2011/01/17

The Crystal Ball


Nassim Taleb, in his books The Black Swan and Fooled by Randomness, argues vehemently against predictions as they can be dangerous, blinding us to other outcomes, having us make decisions based on poor (or no) information. In the 25-year special edition of The Economist a wonderful piece of irony unfolds. Taleb himself, unfathomably, makes some predictions for 2036. On page 90 there is an article Future imperfect which analyses the Economist’s record at making predictions. And for the grand finale, the magazine provides a set of financial forecasts for 2011 for various industries and countries.
I was surprised to find Taleb had written such an article. When at first I saw, quite accidentally during a Google search, that someone claimed he had made such predictions, I thought it was a joke. But there the article is, in the The Economist. I am still not convinced that perhaps Taleb is not the one playing the prank on The Economist and its gullible readers.
The first article mentions Taleb; forgets to mention Taleb would have abhorred all the predictions mentioned (whether they came true or not). The set of 2011 figures are the kinds of things Taleb most wants us not to predict: GDP and inflation (population is also included, but this is arguably more predictable). The errors in such predictions are large. What use are the numbers if we can place no confidence in them?
Taleb’s predictions are
1.       City-states will prevail rather than nation-states
2.       Currencies will either not exist or be pegged to a standard
3.       No more large, debt-laden, listed companies
4.       Most technologies more than 25 years old will survive and most of the younger ones will be dead
5.       There will be biological and electronic pandemics
6.       Religion will experience a revival
7.       Science will produce few gains in non-linear domains
8.       Academic economics will be regarded with disdain
This is a very eclectic mix of predictions, is it not? As with many predictions, I suspect it is really just a wishlist (with the possible exception of point 5). From this angle point 6 is very interesting. Taleb’s books are secular and he has remained very obscure regarding his feelings on religion. Would he like a revival? I would. But that is drifting off topic.
Taleb bases these predictions on the premise that one will expect a system that relies too heavily on prediction to break eventually and 25 years is a long enough time. I agree with TechnoOccult that the link between this premise and the predictions is threadbare at best. I would very much like to know the logic Taleb is using. I am worried that he has lost his objectivity. A podcast I heard a few months ago contained a ranting Taleb with little thought that he might not always be right.
The future is filled with black swans, by definition unpredictable. Every one of these predictions could, in principle, be thrown off by a well-placed black swan. Is this not what Taleb warned us against? We are not just talking about a system breaking; we are speculating about how and what will take its place. Perhaps Taleb is becoming overconfident, fooling himself into thinking that he is cultivating his deep-seated insecurity, while making ever bolder ideological statements. I would be truly sad if this is the case. Of course we need to wait 25 years to see if he is right, by which time we might be eulogising him.
Some references
Taleb’s books:

  • Taleb, N.N., 2007a. Fooled by Randomness 2nd ed., Penguin.
  • Taleb, N.N., 2007b. The Black Swan, Penguin


The TechnoOccult article (which for some reason only mentions five predictions) that alerted me to all this:

  • Finley, K., 2010. 5 Predictions from Nassim Taleb for 2036. TechnoOccult. Available at: http://technoccult.net/archives/2010/11/29/5-predictions-from-nassim-taleb-for-2036/.


The podcast I mentioned:

  • EconTalk, 2010. Taleb on Black Swans, Fragility and Mistakes. Library of Economics and Liberty. Available at: http://www.econtalk.org/archives/2010/05/taleb_on_black_1.html.

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