SERVING THE QUANTITATIVE FINANCE COMMUNITY

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Chukchi
Topic Author
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Joined: December 15th, 2001, 3:43 am

### New Book - The Blank Swan: The End of Probability by Elie Ayache

The Blank Swan: The End of Probabilityby Elie AyacheHardcover: 496 pages Publisher: Wiley (June 2010) ISBN-10: 0470725222 FinMath.com
Last edited by Chukchi on November 17th, 2011, 11:00 pm, edited 1 time in total.

crmorcom
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Joined: April 9th, 2008, 4:09 pm

### New Book - The Blank Swan: The End of Probability by Elie Ayache

A very clever title, but the publisher's blurb is not very explanatory, and I'm not convinced by the first few pages! I will be interested to read a few careful reviews before parting with my money.

trackstar
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Joined: August 28th, 2008, 1:53 pm

### New Book - The Blank Swan: The End of Probability by Elie Ayache

I have been reading this book and taking several very interesting detours this summer because of it.Will be posting some material in trackstar's blog in the OT in a few days and will cross post here.
Last edited by trackstar on August 17th, 2010, 10:00 pm, edited 1 time in total.

trackstar
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### New Book - The Blank Swan: The End of Probability by Elie Ayache

Last edited by trackstar on August 17th, 2010, 10:00 pm, edited 1 time in total.

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Joined: September 20th, 2002, 8:30 pm

### New Book - The Blank Swan: The End of Probability by Elie Ayache

Nice! I've read some of Ayache's writing but not this book and would not claim to understand all his finer points. Yet I suspect that I agree with much of what he says, at least with regard to the deeper errors in the prevailing models used for the markets. In particular:1) Stochastic models contain deeply embedded assumptions that fail egregiously. Although markets certainly contain pseudorandom events (e.g., a flood ruins a harvest, a miner strikes rich vein, an incompetent leader makes a injudicious statement) that rule the micromovements of the market, the larger movements over larger timescales contain much larger near-deterministic effects. Extremely unexpected events (black swans) occur too often. This phenomenon is worse that Taleb states when he shows how the rarity of the events makes them hard to analyze and destabilizes our estimation and calibration processes. The deeper problem lurks in the nature of human risk perceptions, reward incentives, and hubristic modeling practices. These factors literally discount the risks too much, justify extreme bets with extreme leverage and thereby induce near-impossible events with near-certain probability.2) The long-term, discounted, expected future cashflows of an instrument only provides a useful estimate of the price under some conditions (and fails to provide a strong estimate under at least three conditions). First, during times of financial stress, the price of an instrument becomes a function of the short-term expected cashflows of seller and the aggregate availability of capital. Second, during times of speculation, the price of an instrument becomes a function of the expected cashflows of buyers and their ability to pour cash into the market's darling du jour. Third, the model ignores shared systemic errors in the belief systems of participants.3) IFRS/GAAP poorly handles both probabilistic, contingent, and conditional events by attempting to reduce them to a single-valued variable (which is why I was so vehement/incontinent in the sqrt/arctan/positron threads). Recognized revenues, costs, assets, and liabilities all represent a kind of forecast and we all know that the only certainty in a forecast is the certainty that it is wrong. These accounting standards also use a flawed unit-of-analysis that both permits fraud (off-balance sheet structures that hide financial problems) and hides serious systemic risks (cascading failures in the larger system). Although one can draw a nice little boundary around the firm, that boundary is highly permeable and subject to malicious choices. The true accounting state inside the firm becomes a strong function of events outside the firm. We can pretend that a balance sheet stands in isolation as a reflection of that entity's resources and obligations, but so many outside factors affect the true outcome that we'd best not bet too much in the accuracy of the accounting statement.
Last edited by Traden4Alpha on August 19th, 2010, 10:00 pm, edited 1 time in total.

farmer
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### New Book - The Blank Swan: The End of Probability by Elie Ayache

Those who understand something clearly can explain it in a paragraph. Those who can't understand something - Ayache and Taleb - require an entire book to plot their wanderings in the forest.

