> The ludic fallacy, identified by Nassim Nicholas Taleb in his 2007 book The Black Swan, is "the misuse of games to model real-life situations."
...
> The alleged fallacy is a central argument in the book and a rebuttal of the predictive mathematical models used to predict the future – as well as an attack on the idea of applying naïve and simplified statistical models in complex domains. According to Taleb, statistics is applicable only in some domains, for instance casinos in which the odds are visible and defined.
Both Taleb's books, "The Black Swan" and "Fooled by Randomness" are an interesting take for such models. Meanwhile, most economists know about "Knightian Uncertainty" [1] which talks about differentiation of risk and uncertainty.
> "Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated.... The essential fact is that 'risk' means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character; and there are far-reaching and crucial differences in the bearings of the phenomena depending on which of the two is really present and operating.... It will appear that a measurable uncertainty, or 'risk' proper, as we shall use the term, is so far different from an unmeasurable one that it is not in effect an uncertainty at all."
Damn, do I disliked Nassim Taleb. I don't think I've ever heard him say anything deep. That wikipedia article is an excellent.
In [0] you have the following:
> The ludic fallacy, identified by Nassim Nicholas Taleb in his 2007 book The Black Swan, is "the misuse of games to model real-life situations."
And he gives an example of this:
> One example given in the book is the following thought experiment. Two people are involved:
> Dr. John who is regarded as a man of science and logical thinking
> Fat Tony who is regarded as a man who lives by his wits
> A third party asks them to "assume that a coin is fair, i.e., has an equal probability of coming up heads or tails when flipped. I flip it ninety-nine times and get heads each time. What are the odds of my getting tails on my next throw?"
> Dr. John says that the odds are not affected by the previous outcomes so the odds must still be 50:50.
> Fat Tony says that the odds of the coin coming up heads 99 times in a row are so low that the initial assumption that the coin had a 50:50 chance of coming up heads is most likely incorrect. "The coin gotta be loaded. It can't be a fair game."
> The ludic fallacy here is to assume that in real life the rules from the purely hypothetical model (where Dr. John is correct) apply. Would a reasonable person bet on black on a roulette table that has come up red 99 times in a row (especially as the reward for a correct guess is so low when compared with the probable odds that the game is fixed)?
So Nassim Taleb wanted to discuss "using games to model real-life situations" and to demonstrate the pitfalls he uses two characters. He _portrays_ the characters as "man of logical thinking" vs "man who lives by his wits", but as we'll see he's missing one dimension to his characterization.
The first problem here is that implicitely he's suggesting to the reader that the decisions of the "man of logical thinking" represent the pitfalls of "applying games to model real-life situations", whereas the the other guy's decision represent.... it's not specified, but clearly has a better outcome.
The second problem, is that he conflates "applying something you read on some textbook to real life without thinking" with "modelling real-life". He suggests to the reader that those two people are actually "logical" vs "instinct", but they're not. They're a dumb guy who knows maths vs a smart guy who doesn't know math. _Obviously_ real-life is more complex than your textbook examples, and so the smart guy is going to win because his fuzzy heuristics beat the first guys decisions which are optimal within his flawed model. An actual smart and logical person would update his model based on new evidence (i.e. "I was told that this coin was 50-50 but actually the chance of what I just saw is so small that it's more likely that I was just lied to") and then use maths to make predictions and beat the guy who's smart but doesn't know math.
So ironically, he wants to portray the dangers of using over-simplified models and to do that he uses an example where he obscured one dimension.
Nassim Taleb is really good a rhetoric but light on substance.
Nassim Taleb is basically a stopped clock. He's pretty big on pointing on how we're all prone to find illusory correlations (not his discovery) and he's a great promoter for Kahneman and Tversky, but there are other areas where he clearly is out of his depth. It's beyond obvious, for instance, that he's never gotten past Popper in his studies of philosophy of science. Unfortunately, his disciples are (ironically) quite terrible at thinking for themselves and buy into his demagoguery.
Basically a book by Nassim Taleb is an incoherent summary of the books that Nassim Taleb has read within the past year, with a few morsels of recycled insight here and there.
Agreed. His ideas are often completely incoherent and occasionally devolve into a mixture of pseudoscience and philosophical babble. He is also difficult to argue against because he is essentially the statistics equivalent of a nihilist.
I’m not sure why there are so many people who take him seriously.
> The ludic fallacy, identified by Nassim Nicholas Taleb in his 2007 book The Black Swan, is "the misuse of games to model real-life situations."
...
> The alleged fallacy is a central argument in the book and a rebuttal of the predictive mathematical models used to predict the future – as well as an attack on the idea of applying naïve and simplified statistical models in complex domains. According to Taleb, statistics is applicable only in some domains, for instance casinos in which the odds are visible and defined.
Both Taleb's books, "The Black Swan" and "Fooled by Randomness" are an interesting take for such models. Meanwhile, most economists know about "Knightian Uncertainty" [1] which talks about differentiation of risk and uncertainty.
> "Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated.... The essential fact is that 'risk' means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character; and there are far-reaching and crucial differences in the bearings of the phenomena depending on which of the two is really present and operating.... It will appear that a measurable uncertainty, or 'risk' proper, as we shall use the term, is so far different from an unmeasurable one that it is not in effect an uncertainty at all."
[0] https://en.wikipedia.org/wiki/Ludic_fallacy
[1] https://en.wikipedia.org/wiki/Knightian_uncertainty