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The Logic of Risk Taking

160 点作者 the-mitr超过 7 年前

13 条评论

cortesoft超过 7 年前
I feel like this idea of &#x27;tail risk&#x27; is pretty well understood in the gambling community, especially in the poker world of no-limit holdem tournaments.<p>For example, everyone knows that pocket Aces are the best possible starting hand in poker, and the default strategy is to call any all-in call if you have them; your expected value will always be positive, no matter how many other people call or what they have.<p>However, there is a well known exception to this rule, and many poker books talk about it - if you are the small stack at the final table, it might make sense to fold your pocket aces pre-flop if more than one larger stack has already called.<p>The reasoning is that even if you win the hand, you aren&#x27;t certain to move up in finishing position, which is what determines your winnings. On the other hand, if you lose the all in, you are CERTAIN to not move up. If multiple other people have already called the all-in, then there is a good chance that SOMEONE will be knocked out, moving you up in the finishing position without having to take a risk. Therefore, even if you have a positive expected return, it makes more sense to avoid the &#x27;ruin&#x27; situation and fold the pocket aces.
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dvt超过 7 年前
Taleb loses me at the end (Nicomachean ethics? come on), but I love his &quot;take risks, but don&#x27;t take stupid risks&quot; stance. A stance which I first encountered in <i>How to Legally Own Another Person</i>[1].<p>The key takeaway is twofold, in my opinion:<p>- People underestimate tail risk in their day-to-day: Bob smokes and drinks daily and eats red meat and doesn&#x27;t exercise at all. These are &quot;small&quot; events independent of each other, but the aggregate will probably lead to ruin (probably a heart attack in his mid-50s).<p>- People overestimate tail risk (due to a lack of courage[2]): Jill says she&#x27;s &quot;risk averse&quot; and that she won&#x27;t start a business because it might ruin her -- although in the grand scheme of things, 6 months of your life and a $10,000 investment are not ruin-inducing.<p>[1] <a href="http:&#x2F;&#x2F;www.fooledbyrandomness.com&#x2F;employee.pdf" rel="nofollow">http:&#x2F;&#x2F;www.fooledbyrandomness.com&#x2F;employee.pdf</a><p>[2] Maybe dragging ethics into this wasn&#x27;t such a bad move after all.
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sn9超过 7 年前
This seems to be a chapter in his book coming out in Feb. 2018. I&#x27;ll probably buy it because I usually find his books to be worth reading despite his writing style, but I dearly hope he has an editor to fix the final product from whatever this is.
theptip超过 7 年前
&gt; If someone used a standard cost-benefit analysis [for russian roulette], he would have claimed that one has 83.33% chance of gains, for an “expected” average return per shot of $833,333.<p>Forgot to consider the &quot;cost&quot; in the cost-benefit analysis. Most would value their life significantly higher than 6*$1m, so the expected return is negative.
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qwtel超过 7 年前
what is most fascinating about nassim&#x27;s writings is the night-follows-day certainty with which they will cause a flock of bitter nerds to crawl out of their dimly-lit offices to unwittingly mutter one item or another from the &quot;nassim taleb is wrong because he&#x27;s not one of us&quot; list, which isn&#x27;t so much to proof him wrong, as it is to quickly find one another so that they can fall into each others arms, delivering reassurances that they are not wrong in opposing him, and that their distinct lack of real-world success stems from the cruelness and wrongness of the outside world, not because their supposed superior insights are not, in fact, so.<p>Their all-time favorite, to be repeated with ceremonial regularity, is that his insights are &#x27;trivial&#x27;. ignoring for a moment that these people also believe it &#x27;trival&#x27; to bring a product to market once it has been figured out (by them) in the lab (if they even lower themselves to think in terms of &#x27;products&#x27; for the &#x27;populace&#x27;), treating his literary writings, which are intended for the general public, which is very much in need of trivial insights, as if they were his scientific writings, then dismissing his scientific writings based on his literary writings, is simply malicious, owed to the fact that he is the wrong kind of academic, who lifts weights and calls people &#x27;imbecile&#x27; on twitter, hence reflects poorly on their comic book-like self image of scientists as some kind of quasi-master-race, which is above cursing, emotion and whose physicality is a mere inconvenience, getting in the way of dreaming up ever more distant alternate realities, to be sold to the public as discovery.
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fanzhang超过 7 年前
Economics and statistics understand perfectly well the distinction between gambling returns that happen in parallel versus gambling returns that happen in series.<p>For example, in financial economics, suppose you&#x27;re investing and the returns of each stock during each year is an iid random variable R.<p>If you split your money over 10 stocks and 1 year, you take the arithmetic expectancy of R to calculated your expected returns. If you&#x27;re investing in 1 stock over 10 years, you should take the geometric average of R to get your average yearly return.<p>In other words, if each stock returns 50% chance 3x and 50% chance 0x, you should definitely invest if you can split your money over a pool of 100 independent stocks over the one time period (you&#x27;ll have &gt; 99% chance of &gt;100% gross returns!), but definitely not if you were forced to invest in one single stock for 100 time periods (you have a &gt;99.999% of 0% gross returns).<p>I&#x27;m not sure why NNT feels it necessary to say the smartest Nobel Prize winning physicists are needed to under this. I&#x27;m pretty sure anyone with a rigorous high school math education can understand this. As a matter of point, the above distinction was belabored to me in undergraduate statistics class and a first year graduate economics class, both many many years ago.
