Examples of Work by Nassim Nicholas Taleb
Nassim Nicholas Taleb
Nassim Nicholas Taleb was born in 1960. He is a renowned professor of risk engineering at Polytechnic Institute of New York University. His work focuses on problems of probability and uncertainty that includes decision-making under incomplete information and understanding. He is a bestselling author of Dynamic Hedging, Fooled by Randomness, and The Black Swan.
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Download: Too big to fail, hidden risks, and the fallacy of large institutions
This paper establishes the case for a fallacy of economies of scale in large aggregate institutions. The problem of rogue trading is taken as a case example of hidden risks where rogue traders and losses are considered independently and dependently of the institution’s size. Both independent and dependent loss and hidden positions are shown to lead to the paper’s conclusion, that size and economies of scale have commensurate risks that mitigate the advantages of size..
Download: The roots of unfairness: the black swan in arts and literature
It is a sad fact that among a large cohort of artists and writers, almost all will struggle (say, work for Starbucks) while a small number will derive a
disproportionate share of fame and attention. The same applies to the so-called masterpieces that determine a canon: a few pieces displace others from the lists in a 'winner-take-all' effect –all the while the neglected pieces languish and disappear from our literary consciousness.
Download: A map and simple heuristic to detect fragility, antifragility, and model error
The main results are 1) definition of fragility, antifragility and model error (and biases) from missed nonlinearities and 2) detection of these using a single 'fast-and-frugal', model-free, probability free heuristic. We provide an expression of fragility and antifragility as negative or positive sensitivity to second order effects, i.e., dispersion and volatility (a variant of negative or positive 'vega') across domains and show similarities to model errors coming from missing hidden convexities -model errors treated as left or right skewed random variables.
Broadening and formalizing the methods of Dynamic Hedging, Taleb (1997), we present the effect of nonlinear transformation (convex, concave, mixed) of a random variable with applications ranging from exposure to error, tail events, the fragility of porcelain cups, deficits and large firms and the antifragility of trial-and-error and evolution.
The heuristic lends itself to immediate implementation, and uncovers hidden risks related to company size, forecasting problems, and bank tail exposures (it explains the forecasting biases). While simple, it vastly outperforms stress testing and other such methods such as Value-at-Risk.
Taleb on black swans, fragility, and mistakes
His most recent publications includes
The black swan: The impact of the highly improbable
look inside : The black swan: The impact of the highly improbable
Fooled by randomness: The hidden role of chance in life and in the markets
look inside : Fooled by randomness: The hidden role of chance in life and in the markets
The bed of procrustes: philosophical and practical aphorisms
look inside : The bed of procrustes: philosophical and practical aphorisms