MINI-LESSON 1: Breaking down intuitively the concept of standard deviation. Why pple don't get it. 

This is why the internet is the greatest gift to humanity. If only most people used it for knowledge we as humans could grow so much.

"let's talk about STDs" nassim talking about them tail risks

"That notion of squares is what really has fucked up statistics quite a bit." - Nassim Taleb

Here's my summary of what I think he said: 1. Correlation is the relationship between two variables and any dependence they have on each other. 2. Before correlation is explored, just looking at one variable, the tools we have in stats are messed up. 3. Start with Standard Deviation (STD). Look at one variable in one dimension. 4. Most people, even 'experts' think STD is “how much something moves on average every day.” Even if they can write down on paper the 'correct' definition of STD, they explain something else in words. 5. The formula for STD requires you to sum the SQUARE of the differences between each observation and the mean of all observations. Then divide by the number of observations and then take the square root. 6. Because you squared the deviations, you will give much larger weight to large observations and vice versa. 7. Despite the formula, most people think of STD as Mean Absolute Deviation 8. Ratio between STD and MAD corresponds to fat tails. 9. For Gaussian Distributions, STD/MAD = sqrt(pi/2) = 1.25 10. Why use STD? For Gaussian Distributions, it makes some sense because you can use interesting things like 68% of observations fall within 1 STD of mean. It has some probability properties that are useful. 11. Notion of SQUARES in STD is what has messed up stats quite a bit 12. Consider: 1,000,000 observations of some phenomenon. All are zero except one observation is 1,000,000. STD = 1,000. MAD = 2. SAD/MAD = 500. This is because you SQUARED the deviations but only the large one was changed because the others were zero. 13. STD is not intuitive. With a mean of 0, take negative STDs and positive STDs and sum them. They are not additive. 14. So, before getting into correlation and covariance, you have a problem because they use STD and it's not what most people think. 15. In correlation, beta fails in a non-linear environment. END OF PARAPHRASE To me, the point is that you should understand how standard deviation is calculated (and thus its limitations) before using it in other calculations.

There is a 9 missing This is why I love this guy. It doesn't get more unpretentious than this. Stand in front of a blackboard with bad lighting and take 10 mins of your time. No high level production. Nothing. I see the spirit of the old internet here.

Please, please, please continue uploading this content more regularly. I came across your videos tonight and this is exactly the kind of content a college student needs.

Best way to spend 10min. So much power and clarity of delivery. Profound learning.

Nasim please make more videos like this. You clarify so much in such brief and concise snippets

Absolutely FANTASTIC video, love the crude, natural form of expression, continue this. I wish my stats classes were this interesting.

Profesor Taleb you transmit a genuine fun and love for learning about probabilities and statistics.

Do you really need to thank us for listening? to you? WE should thank you... The size of the contribution you made to the trading world is unmeasurable.

Excellent accompaniment to my morning cuppa. Excited for part 2 on beta.

This one was simple yet the most eye opening lecture for me so far.

I've always tought that there is something familiar in Taleb, something ancient, like if his person itself carried a whole generation of intelectuals, kind of an archetype of the thinker of the era

NNT the man who is a natural philosopher (one of the best of our times), mathematician, trader, and a true hustler! Btw those of you that don't know NNT makes a killing in selloffs and even during big rallies, most people don't get it but NNT makes money even on big rallies because he always exploits inconsistencies.

I am so happy to find this course! I am currently reading The Black Swan book (about the fat tails) and I am eager to understand more.

Thank you Nasim for passing along your knowledge.

Excellent video. I am not a mathematician or statistician, but I certainly held the misunderstanding of thinking that STD is MAD.Would be exciting to see a follow-up video on examples of where this misunderstanding has caused people to make bad decisions.

Amazing as always. Never run for the bus Mr Taleb

Thank you for the video, sir. Please keep making more.

Looking great, maestro!

Thanks for the class, Taleb!

Very helpful, and perfect timing for me as I had just finished reading chapter 3 of Statistical Consequences of Far Tails today! One small point, I actually think when you ask a layperson about standard deviation, I don't think they're actually thinking of MAD, I think they are more thinking of a time series looking at the average daily change, like the average of x(n)-x(n-1) across n observations.

Thank you. Good course format, short and visualizing. It was helpful.

That's gonna change my whole perspective about association in medical research papers, especially the ones with fat tails. I'm gonna use MAD instead of STD in my current research and see for myself the change.

Nassim is allergic to not having a sweater over his shoulders

Excellent explanation to improve intuitive understanding of standard deviation.

Thanks, Taleb. These are much appreciated.

Bravissimo Taleb, come sempre! Antifragile e' il mio libro preferito!

You are a gift to the world. It never crossed my mind to find you on RU-vid, so happy that it somehow appeared on my home page.... Love your writings, love your views! And yes, many "scientists" have no fucking clue!

2:33 - "The Economist of course, you can always look if you want a wrong definition". LOL!

Very excited for this series!

what a goldmine of a channel

Hi Nassim! Could you please write a small 100 page book with what everyone should now about statistics/probably?? In similar style to this lecture. I'd buy it in a second :)

great video! that example with the million 0s and 1 one million was excellent at demonstrating how the sigma/MAD coef works. It was my understanding that the reason we use standard deviation (using the square) is a leftover from a time before iterative computation (computers). absolute value function is not continuous, so using it vs. squaring takes away the ability to do a lot of calculus tricks that where useful for closed form solutions (and when everything is "gaussian")

Nassim, thank you for this video!

That but in mentally:intuitively reducing std to mad is a freakin eye opener

Thank you very much mr. Taleb.

YES! I WANT MORE OF THESE! THANK YOU.

