30
Wilmott magazine
31
Taleb (with Espen Haug, and Benoit Mandelbrot) on Mandelbrot: I will ght to the
end to promote his method as a framework to look at deviations
Platonicity Glossary
Nassim Nicholas Taleb provides a
brief guide to his key themes
Platonicity: the focus on those pure, well-defined, and
easily discernible, objects, like triangles, or more social
notions, like friendship or love at the cost of ignoring
those objects of seemingly messier and less tractable
structures.
Nerd knowledge: the belief and custom that what cannot be Platonized and studied does not exist at all, or is
not worth considering. There even exists a form of skepticism practiced by the nerd.
Ludic fallacy (or uncertainty of the nerd):
Manifestation of the Platonic fallacy in the study of uncertainty; basing studies of chance on the narrow world of
games and dice. Aplatonic randomness has an additional
layer of uncertainty concerning the rules.
Epistemic arrogance: Take a measure of the difference
between what someone actually knows and how much he
thinks he knows. An excess will imply arrogance, a deficit
humility. An epistemocrat is someone of epistemic humility, who holds his own knowledge in greatest suspicion.
Epistemic libertarian: Someone (like myself) who considers that knowledge is subjected to strict rules, but not
institutional authority as the interests of organized knowledge is self-perpetuation, not necessarily truth (just like
governments).
Narrative fallacy: our need to fit a story, or pattern to
minds of others.
Circularity of Statistics (the statistical regress
Argument): We need data to discover a probability distribution. How do we know if we have enough data? From
the probability distribution. If it is a Gaussian, then a few
points will suffice. How do you know it is a Gaussian? from
the data. So we need the data to tell us what is the probability distribution, and a probability distribution to tell
us how much data we need. This causes a severe regress
argument.
Scorn of the abstract: Favoring contextualized thinking
over more abstract matters. The death of one child is a
tragedy; the death of a million is a statistic.
Retrospective distortion: Examining past events without adjusting for the forward passage of time. leads to illusion of posterior predictability.
Mediocristan: province dominated by the mediocre, with
few extreme successes or failures. No single observation
can meaningfully affect the aggregate.
Leptokristan: province where the total is impacted by a
single observation.
Black Swan ethical problem: asymmetry between the
rewards of those who prevent compared to those who
cure.
Problem of induction: Logical-philosophical extension
of the Black Swan Problem
Bell curve (Gaussian): or GIF, great intellectual fraud.
Application of the ludic fallacy to randomness. There is
a qualitative difference between Gaussians and scalable
laws, much like gas and water.
33
34
Wilmott magazine
Wilmott magazine
35
36
Categories?
We need to extend our uncertainty
to categories because categories are
fuzzier than we think and we tend to
want to see crisp boundaries. There
are many things we cannot separate
because they cannot be isolated. For
instance, utility and probability cannot be dissociated.
Wilmott magazine is a second
home for me, simply because I found
credible like-minded people and
social friends who can either agree
with me, say Haug, or heavily disagree, like Elie Ayache. Ayache by challenging my ideas has taught me a lot.
He is the only critic I have felt compelled to answer. The others dont tell
me anything I didnt think about.
Ayache argues that it is the philosophical foundation that needs to be
overhauled in order that quantitative finance can be recognized as a
science. That to accept your combination of skepticism and classical
empiricism leads in two directions
only, blind faith or skeptical resignation. He proposes to find a third way
through a rethinking of what a market actually is. What is your reaction
to Ayaches metaphysical interpretation of derivatives as being the path
toward this new approach?
This is where I disagree. The skeptic
in me is easily satisfied by my ranking situations in accordance to their
robustness to model error, or their