Benoit Mandelbrot and Nassim Taleb on the financial crisis

23 Oct 2008
Here is an old video but a very interesting one that challenges the conventional theory and understanding of risk in economics. Nassim Taleb and the late great Benoit Mandelbrot talk about the illusion of risk control and ask whether this period in financial history is the most worrying period since the Great Depression and the American Revolution. Many would agree with the critique made by the guests here on the naive way that turbulence is modelled by the risk management profession. Taleb and Mandelbrot argue that risk was misunderstood in that quant tools assumed large and destabilizing changes in prices should be very small.

While everything said here is true if you were to focus purely on the new data points we recently experienced (the so-called black swans), I still think that the fragility in the market does not by itself prevent adequate modelling of complexity for risk management. (Taleb says something similar in the video I added previous to this one).

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• Benoit
• Mandelbrot
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• Nassim
• Taleb
• on
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• financial
• crisis

[optionsupdate]

Mr Choudhury, Taleb was on Bloomberg at 12.25pm uk time today, very good analysis of banking.

[MrNChoudhury]

@optionsupdate

Thank you. I missed it but found a link. It's always nice to see Taleb taking the complete opposite view to standard risk management in banking and in economics.

[realbadteeth]

Many thanks for the upload. Two pillars of wisdom. Pity about the interviewer lol. 

[MrNChoudhury]

@realbadteeth

Thanks for the comment! Yes I agree the interviewer pales in comparison to these two heavyweights. Though to be fair what he lacks in wisdom he makes up for by not interrupting the guests. That tends to happen a lot in interviews. Maybe he knew he couldn't hold a candel to these guys.

[realbadteeth]

@MrNChoudhury True. For anyone just gaining interest in their work, they co-wrote a concise and accessible article on the flawed nature of Gaussian probability distribution when applied to scalable variables called "A focus on the exceptions that prove the rule." Worth a google+read! My econometrics lecturers did not dig it!

[ack7121]

Amazing to see Benoit Mandelbrot live. And together with Nassim Taleb the message is pretty scary ...