Thursday, April 19, 2007

The Devil's Glossary

Nassim Taleb's new book, The Black Swan: The Impact of the Highly Improbable, just landed on my desk with a satisfying thump. This is good news, because if it had not arrived I would have had to go out and buy a copy of Condé Nast Portfolio this weekend and read that. The prospect was not appealing to me.

While I found Mr. Taleb's previous book, Fooled by Randomness, unevenly written and occasionally a bit infuriating, my quibbles were largely overwhelmed by the clarity and force of the ideas he expounded. I am expecting no less from this book, and I will report my findings if and when appropriate to my adoring audience (i.e., you, Dear Readers). Do not worry, however: I will steer my discussion away from the more technical and recondite aspects of Mr. Taleb's treatise. This will be no punishment for me, as I can cheerfully confess that I would have difficulty recognizing a Gaussian distribution with a Poisson jump if it bit me on the leg and pissed in my shoe.

Until then, Dear Reader, I can do you no better service than citing a few selections from the book's glossary. Especially for those of you unfamiliar with Mr. Taleb's previous work, these excerpts1 should give you a good flavor not only of some of the ideas Mr. Taleb expounds, but also of his literary style. Where appropriate, I have appended a comment or two of my own.
Bildungsphilister: a philistine with cosmetic, nongenuine culture. Nietzsche used this term to refer to the dogma-prone newspaper reader and opera lover with cosmetic exposure to culture and shallow depth. I extend it to the buzzword-using researcher in non-experimental fields who lacks in imagination, curiosity, erudition, and culture and is closely centered on his ideas, on his "discipline." This prevents him from seeing the conflicts between his ideas and the texture of the world. [I might extend it to great swaths of the financial industry, where most of us rarely take the time to look up from our particular grindstones.]
Confirmation error (or Platonic confirmation): You look for instances that confirm your beliefs, your construction (or model)—and find them. [Yeah: that happens to me all the time. Is that a problem?]

Empty-suit problem (or "expert problem"): Some professionals have no differential abilities from the rest of the population, but for some reason, and against their empirical records, are believed to be experts: clinical psychologists, academic economists, risk "experts," statisticians, political analysts, financial "experts," military analysts, CEOs, et cetera. They dress up their expertise in beautiful language, jargon, mathematics, and often wear expensive suits. [Hey, that sounds like me. Who does this guy think he is?]
Epistemic arrogance: Measure the difference between what someone actually knows and how much he thinks he knows. An excess will imply arrogance, a deficit humility. An epistemocrat is someone of epistemic humility, who holds his own knowledge in greatest suspicion. [Not me. Wait a minute. What's humility?]
Fooled by randomness: the general confusion between luck and determinism, which leads to a variety of superstitions with practical consequences, such as the belief that higher earnings in some professions are generated by skills when there is a significant component of luck in them. [This completely describes the compensation philosophy of Wall Street, private equity, and the hedge fund community. When it comes to me, however, I do not get paid a lot of money because I'm lucky, I get paid because I'm good.]

Do yourself a favor: go out and buy a copy. You didn't want to read Portfolio this weekend, either.

1 N. Taleb, "The Black Swan: The Impact of the Highly Improbable," Random House, 2007, pp. 307–308. Copyright © 2007 by Nassim Nicholas Taleb.
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