Is It So Bad that We Cannot Recognize Black Swans?

Via Aleskerov & Egorova

Analyzing the reasons of financial crises in “The Black Swans,” N.N. Taleb concludes that modern economic models badly describe reality for they are not able to forecast such crises in advance.

We tried to present processes on stock exchange as two random processes one of which happens rather often (regular regime) and the other one – rather rare. Our answer is that if regular processes are correctly recognized with the probability a bit higher than 1/2, this allows to get positive average gain. We believe that this very phenomenon lies in the basis of unwillingness of people to expect crises permanently and to try recognizing them.

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About Miguel Barbosa

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28. September 2010 by Miguel Barbosa
Categories: Curated Readings, Risk & Uncertainty | Leave a comment

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