Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 63 views

    50 - Fat Tails and (Anti) Fragility - N N Taleb: 3.2 Survivorship Bias (Casanova) Property

    Uploaded by

    a p
    The document discusses survivorship bias, also known as the Casanova effect or fallacy of silent evidence. It states that looking at history, we do not see the full story, only the parts of the process that were not absorbed by a barrier. It provides two ways to model historical processes: 1) as an arithmetic process with noise, and 2) as a geometric process with noise, where typically the log of the process over time is treated as Gaussian. It notes that with an absorbing barrier, the expected value of the process that is observed increases, since paths that crossed the barrier become invisible.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    50 - Fat Tails and (Anti) Fragility - N N Taleb: 3.2 Survivorship Bias (Casanova) Property

    Uploaded by

    a p
    63 views1 page
    The document discusses survivorship bias, also known as the Casanova effect or fallacy of silent evidence. It states that looking at history, we do not see the full story, only the parts of the process that were not absorbed by a barrier. It provides two ways to model historical processes: 1) as an arithmetic process with noise, and 2) as a geometric process with noise, where typically the log of the process over time is treated as Gaussian. It notes that with an absorbing barrier, the expected value of the process that is observed increases, since paths that crossed the barrier become invisible.

    Original Title

    8020 NNT.pdf

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document discusses survivorship bias, also known as the Casanova effect or fallacy of silent evidence. It states that looking at history, we do not see the full story, only the parts of the process that were not absorbed by a barrier. It provides two ways to model historical processes: 1) as an arithmetic process with noise, and 2) as a geometric process with noise, where typically the log of the process over time is treated as Gaussian. It notes that with an absorbing barrier, the expected value of the process that is observed increases, since paths that crossed the barrier become invisible.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    63 views1 page

    50 - Fat Tails and (Anti) Fragility - N N Taleb: 3.2 Survivorship Bias (Casanova) Property

    Uploaded by

    a p
    The document discusses survivorship bias, also known as the Casanova effect or fallacy of silent evidence. It states that looking at history, we do not see the full story, only the parts of the process that were not absorbed by a barrier. It provides two ways to model historical processes: 1) as an arithmetic process with noise, and 2) as a geometric process with noise, where typically the log of the process over time is treated as Gaussian. It notes that with an absorbing barrier, the expected value of the process that is observed increases, since paths that crossed the barrier become invisible.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    You are on page 1of 1

    50 | Fat Tails and (Anti)fragility - N N Taleb

    Warning. Severe mistake! One should never, never fit a powerlaw using frequencies (such as 80/20), as these are interpolative. Other estimators based on Log-Log
    plotting or regressions are more informational, though with a few caveats.
    Why? Because data with infinite mean, a 1, will masquerade as finite variance in sample and show about 80% contribution to the top 20% quantile. In fact you are
    expected to witness in finite samples a lower contribution of the top 20%/
    Let us see. Generate m samples of a =1 data Xj ={xi,j <ni=1 , ordered xi,j xi-1,j , and examine the distribution of the top n contribution Z jn =

    in n x j
    in x j

    , with n (0,1).

    Figure 3.10. n=20/100, N= 107 . Even when it should be .0001/100, we tend to watch an average 75/20

    3.2 Survivorship Bias (Casanova) Property


    E[M-M*] increases under the presence of an absorbing barrier for the process. This is the Casanova effect, or fallacy of silent evidence
    see The Black Swan, Chapter 8. (Fallacy of silent evidence: Looking at history, we do not see the full story, only the rosier parts of the
    process, in the Glossary)
    History is a single sample path we can model as a Brownian motion, or something similar with fat tails (say Levy flights). What we observe is
    one path among many counterfactuals, or alternative histories. Let us call each one a sample path, a succession of discretely observed states
    of the system between the initial state S0 and ST the present state.
    1. Arithmetic process: We can model it as SHtL = SHt - DtL + ZDt where ZDt is noise drawn from any distribution.
    2. Geometric process: We can model it as SHtL = SHt - DtL Wt typically SHt - DtL m Dt + s
    distribution. Typically, logJ

    S HtL
    S Ht-i DtL

    Dt Zt

    but Wt can be noise drawn from any

    N is treated as Gaussian, but we can use fatter tails. The convenience of the Gaussian is stochastic

    calculus and the ability to skip steps in the process, as S(t)=S(t-Dt) m Dt + s


    single period to summarize the total.

    Dt Wt

    , with Wt ~N(0,1), works for all Dt, even allowing for a

    The Black Swan made the statement that history is more rosy than the true history, that is, the mean of the ensemble of all sample path.
    Take an absorbing barrier H as a level that, when reached, leads to extinction, defined as becoming unobservable or unobserved at period T.

    You might also like