Updated: Nov 29, 2020
“We should reward people, not ridicule them, for thinking the impossible.” Nassim Nicholas Taleb
Nassim Nicholas Taleb is what can only be described as an intellectual superhero. He is the author of several books, runs his own money-management firm, and has a seemingly insatiable thirst for knowledge – or rather the wish to turn the logic of that knowledge on its head. He is a self-labelled sceptical empiricist; a man who seems empiricism as both a valuable and dangerous asset in decision making. He also draws attention to the seemingly trivial and magnifies it to reflect systemic flaws. In his critically acclaimed book Black Swan, he revises the time he went for a medical examination, aiming to establish whether he was suffering from cancer. It is easy to visualise the furious typing away as he recounts the inability of his medical practitioner to distinguish between ‘evidence of no cancer’ and ‘no evidence of cancer’. This is what makes Taleb so brilliant. His diligence in even the most mundane of topics means no facet of his life is left unscrutinised. Some may find this idea unappealing and even sad. I find it fascinating.
Taleb grew up in Lebanon, the Middle East. At the age of 15, fighting broke out between Maronite and Palestinian forces. Whilst tensions had been rising in the region for some time due to the multi-sectarian nature the Lebanese population, it still became a major disruption to everyday life. The retrospective take on this event may have been that he was lucky to escape with his life. Instead, it seemed to spur a lifelong distrust of bell curves. Why? When a bell curve is used to represent the expectations of how long a conflict should be expected to last, the longer the conflict goes on, the more likely a ceasefire becomes, meaning expectations of the length of the war shorten. However, Taleb argues that the longer the war goes on, the more people tend to extend their predictions on how long the conflict will last. This theory is of course unquantifiable given that it would most likely be considered uncouth to survey a nation ravaged by warfare about their outlook on life. However, it does ask the nagging question of how reliable the bell curve is. He talks down on economists, politicians, investment bankers and other foreign life forms with apprehension and a hint of belittlement. When you have seen parts of your country destroyed, you develop a galvanised sense of distrust that is reflected in your way of worldview.
In 1999, Taleb decided on a money-management venture. Given his background in investment banks and profound sense of distrust in regular investment strategies, it seemed a natural next step. The firm's name was Empirica, reflective of his philosophical viewpoint. The strategy was more a financial embodiment of his beliefs than anything else. Black Swan’s focus on the randomness that is ubiquitous in the nature of man-made and natural systems; his firm aimed to profit from this. He engaged in options trading, whereby a firm bets on whether an asset price will increase or decrease in value, with the asset being bought or sold at a set price at an expiration date (should the bet be successful). By buying thousands of low probability options per day, the idea is that the firm slowly leaks away money until an unforeseen event causes major disruption in a market. Suddenly these options become incredibly value in the case of, for example, the Russian default on bonds in 1998. Malcolm Gladwell writes a slightly bizarre account of his interaction with Emprica in his book What the Dog Saw, where a nondescript office block in Connecticut is repurposed as the home one of the most atypical investment firms in the world. Taleb employed four people at his firm, perhaps a reflection of his distrust in large organisations. Gladwell documents the daily activity of the firm. The frantic behaviour associated with capital markets is absent, a dull atmosphere of deep thought in its place. It reminded me of Taleb’s reference to Desert of the Tartars, a fictional account of a soldier's posting to an isolated place, far removed from modern society. The place is a desert outpost, situated between his army and the Tartars. They are expectant that on some day, the Tartars will come over the horizon and descend on the outpost. Rather than return to normal society as he originally planned, the soldier decides to stay put – he wants the battle with the Tartars. He stays there for so long that he becomes ill and is taken into hospital. As he is taken into hospital, the enemy marches on the outpost. The soldier is helpless but to watch on as the battle he has waited for his life unfolds. This is a beautiful parable for Emprica. The firm was founded in 1999 and closed in 2005. The reason for the firm closing was cited by Taleb as being health-related; he feared a recurrence of his throat cancer. So, is there not a clear parallel between the soldier and Nassim? Both spend a great deal of time waiting for a cataclysmic event to occur. Both become incapacitated by illness (or rather the fear of it). And then finally, after the pair are removed from the equation the event occurs. For the soldier it was the battle, and for Taleb it was perhaps the 2008 financial crisis. Poetic.
Taleb has caused me to alter my outlook on life. In black swan he documents the narrative fallacy, whereby we are persuaded about the nature of certain events through the narration of the factors causing the event. It causes us to fall into a trap of accepting the plausible, not necessarily the extraordinary. It is after all much easier to explain how X lead to Y lead to Z, rather than how X came about due to an incredibly unlikely series of events. This scepticism has allowed me to be more critical and analytical of learnt theories and concepts. His persuasive arguments on bell curve distributions have provided me with an alternate slant on topics that revolve around narratives – namely social science subjects. His opinions almost have a hint of postmodernism to them, meaning his acknowledgement of the incredible difficulty involved in mapping and explaining social trends is useful to a student of topics such as sociology, psychology, and economics. Rather than follow in his rhetoric of being dismissive of such subjects, I personally find it more valuable to use his points as evaluative. Not only has he affected my academic studies, but also my personal philosophical stance. I see more value in assessing the short-term rather than long-term. I prefer not to accept simple answers to questions (much to the frustration of my teachers). I think more about the long chain of events that lead me to certain outcomes. Being more rigorous in our assessment of circumstance is a powerful tool; it provides us with the ability to learn and evolve, become more diligent and resulting improve as social creatures. But after all, we should still be sceptical of how these circumstances came to be. Just ask Nassim Taleb.