Wednesday, October 8, 2008

Taleb Essay on the Limits of Statistics

Nassim Nicholas Taleb, author of the recent book (which I would highly recommend) The Black Swan, discusses how one of the drivers of the current financial crisis is a serious misapplication of statistics and applied probabilistic knowledge: "Let's face it: use of probabilistic methods for the estimation of risks did just blow up the banking system."

Taleb has an interesting view of economists:
I have nothing against economists: you should let them entertain each others with their theories and elegant mathematics, and help keep college students inside buildings. But beware: they can be plain wrong, yet frame things in a way to make you feel stupid arguing with them. So make sure you do not give any of them risk-management responsibilities.)

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