Odd Lots - Nassim Taleb on What Bitcoiners, Anti-Vaxxers and Deadlift Maxis All Get Wrong

Episode Date: April 6, 2023

Nassim Taleb has never been shy about expressing his viewpoints on a wide range of topics. But lately he's been getting into verbal tussles with people who have long looked up to his wisdom. Whether it's Bitcoiners, venture capitalists, deadlifters, or anti-vaxxers, many people within these communities have admired his philosophy of antifragility. So why has he taken to arguing with them on Twitter? What exactly are they getting wrong about his ideas? And for that matter, why has he himself gotten into cycling lately? In this wide ranging conversation, the author of books such as Antifragile, The Black Swan, and Fooled by Randomness talks about all these topics and more — including how to think about reducing tail risk in one's own life. See omnystudio.com/listener for privacy information.

Thanks for listening to Odd Lots. Follow the show on Amazon Music for more future episodes or just ask, Alexa, play the Odd Lots podcast on Amazon Music. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com slash audio. That's vanguard.com slash audio. All investing is subject to risk vanguard marketing corporation distributor.

Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthal. And I'm Tracy Allaway. Tracy, welcome back. You've been on vacation. It's so exciting to be recording an episode with you again. Aw, it's actually really nice. I missed you, for real.

I missed you, for real. Oh, thank you. I actually, I think this might be the first time in my life that I've been happy to come back from vacation. Honestly, a lot happy. while I was away. It was beautiful, by the way. I went to the Seychelles for two weeks. It's not, I'm not a huge beach vacation person, so it wasn't a place that I would normally go to, but it was absolutely gorgeous, highly recommend it. I think it's ruined me for all other beaches in the future, but I am happy to be back and recording with you once again. And I missed you too, Joanne.

Thank you. It's great to have you back, and you sound great. You know what I did this week? I can take a guess, but go ahead. I did a deadlift. I've been lifting weights at the gym, and I did. I'm not going to say what my... Dare, I was about to say, dare I ask you what your death lift is. I'm still very weak. I'm not going to say what my PR is, my personal record is, but it was very satisfying.

I felt good. And now I'm, like, going to keep doing... I've been doing weights for a little while. But, Joe, is it a real deadlift if you're not bragging? about it on Twitter. When I hit bragging level, I will definitely brag. But I bet everyone can figure out where I am going with that, because we're going to be speaking today with one of the foremost, when I think of this guest, I think of it as many things, but I think of him as one of the foremost deadlift advocates in public. I, of course, know exactly who you're talking about.

But this is someone, you know, certainly a personality and a character, especially online on Twitter. I think we've both at various times been blocked by him. As have quite a few people. Yeah, so I think I tweeted this while I was on vacation, actually. But one of the craziest things to me about 2023 is that I find myself not only unblocked by this guest, but also nodding my head. vociferously in agreement with him on a variety of topics. 2023 is a very weird year for that very reason because it's like, oh, yeah, totally right. Anyway, we just got to get right into it.

So we are, of course, speaking with the one and only Nassim Nicholas Taleb. He is a professor at NYU. He is an advisor at the Taylorisk Fund Universa. He is the author of several books, including The Black Swan and Anti-Fragile and Fooled by Randomness. and he is a deadlift advocate, and he has also gotten into cycling lately, which is interesting, and he is a flaneur.

I don't even know where to start. Nassim, thank you so much for joining us. Every time I see the word flanur, I forget what it means. What does it mean? Yeah, I have to remember exactly what it means because the original designation is for someone who walks around aimlessly.

And I try to generalize it to someone who does things aimlessly just for the front of it without the prescribed plan. And if you find something interesting, then you go with it. So that's funny because I started off by saying that you, I could think of you as a deadlift advocate. But this year you're getting into road biking, which is interesting because, you know, it's kind of very different type of exercise. It's not the type of exercise I associate you with.

It's a little... It was a cyclist. What's the deal? with getting into cycling? I was a cyclist. When we met last, which is about 15 years ago, and I had a near miss with a truck.

And then I switched to a combination of a lot of walking and some intense, but short episodes of weightlifting, full body weightlifting. And then I, you know, you have followed the evidence. Started reading the literature,

and I realized that weightlifting is not good for your heart. So it's actually not good at all on its own. but it's needed, it's necessary. But, you know, that's the evidence. It causes arctic stiffness, a lot of things. You know, there's an adaptation.

When you want to lift very heavy objects, your body adapts by doing things that are not helpful for long-term survivals. We need to compensate. And how do you compensate instead of just walking, something a little more intense than walking, but not very intense. So here you have a barbell, a lot of aerobic exercise, low-grade. and the occasional full-body weightlift. So just a variation on what I was doing,

but you've got to follow the evidence. I mean, the literature is stark that weightlifting is not for your heart, but that because it causes some adaptation by your heart that are not very good, it causes long-term heart failure. And if you adapt by doing, overcompensate by doing aerobic exercise, which is more naturalistic, then you got both. I think flexibility is also a sort of underrated component of that as well. So I'm trying to think how to take it from here.

