Taleb and the language of risk

Last night, I read about Nicholas Nassim Taleb on English Language and Usage StackExchange (EL&U). Professor Taleb wants to introduce a new word to the vocabulary of global financial collapse, antifragility:

So let us coin the appellation “antifragile” for anything that, on average, (i.e. in expectation) benefits from variability.

Consensus on EL&U was that this was a creative but unnecessary neologism. I echo the concerns of my EL&U comrades: Antifragility might cause confusion (maybe it is “anti-fragility”). There are many adequate, extant words that Taleb could use, however, antifragility is a term that will be uniquely associated with him.

I am not convinced that there are many entities that actually thrive due to uncertainty. A delta hedge that is long volatility is the only construct that I can think of off-hand. Perhaps that was what Taleb had in mind.

The original Black Swan

book cover of black swan with navy background

The Black Swan by Thomas Mann; 1954 UK First Edition

There was a slightly less contemporary black swan, the novella written by Nobel-prize winner Thomas Mann toward the end of his long and distinguished literary career.

The plot of that short fiction work also pertained to an anomalous event, one that could be considered a statistical outlier. (more…)

Published in: on February 1, 2012 at 6:28 am  Comments (8)  
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Economic Models for Turbulent Times Part 2

A new research study has already received unusual attention. The Network of Global Corporate Control [PDF] discovers a relatively small group of multinational companies with disproportionate influence over the global economy. The authors, a trio of complex systems theorists at the Swiss Federal Institute of Technology in Zürich, are supposedly the first to empirically identify such a network.

The problem is approached using mathematical models designed for capturing behavior of complex natural systems. The study applies this methodology to a large data set of corporate information, to map ownership among the world’s transnational corporations (TNCs). Previous studies reported that a few TNCs drive much of the global economy. However, they analyzed fewer companies. Due to limited data availability and computing resources, past studies did not consider the effect of indirect ownership.

Methodology

Orbis 2007, a repository of over 30 million private and public companies, published by Bureau van Dijk, was the data source. The study sample used the 43,060 largest TNCs, and derived the associated ownership linkages. The network structure was based on the relationships between shareholding interests, then weighted by each company’s operating revenue. This yielded a directional map of global economic power.

Quantitative results

The model revealed a core group with networked ownership, see image below. These 1,318 companies:

  • all had ties to at least two other companies in the core group
  • on average, were each connected to 20 other core group companies
  • represented 20% of all global operating revenues,
  • collectively owned the majority of the world’s largest blue chip and manufacturing firms:
  • in total, generated 60% of all global revenues.

(more…)

Published in: on November 20, 2011 at 4:28 am  Comments (2)  
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Risk perception and reality

This is an excerpt, selected by Moi, from the article Risk perception, a recent post that appeared on the Soapbox Science Blog, Nature Publishing Group.

Symbol of radiation hazard

Universal symbol of radiation and fear. Image via Wikipedia

Sometimes, no matter how right our perceptions feel, we get risk wrong. We worry about some things more than the evidence warrants (vaccines, nuclear radiation, genetically modified food), and less about some threats than the evidence warns (climate change, obesity, using mobile phones when we drive). That produces a Perception Gap, the gap between our fears and the facts.

The Perception Gap produces dangerous personal choices that hurt us and those around us (declining vaccination rates are fueling the resurgence of nearly eradicated diseases). It causes the harm to health of chronic stress (for those who worry more than necessary). And it produces social policies that protect us more from what we’re afraid of than from what in fact threatens us the most (we spend more to protect ourselves from terrorism than heart disease)… which in effect raises our overall risk.

We do have to fear fear itself…too much or too little. So we need to understand how our subjective risk perception works, in order to recognize and avoid its pitfalls.

Here was the take-away for me: Societal risk management has to recognize the risk of risk misperception–  recognizing the risk that arises when our fears don’t match the evidence. This is truly the risk of The Perception Gap. It has always been relevant, and becomes so once again in light of the recent E-coli outbreak in northern Europe. The Guardian UK used that as a starting point for a well-written and up-to-date article about the hazards of risk misperception and the consequences of irrational behavior.

Kahneman and Tversky did extensive research on this topic. I am not concerned whether articles like the one referenced above are derivative, in the sense of revisiting past work. Possibly it is an application in the context of current events. Or it may be entirely original new work. My concern is solely that there is an awareness of the reality, and that it be acted upon.

WeatherBill receives $42 mil in Series B funds

Investment in this catastrophic insurance risk startup company now totals $60 million, primarily due to today’s large infusion of cash from Google Ventures. With statistical analysis and distributed computing for better weather forecasting, WeatherBill can offer farmers more competitive insurance rates. WeatherBill is as credible as any other in this field. The company was founded four years ago by two former Google employees, one of whom was Chief Technology Officer at Google.