falsedan超过 7 年前
What is this word salad
StanislavPetrov超过 7 年前
&gt;You can safely calculate, from your sample, that about 1% of the gamblers will go bust. And if you keep playing and playing, you will be expected have about the same ratio, 1% of gamblers over that time window.<p>This whole argument is based on the false assumption that all gamblers have the same chance of winning and losing. In reality (and depending on the game), skill results in a massive disparity in outcome among gamblers. This is similarly true for the author&#x27;s stock market analogy. As the weaker players are flushed out, you should expect the rate of &quot;bust outs&quot; to slow.
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ianamartin超过 7 年前
My god, this guy is so irritating. As usual, he’s not completely wrong, but he is entirely useless. It’s tautology wrapped in a bunch of garbled language and name-dropping.<p>Lesson #1: you don’t know where you fall in a statistical distribution.<p>No shit. Really? There is a 1% chance of failure in a game. If I play the game an infinite number of times, I will fail to win 1% of the time.<p>The alleged twist: if the nature of the game is that a single failure results in you no longer being able to participate in the game, you cannot play the game an infinite number of times.<p>Color my mind blown. I’m absolutely shocked that Murray Gell-Mann was able to grasp this concept so quickly. A friend of mine has a PhD in Statistics, and I remember once telling him that the probability of a fair coin tossed an infinite number of times and landing on heads approaches 50%. He grasped that concept immediately. I was impressed. We started a company to explain this.<p>I’m kidding. That didn’t happen because it would be stupid in every possible way.<p>Lesson #2: Cost benefit analysis is impossible if you don’t know where you are in the distribution.<p>Somehow, not knowing where you are in the range of possible outcomes means that you can’t know the range of possible outcomes.<p>The alleged twist: even when you know the range of possible outcomes, you apparently don’t.<p>I don’t even know where to start with this. I can’t even make fun of it properly.<p>When you’re gambling, the range of possible outcomes is well-defined for most people. You lose all your money, you break even, or you win. This model is incomplete because it doesn’t take into account human pathology. Some people cheat. Some people take out loans from shady people and lose everything and get a leg broken. Some people commit suicide because they lost a few hundred dollars.<p>Guess what, if you include human behavior in the model of Russian roulette, it’s also a broken model. People will cheat. People will chicken out. People will want to die and pull the trigger twice. That does not make a cost&#x2F;benefit analysis “undefinable,” it just makes the range of possible outcomes larger than most people are comfortable with. That’s why most people choose to not play the game.<p>What Taleb does here (again) is conflate a legitimate criticism of frequentist statistical models with a critique of incomplete decision models.<p>But the critique of frequentist models is entirely sophomoric. It boils down to, “You can’t do something an infinite number of times. Therefore, everything we know is wrong.”<p>Fuck off, man. This gets addressed in every basic statistics intro. I’m not saying there aren’t problems with the idea. There are. But it’s the same problem as saying that the limit of x as y approaches infinity is 1. Is calculus fucked and completely broken because y never gets to infinity?<p>No. Not even a little.<p>Lesson #3: social sciences are broken.<p>Completely agree.<p>The alleged twist: They are broken because the basic concept of probability is broken.<p>The absolute comically stupid apex of all of this linguistic garbage is that Taleb uses the social sciences to prove how little his argument makes sense.<p>He can’t tell the difference between a bad model and a broken system for creating models. He proudly claims that probability is broken because the models that people create to estimate outcomes are bad. And he uses the worst possible collection of models for the most complex systems that we know of as proof that the system is broken.<p>There are absolutely legitimate criticisms not only of frequentist statistics, but of inductive logic in general. It’s only a conversation that’s been going on since, I don’t know, Pythogras? Maybe before?<p>There is nothing new or insightful here. Taleb is wrapping up and idea that everyone already knows in a word cluster so obtuse my 5 fifth-grade English teacher would destroy as some deep new insight.<p>But hey, he posted it on Medium, so it must be awesome.<p>Give me a break.
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soVeryTired超过 7 年前
I don&#x27;t see why Taleb thinks Kelly, Shannon and co. are the only ones who understand ruin. Daniel Bernoulli formalised what is now known as the Kelly crterion in the 1700&#x27;s. Kelly and Shannon&#x27;s contribution was to demonstrate a connection to information theory, which was incredibly fashionable in the first half of the 20th Century.<p>It&#x27;s really quite an old result.
tritium超过 7 年前
<p><pre><code> Recall from the previous chapter that to do science (and other nice things) requires survival t not the other way around? </code></pre> Uh, what?<p>I don&#x27;t understand that sentence? Is &quot;<i>survival t</i>&quot; a typographical error?
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malmsteen超过 7 年前
tl dr ?
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TailorJones超过 7 年前
Another non-closable pop-up window.
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