Nassim Nicholas Taleb on the Pandemic 7/27/20

today is july 3rd 2020 and my guest is philosopher and author nasim nicholas taleb he is the author of the incerto his collection of books anti-fragile the black swan fooled by randomness the better per crusty's skin in the game this is his ninth appearance on econ talk he was here last in march of 2018 talking about rationality risk and skin in the game our topic for today is the covid 19 pandemic i want to remind listeners we're recording this during the pandemic audio maybe below our usual standards this episode will be released on youtube with video we hope so please go to youtube and search econ talk and subscribe i want to thank plantronics for providing today's guests with the plantronics black wire 5220 headset now sim welcome back to econ talk yeah thanks again for inviting me and one one little detail i'm not technically a philosopher i'm just someone interested in probability so yeah whatever field uh um is attached to that will be my field but not quite philosophy but anyway well i like to also call you a flanner but that's even more understanding my profession yeah my flanner you don't have a uh well actually it's it's pretentious now but it used to be equality in roman time ortiz yeah you know doing nothing yeah we're not being guided by any uh constraint that's that's pretty much what what what this is about yes and it in your usage of it it often uh denotes wandering on foot without a uh without a purpose yeah but if you if you try to make it productive you're going to fail right anyway aimlessness is the idea whether intellectual or physical i want to begin with the personal reflection my father ted roberts used to say that even though there are snakes in the world it's good to go barefoot so you can feel the grass between your feet between your toes that was a statement about trade-offs that he embraced and shared and i embraced eventually my dad hated the popular wisdom of what he would consider obsessive safety he never wore a bike helmet because he liked the feeling of the wind in his hair my dad taught me that value of trade-offs at a very young age but while i am his son i am a sim nicholas talib student and i learned from unisim about the risk of ruin the trade-offs become relevant when you're out of the game either literally as in wiped out in gambling or figuratively as in being dead so being 65 i have been exceptionally cautious over the last few months would you say i've done the right thing in responding to the pandemic yeah okay so what i'm saying is that what the caution and prudence are perfectly compatible with your father's statement so the central idea is that the risks of variation is extremely different from risk of ruin particularly at the systemic level like risk of car accidents doesn't impact whether it goes higher or lower doesn't make a difference in the risk of wood for society the example i gave in anti-fragile at the individual level is if i jump one meter i'm probably going to get stronger actually if i don't jump often i will uh get weaker yeah but if i jump 20 meters uh you know you'll know what would happen so there is a difference between a medium-sized variations and visual level and systemic at the system level you must survive and this is something we discussed last time last chapter of skin in the game which is something about uh the absorbing barrier that uh conditional on being here odds are we there's some properties we didn't have we are paranoid for uh large-scale risks and certain classes of risk and what i've tried to do as my collaborator is figure out what are the systemic risks we should be avoiding and which is liberating because it allows us to take a lot of risks elsewhere but do you think that just thinking about myself and my personal risk not the societal risk should should i have been extremely cautious as i in fact have been during this pandemic yes we actually wrote a a thing on it joe norman and myself as a follow-up that even my my arch enemies people or people you know who consider themselves my harsh enemies liked like uh we don't have the name we don't have to no no no sam sam is a nice guy because he went in and said listen i hate this guy hates me he is my arch enemy but you know what you got to read that piece and the piece we follow the following very simple reasoning it may it is very selfish for you to not reduce your risk because a contagious disease has different properties so let me explain someone came up with a statistic that had been hit by car represented much larger risks for people but at a time that was true than the pandemic then a pandemic that then one than kovit but then i said okay but if you don't behave conservatively you will increase that risk grammatically because because the collective risk doesn't scale linearly from individual risk unlike other risks that do effectively have some scale transformation so if i don't pay attention the risk will be higher for everybody else it's just like wearing a mask i wear a mask not for myself but because a person i'm going to infect will infect maybe 10 more or a bit up to 10 maybe up to 20 more some number more maybe on average it depends if they sing in a choir or go to a urologist yeah exactly exactly so so you have you you wear a mask not be too just to protect yourself but for the systemic effect and and and very few understand the different the the thing and last time we discussed rationality we spoke about scaling like some things may be perfectly uh rational for society but totally irrational for any individual in it so in the case of wearing a mask uh if we all we'll get to massive more detail because we've come to a moment in american history deeply depressing to me where uh wearing a mask has become a partisan ideological issue rather than a scientific issue but but the point is is that wearing a mask is uh has external effects that are beneficial it's like being a nice person you bear a very small cost that it's uncomfortable and hot and in by doing so you reduce the chances that you are asymptomatically spreading a deadly disease to potentially as you say dozens of people yeah yes so so so so it becomes a a a duty sometimes to act against your own interest a moral imperative yeah it's a moral imperative and masks are the cheapest i mean think about it you're afflicting economic huge economic costs by not wearing a mask because i've computed a few things about convexity of masks and errors made by bureaucrats initially because initially the world health organization the cdc and all these people were against math squaring and we said that two things they did not figure out the first non-linearity the first one is they didn't think that again they don't scale they did not think that if i were a mask and you wear a mask we're not reducing the risk by p the protection by a mask but by p square you see so uh the so the idea so for example 50 probability of of being infected wearing a mask and and you have 50 the total would be 0.25 so but there's another thing people did not pick up and we saw it a lot of papers and that is even more central is that if i reduce the viral load by half i don't