(7,950 words)
This online EDGE edition is available at:
http://www.edge.org/documents/archive/edge257.html
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THE THIRD CULTURE
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"Statistical and applied probabilistic knowledge is the core of knowledge; statistics is what tells you if something is true, false, or merely anecdotal; it is the "logic of science"; it is the instrument of risk-taking; it is the applied tools of epistemology; you can't be a modern intellectual and not think probabilistically - but... let's not be suckers. The problem is much more complicated than it seems to the casual, mechanistic user who picked it up in graduate school. Statistics can fool you. In fact it is fooling your government right now. It can even bankrupt the system (let's face it: use of probabilistic methods for the estimation of risks did just blow up the banking system). "
THE FOURTH QUADRANT: A MAP OF THE LIMITS OF STATISTICS
By Nassim Nicholas Taleb
An Edge Original Essay
Introduction
When Nassim Taleb talks about the limits of statistics, he becomes outraged. "My outrage," he says, "is aimed at the scientist-charlatan putting society at risk using statistical methods. This is similar to iatrogenics, the study of the doctor putting the patient at risk." As a researcher in probability, he has some credibility. In 2006, using FNMA and bank risk managers as his prime perpetrators, he wrote the following:
"The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deemed these events 'unlikely.' "
In the following Edge original essay, Taleb continues his examination of Black Swans, the highly improbable and unpredictable events that have massive impact. He claims that those who are putting society at risk are "no true statisticians", merely people using statistics either without understanding them, or in a self-serving manner. "The current subprime crisis did wonders to help me drill my point about the limits of statistically driven claims," he says.
Taleb, looking at the cataclysmic situation facing financial institutions today, points out that "the banking system, betting against Black Swans, has lost over 1 Trillion dollars (so far), more than was ever made in the history of banking".
But, as he points out, there is also good news.
"We can identify where the danger zone is located, which I call "the fourth quadrant", and show it on a map with more or less clear boundaries. A map is a useful thing because you know where you are safe and where your knowledge is questionable. So I drew for the Edge readers a tableau showing the boundaries where statistics works well and where it is questionable or unreliable. Now once you identify where the danger zone is, where your knowledge is no longer valid, you can easily make some policy rules: how to conduct yourself in that fourth quadrant; what to avoid."
-John Brockman
NASSIM NICHOLAS TALEB, essayist and former mathematical trader, is Distinguished Professor of Risk Engineering at New York University's Polytechnic Institute. He is the author of Fooled by Randomness and the international bestseller The Black Swan.
PERMALINK: http://www.edge.org/3rd_culture/taleb08/taleb08_index.html
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IN THE NEWS
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DER SPIEGEL
"Was halten Sie für wahr, ohne es beweisen zu können?"
By John Brockman
http://www.edge.org/documents/archive/edge257.html#spiegel
THE NEW YORK TIMES
No Laughing Matter
By Judith Warner
http://www.edge.org/documents/archive/edge257.html#nyt
FRANKFURTER ALLGEMEINE ZEITUNG
Amazons Lesegerät Kindle
Das Buch, das aus dem Äther kam
Von Hubert Spiegel
http://www.edge.org/documents/archive/edge257.html#faz
NATIONAL REVIEW ONLINE
The Corner
BY John Derbyshire
http://www.edge.org/documents/archive/edge257.html#nro
THE GUARDIAN
Tuesday memo: The road to the bridge to nowhere that wasn't there
By Oliver Burkeman
http://www.edge.org/documents/archive/edge257.html#guardian
THE MALTA INDEPENDENT
J'accuse: The meaning of life
by Jacques René Zammit
http://www.edge.org/documents/archive/edge257.html#malta
LAS VEGAS SUN
It's not the issues that likely make up many minds
By J. Patrick Coolican
http://www.edge.org/documents/archive/edge257.html#vegas
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This online EDGE edition is available at:
http://www.edge.org/documents/archive/edge257.html
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Copyright (c) 2008 by EDGE Foundation, Inc.
All Rights Reserved.
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