Adonis Diaries

Posts Tagged ‘Nassim Taleb

Is Lebanon political system immune to radical non-violent revolts?

Posted on June 24, 2011

Has anyone seen a swan (baja3) physically? In the flesh, or even flying or walking? 

If you are asked “what is the color of a swan?”  I bet your answer is “White, obviously”. 

Actually, a black swan was identified a few years ago.  Is it possible to eventually identify a multicolored swan?

You might say that finding a black swan, or even a tribe of black swans, or a mixture of black and white swans stand to reason, but is it feasible to have a green, blue… swan?  You might respond that genetic engineering can produce whatever colored swan you desire as a pet…

Why do you think all of us believed that a swan must be white, and nothing but white?  Most of us have not seen a swan, except in pictures, movies or documentaries; we might not even be able to identify a swan from a duck if the bird is not named…

Even nature, which changes slowly and its trends can be mostly predicted, has the potential of surprising us with rare events, a few of them catastrophic.  

We got in the habit of expecting frequent disasters from man-designed and man-made systems, within a few years of their applications and usage by people…

The variability in living creatures and the behaviors of users are a thousand folds more numerous than variability in nature.  Wouldn’t you be appalled in total disbelief to hear any designer of systems claiming that the product is definitely designed and manufactured to be entirely controlled and managed according to users’ satisfaction, safety, and health?

The teams of designers of many professions such as scientists, engineers, psychologist, legal professionals… are aware of two things:

First, there will be frequent minor malfunctions to the system in terms of financial loss, safety and health causalities, but these malfunctions can be controlled and fixed.

Second, any system contains rare catastrophic malfunctions that will eventually occur (doud al khal minho wa fih) and predicting these rare events is very challenging and out of control and management. 

When you hear of economic-safety analysis trade-off of a system, bear in mind that the study concerns the number of casualties and the financial cost that owners (more frequently the State or the tax payers) will have to set aside for these calamitous eventualities.

The funny part is that:

First, no money is ever set aside by the private shareholders for these catastrophes and the States or tax-payers will eventually cover up the expenses.

Second, transparency and full disclosure to the general public is never disseminated widely, if ever published.

Third, the public and communities in most countries have No Say in the design and decision-making processes of vast man-made systems.

Fourth, no man-made system has instituted an independent specialized and dedicated team responsible of gathering data and analysing statistics of the various malfunctions.  Most malfunctions are barely reported and serious hazardous events are dusted-off under the carpet:  No read, never happened!

Do you know that the UN agency for health is forbidden to collect and report statistics on nuclear disaster consequences?  That the atomic UN agency is not to share statistics with other UN agencies concerned with health and safety of world population?

Nassim Nicholas Taleb, a mathematician by formation wrote  “The Black Swan:  The power of the unpredictable” and “Savage hazard”. 

Taleb was initially trying to explain the financial crisis since he is in the financial business.  The theory is fine and explains many fluctuations in man-made designs, for example the international financial system.

The problem emerges when Taleb ventures to extend his theory to the current “Arab” revolts and Arab political systems.  The is no doubt that political structures are essentially man-made designs and that the current acceptable varieties as within the realm of “How a democratic political system satisfies the criteria of the Western system democratic types.”

Taleb contends that since governments in Lebanon take turn, for example representing “opposition alliances”, as in Italy, the inherent and natural fluctuations in the system instability are resolved naturally.

Basically and literally, Taleb claimed that Lebanon political structure is immune to drastic revolts , on the ground that dictator regimes fall badly because the system try hard to control minor legitimate discontents, and consequently, the system is fragile when any major revolt strikes unexpectedly.

Either Taleb (Lebanese of origine)  is using selective memory, or he is faking not to be that familiar with the history of Lebanon’s political structure.

I suspect that Taleb confused catalysts with causes in the case of Lebanon, a confusion he frequently warned against, in analyzing the cases of the “Arab Spring” revolts and the financial crisis.

First, since independence in 1943, Lebanon officially recognized two failed internal coup d’etats, one in 1949 and another in 1961 (both done by the Lebanese-based Syria National Social party).  Lately, Lebanon witnessed a minor failed coup d’etat at the ministry of communication, because a private interest wanted to conserve its mobile communication business.

