Black Swan Theory

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An introductory presentation on Black Swan Theory (a la Nassim Taleb) and its relevance to the financial industry.

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Black Swan Theory

  1. 1. Black Swan Theory<br />Prepared for Alice Tanada<br />24 August 2009<br />
  2. 2. Origin<br />
  3. 3. Black Swan Theory<br />Introduced by Nassim Nicholas Taleb<br />Unlike the “Black Swan Problem”<br />Ludic Fallacy<br />
  4. 4. Black Swan Event<br />A Black Swan event:<br />is a surprise<br />has a major impact<br />is rationalized by hindsight after the occurrence as if it was expected<br />Examples: 9/11, Internet, WWI, etc.<br />The “unknown unknowns”<br />
  5. 5. “There are known knowns. There are things we know that we know. There are known unknowns. That is to say, there are things that we now know we don’t know. But there are also unknown unknowns. There are things we do not know we don’t know.”<br />
  6. 6. Ludic Fallacy<br />“…misuse of of games to model real-life situations.”<br />Key ideas:<br />Impossible to possess all information<br />Butterfly effect<br />Empirical data unreliable<br />Examples: fixed coin, job interview, stock return<br />
  7. 7. Taleb Himself<br />
  8. 8. Relevance<br />“Impossible is nothing.”<br />“Past performance may not be indicative of future results.”<br />Black Swan Protection Protocol™ – 115% in 2008<br />
  9. 9. Thank You<br />Ben Yang<br />24 August 2009<br />

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