The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deem these events "unlikely".

Bibliography

Major literary writings

• Taleb, Nassim Nicholas (2001/2005). Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets. New York: Random House. ISBN 0-8129-7521-9. {{cite book}}: Check date values in: |year= (help)
• Taleb, Nassim Nicholas (2005). Le Hasard Sauvage. Paris: Les Belles Lettres. ISBN 2-251-44297-9. Mostly a translation of Fooled by Randomness but has major changes compared to the English version.
• Taleb, Nassim Nicholas (2007). The Black Swan: The Impact of the Highly Improbable. New York: Random House. ISBN 978-1-4000-6351-5.

Representative scientific publications

• Taleb, Nassim Nicholas (1997). Dynamic Hedging: Managing Vanilla and Exotic Options. New York: John Wiley & Sons. ISBN 0-471-15280-3.
• Derman, E. and Taleb, N.N. (2005) The Illusion of Dynamic Replication, Quantitative Finance, vol. 5, 4,2005
• Goldstein, D.G. and Taleb, N.N. (2007) We Don't Quite Know What We Are Talking About When We Talk About Volatility, Journal of Portfolio Management, Summer 2007.
• Taleb, N.N. (2007) Black Swan and Domains of Statistics, The American Statistician, August 2007, Vol. 61, No. 3
• Haug, E.G. and Taleb, N.N. (2008) Why We Have Never Used the Black-Scholes-Merton Option Pricing Formula, Wilmott magazine (in press)
• Taleb, N. N. (2008). Infinite Variance and the Problems of Practice, Complexity, 14(2).
• Mandelbrot, B. and Taleb, N.N. (in Press). Random Jump, not Random Walk. In Francis Diebold and Richard Herring (Eds.), The Known, the Unknown, and the Unknowable, Princeton University Press.

Honors

• Taleb was inducted into the Derivatives Hall of Fame in February 2001. He was selected in the Power 30 in Business by SmartMoney /Wall Street Journal Magazine (October 2007).
• Taleb won the 2007 GetAbstract International Book Award. Previous winners of the getAbstract Book Award include Benoit Mandelbrot, Malcolm Gladwell, Robert Shiller and Chris Anderson.

In an article in The Times, Bryan Appleyard described Taleb as "now the hottest thinker in the world".

The Nobel Laureate Daniel Kahneman proposed the inclusion of Taleb's name among the world top intellectuals, citing "Taleb has changed the way many people think about uncertainty, particularly in the financial markets. His book, The Black Swan , is an original and audacious analysis of the ways in which humans try to make sense of unexpected events."

Collaborations

• Taleb is collaborating with Benoit Mandelbrot on a general theory of risk management.
• Taleb also works with Daniel Goldstein on a project to test empirically people's intuitions about ecological and high impact uncertainty.

Quotations

• "My major hobby is teasing people who take themselves and the quality of their knowledge too seriously and those who don’t have the guts to sometimes say: 'I don’t know...."

See also

• We (novel)
• Econometrics
• Libertarianism
• Nicholas Metropolis
• The Monte Carlo method
• Black Swan Theory
• The Black Swan (book)
• Taleb Distribution

External links

• Nassim Taleb's home page
• Nassim Nicholas Taleb's commented bibliography
• FrankVoisin.com - Summary and Review of Fooled By Randomness
• Edge article: The Opiates of the Middle Class
• New Scientist Profile
• The New Yorker article by Malcolm Gladwell: "Blowing Up: How Nassim Taleb turned the inevitability of disaster into an investment strategy"
• Taleb on Black Swans Podcast interview with Nassim Taleb at EconTalk
• The Pseudo-science hurting markets - Financial Times Taleb calls for the cancellation of the economics Nobel prize
• Radio interview on Philosophy Talk
• Frost Over The World Interview Taleb in discussion with Sir David Frost and Constantine Sandis (after Ali Allawi interview)
• Nassim Nicholas Taleb: the prophet of boom and doom — Profile from The Sunday Times by Bryan Appleyard
• The Fourth Quadrant: A map of the limits of statistics — an article by Taleb about the limits of statistics
• The Black Swan: Quotes & Warnings that the Imbeciles Chose to Ignore - Early warning on banking risks.