I already told you that The Black Swan is among the best idea books I have ever read, and I find it even more interesting when I look at the current high-stakes news from the finance industry. Do we need more regulation or less? No bail-out, or one with strings attached—and what kind of strings? Obama or McCain?
All these questions are easier to consider when you understand that too much decision-making is made based on a faulty use of statistics.
Well, the Black Swan author, Nassim Taleb has just written a lengthy, must-read essay “The Fourth Quadrant”, where he argues about the limits of knowledge and how dangerous it is for policymakers (and the rest of us) to think that complex computer models are useful tools for the kinds of large-scale super-complicated decisions that have resulted in today’s mess.
Here’s the chart that explains it best:
This is the life of a turkey, who like many of today’s leaders, uses indisputable statistics and the best and brightest advisors to “prove” that he knows which policies will provide continued growth and happiness for the flock. After all, numbers don’t lie, right? Unfortunately, numbers don’t tell him the most important fact of all, that he is a turkey before Thanksgiving.
This is not an argument for nihilism, that we should just sit around and do nothing. Read Taleb’s essay and understand, on the contrary, that there are things we should do and that we’re much better off when we know what we don’t know.