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We will read and discuss The Statistical Consequences of Fat Tails by Nassim Nicholas Taleb. The author of Black Swan, Anti-Fragile and Fooled by Randomness. The book investigates the misapplication of conventional statistical techniques to fat tailed distributions and looks for remedies, when possible.
Switching from thin tailed to fat tailed distributions requires more than “changing the color of the dress.” Traditional asymptotics deal mainly with either n=1 or n=∞, and the real world is in between, under the “laws of the medium numbers”–which vary widely across specific distributions. Both the law of large numbers and the generalized central limit mechanisms operate in highly idiosyncratic ways outside the standard Gaussian or Levy-Stable basins of convergence.
A few examples:
- Most of the failures of financial economics, econometrics, and behavioral economics can be attributed to using the wrong distributions.
- The sample mean is rarely in line with the population mean, with effect on “naïve empiricism,” but can be sometimes be estimated via parametric methods.
- The “empirical distribution” is rarely empirical.
- Parameter uncertainty has compounding effects on statistical metrics.
- Dimension reduction (principal components) fails.
- Inequality estimators (Gini or quantile contributions) are not additive and produce wrong results.
- Many “biases” found in psychology become entirely rational under more sophisticated probability distributions.
This book, the first volume of the Technical Incerto, weaves a narrative around published journal articles.
About the author:
Nassim Nicholas Taleb wrote the Black Swan ,Skin in the Game, Antifragile, The Bed of Procrustes, and Fooled by Randomness) plus a technical version, The Technical Incerto (Statistical Consequences of Fat Tails). Taleb has also published close to 55 academic and scholarly papers as a backup, technical footnotes to the Incerto in topics ranging from Statistical Physics and Quantitative Finance to Genetics and International affairs. The Incerto has more than 200 translations in 41 languages.
He spent more than two decades as a risk taker before becoming a full-time essayist and scholar focusing on practical, philosophical, and mathematical problems with chance, luck, and probability. His focus in on how different systems handle disorder.
spent more than two decades as a risk taker before becoming a full-time essayist and scholar focusing on practical, philosophical, and mathematical problems with chance, luck, and probability. His focus in on how different systems handle disorder.
Bitcoin, Currencies and Bubbles by Nassim Nicholas Taleb
In a recent six-page draft paper titled "Bitcoin, Currencies, and Bubbles," Taleb laid out four key arguments against the cryptocurrency, which he promoted to his 743,000 Twitter followers.
First, the author said that in spite of the hype, bitcoin failed to satisfy the notion of "currency without government." In fact, he said, bitcoin proved to not even be a currency at all.
"The total failure of bitcoin in becoming a currency has been masked by the inflation of the currency value, generating (paper) profits for large enough a number of people to enter the discourse well ahead of its utility," he said.
Taleb's second criticism said bitcoin can neither be a short nor long-term store of value. He used the famous juxtaposition of gold versus bitcoin — which he said was poor comparison — to illustrate his point.
"Gold and other precious metals are largely maintenance-free, do not degrade over a historical horizon, and do not require maintenance to refresh their physical properties over time," he said. "Cryptocurrencies require a sustained amount of interest in them."
His final two points argued that bitcoin is not a reliable inflation hedge, contrary to some analysts' views, and is not a safe haven for investments — whether meant to protect against government tyranny or other catastrophes.
"Not even remotely," he said, citing the March 2020 market panic when bitcoin sank lower than the stock market, as well as the recent ransom payments following the Colonial Pipeline cyberattack, which authorities were able to track.
"Government structures and computational power will remain stronger than those of distributed operators who, while distrusting one another, can fall prey to simple hoaxes,"
Taleb has been a vocal critic of bitcoin, but the paper also slammed the underlying technology bitcoin relies on. The author pointed to what he sees as a lack of utility of blockchain technology.
"There is no evidence that we are getting a great technology —unless 'great technology' doesn't mean 'useful.'"
He continued: "And we have done —at the time of writing —in spite of all the fanfare, still close to nothing with the blockchain."
In April, Taleb told CNBC that bitcoin is an open Ponzi scheme and a failed currency.
He hasn't always been a bitcoin bear, though. In 2017, Taleb wrote the foreword to "The Bitcoin Standard," a book by economist Saifedean Ammous.
Back then, Taleb wrote that bitcoin is "an excellent idea" as it "fulfills the needs of the complex system … because it has no owner, no authority that can decide on its fate.
Lying for Money: How Legendary Frauds Reveal the Workings of the World by Dan Davies
If you want to learn to fend fraud, read this. And if you want to commit fraud ... don't. But if you absolutely must, first read this.” —Nassim Nicholas Taleb
“An engaging and indispensable guide for novice fraudsters - and for those who want to keep out of their clutches.” —John Kay, author of Other People’s Money
“Swindling is never a black and white business, and Davies is good on the shades of grey in fraud-land.”—Financial Times
“Dan Davies tells all these stories with verve and wit ... Much of the book is a romp through the crimes of scoundrels - Ponzi, Madoff, Keating, the Krays ... Yet what takes it from absorbing to excellent is the author's insight. Read Lying for Money and you will look at fraud in a whole new way. Actually, you will look at every market transaction you take part in in a whole new way.” —Sunday Times (UK)
An entertaining, deeply informative explanation of how high-level financial crimes work, written by an industry insider who’s an expert in the field.
The way most white-collar crime works is by manipulating institutional psychology. That means creating something that looks as much as possible like a normal set of transactions. The drama comes later, when it all unwinds.
Financial crime seems horribly complicated, but there are only so many ways you can con someone out of what’s theirs. In Lying for Money, veteran regulatory economist and market analyst Dan Davies tells the story of fraud through a genealogy of financial malfeasance, including: the Great Salad Oil swindle, the Pigeon King International fraud, the fictional British colony of Poyais in South America, the Boston Ladies’ Deposit Company, the Portuguese Banknote Affair, Theranos, and the Bre-X scam. Davies brings new insights into these schemes and shows how all frauds, current and historical, belong to one of four categories (“long firm,” counterfeiting, control fraud, and market crimes) and operate on the same basic principles. The only elements that change are the victims, the scammers, and the terminology.
Davies has years of experience picking the bones out of some of the most famous frauds of the modern age. Now he reveals the big picture that emerges from their labyrinths of deceit and explains how fraud has shaped the entire development of the modern world economy.
From the Back Cover
"Rather than listen to the siren songs from investment managers, investors large and small should instead read Jack Bogle's The Little Book of Common Sense Investing."
The Bestselling Investing "Bible" Offers New Information, New Insights, and New Perspectives
The Little Book of Common Sense Investing is the classic guide to getting smart about the market. Legendary mutual fund pioneer John C. Bogle reveals his key to getting more out of investing: low-cost index funds. Bogle describes the simplest and most effective investment strategy for building wealth over the long term: buy and hold, at very low cost, a mutual fund that tracks a broad stock market Index such as the S&P 500.
While the stock market has tumbled and then soared since the first edition of The Little Book of Common Sense Investing was published in April 2007, Bogle's investment principles have endured sand served investors well. This tenth anniversary edition includes updated data and new information but maintains the same long-term perspective as its predecessor.
Bogle has also added two new chapters designed to provide further guidance to investors: one on asset allocation, the other on retirement investing.
A portfolio focused on index funds is the only investment that effectively guarantees your fair share of stock market returns. This strategy is favored by Warren Buffett, who said this about Bogle: "If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds. . . . Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me."