And I'm going to try to avoid doing a lot of media naval gazing in this interview. But there is one question that I have to ask just because I think it feeds in to a wider point about your online presence. But why did you block me and Joe? And why have we been unblocked? I think a lot of my blocking is not done by me directly, but by some automated boss. You have to understand that I got besieged by finance people, and you know that I don't get along with the general finance crowd. And by the crypto people, particularly after I took positions that are not very favorable to the crypto people. So you do block and clays up my feet.

just block things. And I had someone who happened to be in Ukraine at the time helping me do automatic blocking. And believe it or not, the best thing to do with your Twitter feed is block groups because then things become cleaned. Oh, I believe it, for sure. So unfortunately that you guys,

but then I unblocked people when I realized went too far. Thank you. So the first reaction is what I call dia negativa. It's like you close it. door and then you let in those you you think that were excluded or would not degrade the feet.

That's a great answer. It doesn't have anything to do with disagreements. It has to do with style also. Right. I think the people that annoy me the most are those who nitpick because of diverse a conversation and nitpickers

are, I mean, trolls, you can see the trolls, nitpickers, people don't notice of nitpickers. Well, you mentioned it already. Let's just start with the crypto thing, because what's interesting to me about your disagreements with crypto people, Bitcoin maximalists, et cetera, is many of them, I think, looked up to you. And they read anti-fragile. Right.

And they read anti-fragile, and they read Fold by Randomness, and they read The Black Swan. And that informed them that's like, okay, we need to adapt, get into this currency that's very hard. that is anti-fragile. Bitcoin, the ultimate anti-fragile currency. And so to their mind, many of them read your work, and this is what they took away. And so what did they get wrong? Okay. So the first thing is that my work is first about avoiding tail risk. Basically, if you want to do well, you must first survive. And it's not like a separable condition. So one is going to avoid fragilities. And it turns out that, as much as the Federal Reserve induces fragility in the system, and as much as I dislike Bernanke,

it turns out that Bitcoin is a lot worse. It is itself a very fragile commodity, and it got, of course, carteled, you know, a bunch of people, there's a very small number of people, start controlling it. And it's fragile in a sense that if one day, if the, you know, all the miners go to the beach for one day or for an hour, it's gone. Whereas if you have gold, I have a necklace, a gold necklace. If I leave it on the ground for 100,000 years, it still will be gold. That may lose its financial value, but its physical quality will not be altered.

Whereas with Bitcoin, it's just a book entry that needs to be maintained and would collapse. Plus, a lot of other things promised by Bitcoin that are not delivered. Like it was meant to be a transactional thing, turned out to be a special thing. turned out to be a speculative item. So I realized quickly that I made a mistake with Bitcoin. Like I made a mistake by avoiding a robotic exercise. And of course, I was at some point an owner of Bitcoin. I publicly said that I made a mistake.

And I went short Bitcoin later. But it was not good for the system. And I applied it in a paper that was published from quantitative finance. Where you look at, hey, what's the currency? What's an inflation hedge? What is a refuge investment? and Bitcoin satisfied none of these. So people, of course, they got angry because they have a feeling that they're going to blame you for changing your mind.

They don't realize that I'm not selling a recipe. I'm selling a process. Certo is a way of thinking, way of approaching things. And if you realize that something is fragile, immediately, do something about it. And remarkably, it's the same cluster of people who read antifragile. and thought that, hey, you know, what doesn't kill you makes you stronger. Let's get infected with the vaccine, with COVID. And let's ignore COVID, because we're going to make us stronger.

It's going to kill a few people. So that kind of eugenism and that kind of stuff, I realized, it was inimical to me, profoundly inimical to me. So it's the same crowd that was denying COVID, saying, hey, you know, it's just a virus that's going to make you stronger. They didn't realize that they explained that. Fragile jumping one foot would make your bones stronger, but a thousand feet will not help it too much.

I mean, it may help the caretaker and people who organize funeral, but not you. So I realized very quickly there's a cluster of people who both into Bitcoin as a very naive reasoning, extremely naive reasoning, thinking, hey, you know, it's an inflation hedge. as we saw, it was a reverse inflation hedge, but the good thing that I figured out quickly to pull out in time in sense that it lost its value and realized it was inflation. And the same group of people were into conspiracies, all general conspiracies.

And that's not the crowd I want. That's not the crowd I want to be associated. You mentioned that Bitcoin was bad for the system. And I think that's sort of the connective tissue that leads into some more recent events with the banking system. But can you talk a little bit more about that? How do you see Bitcoin actually impacting? Let's look at it.

Yeah. Okay, let's look at why we have Bitcoin and why we are talking about Bitcoin. Effectively, it's the incompetence of what I call Bernankeism, you know, because sometimes you've got to put name to a tendency. The Federal Reserve job is not to do structural things. the Federal Reserve job is to engage in monetary policies. And typically, the short-term monetary policies to, and their mission was and has been and would be,

the stability of the United States' currents. So the job is to ease when economic condition and, you know, threat inflation and when in heart economic condition, but you cannot replace a structural policy with a monetary policy. In other words, we had a problem with debt, and you can't solve the debt problem by putting interest rates at zero for a long time. Or if you put interest rates at zero, it should be for a short period of time while looking for an alternative. So when they did for 15 years, they put interest rates at zero. And that does create tumors.

So the root of everything is interest rates at zero, which ironically created Bitcoin. And of course, created both this, I would say, Ponzi-like class of investment because there's no time value of money anymore. You don't know what even is, you know, what the discount rate is. And we created a generation of people who don't know the cost of funds, the cost of money. So, and anyone with 15 years of experience in finance, and no more doesn't know anything about interest rates. So interest rates at zero, creates a stormers. Reinvest state values go up dramatically because the cost of holding a mansion was close to nothing or was close to nothing. And created a class of investment called PC funds.