necessarily decrease the probability of infection by half i may decrease it by 99 right and there may be a threshold level a threshold level there's an s-curve so if you're if you're in the left side of the s-curve it must be that your convex everything is convex initially and then concave at the end so that's the nature of the s-curve so these are the things that were missed by people who uh analyzed masks initially scientifically and they just looked at viral load reduction so back in january of this year january 26th uh you wrote a paper with uh junior baryam and joe norman warning about the pandemic and uh it got some attention but if you were in your shoes then look looking back on at that moment which was in america nobody really was paying any attention to this what were you hoping would happen when you wrote that that paper what were you what were you besides raising an alarm which you did no no no two things uh and and it was depressing uh that that we had to do that our team was basically monitoring for pandemics because in my opinion they are the fattest tales and fat tales means that these things can really go out of control and we haven't had many pandemics in history but we've had you know very lethal ones and and is it exists they represent an existential risk and we knew that so you have to stop some things in the egg when it's cheap to do so and uh when ebola uh started the people were not uh reacting to it properly they were comparing uh a process that is multiplicative to uh and at two risks that were uh in a gaussian distribution so here we had fat-tailed risk ebola or any pandemic versus uh people dying under swimming pool people falling from ladders and stupidities like that rare events yeah but you cannot compare these two because one is multiplicative and then the other one follows what i call turn off bound yeah when i fall into when i fall into when i drown in my bathtub you don't drown in your bathtub exactly exactly so they're not multiplicative and then the way to look at it is they have extreme value properties that are very different if i tell you a billion people died you know they did not die drowning at their best so in any given year whereas if you know if i tell you a billion people you know died try to guess azar is going to be either nuclear war or pandemic more likely to be a pandemic it's actually fattest tales so just to alert people to the nature of pandemics that's the thing we have to worry about the most and and we failed during ebola because people kept using especially psychologists rationality arguments and and our argument was twofold one the multiplicative notion and the second one is a rationality point that is just made that rationality doesn't scale so and and this is completely absence of absent the fat tailedness and the scaling are absent from the decision science literature which effectively makes people uh doing the right thing look like they're irrational right and no one wants to look at rational exactly so and and what the the the the literature coming out of you know the that tradition of rationality and all of that is completely bogus so we knew that from the ebola uh days uh four or five years ago and we were waiting for the next pandemic and sure enough we saw the sign and in january and then we in china and and at the same time i started studying a little bit you know history uh in preparation for a paper that came out in nature physics with the cherillo showing effectively that pandemics are a fattest tailed thing you you know and then you got to kill him in the egg so uh so in preparation i read some history and i discovered that effectively uh the eurasia i mean the quality the old world called eurasia dealt with pandemics in a very effective way it was part of the economics of the time because so for you know the people uh when they talk about plague think that it's an instant phenomenon that killed a lot of people disappeared we had two plagues the first one the justinian's plague and then the second one is what is commonly known as the major plague in europe in the 13th 13th century 1300s uh 14th century 30th 14th century and people have the illusion that hey you know it came in fact no the previous plague state and it was accelerated by commerce along the silk road and you know as can be expected commerce brings germs and uh and it was and people adapted to it because the plague stayed there for 300 years and to give you an example of what happened in 1720 a ship left smyrna was merchandise coming from the east you know smyrna and now in turkey at the time you know in ottoman empire eastern you know it was uh considered the levant at the time went through uh what is now lebanon cyprus went to genoa the the the the genovese didn't let it in because they had something called lazaretto which was a quarantine for all ships was when when they suspected the plague it was enforced talking 17 around 1720 the ship was owned by the mayor of marseille it wasn't okay and he bypassed the quarantine rules half the population of marseille perished mean of genoa marseille genoa refused it oh okay because they were smart so now think about marseille okay yeah what to say general so you think about it that was the mechanism mechanism the ship comes in you have suspicions you don't take chances you refuse the ship wow and the cities and you look at it during the black death or that period when when when they they uh some cities shut down they did not accept any uh uh foreigner or any outsider and even the residents coming back had to go to lazaretos or the equivalent of quarantine so quarantine was a built-in was this standard operating procedure standard operating procedure activated whenever people suspected something and the ottoman empire you see the empire had a border with the habsburg at the time and whenever you cross from one to the other you're quarantined and i it's worth pointing out that quarantine is its root is italian or platinum which is 40. and sorry i think these people 40 days 40 days yeah yeah which was a pretty serious we do two two weeks here in modern times but but still two weeks work i mean tourist is good enough i mean whatever reduction of connectivity is very good so but what happened is that you have to realize and this is something i saw with writings of black swan that we have more connectivity today than we did before so therefore things that are multiplicative would be vastly more multiplicative today and you'd have more of a winner take all just like we have economic winner take all with google thanks to technology uh i i noticed pavarotti for example the singer the opera singer because you had the television okay he really the radio album cds yeah yeah so you had uh particularly for opera where you need the visual he you had a winner take all effect where a few opera singers were making uh hundreds of millions of dollars and the rest were starving or working for uh starbucks or singing a birthday party so you have the same concentrate the same thing would happen with diseases that you would have a winner take all disease taken over the planet and we have super spreader events that cause even more fat