Nassim Taleb's critique of statistics

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Nassim Taleb's critique of statistics

  • Dave Burns

    Nassim Taleb criticizes the models used to price risk. Economists make assumptions about the underlying statistical distribution of the error term in their models. Taleb claims to show that if these error terms have a “long tail” then the model is vulnerable to large surprises (black swans). Taleb sees the sort of randomness found in a market as fundamentally different from that found in rolling dice or observing radioactive materials.
    This critique weakly supports Mises. Taleb condemns use of this sort of model in risk management, where a black swan event can cause an economic crisis through contagion effects. But in ordinary economic models, being right 99% of the time would seem good enough, even if you occasionally experience an embarrassingly large error.

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