And these were, in the old days, we're promising you cash flow. Okay, future cash flow. Today they're promising you around the funding where you're going to sell it to someone else. So we moved from the classical cash flow model, or even if you're negative cash flow, the promise of future cash flow, to the promise of selling the company to someone else. And you have billionaires in Silicon Valley who got rich from companies that never made a penny. So that's a background. And of course, you're going to have a story like Bitcoin take off because it doesn't cost that.

Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients.

We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com slash audio. That's vanguard.com slash audio, all investing is subject to risk vanguard marketing corporation distributor.

There's a healing element in salt, in sweat, in tears, in the ocean. In Halifax, being surrounded by salty water and fog is just enough grit to help polish away the pressure of to-do lists. to just make time for things that feel good, to let the salt cure whatever ails you. Halifax could be the break that finally leaves you feeling like you took one, as long as you're willing to rub salt in your wounds. Discoverhellifax.ca.ca.

Since you mentioned it, I'm curious, COVID specifically, and your criticism of anti-vaxxers. And I find one of the things that I think is interesting is, it's not clear to me how you think about these problems because they're okay the vaccine is fairly new it seems to be relatively untested as a technology and when there are other sort of scientific advances that you've really recoiled against for example i think you were very critical about GMO crops and you're worried about the tail risks posed by those so can you talk a little bit about your framework and thinking about why something like the COVID vaccine

you're comfortable with, whereas something like GMO crops to you creates an uncomfortable level of tail risk? Okay. So before we start, let's say that you cannot compare vaccines to TremOs because vaccines are tested in individuals. You can see the side effect. Individuals would be systemic. Okay.

They spread in the environment. And then also, you're not taking the vaccine, you know, because you think it's taste good or it's, you know, it's going to be a pleasant experience. You're taking a vaccine, we've got to plot the vaccine versus COVID, and COVID was not something benign. So comparing, it's a risk management difference between two items. And two things I'd like to mention here. The first one is that very rapidly, you know, I waited a little bit,

and very rapidly I saw that you had a very large number of vaccinated people and no side effects. And people say, well, we know. need more time, they didn't understand that you can replace sample size, time will sample size in a sense that if it's something related to genetic mistakes that are going to take place or something of genetic nature, like cancer, for example, that it would be the, that the large sample size compensates for lack of time, actually overcompens it because we have the illusion that after Hiroshima, people got cancer about 12 and a half years later. That's not true. Some

people got cancer within a few months. And the distribution, there's a distribution because you need X number of mutations. It's like when you go to Las Vegas for an individual to win eight times in a row, take decades, years of waiting. But if you have a billion people in a casino, you're going to have that, you know, every hour. So this is where, this is where very rapidly, I realize that the vaccine did not really pose a threat of that nature. and I wrote technical comments on that. But to go back to the pandemic,

my thinking, basically my specialty is fat-tailed events. So I've done to spend all my life dealing with that central problem. How do you do statistical tools for fat-tails? Stuff like that. So when a pandemic happened, I started publishing in that field

because people didn't realize that you have to think differently when it comes to fat tails. You see, you cannot take averages, you shouldn't do naive forecasting and got involved in a few polemical discussions, but published like seven or eight papers

in journals on that, including masks. And I may have one on vaccine if people keep denying the differential, the risk differential between vaccine and the disease. But there's a lot of stuff people don't get about

COVID. The first one, I would say, that it is not something that affects the old, It affects everybody in proportion to the mortality. So it's not particularly certain. In other words, if you say, okay, it's only the old, then you should say, okay, let's stop dealing with cancer because cancer affects the elderly disproportionately.

Or let's stop cardiology. It costs too much money, you know, Jimbrose don't eat it because they're 38 years old. It's the same item. It kills this in proportion to age. So in other words, if your mortality risk goes out by 8%. regardless of about the age of 30, of course, above some special. And that's not well understood.

So it's not an old person problem. And as a disease is an old person now, not COVID by itself. Right. So there are a bunch of things people didn't get. But I, you see, I was known initially by you, or other people, for the black small, as the author of actual by randomness. and that book was misunderstood initially. I was saying that there is,

I'm not saying there's, you know, no skills, that there are no skills. I'm saying the world is more random than you think, but I'm not saying it's all rightly. Well, actually, I wanted... Yes, go ahead. Let me finish one point about food by randomness

connected to the idea. So one of the messages of food by randomness is we tend to be swayed by anecdotes. Right. And I noticed that over time, thing got worse. I mean, the answer sold, I don't know,

seven, eight, nine million copies worldwide. But at the same time, and a lot of people have done who made the same mistake, people are swayed by the antidote. So whether it's COVID, where it's vaccines,

whether it's naive story, whether it's Bitcoin, whether it's stuff about elections, we're swayed by the anecdote. So our world is becoming more complex, requires more statistical sophistication, while social media is driving the best to the most primitive way of thinking.

Sorry, I interrupted your trace. No, no, no. This is actually exactly what I wanted to ask you. Something that I've actually always wanted to ask you for a long time is, is there a tension between, you know, you say in a lot of your works that we shouldn't trust experts necessarily. You should be wary of, you know, I think you call them either bullshitters or other words. But, wait, but on the other hand, you know, with something like the vaccine, I doubt that the average person has the scientific background to look at the literature and say, oh, this makes sense or it doesn't. And in that case, it seems like we should be trusting experts.