tails to give you an example a urology conference in las vegas and uh in this case what what what happens in las vegas doesn't stay in las vegas gets redistributed to 200 countries so people come in they get something and then they distribute it so that you did not have uh on a silk road it was much slower 30 kilometers a day maximum you see and it was an end because you had that barrier of religion between the ottoman empire and the what's considered now as western europe uh because he had that barrier it was it was not it was porous but not as porous as the world is today so you have you don't have natural limits to things so back in january when you were warning about this risk of course it hasn't taken over the planet exactly and we'll talk about that in a little bit it's been you know obviously devastating in different degrees to different places but what do you think we should have done in january the and the right way to phrase that is when the next pandemic hits when we get covered 23 uh instead of cover 19 what's the right response at the national level and then at the state level the lower level and the personal level we wanted uh systematic quantize because you know the fact of having quantized from people coming from china is foolish not knowing that they can come from somewhere else okay so and effectively from somewhere else yeah and and the chinese actually and then also you want to have the world health organization removed it's a bureaucratic organization that has been devastating for mankind and by because of its incompetence they prevented people from wearing masks now they've said late since then the cdc did the same thing uh yeah they have since confessed that they did that at least this is what they're saying now that they did that because they're worried about a shortage so they've lied to people if that's true yeah degraded the quality and credibility of their organization and resulted in no it's no no it's not just that they lied they're incompetent they can't they didn't understand the compounding well maybe see and they are saying also they did not realize that uh you know they're bureaucrats in their opinion only the government can make masks yeah they did not realize that there is a market that the minute you tell people hey we you know wear masks that people would would find stuff in their uh closet that would sure work perfectly as a barrier and and and and we wouldn't be here honestly when i think today i i i we thought of the mask situation late in the game initially we were you know we bought the argument that it was not transmitted uh uh and you're you know by that mode we thought it was it was contagious but very quickly we figured out the mass situation when taiwan but we got a statistical hint there why is it that taiwan that has a lot of traffic from uh uh wubai was completely spared and it's claimed that hong kong has been completely spared as well despite its traffic and look at the mass switch so so you you start getting statistical hints and and then of course we like the convexity argument and realize immediately that they missed it so it's very embarrassing but that's not the point the idea you said you said missed it i thought you meant misted like because of the of the virus but you meant missed it sorry missed it and and and then also there's something they cannot they said well there's no evidence masks work don't use them they cannot still hear a difference people are still saying that yeah there's no evidence mess works hence where it we don't know if you don't know the whole idea of the incerto the the central idea of the inserto is that when you have uncertainty in the system it makes your decision making much much easier rather than harder it seems hard yeah it seems to give you an example this water if i tell you well i'm not certain about the quality of this water what would you do would you drink it uh no okay very good okay very simple i'll tell you i'm not very uh we have uncertainty about uh the pilot's skills he could be excellent or he or she or he could be excellent or but okay we're not sure we have uncertainty what do you do right well you get up no you get on the plane for a while i mean that the reason i like this example is that you know if there's a one percent risk that the water has the bubonic plague in it you don't drink one percent of it and thinking well that's probably less than 1 it's probably good you just don't drink it you go to zero you go to the corner we call it there we go and people behave that way and we're gonna see we're gonna you know we're gonna see how people's built-in uh you know uh instinct is vastly superior to what the cdc had what a lot of scientists what uh these uh decision making uh professors uh the dutch group in in in the uk all these people are completely incompetent when it comes to basic things that your grandmother gets yeah your grandmother's right often uh this instant helped us get here yeah otherwise if she weren't right we wouldn't exactly yeah exactly there we go uh so this um i want to talk about mass for a minute because what what i found fascinating about it as a uh in thinking about these kind of issues of risk generally if you tell people um that if you wear a seat belt you might drive less carefully they laugh at you they say oh nobody pays attention to that that's ridiculous but those same people for some reason when we started to suggest that wearing masks was a good artwork it was a good idea oh no no there's all these other effects you might touch your face more uh you might think you're safer than you really are which is like the seat belt argument and my view was uh you know they said it's not scientific there's no there's no evidence there's no studies there's no clinical data on mass squaring and i'm thinking why is clinical data the only kind of evidence that is acceptable so yeah so after 20 years of working with uncertainty more than 20 years of course but 20 years of publishing and put into it i i finally wrote a piece that has a sentence that summarizes everything i've struggled to explain in my debate with john juanites i came up with a sentence science is not about evidence science is about properties it's not about single forecast so science is about understanding something so it's not about details like for example if you have absence of evidence right you it's still scientific to describe a process that this virus goes in your nose and if it comes out of your nose so if you cover your nose and the guy across you covers his nose maybe it'll reduce the i mean that just seems it is scientific it's scientific to say let's wear masks because if your decision if you map your decision making abilities and and your uh your or or the decision making sorry the uh uh russian rationale in a scientific way then you would get uh you would get results that are very formal but they're this naive evidence-based science is not there in sophistication yet to graph that and and we wrote it in a in a in detail about forecasting like science about forecasting single events science is about understanding the properties of stuff let's talk about that or may not include forecasting