Thursday, May 06, 2010

Econtalk Podcast with Taleb

Nassem Taleb talks to Russ Roberts (h/t Gerard O'Neill). There is very little that I could find to disagree with Taleb in terms of his ideas on explanation, forecasting and on behavioural biases. The way we are using econometric models in finance and the manner in which we communicate on financial ideas in the media and policy debate is killing a lot of innovation in our society and robbing us of our ability to deliberate properly on the major 50 year challenges that this world is facing. I wake up every morning in Ireland now to the voice of some commentator or other telling me what is likely to happen to bond yields over the next few months. We seem to have forgotten that it is essentially impossible to forecast bond markets and if you could you certainly wouldn't run around telling everyone what was going to happen.

Taleb's basic essence is the argument for more contextualised, robust explanations that allow for human fallibility, outlier events and other factors that contaminate basic rational models of financial markets. His idea that debt itself is a fundamental source of instability are newer and harder to digest right now. I am terrified by some of the absolute stupidity that is taking place on our financial markets at the moment and it is difficult not to be somewhat sympathetic to his idea. We even witnessed a large collapse in the Dow tonight due to a panic reaction to a 'fat-fingered' trade whereby a trader accidently typed billions rather than millions when trading a major stock which triggered further trades. A lot of this jitteriness seems to be due to complete uncertainty as to who owns Greek debt and how much of it they are going to pay back.

Taleb-bashing is a pasttime among some academics but he is a prophetic thinker, not one who fills in all the gaps, but one that cuts to the chase of the profound issues of our time. In my opinion, he is actually more stimulating to listen to than to read and reminds us that being vaguely right is sometimes a more nobel aim than being precisely wrong.

No comments: