Poly%204 - Poly Lecture 4 Behavioral Risk Management...

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Unformatted text preview: Poly Lecture 4 Behavioral Risk Management References • The Black Swan , Chapters 6, 10 • Bleed and Blow up (attached) N N Taleb © 2007 Tunneling N N Taleb © 2007 Provide High-Low Estimates with a 98% confidence level a) Median age of US Citizens according to the 2000 Census Low, High b) Average amount of money Spent by Parents 0-18 (as of 2003) Low, High c) Number of endangered species in the US Low, High d) Percentage of US Citizens under 5 Low, High N N Taleb © 2007 a) Median age of US Citizens according to the 2000 Census – 35.5 b) Average amount of money Spent by Parents 0-18 (as of 2003) -$250,000 c) Number of endangered species in the US - 514 d) Percentage of US Citizens under 5 – 6.8% N N Taleb © 2007 N N Taleb © 2007 Time is valuable Project: AU$ 4m, 1963 Completion: AU$ 103m, ten years delay N N Taleb © 2007 The problem of “expertise" Very “calibrated” Weather forecasters Very bad Economists Political “gurus”, policy wonks Very, very bad, horrible, “over-cons” Security analysts N N Taleb © 2007 N N Taleb © 2007 N N Taleb © 2007 Overcausation N N Taleb © 2007 OVERCAUSATION • 13:01 --U.S. TREASURIES RISE ON HUSSEIN CAPTURE • 13:31 -- U.S. TREASURIES FALL ON HUSSEIN CAPTURE N N Taleb © 2007 Organ for causality N N Taleb © 2007 Dopamine L-Dopa injection and narrativity Left brain inhibition Opposite of problem of FBR: missing on the “right narrative” N N Taleb © 2007 Option Price 1 – How much would you pay for an option that gives you this car (value $75,500) if the stock market drops by 10% in a day over the next month...
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Poly%204 - Poly Lecture 4 Behavioral Risk Management...

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