18th
This is a fantastic piece up on EDGE by Nassim Nicholas Taleb, who is an essayist and former mathematical trader, and a prof of Risk Engineering at New York University’s Polytechnic Institute.
In it he talks about the idea of a Black Swan — a severe statistical unlikelyhood, such as, in his example, the downfall of Fannie Mae, that nonetheless comes true more often than statisticians would have you believe.
Here’s the money quote: “…the banking system, betting against Black Swans, has lost over 1 Trillion dollars (so far), more than was ever made in the history of banking”.
Definitely worth a read.
His solution:
“We can identify where the danger zone is located, which I call ‘the fourth quadrant’, and show it on a map with more or less clear boundaries. A map is a useful thing because you know where you are safe and where your knowledge is questionable. So I drew for the Edge readers a tableau showing the boundaries where statistics works well and where it is questionable or unreliable. Now once you identify where the danger zone is, where your knowledge is no longer valid, you can easily make some policy rules: how to conduct yourself in that fourth quadrant; what to avoid.”