Second, Lebanon witnessed two officially recognized civil wars, one in 1958 and another one in 1975 that lasted 17 years.

Since the end of the civil war in 1991, Lebanon experienced a major military coup d’etat in 2008 that started in the Palestinian camp of Nahr el Bared around Tripoli:  The army needed 11 months to overcome the uprising of the Islamist salafists Jund al Sham, and hundreds of fallen martyrs and handicapped soldiers.

Beirut experienced a quick military coup in 2007 by Hezbollah, as the government attempted to control land communication lines.

The war of 2006 against Israel was actually a military coup perpetrated by the Lebanese government to control Hezbollah’s military might.

Third, Italy has true political parties with programs and policies.  The election laws in Italy are among the fairest and most equitable in the western States.  Frequent changes in governments didn’t prevent Italy to continue being among the leading economic powers in the world.

Italy is very generous in investing in the poorer nations and its grants are relied upon in most States around the Mediterranean Sea basin.  Italy has many contingents in the various UN peace-keeping forces…

Where as, for example, Lebanon is practically a Non-State country or a pseudo-State since its independence.  The 18 religious sects represent the main de-facto powers and also by law to exercising political influence.  Civil status of every “citizen” is run and administered by the officially recognized religious sects that own more than 50% of the land.  Every religious sect is backed by over three confessional “political parties”.

The two historically secular political parties, the Communist and the Syrian National Social parties, were denied participation in the Parliament via biased and tailored-made election laws and procedures.

The Syrian National Social party was recently permitted to enter the parliament, carried on the shoulders of other main confessional parties. 

The multi-theocratic system, backed by the financial institutions that lend Lebanon governments to cover budget deficit, have vested interests in prohibiting the constitution of any viable and sustainable modern State governing system.

Fourth, Lebanon lacks sustainable public institutions and any long-term programs and policies.  The only benefit the citizen enjoys is a mere passport.  There exist no serious governance for the people to march against and demand reforms.

Was Taleb aware of the actual conditions and situation in Lebanon for him to categorize Lebanon as falling in line within the “stable” political systems and immune to radical revolts as Italy?

The hot season has started in the northern hemisphere, and the Spring Revolt might cool off a bit.  In Lebanon, we missed the spring upheavals that swept the “Arab” world, but we planted the seed of a fresh drastic non-violent revolt for the next spring season.

The youth in Lebanon organized five marches in various cities in Lebanon demanding change in the confessional political structure.

Next Spring, the revolt will still be non-violent, but the target and purpose of the revolt will not be a matter of a reform here and another there.  The traditional “leaders” have demonstrated that they refuse to establish a functioning State for all “citizens”:  Lebanon has been run by Non-State governments, or care-taker governments.

The Youth Movement for Change must be ready for the dawn of the next spring season: It must start doing serious due diligence. For example,

1.  Specialized teams have to dig-up and dust-off the policies and programs stored in the basements of ministries.  The goal of reviewing and revising already studied programs is: “A political system from the people to the people”.

2. The Lebanese have to feel they are true citizens with equal rights under the law.

3. The Lebanese have to enjoy fair and equitable election laws that allow common people to accede to decision-making positions.

4. Laws have to be revised for citizens, regardless of genders, race, or religious affiliation, to have fair opportunities to all political positions and job opportunities in the public and private institutions and enterprises.

5. The Constitution has to be re-written to separate religion from civil power and responsibility…

Radical changes are possible: There are no other alternatives to patching up a rotten political and social structure.

It is not feasible to move on with small incremental reforms under the power of the ferocious religious and financial oligarchies that have been dominating our lives and subjugating us to constant instability and indignities.

We have grown up to be mature and responsible adult “citizens”.  Lebanon is Not immune to drastic revolts, and the next revolution will be successful!

Note 1: Nassim Taleb, a mathematician, was a trader and worked for 20 years as consultant to large investment banks in New York and London. He created Empirica LLC for trading.  He is engineering professor at the polytechnic institute at the University of New York.

Note 2: This article was posted 9 years ago. Currently, Lebanon is under a total bankruptcy at all levels: State, banks, Central Bank, financial and economy. Lebanon is going through drastic calamities: the electric-magnetic atomic pulse devastation of the Port of Beirut, and a lingering Covid-19 pandemics. 75% of the Lebanese are poor and no government is to be agreed upon.

