Nassim Taleb & Daniel Kahneman Discussion

MFIN 557

STRATEGIC THINKING UNDER UNCERTAINITY

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NYPL Talk: Nassim Taleb & Daniel Kahneman

Çağdaş Fidan

24/04/2016

The discussion begins with the definition of “antifragile”: Mr.Taleb illustrates the concept by referring to his previous experience when he was working as an option trader. Option traders are mostly interested in two points: things that are damaged by volatility and things that are benefited from volatility which is called “fragile”. Mr.Taleb noticed that the opposite of fragile is mostly referred as “robust” or “resilient” which actually do mean resistant to volatility and he proposes that there is another category called “antifragile” meaning things that benefit from volatility which can be used as the opposite of fragile. He exemplifies the concepts by tourist and adventurer case. It is a problem for a tourist when a bus waited to arrive is late because a tourist is fragile whereas an adventurer can even benefit from this case. If someone does not care if the bus is late or not means that he is robust.

Mr.Taleb is opposed to centralization and long-term planning because he believes that a car going on a long highway must definitely have an emergency exit, which is an option. Hence sticking into long and strict planning will lead to miss chances that may arise from uncertainty and volatility.

Mr.Taleb argues that people do like to take risks they don’t understand because they get scared when they face risk and variability. People most of the time cannot quantify and reckon the risk and variability and find hard to evaluate and analyze the outcomes. As mentioned in Chapter 16, “Causes Trump Statistics”, they tend to overlook statistics. When given purely statistical data we generally make accurate inferences. But when given statistical data and an individual story that explains things we tend to go with the story rather than statistics. We favor stories with explanatory power over data. Of course there are some drawbacks of this such as stereotyping, profiling, and making general inferences from particular cases rather than making particular inferences from general cases. And people have inclination to over manage things such as health, economy etc. and federalize it.  Mr.Kahneman also adds that people by and large prefer robustness to antifragility. He states that Mr.Taleb has enough money to afford to be antifragile and enjoys unpredictability whereas most people cannot afford it and that’s why they do like much less unpredictability in their lives. He thinks Mr.Taleb’s system basically aims to minimize losses and maximize gains.