So how do you square those two things? Yeah, no, I made that blue and a black swan to answer your representation. size question, had to explain which fields, in which field the expert is an expert, and which field the expert is what I call a BS member. And the difference has to do with fat days. If the micro is much easier to micro BS than micro BS. So that tableau, I said the dentist is going to be an expert at dentistry. The plumber is an expert at being a plumber.

But the macroeconomist, we're not sure is an expert at macroeconomics. And the same thing happens in medicine. Epidemiologists were not really experts of what's going on because it's fat-tailed, but doctor, the visual doctor, is going to be an expert for that. And we're dealing with thin-tail processes when you look at type series for vaccines and things like that. Vaccine is a sin-tail thing. It's not a fat-tail one.

So that's the difference with GMO. So sin-tail versus fat-tail. And of course it would be too complex to explain here, but I explained it in the Black Swan. It's a difference between the income of a speculator and the income of the dentist. One has winner take-haul effects. The other one is more, say, narrowly distributed. So this is where I saw mainly a difference between expert and not-expert. Later on, I did some more thinking and skin in the game, say, how can you solve a problem? And I said, okay, the difference is skin in the game.

That if you have skin in the game, then you have survival, and then we know if you're an expert, or if there's any way to bust your claims, okay, and make you exit the pool, then, of course, an expert will have a filter eliminating pseudo-experts. Particularly those who represent risks for others. A surgeon who, you know, does bad surgery, is going to exit the pool.

So there is a mechanism in surgery. There's a mechanism in economic life. A grocer who doesn't understand balance sheets or doesn't understand cash flow will go out of business. But there are places where the process is delayed, namely technology, namely macroeconomics, my economics. But I guess the difference, I keep going back to the difference. Say your plumber is an expert at plumbing. But forecaster is not an expert at forecasting.

And they are fields where you have a lot of BS, like, for example, psychology, psychology, or what I mean, apollary psychologist I call. Not clinical, the one that deals with biases and stuff like that. And it's all BS. And it can't be caught, whereas medicine is on firm ground. Of course, it's not perfect. Medicine made a lot of mistakes, but it's fundamentally self-correct. So I get the distinction, but I guess my other question is you yourself, as like, a flaneer and, you know, a thinker, you sort of, you go from topic to topic to topic. And,

you know, you say that your... Let me tell you my rule. Let me tell you my rule, right? My rule is I publish a purely journal in these topics, too professional. And that's my problem with Peterson, all the guys, is that I speak about men, but I have seven papers and, I mean, a lot of you more than the local doctor in medical topics, whether it's published in medical journals or published in other scientific fields. I talk about genetics. I have two published and two coming in genetics.

Actually, one published, one accepted, and two coming in genetics. So basically, I never talked about this subject unless I engaged the expert. And that was my fight with a lot of people. So my idea is not necessary to publish a peer-reviewed journal if you are in a practical profession. Like if you're a truck driver, you can talk about trucks, you don't need to publish. But if you're sitting in an ivory tower and somewhere, you need to engage the professional, not be an expert just on Twitter. And that's my rule.

And people don't realize that I'm subjected myself to that discipline. So I got 80, I did 80 papers after Black Swam. 80 papers, technical paper. Why? Not because, you know, it's not for the image. It's because I require from others some kind of technical expertise before listening for them. Speaking of, I guess, bullshitters, and speaking of Twitter, and speaking of people who say a lot of things on topics that they either are not experts on or have. have not published in a rigorous manner.

There is a certain... That's like a 90% of Twitter show. That's true, but there is a certain class of people that Nassim you have been going back and forth with, venture capitalists. For several years now, many of the prominent ones have fashioned themselves at these sort of like philosopher kings weighing in on everything from tech to politics,

to what the Fed should do, to declining fertility rates in the West and all these things that they're up in arms about. and they've gotten really loud about how banking works in the wake of the failure of SVB. You seem to have a special place in your heart of disdain for many of these people. Because, of course, your natural inclination is to believe that venture capitalists do a great job, that they contribute to society, that it's thanks for them that we have this, whatever, computer program we're using now for this podcast.

That's the inclination. When you scratch, you realize that maybe, maybe, maybe that was a game, but the game has changed dramatically. And you have a bunch of people who package companies. They're good at packaging companies. And, of course, the thing has positive characteristics. And not only that, but they think that society owes them something because we use an iPhone. So they have this feeling, hey, you know what?

You're using an iPhone, therefore you owe me something. come in and bail me out. Plus, a lot of these are libertarian. But it so happened that a lot of people are libertarian until they have the first drawdown. So DC, I mean, in principle, it's a very noble profession, old profession, but you want to avoid

the rent-seeking by that profession as a whole. And this is why every profession, although you have peer-reviewing within a profession, you can become out. You have to just make sure there's some accountability, external accountability or an adult supervision from the outside. And it looks like DCs are not doing what they claim to do. I mean, think of all these billionaires, and you realize that a lot of these billionaires

are billionaires from funding. If Tracy and I started a company tomorrow, we put $10,000 each, is it okay, is it Tracy, we'll put $10,000. I think maybe I can afford 10 days. Tracy's in for 10,000. She's got back from the sales. Okay, so Tracy and I put him $10,000, and now have companies worth $20,000, right?