Clear policy in dealing with terrorism/fundamentalism

Let us go through some deep and rigorous logical thinking which would lead us to a clear policy in dealing with terrorism/fundamentalism.

TWO QUESTIONS, one easy one hard (the second –more uncomfortable– one should come next post).
So step 1 (the easy one).
QUESTION ” Would you agree to deny the freedom of speech to every political party that has in its charter the banning of freedom of speech?”


One step further, “Should a society that has elected to be tolerant be intolerant about intolerance?

This is in fact the incoherence that Goedel (the grandmaster of logical rigor) detected in the constitution while taking the naturalization exam.


I wrote about idiots asking me if one should be “skeptical about skepticism”, using a similar answer put to Popper about ” if one could falsify falsification”.

Please answer. People who agree may not like the next question.

Nassim Taleb on FB

Reversing Type 2 Diabetes: From FIFO to LIFO paths

 

 

John Peter  shared
 

Mechanisms that are First-In/First-Out (FIFO) (path independent) do not like variability and volatility (i.e., Jensen’s Inequality/Antifragility) as much as ones that are Last-In/First-Out (LIFO) (hence path dependent).
Take diabetes.

We are discovering that diabetes is not (as we thought) the result of being overweight, rather the effect of absence of variation, not losing weight, not having periods of starvation (that among other things, clean up the fat deposit in the pancreas that is LIFO).

So someone overweight who loses weight can be much better-off than the same person a bit thinner at stable weight.

There is plenty of research in diabetes hinting at this from many sides but nobody tried to put a systematic mathematical apparatus on it.

Though the math is not trivial (because of path dependence), I was able to play with it with Monte Carlo analyses.

Note that the Russians have known that for over a century.

Reversing Type 2 Diabetes

Our work has shown that type 2 diabetes is not inevitably progressive and life-long.

We have demonstrated that in people who have had type 2 diabetes for 4 years or less, major weight loss returns insulin secretion to normal.

It has been possible to work out the basic mechanisms which lead to type 2 diabetes.

Too much fat within liver and pancreas prevents normal insulin action and prevents normal insulin secretion. Both defects are reversible by substantial weight loss.

A crucial point is that individuals have different levels of tolerance of fat within liver and pancreas.

Only when a person has more fat than they can cope with does type 2 diabetes develop.

In other words, once a person crosses their personal fat threshold, type 2 diabetes develops. Once they successfully lose weight and go below their personal fat threshold, diabetes will disappear.

Some people can tolerate a BMI of 40 or more without getting diabetes.

Others cannot tolerate a BMI of 22 without diabetes appearing, as their bodies are set to function normally at a BMI of, say 19.

This is especially so in people of South Asian ethnicity.

Information for people with diabetes

Information for your doctor

It is important that people with diabetes discuss their management with their own doctor. It will take years for this new knowledge to become incorporated into textbooks and guidelines, so your doctor may be wary of information from the internet.

Newcastle University researchers have written some notes for you to take to your doctor. Download our information sheet for doctors on the practical management of type 2 diabetes in respect of reversal (PDF: 220KB).

 

The Trouble With the Genetically Modified Future

Like many people, are you wondered about the safety of genetically modified organisms?

They’ve become so ubiquitous that they account for about 80% of the corn grown in the U.S., yet we know almost nothing about what damage might ensue if the transplanted genes spread through global ecosystems.

Mark Buchanan

this Nov 16, 2014

How can so many smart people, including many scientists, be so sure that there’s nothing to worry about?

Judging from a new paper by several researchers from New York University, including “The Black Swan” author Nassim Taleb, they can’t and shouldn’t.

The researchers focus on the risk of extremely unlikely but potentially devastating events.

They argue that there’s no easy way to decide whether such risks are worth taking — it all depends on the nature of the worst-case scenario.

Their approach helps explain why some technologies, such as nuclear energy, should give no cause for alarm, while innovations such as GMOs merit extreme caution.

The researchers fully recognize that fear of bad outcomes can lead to paralysis. Any human action, including inaction, entails risk. That said, the downside risks of some actions may be so hard to predict — and so potentially bad — that it is better to be safe than sorry.

