3:36AM - Reflections on a crisis: Kahneman and Taleb @ DLD 2009
At blame for the financial crisis is the nature of man, say two renowned scientists: Nobel Prize winning psychologist Daniel Kahneman and scholar of risk and randomness Nassim Taleb. View the complete 1 hour video of the session as the greatest living psychologist and the foremost scholar of unforeseen events discuss hindsight biases, the illusion of patterns, perception of risk, and denial. Kahneman explains why there are bubbles in the financial markets, even though everyone knows that they eventually burst. Taleb speaks out sharply against the bankers: "I want those responsible for the crisis gone today; today and not tomorrow." The risk models of banks are a plague, he says, the bankers are charlatans. Taleb has become famous with his theory of the black swan. Black swans are events that are not previously seen—not even with the best model. Taleb had an early warning before the crisis. In 2003 he took note of the balance sheet of the U.S. mortgage finance giant Fannie Mae, and he saw "dynamite". "Bankers are very dangerous." Taleb calls for rigorous changes: nationalize banks—and abolish financial models. Kahneman does not quite agree with him. Certainly, the models are not capable of predicting a collapse. But one should not ignore our human nature. People will always require and use models and get benefit from them—even if they are wrong.
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