Sornette vs. Taleb Diametrically Opposite Approaches to Risk & Predictability 

When there are no cars on the street, Sornette still waits for the green light. Taleb looks both ways, and jaywalks if there are no cars. Once the light turns green, Sornette crosses the street. Taleb looks both ways and crosses if it's safe. Sornette gets hit by a speeding self-help guru in a Lamborghini. Taleb lets the guru wheel past him.

For those having difficulty - Sornette is an academic interested in making correct statements of facts, or perhaps correct (probabilistic) predictions. Nassim is interested in the optimal betting strategy. They are mostly talking past each other at cross purposes. For a scientist knowledge is the goal in itself. For Nassim knowledge is only a tool for making bets, and the only goal is to be ahead in your bets (in the long run). Note how at 25:40 Sornette completely conflates the concept of a prediction with that of a trading strategy.

Never mind about the relative merits of the two participants. This is a fantastic video to watch. Taleb's sense of humour is infectious.

18.28 "It's not your opinion" "It's How you express your opinion" "The financial instrument or the strategy is vastly more important than if you are right or wrong"

Mathematician vs. Philosopher. This is hard to watch because no matter how hard the philosopher tries to inform the mathematician, the latter refuses to listen because he is convinced he can't be wrong with his maths.

Brilliant to watch post COVID-19, especially the part after 32:35. The urge to optimize everything (run no ICU "buffer", have JIT supply chains for your whole economy, outsource production of critical items etc.) leads to a fragile positioning even for "white swans". Modelling dynamics of systems is fine if you have skin in the game and want to play it but Taleb's approach feels more appropriate for policy and systemic risk-management.

have to side with Taleb on the financial markets. Once it is WIDELY known that such and such dynamics is a predictor, the phenomena is then dead. But for books, disease, and other more "real" items Sornette has great point.

Of course 2008 was not a black swan - but for most people it was 99.9% turkeys

Fantastic discussion, helps clarify some things!

“So What are you now” 😂😂 Oh Nassim

Brilliant, brilliant debate ever!! I think doctor Sornette is probably someone who's able enough to debate Naseem! I really loved them both!

An infamous example is the way Allianz Alpha fund blew up in 2020. They had hedge puts coming to play only with a 50% drawdown on SnP500. And a 25% drop in SnP500 blew up the portfolio

"What are you now" 😏

Mises and Hayek show that mathematical models cannot be used to accurately predict human behavior or aggregates of human behavior. At most, a range prediction can be made.

"you can use my graphs if you want" :)...

The prediction becomes part of the predicted, yes. This dynamic is significant.

It's funny because "sornette" means nonsense in french

So much agreement between the two.

Problem with Sornette's approach is even if it is 90% accurate in predicting crashes, it will eventually miss one and lose virtually everything. Nothing less than 100% predictability suffices, and the signal must be clear and timely and impossible to misinterpret; and he does not and cannot claim that. So, back to Taleb, which is to manage your affairs properly so you are not at great risk. Sornette reminds me of the geniuses behind LTCM, and I would like to see him put together a hedge fund using his math and see what happens.

It's interesting!👌🙏

I hope the wine was good enough... :-)

Amazing that nobody made a joke about ¨chasing the (purple) dragon¨. Choosing a fictional creature as a 'mascot' is just a great omen.

My question is this: even if Sornette’s first hypothesis holds and dynamic systems can be used as an early detection system to warn that we are in a bubble, isn’t his second hypothesis (probability distributions for the end of bubbles) necessarily false? If Sornette goes on CNBC and tells us that there is a 75% chance of a market crashing in 6 months, I believe the entirety of the market’s reaction (and perhaps more reaction than what is supported by fundamentals) would be accelerated dramatically. Meaning the end of the bubble would necessarily come before Sornette’s “most likely” time band as a result of financial markets being driven by human agents with bounded rationality. Thoughts?

Dynamical systems and to some extent statical distributions stay still far behind signal processing in terms of early warning systems , just quick at power plots will you show a lot of things , so true question which needs to be answered for those who are in to profitable betting , how do you turn these early warning systems / features or properties of those dynamical systems or statistical distributions in to profitable trading decisions

Those who do not speak French will not appreciate the irony of the situation, but "Sornette", is used in a derogatory way to call out bullshitters :-) Honestly, over the past two decades we have seen and heard about so many so called "dynamic" system predictors. But I am sorry, they just don't work in practice. I stand with Taleb on this one !