And then we decide to sell to Joe 1% of a company for $1,000. Guess what? Tracy and now now are, you know, have 49.7% of a, you know, $20,000 became almost $50,000. Joe, you're good for $1K, right? I can swing that, yeah.

Exactly. So, and then you have a friend who's going to spend another K to buy 0.1% of the company and a company and so on. This is a lot of, these policy like characteristics are present and a lot of systems. It's just, you know, of course, there is value somewhere. they produce good stuff. We had a lot of recently in a lot of the countries, but we have to beware that there's a lot of smoke and also, also, also.

They realized that that game was fueled by low interest rates. Right. Well, so that is the general, the sort of like the general theory, the general case against listening to a lot of these individuals on every topic they wish to opine on. Can you just talk a little bit about the, specifics, particularly in the collapse of SVB, and you've criticized several of them, which we don't

need to mention my name, but about their level of understanding of the banking system and finance and finance risks, et cetera. What do you, you know, what do you think, is it just a sort of bias, sort of like, you know, the cliche, there's no libertarians in a bank run or something, or is there a deeper misunderstanding that many of them have about how the structure of the banking system works? Yeah. I mean, first, they couldn't, I mean, many of them didn't understand the difference between losing money for credit, you know, invest for credit reasons or versus losing money because of the term structure shifts. You see? That bank SBB made a mistake of investing long term. First of all, and that's pretty much the way we think about it, Universal. If you look at

convex versus concave investment, you really have to have deep misunderstanding of finance to invest very long term in bonds that pay you no interest. Because basically you have no upside and all downside from there. So these banks were very fragile and they invested. And it's a curve play that the U.S. government is going to pay that debt. And don't use it to think the praises of Bitcoin because Bitcoin suffered from it. And effectively, Bitcoin rally when they bailed out the banks. So I'm giving, okay, one of the banks.

example. But then again, let me tell you, when you become prominent, you're responsible for your words because you may influence others. And that's my role. I mean, whatever I say in public about public and private about public matters, okay, is public.

And I should be held accountable for all my mistakes. And I made a lot of mistakes. I've been accountable for a lot of my mistakes. But you're just, you've got to be self-correcting. Just on the venture capital model, I mean, I take the funding point and I wholly agree with it. But it seems like also one of the reasons that VC and

tech investments in general became so popular during an era of low interest rates was that, you know, if you can't get a decent return from investing in traditional financial assets, then why not basically purchase a lottery ticket for the next Google or the next Amazon or, you know, even Bitcoin at times has been described as a lottery ticket. Is there an over? overlap between trying to identify tail risks, which almost by definition are unknowable, and that kind of model of trying to purchase a lottery ticket for the next big thing. Because it seems like both those two things, you never really know what the next Black Swan event is going to be, or the next big technological innovation.

This is a great question because people keep telling me, You like to engage in trades that have high probability of small loss and small probability of large loss. Why don't you just buy a lottery ticket? And you want to explain the condition, the number one condition, is to have positive expected return. You see, your bet must not be a Turkey. In other words, buy a lottery ticket is completely irrational. Bruton long run, you're not going to make any money. But if you engage in Taylor's trade, we believe that the name, myself, which has published

the paper explaining option pricing, 50 years after Black Choles, we explained that a lot of people think these auctions are expensive, like expensive lottery tickets, because they had the wrong model. We made the paper public. But the problem of the central problem is that you should focus on expected value. and a lot of places, and to repeat, that it appeared to be a negative-respected value, finance, or positive-effective value,

and vice versa. It's very rational to go buy and to receive, you think that you could dollar return to $1,000. But I doubt it will happen now. The story is oversawed, and that was a low interest rate gain. Because now people are going to focus on profitability and these companies may not survive.

And if you buy, by the way, If you buy into a lot of, VC has a lot of companies. So if you buy into a lot of companies, you lose that skewed attribute. So you no longer have, you would have symmetry with small loss of big gains. If I invest in a million companies with small loss big gains, okay, I would have steady returns if I have positive defective return. What did Sam Bankman-Fried misunderstand about positive EV? Because my understanding is that him and his. whole crew thought, well, huge risks were worth it if there's even a slight edge, if there's a

slight positive EV. And of course, they took the ultimate risk and it blew up. But they seemed to think that these risks were worthwhile because in part they wanted to make a lot of money, in part because they thought it was important to save the world, to make money to save the world from perceived threats, whether it's AI or anything else. What did he misunderstand about probabilistic thinking? Okay, actually, this is great to talk about him, not because it's him, but because of that group of people. We have this entire collection of young individuals who think that the past does not exist.

When I was a traitor in my 20s, I picked the brain of every older trader who had survived. And that was not just me. When I look back, I see people who have survived, same attitude. group. So these people make tabula rasa, and I remember writing comments citing my friend Tom Holland, who said the Romans had no cult of the youth, see, and that was, we have a cult of the youth, and they have a cult of themselves. And to me, being young and fine ass is necessary, right, a bad thing. Yeah. Simply because of lack of the experience, but also of that culture. So in the world, they thought

that if they understood the blockchain, they did not need to understand finance. And so that's the root of the problem. The root of the problem is they think that finance is a computer program. Finance has vastly more texture than that. It requires a lot more, say, introspection when you pick a decision. To consider many, many, many, many more factors. Finances, as you know, very complicated. It's just like we say science is hard.

