Taleb on Journalism, Blogs, and TV
Back in his days as a mathematical options trader, Nassim Taleb used to watch financial TV with the sound turned off. That way he could remind himself that the journalists and pundits — with their endless commentary and market predictions — were more noise than substance. He made that confession in his second book, Fooled by Randomness (2001).
As a former financial newswire journalist, with some 15 years’ Fleet Street experience, I have found his indifference to the fruits of my toil a little unnerving. But, there are some grounds for hope. Taleb has also written that journalism is important because it’s the way we find out about the world. But every time I’ve heard him speak, he is always quick to mention that he doesn’t read newspapers — so one should not ask what he thinks about the news, a Google IPO, or whether US real estate is in a bubble.
Real-time journalism has mushroomed since Fooled by Randomness was published, and besides the plethora of news providers, there are more blogs and self-appointed experts out there than you can shake a stick at. So I felt safe with the assumption that Taleb would still be screening out unnecessary sound and fury, that he’d be dismissive of this new technological Tower of Babel. But as he tucked into his Tandoori chicken, The Black Swan author told me that he’s actually an avid reader of blogs. We’ve already mentioned Art De Vany, and can conclude — empirically — that he has visited The Knackered Hack at least twice. But surely, if you’ve taken newspapers out of your diet, then blogs, regarded widely as either time-wasting amuse-bouches or just plain toxic, are very definitely off the menu too?
Effectively we need information. I think journalists….there is nothing wrong with them. Journalism becomes bad when you have Bloomberg-style journalism: ‘Market up on Saddam capture, market down on Saddam capture.’ But if you are giving facts, even if you are weaving a story a little bit, it should be facts, more facts. It should fulfil the needs of people like us who need to know what’s going on, with minimum theorising, maximum facts. But, [he pauses while a smile rises into a chuckle on his face] it should be formatted in a way for us to enjoy it! … Blogs allow us to do that.”
The mention of “Bloomberg-style journalism” requires a little elaboration. The example Taleb offers illustrates how on the same day both an upward and a downward movement in market prices can be attributed by the same agency to the same cause, based on a random sampling of investor opinions. It happens all the time. Here I should also clarify that I used to manage the European news operations of one of Bloomberg’s competitors, and might, for objectivity’s sake, have to plead partially guilty to the same charge. Reasons are easily given in the markets, and are frequently impossible to test. Journalists are forbidden in most market emporia from using the expression “more buyers than sellers”, which (for purely random reasons) is often why prices fluctuate from day to day; it depends on how many piggies went to market, and how many stayed home.
It may also be unfair to confine the criticism to one prominent financial newswire when much of journalism is often similarly guilty of these sorts of attribution errors. Benoit Mandelbrot, the father of fractal geometry and in recent years a collaborator with Taleb, describes this simple causal form of journalism and financial analysis in his book The Misbehaviour of Markets. Newspapers thrive on ranking all the “becauses” and yet, as Mandelbrot insists: “The precise market mechanism that links news to price, cause to effect, is mysterious and seems inconsistent.”
Taleb takes up the theme:-
[Journalism] started as a way to enforce democracy, by disclosing things that were not public. Not as tools for people to analyse the world, but as tools for the discovery of facts — revelation of facts for the general public. At its best, journalism does a Watergate, journalism provides information. That’s at its best. Where can journalism be toxic? Well, it can be toxic in the fact that it caters to the lurid. And it talks a lot more about terrorism than it does about insulin insensitivity. So everyone walks around the street here with the wrong probabilistic map, based on error. Well, can blogs correct it? Well, blogs can do both. Blogs can do good things and blogs can do bad. It is a much freer format. It’s more bottom-up than top-down. Those that will do well will potentially become like newspapers.”
So what should journalism look like? Taleb gives us a clue in The Black Swan‘s utopian vision of “Epistemocracy”, a world where everyone is more like his hero, Menodotus of Nicomedia. Where everyone questions their knowledge, and where introspection and a readiness to admit uncertainty of opinion is accorded more respect.
I asked Taleb how he thought the media should work in our complex society, where we seem ever more driven to seek out experts and snake-oil salesmen to tell us what to think. His answer:-
The internet could do an epistemocracy by doing a “reverse-New York Times“. … By making fun of them, if you do it right. Sort of what I did here [with The Black Swan]. I played their narrative fallacy to the hilt. I made it as readable as you can. You need to be as honest as you can and as readable as you can. A lot of people are not honest, and yet very readable. That is very dangerous. But if you are honest, and not readable — it’s statistics. It’s not gonna work.”
