Posted by: Tom Keene on September 16, 2011
Many securities exhibit some linearity until the test of fire.
Nassim Nicholas Taleb, pre-Swan, pre-fooled.
Christine called. Could I possibly have a conversation with Taleb, Kahneman and Birinyi? I screamed (star tantrum) into the phone. No! I will not do it…unless you give me a trading error. $2 Billion? Impressive, Christine.
Why does this stuff continue to happen?
Taleb studies/thinks slowly, and fast/adapts the Tversky & Kahneman heuristic. He believes in simple.
Laszlo Birinyi does (as in those that can do, those that can’t…), understanding that simple rules lead to less loss, not more gain. (Tattoo this to your 2-and-20 brain).
Taleb continues, emphasizing the advantage of clear simple rules that suggest what the Gnomes of Bahnhofstrasse 45, 8001 Zurich should have not done rather than the tried-and-failed rules they did. (See Popper, Soros, Blaug, Bruce Caldwell and Kent Osband. After that 1000 pages, see Frank Knight, 1921, 10+ pages).
The professor from Thaler, letting the upstarts vent, advises the prospect of a less-than-likely future $X.X billion trading error. Zero chance.
This was a non-linear day. Discuss.