At the end of Taleb on IQ: more responses, debunking IQ cultural bias, and the philosophy of Taleb’s liberalism, I write:
Some critics may concede that although Taleb is wrong only about IQ, he is a genius at other stuff, but as I will discuss in further detail in an upcoming post, Taleb has no original ideas, gets a lot of other stuff wrong, and is not a genius. But he does a reasonably good job pretending to be one, so understandably a lot of people are fooled by his facade of intellect.
This post will not be about IQ, which I already discussed earlier, but about how Taleb is wrong about other things too and overrated as an intellect. My earlier posts Nassim Nicholas Taleb: Thin-Skin In The Game and Nassim Nicholas Taleb (Skin in the Game) misconstrues data, is wrong about economics and mobility discus how Taleb is wrong about non-IQ stuff, such as economics and option pricing, and how he misconstrues data.
A lot of people hold Taleb up as a sort of genius. Conservatives and liberals alike sing his praises about ‘blacks swans’ and ‘anti-fragility’, so understandably, one may believe that Taleb must be some sort of great researcher who has made significant contributions to economics and finance. But as I discuss, Taleb’s CV is unimpressive, with just a handful of technical papers published in low-impact journals. In other words, his output is barely commensurate with that of a typical graduate student, but of worse quality. The main problem Taleb has is, none of his ideas are important or original–but are either wrong, insignificant, or re-hashes. The rest of his stuff is published on SSRN, which is not a real journal, but a pre-print archive that has no peer review. That’s not to say SSRN does not have some quality stuff, but it’s often confused for being a journal, but it is not. Other papers are on on ArXiv, which has a more rigorous screening process than SSRN but is still not peer-reviewed.
Of course, peer view has its flaws, such as quality papers that fail to conform to a certain (usually left-wing) narrative being wrongly rejected or withdrawn, but those are journals and papers that have political implications, whereas quantitative finance is usually a-political.
One may ask, how am I qualified to judge? Taleb on Twitter often posts links to Mathematica-rendered formulas and PDFs to mystify and stupefy his readers by his ‘great intellect’, but as someone who understands those formulas, it’s all sizzle and no steak. Based on my own knowledge of finance and option pricing, and having written papers on the subject, I can say with certainty none of Taleb’s ideas are significant, and his PDF papers would not even pass editor desk review for most journals, let alone peer review. Furthermore, his PDF papers don’t adhere to the standard format of having an abstract, intro, results, and conclusion, and he fails to convey why and how his results are important and where they fall in line with the existing literate, or why we should even care.
What about the black swan concept which Taleb is most famous for? Again, not original. It is just his own reformulation of the Peso Problem, which was originated by Milton Friedman in the 70’s. It states:
The Peso problem in finance is a problem which arises when “the possibility that some infrequent or unprecedented event may occur affects asset prices”. The difficulty or impossibility of predicting such an event creates problems in modeling the economy and financial markets by using the past.[1]
Milton Friedman deserves credit for this idea, not Taleb.
Consider the Taleb v. Pinker debate on violence. Taleb’s counterargument is based on his assumption that violent death has an incalculable variance. This my be true but is of no use and an invocation of the argumentum ad ignorantiam fallacy.
If you think I’m just cherry picking, he’s an example chosen at random that demonstrates Taleb’s fallacious reasoning as it pertains to investing, from his essay The Logic of Risk Taking:
The probabilities of success from the collection of people does not apply to cousin Theodorus Ibn Warqa. Let us call the first set ensemble probability, and the second one time probability (since one is concerned with a collection of people and the other with a single person through time). Now, when you read material by finance professors, finance gurus or your local bank making investment recommendations based on the long term returns of the market, beware. Even if their forecast were true (it isn’t), no person can get the returns of the market unless he has infinite pockets and no uncle points. The are conflating ensemble probability and time probability. If the investor has to eventually reduce his exposure because of losses, or because of retirement, or because he remarried his neighbor’s wife, or because he changed his mind about life, his returns will be divorced from those of the market, period.
Uncle points are what are called ‘absorbing barriers’ in finance parlance. He talking about risk of ruin and absorbing barriers of Brownian motion and survival probability , which are concepts known long before he began writing about it.
“Uncle points” are only a problem if one uses leverage, which is a detail Taleb omits. Someone who merely passively invests in the market with no leverage will have zero uncle points and capture the returns of the market, and there is no need for infinite pockets. If one goes to /r/personalfinance there are plenty of people doing just that with a lot of success. Obviously, if an investor reduces his returns due to unforeseen problems such as a medical emergency, that could reduce returns, but deductions are not the same as insolvency or under-performing an index, and one treat those deductions in the same manner as one treats dividends. So Taleb wrong there. It’s not hard to find examples like this.
That’s not to say it’s all bad. He occasionally has some interesting insights and original takes on existing concepts, such as the Lindy Effect. Books that have been in print for hundreds of years will likely remain in print for another 100 years, so the Bible is not going anywhere. However, this obviously does not work for organisms, and it contradicts his earlier writings on black swans and epistemological uncertainty. The fact that century-old financial institutions failed in 2007-2010, elucidates the perils of trying to extrapolate the future from the past, as Taleb would agree. For most readers of Taleb’s books, concepts such anti-fragility, the’turkey problem’, convexity, etc. will seem interesting, but they are not original. Finding original ideas in finance and economics is very difficult, and there is value in re-telling important concepts and ideas to a broader audience, but if Taleb is as much of genius as as so many say he is, then there would be at least a single original idea to his name, but there are none.