Image representing WeatherBill

WeatherBill logo

I hope Weatherbill is successful. This story is a welcome change from news about over valued social media companies e.g. TechCrunch’s recent post about J.P. Morgan’s rumored investment of $450 million in Twitter.

Actually, it is a welcome change when a major venture capital investment is made in a business targeting farmers and growers.

Google Ventures, Khosla Make Rain For WeatherBill

WeatherBill Inc. is announcing $42 million in Series B funding from Google Ventures, Khosla Ventures and several previous investors… WeatherBill aggregates large amounts of weather data from the National Weather Service and other sources and applies statistical analyses to run large-scale simulations that assess the probability of weather occurring several years in advance anywhere on the globe.The company’s cost to provide insurance is dramatically lower than competitors, said Khosla Founder Vinod Khosla. “Agriculture is an unusual area for venture capital, but we submit that agricultural technology has the same potential as biotechnology had in pharmaceuticals or chips had in telecommunications,” Khosla said on Monday. Read more at blogs.wsj.com (February 28, 2011, 5:30 PM ET)

Political Risk Exposure and Social Media

URL shortening was rarely seen anywhere other than micro-blogging platforms such as Twitter and Status Net’s identi.ca. Shortened URL’s are not prudent from an information security point-of-view, as one takes a leap of faith by clicking on a link that is not descriptive. Descriptive links are also preferable for economic reasons, as they are reputed to figure positively in the mysterious world of search engine optimization (SEO) for page rank.

Yet shortened URL’s are gaining acceptance. They are very convenient.

Coat of arms of Libya public domain image

Libyan Hawk of Qureish via Wikipedia

Twitter introduced its own shortening service in September. Facebook did too. Google provided URL shortening with its goo.gl product in December 2009. Google expanded the range of goo.gl for use on any domain, as it was restricted for use with Google product pages before October. However, there is a new and surprising consideration when making a case for, or against, URL shortening: Political risk exposure.

Top-level domains (TLD’s) are assigned by ICANN. Generally speaking, each sovereign nation has its own TLD. For example, websites registered in Australia use the .au suffix, German sites are .de , while Japanese sites are .jp . The Libyan Government is the official registrar, as designated by ICANN in 2005, for all .ly sites, which are also the domain-of-choice for leading URL shortening services bit.ly , ow.ly and vb.ly .  What will be the consequences of Libya’s domain seizure of vb.ly on October 6, reported by Econsultancy- When All Your Shortlinks Belong to the Libyan Government, on these .ly URLs?

RowFeeder is a social media oriented web analytics service. It stands out from the glut of other Twitter-verse services by delivering reports directly to a spreadsheet. In the RowFeeder company site’s latest post, lead developer and co-founder Damon Cortesi described a new feature for RowFeeder customers: availability of URL shortener bit.ly.

URL shortener feature for RowFeeder service

RowFeeder Offers URL Shortening with bit.ly

You can now put a bit.ly link in the tracking field, and have a new column in your downloads with bit.ly click counts at the time of each post… [storing] the click data along with the Tweets and Facebook posts about a specific piece of content.

In light of the recent disruption in the .ly domain space, I enjoyed the closing lines of the announcement:

Please note: This feature has not been approved by the Libyan government, so count clicks at your own risk. Our vb.ly integration is on hold pending recent news.

*Emphasis is NOT mine.

Published in: on November 14, 2010 at 10:06 pm  Comments (3)  
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Evolution Robotics

Bias is bad. My prior post could be misconstrued as pejorative commentary, unfairly targeted at Tweetup, an innocuous, and free-of-charge, client application for users of the Twitter micro-blogging service.  Twitter certainly is responsible for the silly avian-themed jargon that is steadily seeping into common vernacular, undermining my ability to sound impressive when pretentiously blathering away, as I’m doing right now. However, Idealab, the owners of the Tweetup social influence metric software did not create the Cult of the 140 Character communication standard.

Tweetup is actually one of many applications, services and bona fide products offered by holding entity Idealab.  This Pasadena, California based company has a refreshingly original and diverse assortment of creative product offerings. In fact, Idealab is no parvenu, having existed as a going concern since the 1990’s, all the while fostering an impressive  range of mostly feasible technical innovations.

Supermarket Loss Control by Evolution Robotics

Supermarket Loss Control by Evolution Robotics

I was quickly riveted by the Idealab site’s video demo of their TunnelHawk system. TunnelHawk’s design imperative is to mitigate retail store losses due to customer and employeee theft.  To make clear that I am not predisposed against Idealab (in the aftermath of my earlier Tweetup monetization tirade), I am featuring a product video of IdeaLab’s clever response to supermarket petty theft,  the robotically driven TunnelHawk supermarket checker.

Idealab: Evolution Robotics Retail TunnelHawk Video.

Published in: on July 7, 2010 at 7:12 pm  Leave a Comment  
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