Learned so much last week at the Real World Risk Institute in NYC from Nassim Taleb, Robert Frey, Raphael Douady, and all of the #RWRI13 crew, thought it was fitting to use my first twitter post to share some of my favorite takeaways…
Averages are almost always deceptive – would you cross a river that is on average 4’ deep – how do we plan for future failures? (Lucretius Problem: worst case that has happened is not the worst case that can/will happen in the future)
“Central correlation is rarely true correlation.” and “random doesn’t actually look random” – What’s the correlation of 18 random numbers to 18 other random numbers – try it – makes you think twice about drawing conclusions from correlation
In order to succeed you must first survive, don’t confuse the ensemble probability with the time probability – winnings from 100 people gambling once are not comparable to one person gambling 100 times – if you're bankrupt you can't keep playing
If Survival is most important, assume you are almost always over-allocated…the size of the allocation matters almost more than where it's allocated – play around with Kelly Criterion to see for yourself
Are you in a Mediocristan (Gausian) or Extremistan (Power Law) situation? Don’t let the law of large numbers fool you…odds are if it’s real life, then it’s Extremistan with super fat tails, look for convexity using Jensen’s Inequality
Decentralized systems > centralized systems, unless addressing an externality. Simple rules + Stochastic Energy = Complex Emergent Behavior from the bottom up (Sierpinski triangles, Barnsley fern, and the Chaos Game)
”continuous idiosyncratic failures are better than systematic failures” – "The central error is that lowering risk is equivalent to lowering volatility" ex. forest fire prevention leading to massive infernos
