The Art of Prediction

It is fascinating that Nassim Nicholas Taleb the author of The Black Swan, the biggest best selling non-fiction book of 2007, who is extremely skeptical about the value of predictions, could have published this statement last year:

"As if we did not have enough problems, banks are now more vulnerable to the Black Swan and the ludic fallacy than ever before with "scientists" among their staff taking care of exposures. The giant firm J. P. Morgan put the entire world at risk by introducing in the nineties Risk Metrics, a phony method aiming at managing people's risks, causing the generalized use of the ludic fallacy...A related method called "Value at Risk" on the quantitative measurement of risk, has been spreading. Likewise, the government-sponsored institution Fanny Mae, when I look at their risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry, their large staff of scientists deemed these events 'unlikely.'"(p.225)