Nassim Taleb: From fat tails to Fat Tony

Predictions of socioeconomic variables are as dependable as the horoscope—so let’s not rely on them in 2013. Instead we will need systems that don’t fall apart when we make a mistake. This may seem blindingly obvious but apparently it is too “trivial”, too easy to understand and implement to appeal to the zeitgeist. For, alas, though those who risk their own funds put a premium on simplicity and practicality, others—academics driven by “rank” and status, management consultants, economic “experts”, and finance analysts—have an incentive to indulge in complexity and muddle.

This intrinsic limit to predictions is here to stay with us. It will not go away thanks to hard work by zealous researchers or more funding, more data, more computing power, and more complicated theories. For unpredictability is part of any system that is prone to “fat tails”, that is, one whose properties are dominated by rare events—what I have called “black swans”. Don’t imagine that complexity, chaos theory, agent-based modeling or some other fad narrative will deliver better, more usable predictions than those failed economic methods we are still teaching our university students.