Taleb's Ten Principles

To prevent future crashes. I think most of these are pretty good. Explanations for each principle in Taleb’s FT piece

1. What is fragile should break early while it is still small.

2. No socialisation of losses and privatisation of gains.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus.

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks.

5. Counter-balance complexity with simplicity.

6. Do not give children sticks of dynamite, even if they come with a warning 

7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”.

8. Do not give an addict more drugs if he has withdrawal pains.

9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement.

10. Make an omelette with the broken eggs.

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8 thoughts on “Taleb's Ten Principles

  1. I would add a super-rule:There will always be booms and busts. Be aware of that fact and deal with it appropriately (by getting out of the way and letting failure happen).Obama, the delusional retard, needs to have that pounded into his skull.

  2. Wouldn't applying 9) rely on ignoring 7)? That is, not depending on retirement investing creates reliance on Social Security (which is a Ponzi scheme). or am I missing something.

  3. 7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”.8. Do not give an addict more drugs if he has withdrawal pains.Implementing these would require dismantling the entire system of centralized fractional reserve banking and discretionary monetary policy.As a Rothbardian I favor this, but most don't. Something to keep in mind.

  4. (9) and (6) seem very deeply illiberal– he's arguing for straight-up paternalism by “the smart people with clean hands” (as if that weren't one of the oldest and most useless of all the pseudo-reformers' tropes, from Bellamy onward) and forcibly stopping people from taking risks they want to take. Those who, honestly and with clear eyes, value freedom over certainty are deemed not to be “normal citizens.” This is scary stuff, and scarier because like a lot of demagogic appeals it mixes totalitarian fantasies with genuine and legitimate grievances.

  5. “Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”.”The second rule is arguable (though only to the extent it's vague). The first is bloody well stupid, from both micro and macro perspectives. Economies and arm's-length business transactions depend on confidence. Period.

  6. As usual, Taleb makes sound but incredibly vague points. For argument's sake:(1) So only low-risk projects should be allowed to take off??(2) Yes, definitely, but what if this means letting the financial system collapse? What if it means the probability of another Great Depression is 0.25? 0.5? 0.9?(3) Yes, but who ''crashed the bus''? People will say it was a collective bungle.(4) Well, you're trading off one problem for another. Incentive bonuses play a role. You could argue instead that the bonuses should be structured differently: rather than maximize returns, maximize returns subject to a certain risk tolerance.(5) What does that even mean??(6) No one ''gave'' the children dynamite. The children will find the dynamite no matter what. The dynamite should be acknowledged and supervised.(7) Financial markets are all about fads, trends and bubbles. I am not sure the Government can restore confidence to markets, but if it can help, why not?(8) What about Methadone clinics? Sometimes this is tolerable if the alternative is death.(9) On what should they depend for their retirement then? State generosity? A zero-risk, lower value pension? No. They should reduce, over time, the share of their pension that is invested in higher risk assets, e.g. stocks. As retirement nears, the pension is safe.(10) What if the omelet is toxic? Yum.

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