one second i just want to add this this famous sort of onion like example which is uh there's no clinical data on whether it's unsafe to jump from an airplane without a parachute at 35 000 feet yes right so when someone says should you put on a parachute or not you could say well there's no evidence that it helps but we understand gravity we understand logic and we would understand that you don't need a clinical study and and you understand symmetry you understand asymmetry and this is what what i'm saying is that integrating in your decision making rigorous science includes taking into account the asymmetry the payoff of symmetry is that a the harm you're going to get from wearing a parachute is vastly inferior potentially correct than the benefits you may get for it that's it simple right it's the same with the mask right the mask is a little bit uncomfortable it's a little bit hot it costs eight dollars it's a bargain what do you mean it cost eight dollars you can make masks for uh 45 cents using listen coffee filters work yeah you can also uh i use i'll probably mention this before get on get on youtube and google uh search for sock mask scissors and you'll find a way to make a mask just with a pair of scissors and a single sock it's phenomenal yes so let's talk about forecasting because you know the uh a lot of people have lost uh some unfortunate uh credibility that because they made they picked numbers they said you know famous example in england uh neil ferguson not my colleague at hoover the other neil ferguson yes uh said that uh up to 2 million people could die from the pandemic and you could argue well that's not that was okay because he said up to which is meaningless of course it doesn't mean anything it just means it could be really bad which it could have been and you could argue it was important for him to scare people into being more cautious and that was the the payoff for this was that people became more careful when they heard that number so what's wrong with making a forecast like that okay i'm sharing a screen with you here okay a paper uh that that started with a debate with uh your needs this is johnny and eddie's who's that past econ talk guest who i i'm very fond of and we may yeah i used to be fond of him well we hear from him down the road go ahead let's see the let's see his the the the the title is on single point forecasts for fat tailed variables and let me explain it uh very simply and explain why science is not about forecasting as people think sometimes it's about forecasting but not necessarily so you see this graph here i have a probability distribution that is very skewed actually it's not a unusual probability distribution it's a common log normal which is not the the worst i mean there's worse right and for those listening to audio only i'm going to we're going to describe this in a minute but without the graph but carry on carry on the average is slightly above seven okay all right and the variable you is a variable you only observe the average uh 15 of the time something above the average okay uh 85 of the observation fall below the average okay and and what's worse is that fifty percent of the observation fall below one which is like thirteen percent of the average so the averages for those not listening at home now what's the reason i love this image and your discussion of it is that it highlights something important that i've learned from you which is most of our casual non-real academic explorations of risk are based around classroom exercises like flipping a coin and flipping a coin or the distribution of height in the united states uh these are what are approximated by normal distributions where most of the events occur around the middle around the mean so if you flip a coin a thousand times you're going to get between 400 and 600 heads most of the time uh you could get 700 but it'll be rare you could get 300 that'll be rare the point of this kind of distribution it doesn't look anything like a normal distribution and if you bring your intuition from the normal distribution into this picture you're going to make some horrible mistakes so just to repeat in this case the the mean the average outcome is is seven but as you said more a little more a little more than seven but fifty percent of the time it's going to be less than one okay and that's because and let's just make it clear that's because it has a long tail to the right and you're going to get outliers relatively often unlike the case of of flipping a coin where you can't get more than a thousand heads and a thousand tosses or height you can't get anybody over say 7.5 feet tall in wealth or other just things that are distributed risk of a pandemic death rate you can have big numbers yes but now i have a second graph to show you which is going to depress you okay or not or admit or maybe you know i think that understanding uncertainty makes me happy because i know there's not that many risks out there i just worry about those and that makes sense it also makes you feel detailed it also makes you feel smart and similar so dynamics are vastly more fat-tailed yeah okay so in this case the average for this distribution if it exists assuming that this will come from one observation so you can have a million observation one will determine the average meaning explain that and understand meaning okay so fat tailed means like if you take the wealth in america you realize that uh one percent of americans own fifty percent of wealth okay okay and and and it gives you contribution by outliers that can be monstrous like jeff bezos is wealthier than i don't know the bottom 100 billion american 200 million whatever it is yeah okay so the uh the the the concentration it is uh concentrated uh the these pandemics have effects that are very very concentrated in the sense that one observation will determine unlike the luck normal that we saw earlier which gave us the intuition 85 percent of the observation are above the average in this case only one single observation is above the average one one and what's why is that important it's important to realize that you can't work with averages and you cannot work with forecasting there are techniques from extreme value theory we can understand perfectly what's going on have a representational reality so let me try to put this in everything let me if you have representational reality but it's not describable by an average nor can it be captured by testing people's forecasting all right so let's um so let's go take out the screen sharing for about to go back to you and me i want to try to explain this okay so let's talk about why this is important if if i'm a um an expert and you're doing a coin flipping uh exhibition and i you're going to toss a coin a thousand times and i'm called in to ask what's my forecast so i say well i think he's going to get about 500. and i'm going to be in the ballpark exactly because i'm going to be in the ballpark exactly what you just described parentheses is a lot of large numbers yeah right it does work for centail distributions so if you have large enough a sample or large enough repetition you can figure out what's going on so