Scholars for dollars except Nassim

I need subtitles!

“To the wine!”

Oh boy this one is going to be a WAR lol. Watching it now.

NNT is correct in principle. No matter how accurate one is with prediction of x, it's accuracy of prediction of f(x) determines whether performance in financial markets will be good or not.

Sornette is out to lunch. He thinks systems reach maturation, but then illogically assumes one can know when this is. That would assume perfect knowledge.

What is the title of the book that Sornette handed Taleb?

why are they sitting so close?

@23:00 phase transitions are controllable, quasi-static. So I did not get Sornette here. He is dead right about dynamics, but unpredictability arises from chaotic dynamics which is unpredictable, even without Thom catastrophes or phase transitions --- Taleb I think would be right here, even on the dynamics: to predict behaviour of a complex system (chaos + many bodies) you need to simply gather enormous amounts of data, truly enormous, even for a short-run predictive accuracy[^]. Sornette should have emphasised QUALITATIVE dynamics, not quantitative. Chaotic systems "at the edge of chaos" have highly regular patterns. But are not predictable. Many biological evolutionary processes are like this, easily discoverable patterns, total micro- and meso-scale unpredictability. Another example is the Minksy macroeconomics model (Steve Keen) whihc qualitatively predicted the GFC (absent government intervention) but such a macroeconomics models have no accuracy, they can only reveal patterns, not exact times for events, and only if monopolists do not intervene (eg., widespread debt cancellation for poor black mortgage holders around 2006 woudl've done the trick). [^] At least on biosphere time scales. The solar system is also chaotic, but the characteristic time scales are so vast we have high predictive accuracy on our Earthly time scales. We live (by thousands of generations) well within the solar system's Lyapunov time.

Non-reductionism vs reductionism

@23:30 "anti-fragility... interesting but too static"??? That made no sense. I think perhaps the way Taleb describes it dumbed-down for the audience seems static, but there's nothing inherently static about convexity. You want convexity over time, what's so hard about that to grok?

I think you're both right. One of you is saying, "don't go outside in a Hurricane" (approx) and the other, "when everything's calm in the middle of a Hurricane-- Get Inside quick!" Grandma still knows best.

39:25 ⭐️💫🌟✨⚡️

Taleb - everybody is stupid

volatility asmr

Sornette: this one thing is kinda predictable Nassim be like “nah sHIt JuSt HaPpEnS bRo don’t even try”

Polyglot of size/ lol 27:53

Sornette destroys his own position at 44:15.

Sornette is a ludic who has never really practically used his ideas (he hasn't taken any risk), whereas Taleb has (he was a trader). Sornette has no skin in the game (but he has many degrees). Its nice that the red dragon (or whatever) works in purely theoretical, after the event, type simulations. But, in reality (where it doesn't work) its useless, time is the ultimate detector of fragility. Models and predictions fail over time. Try to predict any black swan event with any fancy shmancy analysis you can throw together and you will see that, in practicality, randomness is not predictable.

Peter Schiff predicted the 2008 crisis and it may have value for these speakers (except Nassim) to analyze how he was able to do that.

If Sornette's "Early warning" would have been a valid approach, it would have been signalling ever since 1972. Buit it didn't and doesn't.

Heuristics vs mathematical models

One is a student of Mandelbrot, another of de Gennes. I think Didier won the debate.

It seems Sornette has a nice dynamical model. He can see from the behaviour of the system in a small window of time, that some big event is due. It seems Taleb has some gut feelings that there might be even bigger big events, which are not that rare, that cannot be predicted at all. The pro of Sornette's approach is that it is done scientifically. Certain mechanics is defined, hypothesis can be postulated, and it can be tested. The con of Taleb's approach is that he doesn't do anything like that. I've also read his book antifragility. It's void of anything of use to an engineer. There is no way to measure antifragility, even less how to construct an antifragile system. From an optimization perspective the difference between convexity/concavity is nonsense. Minimization of a convex function is the same as maximization of a concave function. All that being said, it's still the case of course that Taleb has interesting ideas. To position yourself in such way that you would be able to benefit from unpredictable events, the bigger, the better, is definitely interesting. I just wished he used a more normal academic approach to convey his ideas. His slides are typical...

Mises wins.

Sornette WIN !