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Monday, September 29, 2008

Taleb on Mediocristan

In Taleb's coinages, most people live in 'Mediocristan,' a fake model of reality where no rare events occur, and not in 'Extremistan', the complex real world where unpredictable and devastating events can dictate the outcome.

One of Taleb's favourite allegorical tales is the story of the turkey and the butcher. As previously described by Bertrand Russell, a turkey may get used to the idea of being fed but when, the day before Christmas, it is slaughtered, it will incur 'a revision of belief'.

No one, he believes, is more guilty of living like turkeys in the false security of Mediocristan than economists and financial risk management analysts who rely on computer models that don't account for rare devastating events.


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