The benefits, no matter how great, do not merit even a tiny chance of an irreversible, catastrophic outcome.

For most actions, there are identifiable limits on what can go wrong. Planning can reduce such risks to acceptable levels. When introducing a new medicine, for example, we can monitor the unintended effects and react if too many people fall ill or die.

Taleb and his colleagues argue that nuclear power is a similar case: Awful as the sudden meltdown of a large reactor might be, physics strongly suggests that it is exceedingly unlikely to have global and catastrophic consequences.

Not all risks are so easily defined.

In some cases, as Taleb explained in “The Black Swan,” experience and ordinary risk analysis are inadequate to understand the probability or scale of a devastating outcome.

GMOs are an excellent example. Despite all precautions, genes from modified organisms inevitably invade natural populations, and from there have the potential to spread uncontrollably through the genetic ecosystem.

There is no obvious mechanism to localize the damage.

Biologists still don’t understand how genes interact within a single organism, let alone how genes might spread among organisms in complex ecosystems. Only in the last 20 years have scientists realized how much bacteria rely on the so-called horizontal flow of genes — directly from one bacterium to another, without any reproduction taking place.

This seems to be one of the most effective ways that antibiotic resistance spreads among different species. Similar horizontal exchange might be hugely important for plants and animals. No one yet knows.

In other words, scientists are being irresponsibly short-sighted if they judge the safety of GMOs based on the scattered experience of the past couple decades. It’s akin to how, ahead of the 2008 financial crisis, analysts looked at 20 years of rising house prices and assumed they would always go up.

The honest approach would be to admit that we understand almost nothing about the safety of GMOs, except that whatever happens is pretty likely to spread.

Science is at its best when it acknowledges uncertainty and focuses on defining how much can be known. In the case of GMOs, we know far too little for our own good.

To contact the author on this story:
Mark Buchanan at mbuchanan32@bloomberg.net

 Note:

Arguing with biologists about risk is exactly like arguing with George W. Bush about algebraic geometry.
This is by Mark Buchanan, a physicist.
http://bv.ms/1vfU8oK

Is there such a thing as an “Average War”?

The law of average is confusing, and basically the mean of a distribution has no concrete meaning to explain. Unlike the median which represents the cut-off point between the 50% lowest and 50% highest points in any data.

Actually, the Mean is basically used as a mean for further mathematical transformations of other statistical information such as standard deviations and other values.

Nassim Taleb warns: “Don’t cross a river if it is on average 4 feet deep. The river might transform into a raging torrent a few feet away from the middle…”

For example, receiving an average ultra violet rays one day may not be harmful. Getting this average doze several days per week and you have got a problem.

This article wants to focus on  whether any one can dare put forth what can be considered an average war.

Consider all the wars waged during the last 3 centuries, as cannon improved in mass killing and greater distance.

Mind you that a war is a series of field military battles, siege of cities and economic sanctions and blockades.

War can be a civil war, a colonial expansion adventure or between contiguous countries or alliance of nations, genocides, displacement of people, massive refugees exodus

Mind you also that sieges and economic blockades harvest more casualties than field battles: Due to famine, malnutrition, dissemination of diseases, lack of medicine, high infantile mortality, polluted and infected water supply… and the casualties are essentially non-combatant people.

For example, think of the blockade against Iraq for an entire decade (1993-2003) and the million of kids who died from lack of milk and basic medicines.

Think of the blockade of Iran since 1983.

Think of the blockade and sanctions against the Syrian people since 2011.

Think of the recent blockade of the Western African countries suffering from the Ebola epidemic: No border crossing, no meaningful trades with these poor countries…

Think of the siege of Homs, Aleppo, the Yarmouk Palestinian camp near Damascus, and the latest of Kobani (Ain Arab city)

Think of the conditions and the 3 consecutive preemptive wars on Gaza, this enclave constituting a big concentration camp

Now plot in a timeline fashion all the kinds of casualties (killed, injured, handicapped…) for each field battle, siege and blockade of entire region during the war until a treaty of stopping military confrontation takes hold.

How would you analyze the distribution graphs of all these wars, and how would you categorize the seriousness and level of danger of each war?

Frankly, the average of any distribution where any one of the tails over-dominate the set of data is practically worthless.

