Negative Advice

Negative Advice

The Fourth Quadrant, or Black Swan Domain, combines hard-to-predict events with potentially large consequences. Taleb’s negative advice is to avoid exposure to losses you cannot survive.

Psychologists distinguish between acts of commission (what we do) and acts of omission. Although these are economically equivalent for the bottom line (a dollar not lost is a dollar earned), they are not treated equally in our minds. However, recommendations of the style “Do not do” are more robust empirically. How do you live long? By avoiding death. Yet people do not realize that success consists mainly in avoiding losses, not in trying to derive profits.

Positive advice is usually the province of the charlatan. Bookstores are full of books on how someone became successful; there are almost no books with the title What I Learned Going Bust, or Ten Mistakes to Avoid in Life.

Linked to this need for positive advice is the preference we have to do something rather than nothing, even in cases when doing something is harmful.

I was recently on TV and some empty-suit type kept bugging me for precise advice on how to pull out of the crisis. It was impossible to communicate my “what not to do” advice, or to point out that my field is error avoidance not emergency room surgery, and that it could be a stand-alone discipline, just as worthy. Indeed, I spent twelve years trying to explain that in many instances it was better—and wiser—to have no models than to have the mathematical acrobatics we had.

Unfortunately such lack of rigor pervades the place where we expect it the least: institutional science. Science, particularly its academic version, has never liked negative results, let alone the statement and advertising of its own limits. The reward system is not set up for it. You get respect for doing funambulism or spectator sports—following the right steps to become “the Einstein of Economics” or “the next Darwin” rather than give society something real by debunking myths or by cataloguing where our knowledge stops.

Let me return to Gödel’s limit. In some instances we accept the limits of knowledge, trumpeting, say, Gödel’s “breakthrough” mathematical limit because it shows elegance in formulation and mathematical prowess—though the importance of this limit is dwarfed by our practical limits in forecasting climate changes, crises, social turmoil, or the fate of the endowment funds that will finance research into such future “elegant” limits. This is why I claim that my Fourth Quadrant solution is the most applied of such limits.