Positive Black Swans

Nassim Nicholas Taleb argues that as we face accelerating change and ever less predictable futures, we should orchestrate our lives to try to capture the upside of positive surprises…

unlike the banks, that lost it all thinking they could contain their exposure to negative surprises…

Taleb: “The payoff of a human venture is, in general, inversely proportional to what it is expected to be.

Contrary to social-science wisdom, almost no discovery, no technologies of note, came from design and planning—they were just Black Swans.

The reason free markets work is because they allow people to be lucky, thanks to aggressive trail and error, not by giving rewards or incentives for skill. The strategy is, then, to tinker as much as possible and try to collect as many Black Swan opportunities as you can.”

This photo has notes. Move your mouse over the photo to see them.

To take full advantage of Flickr, you should use a JavaScript-enabled browser and
install the latest version of the Macromedia Flash Player.

Comments

Apollo 11 says:

Taleb has always been conveniently vague on practical advice.
Posted 15 months ago. ( permalink )

~Reshma~ says:

See what you did - I start reading this, and then navigate to black swan wiki, get side tracked by Taleb on Colbert Report, and I'm now on amazon looking at book reviews!
Posted 15 months ago. ( permalink )

nhr says:

> unlike the banks, that lost it all thinking they could contain their exposure to negative surprises…

My two cents:

Act 1.
• Picture a normal deposit-taking financial institution.
• The outfit gets money from the depositors, who expect to get paid a reasonable interest.
• The outfit therefore tries to earn money by making loans.
• If the loans are non-performing — e.g. dud real estate loans — the financial institution ends up losing money.
• Depositors who try to keep current on economic matters then start to worry that the financial institutions are doing business with people of dubious creditworthiness, and that they might not see their money back.
• Consequence: run on the banks by the depositors, shrinking balance sheets and severe liquidity problems at financial institutions, and concomitant failures — e.g. the US Savings&Loan crisis of the eighties, which ended up costing the US taxpayer a bundle.

Act 2.
• Picture a normal (by US standards) financial institution that doesn't keep in its inventory the loans it makes to borrowers. Borrowers might include people with dubious credit ratings who have been somehow convinced that they should buy a house, duped by low teaser rates and the myth that ever-increasing real estate prices will make mortgage refinancings easy when their introductory teaser interest rates are reset to higher levels.
• The "securitized" loans are sold by the bank to investors, who expect to get paid a reasonable interest.
• Some investors in such asset-backed securities who like to keep current on economic matters then start to worry that the money flows from these mortgages might actually be quite fragile, and that the stated value of the real estate collateral attached to these debt obligations might be a bit inflated.
• Consequence: demand in the financial markets for these mortgage-backed securites starts to drop; shrinking balance sheets and severe liquidity problems ensue for the issuing institutions and the investors in such securities, who get stuck with large inventories of unsaleable securitized loans with plummeting values.
• Fears of systemic failures force the US government to bail out distressed financial institutions, which ends up costing the US taxpayer a bundle.

I think a simple Mediocristan-based analysis of:

• careless extension of credit to non-creditworthy counterparties
• unrealistic real estate value appreciation assumptions
• conflicts of interest / agency problems at loan origination intermediaries, who are paid on a commission basis, and thus share the upside but not the downside

is sufficient to understand this latest situation of easy credit — i.e. capital mispricing — and resulting capital destruction, without having to resort to unpredictably rare dark-colored palmiped metaphors.
It's déja vu all over again, or nihil novi sub sole
Posted 15 months ago. ( permalink )

jurvetson says:

Ah, all very cogent and logical, he would respond, but the very definition of a Black Swan is that it affords retrospective predictability. It was not at all clear just a few months ago to those unknowingly betting billions against this very scenario.

I can see how Taleb drives his detractors crazy.

Apollo11: What's not practical about the advisement to get lucky!?
;-)
Posted 15 months ago. ( permalink )

nhr says:

> It was not at all clear just a few months ago to those unknowingly betting billions against this very scenario.

I'm certainly not a detractor of Taleb's, and my opinion is that people who participate in financial markets without conducting sufficient due diligence on the products or sectors in which they allocate direct or indirect capital — e.g. real estate — get what they deserve
Posted 15 months ago. ( permalink )

~Reshma~ says:

Can't get this Black Swan thing out of my head. Ron Paul might be President!
Posted 15 months ago. ( permalink )

Apollo 11 says:

You're right Steve, that is good advice. I'm going to get lucky!

I just listed my house. I'm going to use the money to buy lotto tickets -- limited downside, unlimited upside! How can I go wrong, now that I'm long the Positive Swan?

Funny though, no bids on the house so far. I'm sure it's just a slow week... ;-)
Posted 15 months ago. ( permalink )

jurvetson says:

Yeah, and get a load of this - when we asked NNT if he would speak at one of our events, he charges for his time! I quoted him in response and offered a dollar for each point of NASDAQ swing that day (unlimited upside!) but he did not bite... harumph.
Posted 15 months ago. ( permalink )

PhOtOnQuAnTiQuE says:

Aeroculus just upload a link to a very passionate talk of Nassim Taleb on the financial crisis. What do you think of it ? ; )
Posted 15 months ago. ( permalink )

mikescottnz says:

Who actually pays for their liability or mistakes ?
Posted 7 months ago. ( permalink )

Would you like to comment?

[?]

	jurvetson's photostream
		3,066 uploads

This photo also belongs to:

	Biographical Sketches (Set)
		325 items
	Part of: People

	It came from TED (Set)
		149 items
	Part of: Conferences

	Pictures With Stories - 5 sentence MINIMUM (Pool)
		0

2 people call this photo a favorite

Additional Information

Some rights reserved Anyone can see this photo

Taken with a Canon EOS 5D.
More properties
Taken on February 29, 2008
Viewed 1,123 times

Add to your map

Yay location removed

...

(Some formats are OK.)

Or, remove it from the map.

Go to the map

You	Sign in \| Create Your Free Account
Explore	Places \| Last 7 Days \| This Month \| Popular Tags \| The Commons \| Creative Commons \| Search
Help	Community Guidelines \| The Help Forum \| FAQ \| Sitemap \| Get Help

Positive Black Swans

Comments

Apollo 11 says:

~Reshma~ says:

nhr says:

jurvetson says:

nhr says:

~Reshma~ says:

Apollo 11 says:

jurvetson says:

PhOtOnQuAnTiQuE says:

mikescottnz says:

Would you like to comment?

jurvetson's photostream

Biographical Sketches (Set)

It came from TED (Set)

Pictures With Stories - 5 sentence MINIMUM (Pool)

Tags

Additional Information