the another way to say it and again to put it into folksy terms that i also got from you is that you you care about you don't care about the average depth of the river you care if you're going to walk across it and you can't swim you care about that where it is deepest and if the average is three feet high but there's a large stretch where it's 60 feet deep and you're going to die that's what you care about not the average and here you're saying that if the average death rate from this pandemic forecast which is based on a zillion assumptions also is a million people that that per that prediction is essentially meaningless because there's no sense in which we there's so many factors that are going to determine where we are on the on the distribution that aren't going to be subject to the law of large numbers exactly so in other words if the real average uh that can come from pandemics is something like 2 billion more or 3 billion right 99 of the time you will observe something under a million right okay so which is why which is why we should not forecast numbers that's the first reason why a single point forecast is highly unscientific naive what i call naive uh tink uh statistical approaches say that again let's go back to that example because i think it really helps people yeah so the the mean the exp the expected value the average your run a simulation the equivalent of a simulation and you run a hundred plagues and you find out that the mean number of deaths is is a billion yes and that's because there's there's some there's a few times when it's five billion and seven billion and there's a lot of times when it's quite low exactly and then it then it becomes the actual event occurs and the because people are cautious or for whatever reason we get a good draw from the urn and the death rate's maybe only a million yeah it's not necessarily because people are cautious it's mostly largely because diseases even covet we think we know something about it we know nothing because it can mutate sometimes they can start mildly we classify as pandemic that have fat tail events that have killed more than a thousand people but the point is that is that so let me let me tell you why this is important it means that you don't have to worry about anything that hasn't killed yet a thousand people see we we separate the classes something that has not killed like every time you know you have a virus in town it doesn't matter it does not matter it doesn't matter you don't have to worry the minute it kills it's in the category that you know has killed more than a thousand people then you have to worry about that because it could be a fat tail monster it is a fat tail but it could be a monster that could kill a billion yeah it can you have to kill it in the egg but when you're approaching a thousand yes i want to get at this point about the naivete and unscientific nature of these forecasts yeah somebody who says i have i've simulated this the mean number of deaths is a billion then the actual thing happens and only a hundred thousand people die you don't want to say he's he might be an idiot but you don't want to say he's an idiot because it was an inaccurate forecast that's exciting he's it you're saying he's an idiot because you cannot ex i would say differently exactly expected doesn't mean an average don't mean typical here exactly so we run those words together we said exactly we said you're an idiot to forecast and he's an idiot to critique you foreign okay so this is what we said in the paper and we said one thing we said science is not about accounting it's not beam counting science is about understanding a phenomenon now the second thing i would say is that effectively some people have abandoned completely that naive forecasting and and study properties in risk management very effectively the dutch the because you know it's a country it's a little country so they are worried about the level of the water they're not interested in the average they're interested in the maxima yeah okay and then there's a whole science of extrema coming from statistics applied in insurance applied in risk management applied the finance applied in many fields extremely successfully that look at what robust claims you can make about the maxima that's the one i used in my paper was cherilo we used exactly how they you know how they you know the same techniques used for uh for uh the maximum uh the expected maximum of the average maximum which is different from the average and different from the maximum water level we applied and of course we modified it we had to find robust tricks it was complicated but over the years we developed a technique to deal with extreme value theory applied to some classes of phenomena namely wars and the fattest of tales of all pandemics so when we started warning about pandemics in january it was not a cry wolf a variety we told them don't worry about anything else just worry about these things things that are multiplicative particularly pandemics and here's the evidence so we were it's not like uh uh you oh people were supplying us was arguments oh if we listen to you you know you never make money you stay home stay home all day no no no no the entire point of precautionary principle is to replicate what that all trader told me which is what take all the risks you want but make sure you're in tomorrow yeah which is which is how goldman sachs taking a lot of risk has survived so far 161 years don't don't don't eat the nest egg don't go make sure make sure you survive which is the the the a lot of people hopefully you'll invite uh ollie peters people who worked on ergodicity uh standard economics uh you know has flaws in it because they don't take into account this absorbing barrier yeah the so there is a um the other thing i i think you've emphasized over the years which i find very um helpful is that a lot of modeling takes place because it's convenient not because it's right and dealing with expected value which is the average is easy and so we do a lot of it we're not against modeling they are parameters of for fat tail distribution that are very robust we're not against modeling we're against naive modeling it doesn't mean that because you have a model that is right but on the other hand it doesn't mean that that mathematics cannot be used effectively and rigorously to capture empirical phenomena you just have to be very careful and the interesting thing that i just wrote this this book and actually it's it's out today okay the statistical consequences of fat tales fantastic bedside reading i suspect for people who have trouble falling asleep it's a technical book right yes very technical it's sort of that is the technical inserto i have the inserto for the what i call the philosophical literary books and this you know is sort of like a backup that i've been writing over the years and the first volume is out so today and and the the entire message of the inserto is that a lot of things that people claim you know come out of statistical models don't come out of statistical models see like for example uh linear regression you cannot do it with fat tails so it's not science to they violate when