For example, studying the distribution of wealth when billionaires are included in the set.

Or studying the average population size in cities when we include cities like Tokyo (35 million) the 11 cities with size between 20 and 30 million, the 15 cities with size over 10 million and the 48 cities between 5 and 10 million….

There is no average wars simply because the distribution of wars follow the power law: How can we study a distribution of casualties when we add the WWI ad WWII wars or the genocides committed during Stalin, Cambodia, Rwanda., and the enduring civil wars in the Congo for the last 3 decades and yet not terminated, the situation in Sudan, Yemen, Afghanistan..?

What Black Swan Theory has to do with Arab Spring uprising?

I have posted several articles on the Black Swan Theory and this link is in response to its application to Lebanon political/social structure https://adonis49.wordpress.com/2011/06/03/is-lebanon-political-system-immune-to-radical-non-violent-revolts-think-again/

Zaher Yahya posted on Huffington Post an article (with slight editing) that is a general “refresher” post on the topic:

“The Arab Spring has been described and associated with a variety of symbolic designations.

At times, the term describes the series of protests that have swept across the MENA (Middle East and North Africa) region. It may also indicate a person’s political position on the wide and highly polarized spectrum.

The term ‘Arab Spring’ has even been criticized by some who support the pro-democracy (or anti-regime) protests, citing this description as being Orientalist and therefore inappropriate.

The ‘Arab Spring’  (protests and upheaval), which started in December 2010, has become a brand for the region, and has motivated and catalyzed many popular protest movements around the world.

International media generally refers to the term as a unified concept, largely citing its contagious aspects as well as the key links between the countries involved.

The series of events have been called a “revolution,” “revolt,” “upheaval,” “uprising,” “awakening,” “spring,” “conspiracy,” “rioting,” “terrorist,” “hell,”  “Arab,” “Islamic,” and “foreign” are also terms intermittently used in conjunction with the previous descriptions.

We now know that the Arab Spring will not be an easy ride for the countries that it has affected, though it cannot be denied that the region has been marked by a political paradigm shift.

People in the MENA region have:

1. Denounced the long-accepted principle that unelected officials and family dynasties can cling to power for decades without consequence.

2. People have broken the long-standing barriers of fear regarding corruption and intimidation,

3. People are adjusting to the ideological diversity of their societies (though many still have much to learn on this front).

For these reasons, I tend to be optimistic about the Arab Spring despite much rhetoric about it becoming an Arab “Winter.”

Having lived through the global financial crisis that has affected people of all walks of life, I view the Arab Spring as being related to these events that shook the world economy in 2007.

Are you surprised that I find a relation may exist between these two events, both vast and far-reaching, but seemingly distinct? It may appear a tad philosophical, but the answer lies with Nassim Taleb.

Nassim Taleb (see note 2) lays the foundations  in his two books Randomness (2001) and Black Swan (2007) for his theories about uncertainty, randomness and Black Swan events. Black Swan theory describes unpredicted major-impact events that effectively appear sensible in hindsight.

Taleb theory is framed in a financial context, (many experts contend that Taleb forecasted the financial meltdown of 2007), and describes the biggest financial crisis since the Great Depression of the 1930s as one of these Black Swan moments.

Black Swan moments are characterized as being rare, high-impact and paradoxically unpredictable occurrences at the time of their occurrence. Most of us would assume black swans don’t exist, simply because we were only accustomed to seeing white swans in pictures and videos…

In the terms of the financial crisis, speculators assumed there is only one way for the markets to go; asset values would rise indefinitely with no limit to the amount of debt people could incur. It has become clear afterward that the reality on the ground was different what was written on their balance sheets and portfolios bottom lines.

The impact of the debt crisis was colossal and wide-spread that no expert envisaged at the time, with many talking about the failure of capitalism as a result. This global crash has really shattered the image and ultimate authority of the dictators of the finance sector (i.e. investment banks and hedge funds).

The Arab spring proved as difficult to predict as the financial meltdown showing economists, intelligence agencies, policy makers and analysts clueless about their own business, simply because they have never considered a Black Swan moment for the region.

The Arab Spring was triggered by what could initially have been interpreted as an isolated event, spread surprisingly fast over a vast region, and led to major and unexpected developments.