You say finance is harder. had as a fortune cookie approach to finance the simplified fortune cookie effort and it was generalized tons of people and you know many of them became like him

paper billionaires and now they're going to end up like him living in their parents basement because they have no skills programming this who's track GDP is a skill that's no longer going to be

in high demand so that's the tragedy. The tragedy is much more general than what he missed. Right. It's the general approach. Hey, we don't need this. I mean, there are elementary mistakes these people make when looking at time series. For example, tell you, you look at Bitcoin. If you bought it four years ago, you had these returns. Yes, that's not how we look at investments. We look at peak to valley drawdowns, the structure of drawdown, because you're not going to go back in a time machine and buy it four years ago. You buy

it now. Okay. And you have to worry about the next four years, not the past four years. They don't understand how to present returns, how to compare returns, how to discuss inflation. Basic things about monetary policy are missed. Talking about someone, you know, that age group educated, supposedly educated, and making mistakes that I think a clerk, you know, or a trainee, you know, and you know, trainees, their main function is to serve coffee in the trading room, that trainees, you know, would know who would know immediately mistake. So the world has lost in some kind.

kind of sophistication, and we're going to get it back. It's evolution. These guys go bust, and those trained with more respected for historical understanding, will prevail. So in the end, the guys who have last word are the oldest investors around, like Warren Buffett and Charlie Mander. You have the desire to help, to make a real difference? The College, LaCity, you offer the program,

Dependance and Scenta Mental. Acquare the competences essential for accompany and support the people confronted to the difficulties of health and of dependence. Construise a career enriching to service of the community francophone of all the country. Don't know

of their quality in French, it's possible with the city. Visit the Collage LaCate point CA right now. An initiative

of the consortium national of formation in health, support by Santa Canada. The news doesn't stop

on the weekends. Context changes constantly. And now Bloomberg is the place to stay on top of it all. Hi, I'm David Gurra.

Join us every Saturday and Sunday for the new Bloomberg this weekend. I'm Christina Rofini. We'll bring you

the latest headlines in-depth analysis and big interviews. All the stories that hit home on your days off. And I'm Lisa Mateo. Watch and listen to Bloomberg this weekend for thoughtful, enlightening conversations about business, lifestyle, people, and culture.

On Saturday mornings, we put the past week's events into context, examining what happened in the markets and the world. That on Sundays we speak with journalists, columnists, and key political figures to prepare you for the week ahead. Join us as soon as you wake up and bring us with you wherever your weekend plans take you.

Watch us on Bloomberg Television. Listen on Bloomberg Radio, stream the show live on the Bloomberg business app, or listen to the podcast. That's Bloomberg this weekend. Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg Television, radio, and wherever you get your podcasts. How is Universalist? How is UNAs today? Talk to us about, you know, all these ideas.

How are you putting them into practice? Okay. The only thing I would say about Universal is that in 2023, the positioning is identical to the one in 2013, and identical to the one will have in 2015. So if my cycling allows me to survive that long. So in other words, we are providing a structural service with portfolios to prevent blow-ups to eliminate that tail.

And for us, just like blocking noisy people on Twitter and hassis Twitter, eliminating your tail risk allow you to make any mistake you want for your investments. A lot of people seem to intuitively like the idea of tail risk funds, buying protection. And, you know, probably for the reason you like, it's like, yeah, we're all going to make mistakes. But I want to sleep at night. And so I want to have some sort of hedge or something like that. And, you know, buy puts or whatever it is.

But that doesn't seem, obviously, like, that's costly in the short term. And there's no free lunch, right? And there's no free lunch, right? No, no, no, no, no, no, no, no. That's our problem is that if you buy what we call the suckers, but you might as well give your money to charities, and I can give you some charities. There's one in Lebanon, if they need money, I can give you their name.

The problem of Taylor is scheduling that just like Sam Banking Street thought, hey, finance was easy because he figured out your technical things. They have your little. How do it's great, let's do it. The devil is the knee execution. very, very complicated. Very, very complicated, and it requires a lot of experience. Conceptually, though, setting a conceptually.

Conceptually. How is it different? Yeah. It's a hugely different because the return you're going to have when you, I mean, I'm not supposed to talk return. Sure, sure. Okay. We don't have to talk.

So I'm going to say conceptually, that you can look up everything. But there's a huge difference between the naive tail hedger and the experienced tail hedger and living like that. Okay. Because sizing, the lot of things involved, particularly liquidity, how do you buy, because the difference between women ask for options is monstrous. Just practically, you know, you mentioned the difference between experienced and naive tail risk hedgers. But practically, is it easier or harder or cheaper or more expensive to buy, you know, really big tail risk insurance nowadays? Like, how has that process actually evolved since the 1980s, for instance? I think that people are even more naive today than they were in 1980s.

If they're not, the people are even more naive than they were after the stock market crash. I don't think that we have enough financial specification. Maybe short-term arbitrage disappear, but things are more structural, like how do price their risk? People are very naive. Plus, they don't quite, people also don't understand the following argument. It's your own money, you understand very well that you don't want to sleep at night, and there's some things you don't want to lose all your money.

And it's like why people never buy a house unless they can have insurance on it, particularly if the house represents three, four times their net worth. You don't buy a house. you know, before making sure that if it's a fire, you're not going to have a huge lot of money. And actually, very often, like when you drive, you're obligated to have tail of insurance. But then when it comes to a portfolio,

those who trade their own money or who invest their own money will find it natural to say, I'm not going to invest unless, and a tail risk is expensive. Guess what? I'm not going to invest in that. And then you have the second category, people are paid to invest. And you say, well, this is expensive. I'm going to do with that, of course.