Love the sweater. Keeping it OG.

To answer the questions, why do we use standard deviation? We are not supposed to use it all the time, but it does produce a simple foundation for proof of the Gauss Markov theorem, as it makes the math really simple. So perhaps it is a good starting point for the intuition required to understand how to then break the rules of the simple linear model. It's really a teaching tool in that sense.

In 10 seconds he solved why the replenishment algorithm we created at my work doesn't work 100% of the time.

Amazing insights ... We have taught not to interpret these definitions and results are catastrophical

Thank you for your explanation!

Thank you Dr Taleb. Could you please explain if the ratio of Standard Deviation to Mean Absolute Deviation would be useful in identifying extreme events in asset pricing?

Mr. Taleb Thank you for your great service, bringing to light the problems of probability and statistics. As someone who has a great interest in the underlying ideas but little to no experience in the formal expressions of them, I'm having a hard time following the reasoning fully. This is not a critique of your lecturing, but rather a question in disguise on where I should turn my gaze to learn the things nessecary to grasp these concepts. Are there any introductory books in maths, statistics and probability you recommend? Thanks again, blessings to you. Adam

I'm not sure why anyone would look into standard deviation without first trying to understand the nature of the distribution. Without knowing distribution I'd stick to median and range.

Thanks again for these explanations !

Least square minimize the entropy of residuals. Thus if you want to earn money from daily movements you will overestimate the most common opportunities while underestimating the rare big ones if you use standard deviation. You try to make every sample residual as typical as possible at the least cost. If the distribution is gaussian the typical values are close to the mean but the aim is the same.

NNT's {0,0,0, ..., 10^6} example is the quintessential black-swan -- nothing happens, until BOOM! Fat tails everybody ... pay attention.

definitely needed this

Blessed Holy Week and Pascha, Mr. Taleb

Not entirely sure, but around 03:24 when talking about weights it sounds like "observation" is used twice in place of "deviation". Like "bigger observations get bigger weight", which I either misheard or it was misspoken.

This channel is grossly undersubscribed

Coming from Twitter Nassim....!! Loots of thanks...!

Thank you Maestro! Also noticed quite a bit of weight loss!

Thank you for the great lecture

Great stuff. Just became a sub. Thanks for sharing

Gaussian distribution is the maximum entropy distribution if there is a fixed mean and variance. If there is not a fixed mean and variance, other distributions maximize entropy

Love this video!!!

Great info. The graphs of abs(x) and x^2 are approximate to each other in the neighborhood of x = 0, and they become quite different from each other as you move away from the said neighborhood.

holy shit, that's EXACTLY how Ive been thinking of standard deviations... I always suspected I was wrong and just figured I don't really understand statistics or probability (probably true). I bought taleb's book after this incredible explanation that really hit home with me

Nassim, get a tripod so the camera is up to your eyes line. Love your videos. That will improve a lot.

Loved it..so simplified

it is also easier to use squares than absolute value when computing regressions (working with the first derivative of f(x)^2 is easier than working with the derivative of abs(f(x))).

I COULD NOT BELIEVE MY EYES FOR A WHILE. N N TALEB and MOOCS.

This is some life changing stuff 🤯

I wish I watched your videos during college. Unfortunately I graduated today :(

I listened to your book's audio on FOOLED BY RANDOMNESS as a crypto trader/investor

Keep making more videos!

Hey Nassim! Thank you for your contribution to humanity by correcting all the faulty beliefs that we have been exposed to in this area. I am just curious what you think of Bayesian statistics. I would guess that it would be more to your liking because it sort of allows for intuition and emperical data to enter the equation so to speak. What is your take on Bayesian statistics?

Does anyone have a recommendation for a more remedial approach that may precede this stage? I’m in the process of rereading the incerto for the 100th time as I still feel like I’m missing pieces (and it’s just plain enjoyable) but it seems like a large jump between that content and this more technical stuff. Thanks in advance 👍 and thank you NNT

Thanks for the content. I was afraid I’d have to recalculate all the statistically significant results of my research. Thanks to the normal distribution.

GREAT VIDEO !

I did not think of Standard Deviations that way. It was always a measure of variance in any given data set, rather than average variance per data item. What I did not get was why it was not applicable to fat tails.

Grazie Maestro!

i'm glad he has that sweater on his back like that.

Do rank correlations work with fat tails? To take the IQ-Income question, if you rank correlated them instead of taking absolute values, would that be better for inference?

Very useful. Thank you.

Thank you kindly ✍️

I was wondering that just today. Engineers also use STD without knowing why or when it is valid.

Please more videos like this

Thanks, Taleb!!

Thanks for these!

Thank You Nassim

I came here to learn about Sexually Transmitted Diseases (STD) - but now I'm hooked on statistics

@N N Taleb is there any way I could get in touch with you directly? i have some ideas about probabilities and the directed manipulation of volatility curves that i would really love to run by someone who is far better at math than i.. there are a lot of things i "think" i understand, but i really want to find out if i'm onto something or not!

"presently in the republic of Italy" Hilarious. what a flex!

Only content worth watching on yt tbf

Taleb seems like a genuinely nice person

In business school, I was fascinated by statistics. Though didn't manage to pursue it further. Now I have a little more time. Are there any good beginner resources to learn stats from NNT school of thought?

Let's go for a lecture from the Man himself.

9:59 If it fails in a non linear environment, what’s the solution? Transformations sounds like a cop out

Loved it.

Sound of chalk on the blackboard ... Classic :D

Thanks Nassim

This is great

I need to buy that book

I'd be very interested in more videos, including a systematic course.

why am i just now discovering this channel