From quantum complexity to monied tossers
Friday, 4 May, 2012 Leave a comment
Probability and Measure (Photo credit: John-Morgan)
I am not expert (in anything!) but, unless I am very much mistaken, these scientists are striving for the simplicity on the other side of complexity that Einstein craved.
When confronted with a complicated system, scientists typically strive to identify underlying simplicity which is then articulated as natural laws and fundamental principles. However, complex systems often seem immune to this approach, making it difficult to extract underlying principles.
I particularly like the reference to “these systems have memory and are predictable to some extent; they are more complex than a coin toss”.
Which leads me, nicely, on to a recent paper by Nassim Taleb! “Why We Don’t Know What We Talk About When We Talk About Probability”
Taleb is one of the most well known and widely published, critics of the dangerously “naive” practice of applying raw mathematical probabilities [applied to individual or independent events e.g. the coin toss or spin of a roulette wheel] to the, serious and very real, world of finance and insurance*: where it is not ignorance of the subject that is the problem, so much as the blatant disregard for the medium and long term impact upon corporate profitability and social resilience.
A manifestation of the unacceptable face of “Irresponsible Capitalism”
“Should we ban the use of probability? Most certainly, we humans tend to build the most risks (particularly risks of tail events, of blowups) when we discuss probability, so we need to prevent systems from being based on probabilistic computations. In other words, we need to work on …. an operation called robustification by the author. Antifragility (Taleb2012) builds such maps”
*Prof Andrew Lo is another (refer to previous blogs)
Adding-to and deferring known problems that could blow-up on someone else’s watch is another unsavoury facet of the prevailing corporate culture that has already seen us rack up debts for future generations. If that isn’t bad enough then enjoying the trappings of high office and skewed incentives whilst failing to take preventative action is, surely, a matter of Corporate Governance!? So, look out for more revolting shareholders, as deliberate misinformation is trumped by the (inconvenient) truth.
Inter-connectedness and non-linearity explode the myth of knowledge and the worth of risk models based upon assumption about the probabilities of possibilities! NOT a good position for an industry whose income and, ultimately, profit are based upon their shareholders’ regulators and customers’ belief in their future ability to honour the commitments to the various stakeholder groups.
Unfortunately, these problems are only compounded by flawed economic theory and, in attempting to manage uncertainty as if it were risk, conventional tools and techniques (that lack the requisite variety of the systems they are trying to manage) ADD to uncertainty and volatility!
THE CASE FOR THE “ADVANCED RISK MANAGEMENT“, OFFERED BY Ontonix, WAS ALREADY, SCIENTIFICALLY, ROBUST. AND I HAVE REFERENCED THE WORK OF NASSIM TALEB AND ANDREW LO ON NUMEROUS OCCASIONS BUT, AS YOU WILL GATHER FROM THIS QUOTE FROM OUR FOUNDER/CTO, THIS IS ANOTHER POTENTIALLY IMPORTANT “ENDORSEMENT”.
WE FEEL WE ARE APPROACHING A “TIPPING POINT” AND HOPE, FOR THE SAKE OF OUR MISSION AND OUR SHARED FUTURE, THAT WE ARE!
“I have come across a wonderful article by N. Taleb (author of the Black Swan), which basically says the same things about probability and risk that Ontonix has been professing for quite some time now. Everyone MUST read this”…”facing uncertainty and dealing with uncertainty is done better by making systems more robust (resilient) than via risk management“