you violate fundamental mathematical rules it's not science anymore well to me that's like the inside of you know ed lemur in his book in his essay we've talked about here before let's take let's take the con out of econometrics exactly exactly where he's basically saying that if you're constantly trying different variations of the models of what variables you include you can't use the standard statistic statistical significant tests because you violated the underlying assumptions that's one of them so i went through like 18 violations by saying that for example you cannot do linear regression if you don't have the uh satisfy the gauss markov theorem and then come up with that theorem you're using that theorem specification psychologists use a correlation they cannot use correlation when you have non-linear uh effects for example because this is well known to be a linear coefficient of linear association and and stuff like that and then you go deeper with the principal components analysis factor analysis so the idea is is that they are violating the rules of statistical inference i want to talk a little bit about fat tails and pandemics just to make it a little clearer let me see if i understand you correctly i hear you saying the following because you you you corrected me at one point you said well it's not necessarily how people behave uh a pandemic of pandemics is one that is more infectious more fatal etc so we often don't know those characteristics of the virus when it's when it's spreading so to get that tragic the catastrophic far tail outcome of one billion dead when when do we need to worry about that is that because it will be a particular okay we've tested there's a magic number whatever it is but the minute i mean it could be 200 300 people but we said okay as a heuristic let's study the class of those that have killed more than a thousand people in today's population equivalent in history right but but coveted 19 yes doesn't kill young people much or if hardly at all it killed more than a thousand people i understand that no no it's not that true first of all we don't nothing about covet 19. we're what five months into the the the thing yeah and most infected people were affected recently because it's still growing and you have about what 500 000 people died today um so far so far so we you know there's one thing one statement we're going to make we know nothing about morbidity i'm not explaining explain okay okay when you get sick okay you come out of a disease sometimes because you come out of it stronger but in some cases you have side uh some affects either of the treatment or the disease itself you would survive but your lungs are damaged and you're going to live a lot of young people have damaged lungs we don't know we don't know whole ideas we know nothing we know very little about covet today so the lessons till now that they started treating it differently from respiratory uh thing now they understand this could be some autoimmune effects and reactions so you cannot rule out the effect on young people and what i'm thinking is that we've had some scary diseases ebola sars etc and not that many people died and i think it lulled people like myself into a false sense of security oh these things are overblown it's not so bad you understood and your co-authors understood that's the wrong way to think about it what was i missing it was this one is this did this one kill a lot more people because we didn't react correctly because it's a different kind of virus we we all okay the idea that you should treat as we warned in january absolutely all pandemics the same way okay the minute they kill and the reason we use the number kill because you have a lot of pandemics that are not consequential like the common cold they're not consequential and uh they're not so you should treat them all as something that can potentially mutate and and once you enter that class but the uh one thing that people don't realize is that with hindsight of course you know what happened you know that ebola was not a big deal you know that sars was not a big deal in hindsight in foresight when you're standing facing uncertainty you should behave according to a protocol what is my protocol here the protocol is we have something to take seriously and let's find ways to pull out of it one thing i question that people who uh believe that uh fighting the pandemic is costing us money it's not fighting the pandemic that's costing money it's a pandemic and let me explain if you're a rational would you go would you go to a restaurant in new york city no would you go to a bar uh no you would not go to a bar okay all right so well i would if i would if i were a mask the other person were a mask i didn't stand talking to him for 20 minutes okay so all right so let's borrow them having to to wear masks inside okay so so what killed i say i say that because i was at a brewery yesterday outside in the countryside that's fine but yeah yeah no no okay when we don't know what's going on in the beginning we don't know what's going on so people have risk aversion they don't want to get on a plane that may has one percent probability of crashing or an unknown probability of crash right so it's people have that aversion and all it takes in new york city for some restaurants is a drop of 20 in revenues that's all it takes for them to go bust sure they're already on a thin margin exactly almost working margin and and i read a statement by the chairperson of delta you know saying hey take care of the clients they only make money they say the plane is full we only make money on the last four passengers so there you go would i get on a plane no um now now now i would but of course so you realize that a lot of the economic contraction that we have resulted is a result of uncertainty it's fear no it's mostly fear fear and uncertainty and we didn't know much about it and that's a major cause of economic contraction so you cannot really you know the positive tradeoff between government shutdown and and and and that's so important we shut it down most people shut down themselves we shut ourselves down because we're afraid and rationally so is your point but what i want to i want to come back to this understanding about risk because why would why is any this might have been different we might not have had much of an effect what was different about this one relative to ebola and it was not it was not different why is it spread so much more why is it so more debt so much more deadly is it the virus itself ebola has some different characteristics but you you you couldn't tell about this one uh at the time and we still can't tell about this one because both this and ebola can change ebola kills uh people faster and more effectively because high number of carriers okay this one doesn't so this is you know but things can change right so the point is that it could change here and with ebola you can't you can't really say okay let's not worry about ebola because it's going to kill enough people before they you know uh spread before they they spread to others so therefore it's a good disease you don't know you should treat them all the same way