Taleb on Risk (in less than 1,000 characters)

From the department of unintended consequences…Yahoo’s recent launch of del.icio.us 2.0 expanded the notes field for bookmarks to 1,000 characters. As a result, my del.icio.us feed now includes a fair number of mini-essays. Here’s the latest, summarizing Taleb’s latest essay on risk and today’s credit crunch:

“Great essay by Taleb on the current crisis, and the limits of statistics in general. My two favorite paragraphs:

“It appears that financial institutions earn money on transactions (say fees on your mother-in-law’s checking account) and lose everything taking risks they don’t understand.”

“A Turkey is fed for a 1000 days—every days confirms to its statistical department that the human race cares about its welfare “with increased statistical significance”. On the 1001st day, the turkey has a surprise.”

Taleb argues there are two axes: Decisions can be simple or complex; Distributions can be thin- (“Mediocristan”) or thick-tailed (“Extremistan”). Statistics fail when trying to make complex decisions in a thick-tailed domain…errors will occur, and the consequences are catastrophic.”

If you’re interested in seeing what I’m thinking in raw form, I recommend checking out my linkstream:

http://delicious.com/chrisyeh

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