Various Contrivances

Various Contrivances

A Map of the Limits of Statistics

In this article Nassim Nicholas Taleb applies his Black Swan idea to the current financial crisis and describes the strengths and weaknesses of econometrics.

For us the world is vastly simpler in some sense than the academy, vastly more complicated in another. So the central lesson from decision-making (as opposed to working with data on a computer or bickering about logical constructions) is the following: it is the exposure (or payoff) that creates the complexity —and the opportunities and dangers— not so much the knowledge ( i.e., statistical distribution, model representation, etc.). In some situations, you can be extremely wrong and be fine, in others you can be slightly wrong and explode. If you are leveraged, errors blow you up; if you are not, you can enjoy life.

Via Arts and Letters Daily