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COPING WITH THE BLACK SWAN: THE UNSETTLING WORLD OF NASSIM TALEB- Mark…
COPING WITH THE BLACK SWAN: THE UNSETTLING WORLD OF NASSIM TALEB- Mark Blyth
My Worlds of Risk and Uncertainty
Three things Blyth wonders about:
Why people want what they want, beyond just the conditions of their choices
Why institutions change most profoundly during moments of great uncertainty
Why models used to explain such moments rely on agents executing double integrals in their head to navigate a supposedly calculable risk
Political scientists and economists talk about uncertainty in historical events but often turn it into a world of calculable "risk."
The difference between uncertainty and risk: A world of risk is seen as "out there" and knowable, while uncertainty involves fundamental uncertainty about interests.
Ideas about how the economy works become powerful during uncertain moments, providing a focal point for agents' expectations and stabilizing their environment.
In Knightian uncertainty, what agents want and the institutions delivering outcomes become open to contestation, leading to significant intellectual and political changes.
Blyth’s worldview shifted after encountering Nassim Taleb's work.
Hidden Generators, Complex Distributions, and Opaque Payoffs
Taleb and Pilpel's insights on the problem of unobservable probability distributions and causal mechanisms.
Some outcome generators in the social world are directly observable and predictable, while others are not.
The assumption that past outcomes are a good guide to the future can lead to ignoring complexity and invisible generators.
Notion of an "adequate sample" assumes knowledge of the parameter distributions, which can be circular and misleading.
More information doesn't always lead to a better understanding of the world's true nature.
Taleb and Pilpel divide the world into four probability spaces, with the latter two representing worlds of uncertainty, not risk.
Opacity and complexity of generators can lead to unstable and unpredictable outcomes.
Some parts of the world may seem stable and predictable, but Black Swan events reveal the illusory nature of stability and predictability.
The Fourth Quadrant
Taleb's "The Fourth Quadrant: A Map of the Limits of Statistics" divides the world into four quadrants to build a map of the limit of statistics.
Risk occurs in Quadrants 1 and 2, where outcome generators are visible, and sampling the past converges to the real mean and variance.
Uncertainty occurs in Quadrants 3 and 4, where outcome generators are invisible or non-linear, and sampling the past doesn't converge to a real mean and variance.
Taleb invites us to accept uncertainty and recognize that we live in an unsettling world that demands a rethinking of what we think we know.
Uncertainty may be the rule, and risk may be the exception in Taleb's worldview.
The world portrayed in "The Black Swan" hovers on the border of uncertainty (Quadrant 3) and unpredictability (Quadrant 4), causing problems in understanding the world.
The tension between "The Black Swan" and the technical papers lies in the Narrative Fallacy, and Taleb may need to consider its social implications for real-world stability and instability.
Forward Histories: Teaching Birds How to Fly?
Taleb's view on history is toxic due to its narrative form, which makes events more memorable and meaningful regardless of the truth
divides the world into four quadrants based on simple and complex payoffs and probability distributions
Questions are raised about Taleb's beliefs on historical knowledge and causality in complex systems
The challenge of learning from history when it is theoretically overdetermined and empirically underdetermined.
The role of theories in defining what "is" and the difficulty of seeing "facts" free of theories.
The uncertainty of the world and the need for theories to understand it, raising the question of whether we can do without narratives.
The problem of randomness being reduced to incomplete information and the challenge of operating in an uncertain world without narratives.
Randomness, Incomplete Information, and Uncertainty
Taleb believes understanding how to act under conditions of incomplete information is crucial, and randomness is essentially incomplete information.
Taleb's example of a pregnant woman and the doctor's perspective raises questions about uncertainty and randomness.
Coding uncertainty as incomplete information may not explain new, emergent, and unexpected events adequately.
Worlds of risk have incomplete information, while uncertainty in Taleb's fourth world and fourth quadrant does not converge to a known expectation through sampling.
In a non-ergodic world, causes change over time, and emergent elements create future events that were previously impossible.
History matters because it has a memory, narrows future possibilities contingently, and the present is emergent and contingent.
Uncertainty is not just an information-engineering problem but a social problem as we live forward into an unknowable future, shaped by historical legacies and narratives.
Living It Forward with Backward Narratives?
Taleb's problem with history is its narrative fallacy and the equivalent of engineering a backward "Kolmogorov process."
Kolmogorov process involves a forward equation to predict future states and a backward equation to infer past states from present data.
Historical researchers have access to the historical "puddle" but argue over multiple contending theories to explain the unseen "backwards Kolmogorov" (the puddle generator).
While getting the "right" history to determine what happened in complete detail is impossible, different historical narratives are not equivalent and can have causal force and facilitate agency.
Religion and other narratives serve as backward Kolmogorovs that make the uncertain world more certain and livable by explaining events and providing structure.
Narrative fallacies and backward narratives may save us from some Black Swans but also generate others.
The narrative fallacy might be more causally important than Taleb admits, especially in a world where the social, not just information, matters