that was my idea is that all of them and we don't have to worry too much about pandemics because you have to have a good mechanism so we're going to come to that but i want you i want to just put up a a um a period at the end of this of this piece of the conversation because i think i understand it better which is to come back to your point about statistical characteristics you would be an idiot or a fool to look at past pandemics and say well they really didn't kill so many people so i'm not worried your point is is that that past experience is not predictive the average of the past 12 pandemics is a poor predictor of what to do to expect the next one exactly that's what we told the you know the epidemiologist and and then you know we had an impactful uh paper uh chirilo and i because it was presenting things that physicists understood mathematicians could grasp but epidemiologists not so much you see and then it's a mathematician who helps spread our message not the the epidemiologist that about the fat tailness of the process and why you should take it seriously you should take all fat tail processes seriously let me tell trillion dollars in america okay about give or take 100 billion or so no on defense directly and indirectly okay okay so it means that we are not willing to gamble with uh certain things with our security okay so so you may you may argue as i do often that the the this is causes uh you know us to uh you know uh causes more instability in the world and stuff like that okay this has consequences and that it's not probably in our best interest to have you know anyway but the point is we spend that money we don't have to spend as much for pandemics and pandemics are vastly more dangerous than wars so what's the protocol you said we should just follow the same protocol with every one of them mechanism for quarantine reduction of uh and identify super spreaders you don't have to lock down things in this case it's very easy super spreaders or subways elevators and uh big uh big uh gatherings like the weddings yeah the trump convection for example trump rally okay political rallies yeah political rallies okay so so where where and then if you have masks then you can mitigate you okay okay let's have uh you know you can attend a game everybody should wear masks you know because now we understand that open air but but when you don't know you have quarantines and elimination of super spreaders until we figure out what's going on and my complaint i have a few but one of my complaints is that we don't know much about what's going on even right now and one of the key roles for the government to me should be gathering information so that we can make good decisions about what's risky and what isn't risky we don't have good testing mechanisms the government is on an atrocious job in the united states so there we go so we spend a trillion dollars on weaponry uh nuclear warheads you can destroy you know russia or you can destroy any country you want a hundred times but we we are not still not able to have proper testing and or proper uh quarantine but quarantining is tricky right so in china in china as far as i understand it they used basically the military and said you know you get the disease they stopped people at checkpoints they took temperature they did testing you don't have to go that far the the the the what quarantining would you support no i mean i would of course therefore listen the federal government job is not domestic quarantine is international travel at least check people coming in right yeah they were they were not checking people still not doing that still not doing it okay check people coming in that's that's what they do and then you quarantine people who are in suspicious cases and states should probably do the same you're allowed to block new york city and say okay if you you know we can track you like some italian towns have done this is the victory of localism because it showed that and just like the the plague the plague was a victory of localism sometimes feared a lot better than others and here some state will fare better than others the the the the idea that this costs you money is bogus because you can do it at very cheap costs well it does cost you money but there's different ways there's different amounts depending on what you choose exactly no it does cost you money and and but i don't think it should uh now we're going to adapt to an economic life that that that is adapted to these things i think and how will the change what do you think will change and we were we're anti-fragile i mean we learned from this it's like when a plane crashes probably another plane crashes drops uh i think uh the odds of uh you know uh suffering uh from the big one because this is not the big one by the way a big one can be some antibiotic resistant uh bacteria coming out of hospital something crazy so uh now we know how to handle it are you confident about how confident are you about that so i i am very confident and the fact that you and i are doing zoom now something you never wanted before no okay is a testimony to the change of times and how we're adapting and we're some people are better off like we have this conference the real world risk institute conference and we're going to be able to accommodate many people who could not afford to come spend a week we never thought of it before of doing something online uh the the university system is going to adapt to it and it'd be a lot cheaper to get education because you can stay in india and and get a class from any uh uh person in the world so there are things that the adaptation is leading as as you know the economy likes stressors leading to beautiful uh somewhere adaptation somewhere and then of course some industries are suffering but not too many industries are suffering the industries that are suffering are uh travel and tourism and and and even that can adapt i've been traveling i will travel to masks and uh and i feel safe traveling under these conditions but let me ask i'm going to push you on that yes because you know i want to go visit my 87 year old mom who lives by herself in alabama and i feel very uneasy about getting on an airplane and potentially picking up the virus uh in in that airplane and and killing her although she's healthy she's a healthy 87 thank god but you know i don't feel comfortable enough wearing two masks and goggles and we have a selfie if you you've posted it in a fantastic essay on mask but i i don't know whether that's going to make it safe for her for me to come visit will it i think i mean i i've been looking at data and again i don't want to make a statement now that would go against what you just spent an hour talking about yeah no no no data i could give you a hint okay that data particularly we have a few cases of people infected who were in a high volume business say like uh stylists and a salon yeah two infected people and then you know an exposure of 15 minutes or however it takes that lead to zero uh contagion uh so we have we have we have enough uh and now we can accumulate studies from meta things that tells us that if you have uh two masks and i'm not sure it's necessary