Russian roulette

By  via farnamstreetblog.com   Article

Nassim Taleb on the Notion of Alternative Histories

“Writing in Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets Nassim Taleb hits on the notion of alternative histories.

We see what’s visible and available. Often this is nothing more than randomness and yet we wrap a narrative around it. The trader who is rich must know what he is doing. A good outcome means we made the right decisions, right? Not so quick. If we were wise we would not judge performance in any field by results (outcome bias).

Taleb argues that we should judge people by the costs of the alternative, that is if history played out in another way. These ‘substitute courses of events are called alternative histories.’

One can illustrate the strange concept of alternative histories as follows. Imagine an eccentric (and bored) tycoon offering you $ 10 million to play Russian roulette, i.e., to put a revolver containing one bullet in the six available chambers to your head and pull the trigger. Each realization would count as one history, for a total of six possible histories of equal probabilities. Five out of these six histories would lead to enrichment; one would lead to a statistic, that is, an obituary with an embarrassing (but certainly original) cause of death. The problem is that only one of the histories is observed in reality; and the winner of $ 10 million would elicit the admiration and praise of some fatuous journalist (the very same ones who unconditionally admire the Forbes 500 billionaires).  … Consider the possibility that the Russian roulette winner would be used as a role model by his family, friends, and neighbors.”

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