Please enable JavaScript.
Coggle requires JavaScript to display documents.
CHAPTER 17 - Coggle Diagram
CHAPTER 17
-
More Horror
Traders have a better understanding of the formula's wrinkles and risks than academics, who often fall for the ludic fallacy when it comes to probability.
Gaussian-based models in finance do not have realistic assumptions and do not produce reliable results
-
Angry insults from academics and economists when questioning their entire business, he analyzed the speakers
Only 50 Years
In the last 50 years, only the 10 most extreme days accounted for half the returns
People still use the gaussian tools in practice, even while agreeing that they are not the best, because "numbers are better than nothing"
-
Confirmation
One single observation is needed to reject the Gaussian, but millions of observations will not fully confirm the validity of its application
-
IT WAS JUST A BLACK SWAN
How to "Prove" Things
You have to cheat somewhere to make the worodl fit your mathematics, same with the assumptions. Assumes Extremistan as a starting point
Difference between:
Sophisticated craft --> to be broadly right, minimize reliance on theories. Thinks of black swans as a dominant source of randomness
Failed science --> precicely wrong, focused on theories and elegance. Assumes mediocristan as a starting point, thinks of ordinary fluctuations as a dominant source of randomness
On the main title
LTCM made by people known as top of academia, their company eventually suffered losses due ot them wrongly managing risks, since they ruled out the possibility of large deviations
CONCLUSIONS
People who work in forecasting are very arrogant, they do not accept the possibility that their work is useless.
If we accept that many things we experience happen in extremistan, we will be more adaptable to inexperienced events.
WHAT TO EXPECT NEXT?
What areas of life require greater contemplation to mitigate the potential impact of unforeseen and devastating events
Concrete examples of some of the events he talks about, explanations of this
On the main title
A lot of things tought in schools are unusable outside of classrooms, they belong to mediocristan, while life is mostly extremistan