Wednesday, March 18, 2009

The uncertain world of Nassim Taleb

A trader for 20 years, Nassim Taleb became fascinated by decision research as a result of watching his colleagues and the financial industry in general. Two books (so far) have resulted from this fascination: The Black Swan and Fooled by Randomness. I haven't had the chance to read either just yet, but I recently found this podcast of an interview with Taleb, in which he covers some of the same ground he goes over in his books. He is not an eloquent speaker and is occasionally hard to follow, but I enjoyed this conversation greatly. Russ Roberts struck me as a skilled interviewer, though I'm not sure how accessible some parts of the discussion will be to those without some economics-related background (give it a listen anyway... it's thought-provoking and worthwhile).

Taleb's work is an example of the recent trend of books about decision-making research which are aimed at a (relatively) broad audience. Blink, by Malcolm Gladwell, is the best example of this phenomenon I can think of offhand. In addition to demonstrating a heightened sensitivity to the role played by psychological decision-making biases, Taleb is particularly concerned with the use of statistics and related tools for decision-making purposes for which they are ill-suited, in his opinion. He has a point. About 55 minutes into the podcast, he and Roberts talk a bit about Taleb's distinction between what he calls "ludic" and "non-ludic" (also referred to as "ecologic") environments. Ludic decision-making environments are those where the "rules" are known, with no ambiguity, such as in a standard board game. Non-ludic environments are those where the rules are unknown and/or don't apply. Instead of a lack of ambiguity, non-ludic environments are characterized by "real world uncertainty." One of Taleb's basic concerns is that people seem to approach many non-ludic situations as thought they were operating in a ludic environment, using decision-making tools (such as certain applications of statistics, but also including innate psychological decision-making biases and heuristics) with a ludic basis and which do not necessarily provide the right kind of decision support for a non-ludic environment. Another way of saying this might be that people too often ignore the existence of unknown unknowns, to their peril.

This article by Taleb (found via Mapping Strategy, which has some intriguing thoughts on the subject as well) enumerates more of his ideas, focusing on his case against the misuse of statistics rather than the decision-making biases he spends most of the podcast talking about. It's interesting stuff. Our limited ability to plan for and consider the future based solely on backwards-looking models suggests that other methods are necessary. Mapping Strategy sees this as an endorsement of alternative tools like scenario planning, and I see a role for gaming to play in trying to understand our messy, non-ludic, ecologic world.

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