It's not your money. And that's just going to be any problem. Speaking of tail risk, this week that we're recording, several people signed an open letter saying that we should halt development of technology along the lines of AI and that there is an imminent risk, at least some people believe, of these computers becoming so powerful that they wipe out all living things on Earth sounds like the ultimate tail risk. I'm not going to ask you how you had hedging.

against that because I doubt that would be a scenario worth hedging for. But is that a tail risk in your view? Are we on track to develop computers that will eliminate life as we know it? I don't think so. Number one is AI. People are worried that Shite 3 will put them out of business. That's why they issue these calls. I'm worried about that. Yeah, well, I mean, The chat GDP is not running red lights, traffic lights. It's not running things that are consequential. And when AI starts running these things, then we'll talk about it. But for the time being, we'll talk about development.

It looks like it's a probabilistic machine, no more, no less, with the defects of probabilistic machines. And the reason I talk a little bit about AI, because as a statistician, it's just nothing but nonlinear statistics. That's what it is. It's a statistical device and it worked in statistical device, but we know the shortcomings of statistical machinery and it has all the truck companies. So I'm not even worried. Nobody's going to use that AI for things beyond automated searches or it just automates a lot of things that can be automated. And unfortunately, a lot of people feel threatened because they see the discourse by by the child GDP very similar to their own because it's a bullshit.

I think this would be spread. So far, I don't see anything as far as society. I don't see it's not like with the pandemic where you can see something spreading. What's the tail risk that you think investors are most underestimating nowadays? Okay. It's the fact that zero interest rates are very unnatural. And if you raise rates to a normal level and what's normal level, say between 4 and 6%, the Fed would like to have higher interest rates, but there are some pressures.

You'd like to have a higher base because if you're at 4% interest rate, then you can lower it if you have a crisis. You can go down. You can go up. But if you interest rate that's zero and you have further crisis, you don't know what to do. Or at least you can't play with interest rates. We have to look for something else, just more dangerous. So I think that if you look at interest rates higher than 3% off term as a discount rate, then equities are in trouble because they're not priced for that.

So this is where you're going to look at, you're going to look at structurally. The equities are in trouble. But I think that many things will, you know, the equity would be the last drop, say, because a lot of things that would be in trouble first. I have two final questions. One is very short. Do you still eat squid ink pasta? And where's the best squid ink pasta? These are the important questions.

Where's the best? Okay, this is important. Yeah. If you want good squid ink pasta, if you want good squid ink, no pasta, you got to go to Lebanon. There's no, the Bayououwery recipes is the best. And if you want good squiddling pasta, you've got to go to southern Italy. Okay. If you want squid in risotto, northern Italy.

And then if you, you know, then I would say lower on. on the list of Spain, you go for the arrows, the paella, you know, the black paella. So the black rights. So, so I, New York, you know, I, you know, I don't recommend too much. Okay. But I can cook, I'm learning to cook it. And within the two, three years, I've been able to produce a decent dish. Oh, well, Tracy and I would love to do a live video episode coming over to your house sometime.

and having you prepare us a squitting dish in... In three years' time. In 2026. In three of times, yeah. Well, so then one last question, and I really appreciate the time, I have to say, if I'm being just like totally blunt, I know that you say that many of your readers of anti-fragile and some of your other works misunderstood your work, and I get that. But I also think, I mean, if I'm just being blunt, I think like your tone has changed.

You seem a little less bombastic than previous times we have chatted. You yourself have gotten into sight of it. No, maybe. It's because you agree with me. A lot of people find me more bombastic. Because you agree. There's always this bias. If you agree with the message.

All right. That's fair. You give a lot of flight to the messenger. Yeah, fair enough. Fair enough. Perfect messenger. No perfect message. So that's one thing is a shooter messenger.

I have, okay, let me go back to anti-fragile. It's just a brief summary. It's because people are listening to as we know what it means. It means that we need stressors. We need low-grade, a lot of low-grade stresses, you see? And companies need to encounter a few problems because you upregulate and you get stronger after that. But it doesn't mean that we should tolerate Taylor Risk.

It's all-conditional on avoiding tailor risk. And if you get stronger in jumping, you know, one foot, 100 meters are going to kill you. So just don't take the idea too far. It's very local. That's the idea of antifragile. And an antifragile investment is now something called antifragile by some web thinker. You know, antifragile investment is something that reacts very well to the misfortunes in the market. And definitely is not Bitcoin.

Niceem Nicholas Tillab this was a thrill thank you so much for coming on and I'm looking forward to dinner at your house in 2026 and another episode in Lebanon yeah in Lebanon we'll come anywhere Tracy and I think Tracy and I would love to go to Lebanon we would love to visit you in Lebanon we'll bring a crew we'll film it it'll be great and then we'll have you back on again in 15 years you know assuming the AI hasn't killed us all but thank you so much this is a real pleasure thanks thanks very nice very nice stuff Thank you. Thanks, Nassim. I appreciate it. Thank you. So, Tracy, the big question is, did Nassim change or did suddenly he says things that flatter our biases so suddenly we perceive him to have changed? I mean, I imagine it's a bit of both, but I think my, first of all, I enjoyed that conversation a lot. That was so fun.

