One of the most interesting and controversial scholars in finance is Nassim Nicholas Taleb, author of The Black Swan: The Impact of the Highly Improbable. Taleb’s main cont
ention is that the world (financial and otherwise) has far more uncertainty than most acknowledge. Modern financial techniques of reducing risk, e.g., risk management, hedging, etc., are not effective and are even detrimental by lulling us into a false sense of security. At the root of the problem are atypical (but extreme) events (the so-called ‘Black Swans’) that, because of their rarity, are not captured in the historical data used in financial analysis. If Taleb is correct, then, judging by our current Black Swam–the Sub-Prime Mortgage Crisis, the way we approach financial decision-making may need to alter dramatically.
For an introduction to Taleb’s ideas, listen to his short interview with the Guardian newspaper or a longer discussion at EconTalk (Note that EconTalk has a wide range of excellent podcasts covering both financial and economic issues). A discussion of Taleb’s current work, The Fourth Quadrant: A Map of the Limits of Statistics, can be found at Edge.com. For his full view, read The Black Swan: The Impact of the Highly Improbable.
ention is that the world (financial and otherwise) has far more uncertainty than most acknowledge. Modern financial techniques of reducing risk, e.g., risk management, hedging, etc., are not effective and are even detrimental by lulling us into a false sense of security. At the root of the problem are atypical (but extreme) events (the so-called ‘Black Swans’) that, because of their rarity, are not captured in the historical data used in financial analysis. If Taleb is correct, then, judging by our current Black Swam–the Sub-Prime Mortgage Crisis, the way we approach financial decision-making may need to alter dramatically.For an introduction to Taleb’s ideas, listen to his short interview with the Guardian newspaper or a longer discussion at EconTalk (Note that EconTalk has a wide range of excellent podcasts covering both financial and economic issues). A discussion of Taleb’s current work, The Fourth Quadrant: A Map of the Limits of Statistics, can be found at Edge.com. For his full view, read The Black Swan: The Impact of the Highly Improbable.
