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    « APB-1 Benchmark Release II | Main | Risk & Decision Reading »

    June 10, 2008


    Charles Follymacher

    You're considering the wrong bell curve. Black swans, income and height are all extremistan if you look at it in terms of frequency of occurance. Best you can say is that income is two-dimensionally extremistan (frequency, distance from mean).


    I forgot to mention 'fidelity to type' in conveying the idea. What lets you know that you are in Extremistan is when the completely unexpected occurrence is of the same type. If something 20 foot tall walks through your door, you are not likely at all to call it human because it would shatter your assumptions of what humans can possibly be. You set the parameters for your bell curve not only on expected frequency but in some ways you consider the long tail's limits by category. Extremistan is an unexpected category breaker.

    Now suddenly I am reminded of Gladwell's new book...

    Charles Follymacher

    Right, I was going to say something about expectations vs average, too. And when we feel confident about the range of the bell curve (we've seen a whole lotta swans and all of em are white), we can only bust out of mediocristan if we come across something wholly unexpected, right? As in, f'zample, an order of magnitude richer than Bill Gates or Shell Oil. Or am I still not getting this?


    Well the brilliant thing would be to be able to tell whether or not you are in Extremistan a priori. And perhaps that's what Taleb is telling us - the global financial market is absolutely there.

    Two other mnemonics: 1. When Manhattan project scientists worried about detonating the first nuke, they thought that the atmosphere might ignite - perhaps they thought they were in Extremistan, but it turned out that the were in Mediocrestan. Their calcs were an order of magnitude off, and were possibly asymptotic to the disaster line.

    2. Douglas Adams' Infinite Improbability Drive renders Extremistan cognizable, even perfectly navigable. But then that's impossible. OK extremely improbable.

    Charles Follymacher

    Heh. Good stuff. It's been an age since I read Hitchhiker's Guide.

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