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Thoughts on tails and Hayekian (neo) liberal economics. The standard story is that markets “learn”—absorbing trades and propagating the implicit information by setting prices. It’s sufficiently intelligent to bring me tea from Japan. But tails *can’t* be learned...
They don’t occur often enough to train the reenforcement algorithm that the price system runs. When they do, their surface logic is unrepeatable (GameStop, really?)
Tails can, however, be reasoned about. We can think about what would be out of scope, even if we can’t anticipate its details. We can ask if this or that profit is on some sense “unreasonable”, emphasis on reason, not inference.
This is part of Taleb’s style—his books, beginning with Black Swan, incorporate narrative, philosophy, surprising turns in a story. Stories have logics, but not ones that a machine can learn.
Systemic risks are the obvious places the price mechanism fails—but it fails in more quiet ways, on the individual level; it fails people. Health insurance is an obvious example but (IMO) so is the student loan bubble, which harms both students and Universities.
Our societies are increasingly run by an efficient moron—a kind of magician’s apprentice. Whether you describe it as an absence of reason, judgement, or wisdom, the system’s inhumanity is of a particular sort, the self-driving car.
It’s more than a misspecified model—the tails can not be learned. Too rare and idiosyncratic—there’s no well-specified model waiting. (BTW, is Mandelbrot taught in Econ departments?) https://twitter.com/alexoimas/status/1358056927025070080
I’d add another part of the market’s u reason is the magnification of heuristics that the system has trained in to its most successful performers—see, e.g., the hedge funds and their returns.
Tails can be expected but IMO the market teaches the wrong lessons about what to do next. https://twitter.com/__anoop/status/1358057114845941760
“Easier to imagine the end of the world”. An obvious counter power to the price mechanism are the online publics, able to organize and act on previously unimaginable scales (for better or worse, e.g., and IMO, the 2016 election)... https://twitter.com/patrickdkwatson/status/1358058849455009794
You can never predict the nature of a tail, but it is not implausible that (for example) online publics could lead large scale rent and loan repayment strikes. Probably with a lot of memes.
Not to declare for either side in that matter—although I do have strong opinions about the (surprising) harm the student loan system has done to universities, their missions, and their teaching and scholarship.
I agree. A functional jubilee needs to do more than forgive debt—it needs to do so by introducing new logics into the market. (We already do forgive debt occasionally—e.g., bankrupcy, eventually—but a jubliee is a social and political matter.) https://twitter.com/JoshHochschild/status/1358074871700459520?s=20
The "IYI"—the thinker-who-is-not-a-thinker—is the classic victim of the tail. Simultaneously in awe of a fragment of the truth, and of his own intuition—which is really, in the end, a product of institutions briefly isolated from instability. https://twitter.com/ande_sand/status/1358128464344326144?s=20
