Taleb’s data dump

April 16, 2009

Back in March, Rick Bookstaber published a blog entry entitled “The Fat-Tailed Straw Man”, which seems to imply that Nassim Taleb attacks Wall Street practices on the grounds that its practitioners believe in normal distributions.

The result of that blog entry, and of a few other criticisms of Taleb in various places, is that Nassim has now published an extremely useful technical appendix to The Black Swan. It includes substantially all his relevant scientific and technical papers, and essentially comprises a gauntlet being thrown down to those who would criticize him. If you want to attack my ideas, he’s saying, that’s fine, but please first do me the favor of looking at where they’re laid out in detail, as opposed to where they’re laid out in newspaper quotes or in a literary book.

There is certainly a lot of confusion in the public mind when it comes to philosophical arguments about fat tails and risk management, and it’s easy for journalists to distill things into easy soundbites about normal distributions and the like. I, for one, would like at some point to write about Taleb’s important paper on Errors, Robustness, and the Fourth Quadrant, which looks at the history of thousands of data series going back decades — but I haven’t found a very clear way of trying to explain its details in English.

The Black Swan has proved to be a very popular book largely because it doesn’t even attempt to do that: instead it talks philosophically about the conclusions one draws after looking at the data. But if you want to attack Taleb for drawing the wrong conclusions, I think he’s right: you shouldn’t attack the book, but rather the empirical research which underlies it.


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