Very obviously, TV and video, with their need for images, are well known for disregarding an accurate narrative in favour of what the available pictures will tell. So, Taleb has bad news for TV executives and YouTube users:-
If you are using visuals, you are probably messing up the world. Because you focus on the lurid, and sensational, and an image automatically hits people in their limbic. As we know, we are more reactive to the visual.”
Too much information, confirmation bias, and the need for variability
In a recent podcast, Taleb summed up his work as fundamentally about the psychological problem of the confirmation bias, or our tendency to seek out information that conforms to our prejudices, and exclude anything that contradicts those initial inferences. So more information may not necessarily be better for us. Our default behaviour is to produce theories to explain the world around us. As he told me:-
The foundation of the problem with information is the confirmation bias. The problem is that if I give you a lot of data points, you are going to produce a lot of theories along the way. So your idea of the process is going to be much more distorted than if you have a smaller amount of data. There I use the image of the dog, where you increase the resolution of the dog, slowly 10 steps, people don’t see a dog. If you increase the same amount five steps, they see a dog. The difference between these two is the confirmation bias. In the one you have nine theories, in the other you have four theories. Every time you produce a theory you start looking for confirmation. What can you do against confirmation? You can do a lot of things. The beauty of a blog is that you don’t have to present facts according to shelf space or number of pages (like a newspaper). You can make your blog the length to accommodate the nature of the information. You can have fewer posts. What happens is that the significance of events is not linear. Some events — look at history, look at how many events are discussed in newspapers, and how much history books retain. Look at Sarajevo, the significance is a billion times that of other events that occurred on the same day.
However, Taleb also highlighted the power that blogs can exercise to keep information honest and pose questions that otherwise might not be asked:-
You can also enforce critical thinking. De Vany does a beautiful job, aside from his sports, of giving you critical thinking. He is questioning things that need to be questioned. Now, maybe I don’t agree with him. But it is a process. That is not journalistic to go like that. He has a readership, and once you have a readership you can be honest.”
Central to an understanding of complex systems is the idea of variability. As Taleb described in his approach to exercise [see the first post on my Caveman lunch with Taleb] which draws on de Vany’s ideas of evolutionary fitness, fixed routines are bad if not accompanied by something that stimulates the extremities of experience and perception. So, it should come as little surprise that Taleb is looking for a more flexible approach from the media:-
If I were to start from scratch, I’d have fewer posts of completely variable length. The length … that depends on the statistical and empirical significance of the events. It would be a big post if you had a war, and no posts for six weeks on finance!”
On finance and celebrity
This was about as much as we discussed finance, despite a shared background in the industry. Taleb these days will make a pretence that finance is boring. It is probably a reflection that he often gets asked in interviews for market forecasts or for black swan predictions based on the misunderstanding that, as author of The Black Swan, he might be setting himself as up as an uber-forecaster by dint of better mathematics. He has also experienced the disdain many show for those who have a background in markets. He wants — and now seems to have achieved — a much wider appreciation and potential application for these ideas than the financial crucible in which they were first catalysed.
Taleb highlights in his writings that the financial markets are a practical place to observe and attempt to understand the randomness of modern social phenomena. On his first meeting with Mandelbrot, he reports asking why such an eminent academic should have taken an interest in such a vulgar topic as finance, prior to moving on to the study of physics and the geometry of nature? “Data, a gold mine of data,” came the response.
Taleb remains in touch with the markets, regularly giving seminars on arcane aspects of derivative pricing, and participating in the esoteric community that is mathematical quantitative finance. In fact, he somewhat laments his new celebrity. He had just been on BBC Radio 4′s Today programme on the morning I met him, reviewing — of all things — the newspapers:
Believe me, when you’ve gotta go on the BBC, it’s a lot more stress. When I wrote [academic] papers and dealt with a narrow field of mathematical finance, there were maybe 20 people interested in it. So it was a lot of fun. The minute it expanded with Fooled by Randomness –no more fun.
The implication of Taleb’s remark was that The Knackered Hack, labouring tirelessly for you (one of his twenty readers) out in the long tail of the blogosphere, is having a whale of a time in comparison. Well, that may just be another one of those narrative fallacies.
Come back for soon for more from Taleb, and find out who got the mint wafer…Donate and help me buy back my Fender ('About' tells you why) Tags: -finance-and-markets, art-de-vany, black swans, Bloomberg, business, celebrities, coaching-and-teaching, competition-and-performance, Fooled-by-Randomness, life-the-universe-and-everything, mandelbrot, Nassim-Taleb, Taleb-interview, The-Black-Swan