But secondly, I think my big, like how I learn to stop worrying and love the Taleb moment is, you kind of, you kind of. kind of have to realize that a lot of the criticisms and things he says about others kind of apply to himself, which doesn't necessarily make them untrue. They're still very valuable insights. But it's either, you know, you grasp that and it frustrates you enormously or you just roll with it and appreciate the insights nonetheless. And I think I'm in the stage of my life where I'm just going to roll with it. That's so funny, especially because he specifically is like, no, no, no, I publish it an academic. journals. I am not a all-purpose bullshitter. You know, one thing that I think throughout, and I have to say for years, a point of his that I've always, whatever cycle he's in, whoever hates him at a given moment, that I've always respected, that I've always thought it was true, is a point about the difference between a plumber and an economist, or the difference between a doctor and an epidemiologist, which I think is like a really like insightful true point that like you know a plumber is an expert on plumbing they've they've fixed a pipe or a toilet or a sewer system or a shower system thousands and thousands of times there is very little new that you can ever show a plumber that they haven't seen and there is a certain level of skill set and ability to solve things that one can only get after having fixed a lot of toilet

or pipes, and that's why there's, you know, the whole apprenticeship thing. And I think that is, like, a really useful heuristic to talking to anyone, which is like, are they really an expert? Have they done something that's like built up deep expertise or are they just sort of like kind of winging it? Right. I think that's a completely valid point. And there's only so much expertise that I think one person can really have. You know, you can't expect people to be an expert in everything. But on the other hand, you know, he talked a lot about the world becoming more complex. And I think this is where the instinct comes to try to understand more and more things. Because, yes, a plumber, he's seen many, many clogged toilets and he can probably fix them in his sleep.

But then when something unexpected happens, like, for instance, COVID and a supply chain crisis that impacts his ability to get, I don't know, those little like toilet pump. things. That seems like that's where the instinct to try to understand the whole comes from. And the irony in all of this is that like that's a lot of what Taleb spends his time doing, right? Is trying to identify and presumably position for these sort of unexpected risks. You know, there is interesting the difference between, in his view, the vaccine and GMOs, one being systemic, one bit, the other being that trials of thousands and thousands of people is, of course, Intuitively, there's statistics, but just is a substitute for time in the way that GMO crops, there's no way to shortcut the process of like, well, what is going to happen to the entire ecosystem of agriculture

over the next 100 or 1,000 years because we just literally haven't. There's no way to substitute that time yet. Anyway, I really like that conversation. I was sad during that period when Taleb blocked me, and I'm glad we are both, I'm glad we are both unblocked. because I am very enjoying, I'm watching, I'm enjoying watching him his cycling journey, I'm enjoying watching his fights, and I just think he's an interesting guy. Absolutely. And I guess I'm looking forward to having Squid Ink pasta in three years' time.

All I can say is, there's going to be a lot of pressure, though, because it better be good after three years of study, right? Well, you know, the thing is, he's been talking about Squid Ink forever. And so the fact that he himself says it's going to be another three years before he's ready to, like, cook it. It's like, you know, he's a journeyman. It sounds like he is himself an apprentice or journeyman, squid ink chef who is not there yet. Maybe we should do a come dine with me style cook off, or each of us attempts to cook squid ink pasta in a different location and then we rate each other.

All right, I'm getting ahead of myself. Shall we leave it there? Let's leave it there. This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway. And I'm Joe Wisenthall. You can follow me on Twitter at the stalwart.

Follow our guest on Twitter. If you're not blocked, his handle is at NN-N-Talib. Follow our producers, Carmen Rodriguez at Kermin and Dash Bennett at DashBot. And check out all of our podcasts under the handle at Podcasts. And if you want more Odd Lots content, go to Bloomberg.com slash Oddlots, where you can find transcripts, a blog, newsletter. and if you want even more, we have a really fun community online on Discord where a bunch of listeners hang out 24-7 in chat about things like markets, finance, economics, energy, water, AI, and all the things we talk about.

Go check that out. Discord.g.g. slash oddlots is the invite link. It's really fun. I've been spending a lot of time there. Go hang out. Thanks for listening. This is Tom Keane inviting you to join us for the Bloomberg Surveillance Podcast. It's about making you smarter every... Business Day. I'm Paul Sweeney. We bring you complete coverage of the U.S. market open. We cover stocks,

bonds, commodities, even crypto, all the information you need to excel. And I'm Alexis Christophers. Bloomberg Surveillance also brings you the analysis behind the headlines. We do that through conversations with the smartest names in economics, finance, investment, and international relations. We do all this live each and every weekday, then bring you the best analysis in our daily podcast. Search for Bloomberg Surveillance on Apple. Spotify, YouTube, or anywhere else you listen. On the East Coast, listen at lunch. And on the West Coast, listen as soon as you wake up.

That's the Bloomberg Surveillance Podcast with Tom Keene, Paul Sweeney, and me, Alexis Christophorus. Subscribe today, wherever you get your podcasts. Bloomberg Surveillance, Essential Listening, each and every business day. What separates good leaders from transformational ones? I'm Jessica Chen, and in season two of of Leading by Example, we'll sit down with executives like Grace Chen of Bertie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to Leading by Example, executives making an impact on the IHeart Radio app, Apple Podcast, or wherever you get your podcasts.