In the same way, norms of the banking system that held for generations collapsed with stunning speed and magnitude, the image and privilege of Arab dictators were shattered by popular revolts in a movement that took the world by surprise.

A Black Swan moment was never considered in the experts’ minds to apply to the Arab States: many Arab dictators held a seemingly unshakable iron grip on power and ruled undeterred for up to four decades, all while preparing their sons to someday take the reins after them, unshaken by popular and economic conditions in their country.

So the public witnessed only their moukhabarat (secret service agents) running the show, as well as the brutal backstage of the regime if you were unlucky enough to pay them a visit.

Years of tradition made this construction of power a social norm, a backbone of society so persevering it was often assumed (and reasonable at the time) to be unshakable.

And this is exactly what Nassim Taleb focuses on, exactly on the things we don’t know rather than the things we think we do. A small exception to a rule (events in the tails of the normal graph) in the future can have the ability to trigger large-scale change and dismantle norms, theories and paradigms that have been accepted for years.

The colossal impact of the Arab Spring across the region was beyond anyone’s realm of expectations – either idealistic or highly calculated.

In the world of risk management, this event appeared highly unlikely; the probability of such events spreading across such a vast region were not on the minds of political forecasters, in the same way so many bankers did not fathom their long-standing stability could be shattered so suddenly.

In hindsight, the Arab Spring may now appear to have been predictable. How could we have assumed that despite torture, censorship, abuse, brutality, corruption, unemployment and poverty, regimes would remain sustainable?

Whatever your opinion of the Arab Spring, and whatever term you choose to designate it, what started in December 2010 has proven itself a Black Swan moment of the Middle East and North Africa, one that is far from over, and whose impact will perhaps take years to fully assess.

Note 1: Michelle Ghoussoub, Blogger at Lebanon Spring, edited Yahya article.  Follow Zaher Yahya on Twitter: www.twitter.com/TheZako

Note 2: Nassim Taleb is a renowned Lebanese-American statistician, best-selling author and former Wall Street trader. His books Fooled by Randomness (2001) and Black Swan (2007) brought him to fame, with the latter described by The Sunday Times as “one of the twelve most influential books since World War II”.

Note 3: Opinion experts would like us to believe that the uprising were not expected by the US. Evidences are pointing that what was unexpected is the development, steadfastness and far-reaching movement of the Arab people to get away with their long established indignities and humiliation by usurping oligarchies.

 

Black Swan model: Can rare catastrophic events in complex man-made systems be controlled?

Note:  The application of the Black Swan model to the “Arab” Spring revolts and in southern Europe, and the financial crisis will be explained in the follow-up article.

Warning! Pay closer attention to the “predictable” but unexpected rare calamitous events!

Black Swan is a term coined after discovering a black swan a couple of years ago.  People firmly believed that all swans were white:  A few might have observed a black swan but refused to identify it as a swan; or black swans are common sight in particular regions and people had no idea that black swans are considered rarity all over the world and might be purchased for their weight in gold to be raised in zoos!

You know the adage: “If an event can occur, it will happen“, meaning, it does not matter how low the predicted probability of occurrence of the rare events, it will strike “unexpectedly”.  If there is a chance in a million for an asteroid to smash onto earth, an asteroid will fall on our head: Asteroid did fall and transform earth several times in the last four billion years.

Just think on the even lower probability of “being who we are, as an individual”.  You could naturally have been an inanimate object, a plant, another animal species, born somewhere else, lived after birth, survived to be 5 year-old…

The Black Swan theory states: “In complex systems, especially man-made complex systems, it is not feasible to comprehend all the interactions among the hundred of variables affecting outcomes. In man-made systems, we have to allow natural fluctuations that are at work.  The rare predicted calamitous events  will strike unexpectedly, and we will fail to react accordingly and adequately if we consciously avoid to consistently take them into consideration in our analysis and reports.”

The unexpected events cannot be analyzed as odds in card games or casino games:  Human behavior with thousands of variability in moods, emotions, conventions, conviction, personal experiences… cannot be predicted as games are.

