Some Thoughts on Extreme Events and Uncertainty

4 Comments

  1. So far (have only read half of it yet) I like it very much. Will read the rest later. Only one thing to comment on right now: as on all other contacts we´ve had (on GJP 2.0 I´m “Ronja” (my first cat), on GJO “pstamp”) everything is absolutely correct, much even wise. In my mind it´s just sometimes overcomplex. For example: to understand the future development of COVID-19 you only need very few aspects. The media and the experts tend to overemphasize the minor things, while nobody sees “the whole picture”. Just compare graphs of the daily number of deaths in the US, UK, Italy, China etc.. After a while it´s the same curve (sigmoid function) everywhere: sharp increase, slow decline. Reason, that it´s the same everywhere (and not much worse as would be probable, if immunity of mankind was really 0%): nowhere on the planet more than 30% of the people got infected even under the worst circumstances (Diamond Princess, Carnival Heinsberg/Germany etc.). There´s a natural limit to it (I suspect it to be genetic resistance). And to create large clusters you need a superspreader, and they are very, very rare. That´s the essence, everthing else can be left away, and you still have the idea of it . In my world, most things in life can be reduced to a core principle, with everything else being deductable from.

    1. Author

      Hi Peter. Strangely, I kept wondering who the blazes Ronja Hansen was. There was something “familiar” about this Ronja.

      Part of what I was trying to get at is that often, people refer to Covid-19 as a black swan event -high impact, low probability and unforeseeable-, whereas, in actuality, true black swans are rare -we may not know the details of a future event but we can be fairly confident in seeing the contours, likewise, many people saw a pandemic coming, inc one fellow who tried selling pandemic insurance but closed shop last year because nobody was interested-, most crises stem from gray rhinos, like climate, like inequality, etc, stuff we see coming but which we ignore.

      Personally, I reduced Covid-19 to net infection rates and a moving fatality rate. Wuhan, using WHO numbers, had a net infection rate of 0.2% if I recall and a fatality rate of 4%. That net infection rate didn’t work everywhere, but I understand your idea that there are simpler approaches to forecasting without getting into complex stuff. I will simplify that next time so I don’t give the impression I am suggesting you need complex models to forecast Covid-19.

      Thanks for your comment and for ploughing through the post.

  2. Hi Joseph, yes, the second half is even better than the first. Cool work, thanks for sharing those thoughts. You might have guessed it: I prefer the Buffett/Munger approach.
    Concerning black swans: don´t consider one of them as a “virtually impossible event”. Once I saw two of them on the same lake in Malta. Lesson learned: be mentally prepared for even more than one.

    And enjoy the scores for todays questions on GJP 2.0. Especially S&P500 will be very nice for those who put >80% of all their votes to 3000 +/- 400 🙂


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