Tuesday, December 04, 2012

Taleb's Sokal Hoax

Taleb's latest book he mentions a little trick he played on academics, basically, he created a bunch of nonsense in abstruse mathematics just to highlight what fools they are. Here's his description of this work in Antifragile:
According to the wonderful principle that one should use people’s stupidity to have fun, I invited my friend Raphael Douady to collaborate in expressing this simple idea using the most opaque mathematical derivations, with incomprehensible theorems that would take half a day (for a professional) to understand ... Remarkably—as has been shown—if you can say something straightforward in a complicated manner with complex theorems, even if there is no large gain in rigor from these complicated equations, people take the idea very seriously. We got nothing but positive reactions, and we were now told that this simple detection heuristic was “intelligent” (by the same people who had found it trivial).
I presume this refers to his SSRN paper, Mathematical Definition, Mapping, and Detection of (Anti)Fragility. It contains a lot of unnecessarily complex notation, technically correct and totally meaningless. He basically defines anti-fragility as the difference between the expected value of a function and a function of an expected value over some arbitrary range of that function, and notes that nonlinear functions are more volatile than linear functions, and you want to be long convex payouts.

Taleb doesn't present any data suggesting it is useful for pricing or managing risk, just mentions some really simple examples (stress tests for where unemployment is 8% and 9% that are typical guesses of macro) that highlight how losses can increase exponentially for different assumptions. For complex systems like large corporations, assessing the effect of macro inputs is a similarly vague exercise if you've ever been witness to them (to get a sense, ask yourself what your net worth would be if GDP fell by 5% or 10%).

He then asserts:
It outperforms all other commonly used measures of risk, such as CVaR, “expected shortfall”, stress-testing, and similar methods have been proven to be completely ineffective... It does not require parameterization beyond varying Δp
So, the 'data' showing his equations are helpful are stress-test thought experiments, but this supposedly dominates this same test as well as everything else. Further, it does require density functions for the inputs, and functional forms, subjective thresholds, which for anything like a corporation is simply not amenable to such precision; for specific assets or portfolios there are more direct tools (eg, in options, kurtosis, twist, rho). Like so many things he says, this is not even wrong.

He tried to intimidate a journalist at FTAlphaville with this, and the journalist basically said 'whatever.' The paper was presumably accepted by Quantitative Finance, a journal where Taleb often publishes and seems highly favorable towards his work. This seems identical to the infamous hoax by Alan Sokal, a physics professor who submitted an intentionally meaningless article  to Social Text, an academic journal of postmodern cultural studies. However, Sokal was mocking the journal and its readers by publishing self-acknowledged gibberish. Taleb's mocking his biggest fans ('stupid', he calls them). I bet the journal editor won't find this very amusing.

By admitting that his models are merely "expressing [a] simple idea using the most opaque mathematical derivations, with incomprehensible theorems that would take half a day (for a professional) to understand", he's admitting his math does not add, it's merely to impress via excessive abstruseness. Surely many academics have created excessively technical articles reluctantly, but this shows real bad faith on his part, because presumably this journal aspires to apply rigor in pursuit of making ideas as clear as possible, not the opposite. I must admit it's kind of funny, but perhaps too mean.

joseph said...

Falken is trying to get attention with more bs.
The Sokal hoax is presenting bullshit; here Nassim did the opposite, he said he put more math theorems he found unnecessary but to make the idea get more respect. The latter is standard science.

joseph said...

The more Nassim sells books, the more Falken write stuff. Why don't Falken see a medical chrink?

Anonymous said...

I'm pretty sure everything Taleb has written after Dynamic Hedging has been a hoax.

Anonymous said...

Taleb is correct. The more complex the way an idea is served the more attention it gets from journals. This has had adverse effects on education with texts presenting basic ideas and concepts with many pages of incomprehensible math just to create a status of authority. Here is another post on this http://bit.ly/SN1Xf2

Anonymous said...

OMG I sense a Taleb nuthugger in here...

Mercury said...

I’ve seen Taleb throw that paper down more than once when confronted with reasonable criticisms of material presented in his recent book.

Now, Taleb may be a fantastic actor but from where I’ve been sitting it sure looks like his feathers get genuinely ruffled when people dismiss or question his arguments (witness EF’s story about Taleb harassing his boss). If he's trying to replicate the Sokal prank that's one thing. But why is he using this apparently unserious, purposely opaque, technical paper (that he elsewhere gleefully trumpets as a hoax) to support his larger case (which he genuinely seems to be serious about) in front of a more general audience?

If I’m understanding these events correctly I think the answer rhymes with “hazy”.

Anonymous said...

"Remarkably—as has been shown—if you can say something straightforward in a complicated manner with complex theorems, even if there is no large gain in rigor from these complicated equations, people take the idea very seriously."

I think what Taleb is missing is that gatekeepers at Journals are in part looking out for what is good for the profession. They want to protect the value of their intellectual capital and as such, prefer people to use methods that enhance their value and significance. It is a high end version of union workplace rules.

bjk said...

Taleb's so-called hoax

Anonymous said...

So you are presuming something about Taleb and then coming to a conclusion. You don't know the facts but you have something to blog about. You don't know for sure what article Taleb is writing about yet you know he has betrayed the assumed editor. Brilliant scholarship. Keep up the good work. This rigorous blogging is why I want to keep following your blog

Peter cotton said...

Einstein was wrong. In fact it is Taleb that remains after one has forgotten everything he learned at school.

furzy said...

I am so relieved to read this, because, not that I'm much of a maths freak, but I just could not make overall sense of what Taleb was trying to prove.....maybe that we are both idiots? =:)

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Linus said...

While I did not get the point of your harsh review, I see a lot of the comments above and just wanted to say: keep it up!

A "Taleb is right about everything"-approach is extremely depressing in atleast two ways: He himself openly admits to beeing out of focus at times, and his ideas themselves hate that kind of blind global convergence.

Ted K said...

I like Taleb's first book which largely discusses derivatives and options. I purchased it AFTER the fanfare on his other books, so I am not claiming to be one of his original fans or not SOMEWHAT "jumping on his bandwagon".

.... Also I WANT to like him because he is on the left politically (as am I) and I think for a man with it appears an Arab or Persian background it must be very hard to make it in finance world, especially when the higher echelons of finance industry and finance academia are J.e.wish, and Je.ws would have a strong proclivity to put marks/target against this man based on his Arab name/look alone.

....that being said. The man seems to be trying WAY too hard to impress. Of course many different famous people are megalomaniacs. The list could be quite long if I sat here a couple hours and ran down the names that came to mind. BUt oddly enough the guy Taleb reminds me A LOT of (ready to call me crazy???) is Roger Waters of Pink Floyd fame. He has this FALSE humility thing of "Aaaawww shucks it's so tough and draining to be so much smarter than EVERYONE" thing going. Roger Waters for all his positives (and he had some) basically made it where everyone in the band ended up hating him because EVERYTHING inevitably came back to Roger saying he was the credit behind everything good in Floyd. Roger Waters found out the hard way when he undertook his solo career that IN FACT a lot of Pink Floyd's magic had nothing to do with him. I think Taleb better watch it, because he has a relatively strong fan in me, who is still wavering to by the latest to see if the insightful megalomaniac can get through an entire book tour without insulting the very people who want to hear him out (and purchase the books that LARGELY GIVE the man his fame).

Ted K said...

In comment just above I SHOULD have typed *"still wavering to buy the latest book" in the last paragraph. Sorry