Natural sciences such as engineering, physics, chemistry, architecture, astronomy, planet explorations…are within the linear domain of thinking life and the universe.  Social and human sciences, epidemics, economics… are within far more complex domains, and the linear methods that mankind was trained to resolving problems and fluctuations are not adequate to be transposed to complex systems.

We are better equipped to predicting lunar eclipses, but not stock evolution, or foreign political upheavals.  It is NOT the “last grain of sand that crashed the structure or the bridge…”  The last grain was the catalyst for the failure but not the cause.  The fault is in the designed system, and not in its components.

For example, the “subprime” was not the cause of the financial crisis in 2008: It was just the latest among the catalysts of hazardous financial tools.  The cause was a faulty financial system that the political decision-makers failed to redesign in due time, requiring courageous and determined positions to ironing-out the serious problems growing out of proportions in risky behaviors, in an unregulated system, and in instantaneous pouring of massive liquidity to “stabilizing” a fragile outmoded designed and faulty system.

There is this trend of confusing catalysts with causes:  The designers of a system do not necessarily have this confusion, but the political decision-makers and owners of the systems that purposely confuse the general public as catastrophes strike.  Two psychological biases are at the sources of confusing catalysts with causes:

The first bias is our illusion in our capacity to control volatility in man-made complex systems. For example, we focus on the “normal working” of a system and we delete from our analysis and reports the minor fluctuations or rare events that are occasionally occurring.  In a sense, if there are no variations, there are no information worth controlling.  This tendency of feeling very comfortable dealing with only a “stable” system leads to forgetting the consequences of calamitous rare events.

The second psychological bias is the illusion that acting on a factor is better than doing nothing and letting the system work-out its fluctuations.  For example, authorities think or are pressured to think that they were elected or appointed to act and react on any variations, instead of doing nothing when fluctuations are within the norm.  Consequently, it is these actions that usually exacerbate a system going bad and out of proportion.  For example, Alan Greenspan and later Ben Bernanke lowering the central bank interest rates to almost negative rates in order to “stabilize” a fragile faulty financial system that needed major redesign.

The Fukushima disaster of the melting down of three nuclear reactors is a typical example.  It is NOT the earthquake and the tsunami that are the causes of the meltdown:  They were the catalysts.  The cause is a faulty designed system for generating electricity that is highly dangerous and built in a region frequently exposed to high levels of earthquakes and tsunami.  The economic risk trade-off was meant for normal functioning of a nuclear plant, and the consequences of  a serious event striking was swept under the carpet for three decades.

The owner of the power nuclear plant and the government blamed natural phenomena as the causes and toned down the lethal exposure to radiation for over a month.  Why?  It is better not scare the people! What?  It is better to let people die peacefully than give them the proper information to decide on their own plan of actions?

It is normal for mankind to be wary of the volatile aspects in life.  In the past, mankind managed to block-out drastic fluctuations from their consciousness in order to survive:  Mankind figured out the major trends in hazard in order to foresee and adopt simple models they could control for administering and managing their lives and the survival of the community.

The behavioral model should allow normal fluctuations in behavior to react within normal realities.

Simple models have been replaced by complex models, but within the past linear mentality and comprehension.  You may understand a few interactions among three main variables, but when man-made design inserted hundreds of volatile factors in a system, we should no longer expect to have total control on the complex system.

If we are not ready to design reasonable fluctuations in a system, and be ready to take seriously the problems of rare occurrences, and be trained to react to calamitous rare events, then it is wise to stick to simple systems that individual operators can understand and can control.

A man-made system should not be designed to eliminate all the faults, ill-behavior, and limitations of mankind, but to factor them in, and be trained to react adequately to these variations:  The operator has to be constantly motivated to learn and be vigilant to minor fluctuations and comprehend the main interactions.

Note 1: Nassim Taleb, a mathematician, was a trader and worked for 20 years as consultant to large investment banks in New York and London. He created Empirica LLC for trading.  He is engineering professor at the polytechnic institute at the University of New York.  Taleb published “Savage hazard” and “The Black Swan:  The power of the unpredictable.”

Note 2: Mark Blyth is a Scottish professor of international political economy at the university of Brown (Rhode Island).  He published “Great Transformation: Economic ideas and institutional change in the 20th century”.  A new book is to be released “Austerity: The history of a dangerous idea


adonis49

adonis49

adonis49

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