crmorcom
Posts: 452
Joined: April 9th, 2008, 4:09 pm

Having just read the first 8 pages on Amazon, I must say I agree with Farmer. I'm almost tempted to buy it just to see if the rest is as incoherent as the introduction but don't quite think I want to blow $29.16 on the experience. I think I may prefer to go back to my blue screen with my blank stare. Traden4Alpha Posts: 23951 Joined: September 20th, 2002, 8:30 pm ### New Book - The Blank Swan: The End of Probability by Elie Ayache QuoteOriginally posted by: farmerThose who understand something clearly can explain it in a paragraph. Those who can't understand something - Ayache and Taleb - require an entire book to plot their wanderings in the forest.That's only true for trivial topics in which the gulf between the audience's state of knowledge and the author's intended destination is a mere paragraph. (I will grant you that a good author can hook it's audience in a single paragraph even if the topic requires a entire book to fully convey).I'd say that Ayache faces a rather serious challenge. He's trying to talk to a group of people who have spent their entire lives being lauded for how much they know (A+ report cards, 1600 SAT, honors grad from an Ivy league school, big salary, etc.) and tell them that they know far less than they think they know. Worse, he's trying to replace an edifice of thought which does provide seemingly certain answers (even if they are dangerously wrong) with something that provides only the cold comfort of uncertainty. frenchX Posts: 5911 Joined: March 29th, 2010, 6:54 pm ### New Book - The Blank Swan: The End of Probability by Elie Ayache If you like very much Elie Ayache, I advise you to read this book (by Michel Bitbol, the french expert of realism). Unfortunately it's in french at the moment I think Théorie quantique et sciences humainesThe book is mainly focusing about philosophy of quantum mechanics but there also inside a chapter by Elie Ayache called "L?événement du marché, ou la nécessité de l?ascension méta-contextuelle " (the market event or the need of a metacontextual anscension). Sorry if it's only in french at the moment but I know some of you who can understand french quite well EDIT: I also suggest you to have a look on his papers Ayache's paper selection i advise you to read "I'm a creator" the last tackle up to date to Taleb and Collector Last edited by frenchX on August 19th, 2010, 10:00 pm, edited 1 time in total. farmer Posts: 13472 Joined: December 16th, 2002, 7:09 am ### New Book - The Blank Swan: The End of Probability by Elie Ayache QuoteOriginally posted by: Traden4AlphaThat's only true for trivial topics in which the gulf between the audience's state of knowledge and the author's intended destination is a mere paragraph.Then Ayache doesn't properly understand the destination. The audience does not need to tour a whole city to learn something like German cities are cleaner than Italian cities. His main point is probably a simple and abstract one. He distracts the audience with a lot of page filler.Ayache, if you read this, you know you made a lot of page filler. You wanted to write a book, and you wanted to offer more than just the main point. You wanted to take people on a pointless tour of your city. Your mother must have told you your writing is very enjoyable. Traden4Alpha Posts: 23951 Joined: September 20th, 2002, 8:30 pm ### New Book - The Blank Swan: The End of Probability by Elie Ayache QuoteOriginally posted by: farmerQuoteOriginally posted by: Traden4AlphaThat's only true for trivial topics in which the gulf between the audience's state of knowledge and the author's intended destination is a mere paragraph.Then Ayache doesn't properly understand the destination. The audience does not need to tour a whole city to learn something like German cities are cleaner than Italian cities. His main point is probably a simple and abstract one. He distracts the audience with a lot of page filler.Ayache, if you read this, you know you made a lot of page filler. You wanted to write a book, and you wanted to offer more than just the main point. You wanted to take people on a pointless tour of your city. Your mother must have told you your writing is very enjoyable.I'd say that, by this argument, most philosophers don't understand the destination. Or should we say that most readers don't understand the journey.Part of me agrees with you, farmer, that the density of Ayache's writings does a disservice to his presumed goal of reaching (and teaching) a broader audience who should listen to his ideas in the context of quantitative finance, market regulation, and economics. Yet I don't think we should confuse style with substance and would hope that we could discuss content, rather than form. crmorcom Posts: 452 Joined: April 9th, 2008, 4:09 pm ### New Book - The Blank Swan: The End of Probability by Elie Ayache QuoteOriginally posted by: Traden4AlphaPart of me agrees with you, farmer, that the density of Ayache's writings does a disservice to his presumed goal of reaching (and teaching) a broader audience who should listen to his ideas in the context of quantitative finance, market regulation, and economics. Yet I don't think we should confuse style with substance and would hope that we could discuss content, rather than form.Though one cannot separate them reliably, the form does matter for the content - certainly at the extremes. Reading the blurb or the 8 pages that Amazon reproduces, it is virtually impossible to understand what the point of the book is. It has a level of form obscuring function that I have almost never seen before. That is a problem - particularly if Ayache expects me to pay$29.16 and spend hours of my time reading 496 pages.So, a question for you: in one or two paragraphs, what do you understand the content to be? And what, in intelligibly concrete terms, does Ayache add to the debate about economics?

trackstar
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### New Book - The Blank Swan: The End of Probability by Elie Ayache

Last edited by trackstar on August 19th, 2010, 10:00 pm, edited 1 time in total.

crmorcom
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### New Book - The Blank Swan: The End of Probability by Elie Ayache

spv205
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### New Book - The Blank Swan: The End of Probability by Elie Ayache

I would second crmorcom. Please Trackstar can we have the content of Elie's writings without the form!