to wash your hand but i would do that anyway and use these things you should be okay traveling and soon we get more data when we examine those of employees who spend a lot of time on airplanes well i find it incredible yes i find it incredible that we don't have those data regularly collected and and discussed it's so important it's so valuable the chinese the chinese are are good at collecting stuff yeah hong kong has a lot of people have data it's just like it's not yet put together in a in a way that i'm comfortable discussing but i'm giving you a hit enough statistical signals that if i had to go and i have to go to see my slightly younger mother in lebanon which entails a much longer exposure i'm gonna hop on a plane i'm just waiting to get my uh my for my travel agent to call back you see so i'm gonna get on a plane and take that risk two masks uh plus uh other uh measures actually three quarter ninety-five do you drink water uh i don't have to worry about uh water but i would you take the mask off while you're on the plane to drink the water if you're seated in a uh far from other passengers i the exposure is non-linear you see for a minute or two it's not gonna it's not gonna hurt you okay so don't listeners out there do not accept this as medical advice uh exactly same as not a doctor he only plays one on e-contact um the whole thing is the other thing let's talk about doctors where people think that understanding medicine which is understanding a human single human allows you to understand the collective that's another scale transformation yeah that's a good point um i learned that from you also nsm if you want to figure out how to gamble don't talk to the carpenter about the wigs even though he should be an expert he built the wheel how could he not who could know more than him let's finish by summarizing let me try to summarize what i hear you're saying for the next pandemic as well as the rest of this one take inexpensive ways to mitigate risks such as wearing masks at the national level close your borders until you figure out what you're dealing with at the local level or the things that the local level ought to be done or those are going to be at the new york times quarantining people coming from hot spots like florida and texas and texas and new york is quarantining them and also it's a sort of reaction because florida was quarantining new yorkers uh a small little measure like these can you don't need to bring cases to zero you just want to make sure they don't overwhelm your system and they don't uh that they don't uh collapse uh i mean they they they they don't collapse your infrastructure you see yeah that's more than that right also and also that's the first thing and then the other one is if if a pandemic would be imploding just like the the the plague or the spanish flu naturally when when it uh is i don't believe in herd immunity as much as in reduced connectivity so but i have two more points i'd like to make sure here could i stop you no i can't go ahead and make one thing we did not discuss is toronto side yeah talk about that i think i disagree with you on this so go ahead jaronticide is this the murder of the elderly mother of the elderly okay the ancient world not only did not like uh the favor gerontocide but to the contrary they worshipped the elders they honored them yeah honor them i mean the senate is a council of elders senators is an old person same with uh within the greek name and then same in arabic the title sheikh it means old all right and here we have the word seniority okay so so now you realize that some societies understand the golden rule treat me the way you want to be treated by when you're when you're older and respect that and and we have had and then mediterranean societies most of us are issued of these mediterranean societies well most of the people on this podcast are anyway okay coming from uh this episode of the ancient world the ancient world people coming from the ancient world babylonian egyptian or roman they have values that basically for them geronticide is never an option never so would you would you would you would you if i give you a thousand dollars you kill your grandfather of course not now how about if i gave you a billion uh you know okay so now let's negotiate so this is northwestern european society which making claims utilitarian claims something someone infected northern europe with these calculus of yeah no if we let old people die it would save us us in economic terms that's not a question that you're allowed to ask in a classical society it's the center of truth yes there are trade-offs you don't make and this is also central in our paper we explained that we tell for the tail risk you have no trade-off because you know eventually you're gonna die the ramification this one even if you look at it from a utilitarian standpoint it's not a trade-off because you don't know where it's gonna stop so the idea and america is the only northwestern european sorry not quite northwestern european but population and habits and language that has full uh age equality no age discrimination so more than that and more than that we devote an enormous amount of resources and money to the health of the elderly exactly because and and the restaurant is that's not the elderly not different class the young people you've got to think ergotically will be the elderly they don't that's hard for people to notice yeah okay so the other thing is in other words going to take care of you you're telling the young by taking care of the elderly we're going to take care of you we hope plus there are other things involved in in in in this discipline of of taking care of the elderly because the the the you cannot have both capitalism is not about ingratitude shouldn't be you see yeah so i mean the greeks uh let the the mules that were used in building the the parthenon they gave them privileged grounds instead of letting them die because you don't need them anymore to the contrary they gave them they honored them by giving them great ground to you know great food and stuff like that so it was it was there's something there's a transmission of intergenerational gratitude well i'm i'm going to take this people i'm going to take this a direction maybe you're headed which is to me this is related to your insight of soul in the game which is that it's you could argue it's irrational to take care of a donkey or mule it's just an animal uh especially in ancient times you could say well you know yes they helped build the parthenon but they're animals we could we could let them die but the idea that you honor everything that is worth honoring even when it's not quote rational has a sweet sweet aspect to it and and you're uh uh right now we're looking at unison you're wearing a lovely sport coat and and shirt and i am confident you are as well dressed below the waist as you are above it because i know that's your motto you can you can yeah you can check yeah see oh it's and uh jeans uh but you don't wear pajamas when you're on zoom you don't wear pajamas no i don't even when you don't see me even when i when i when you don't see me and it's uh i described it in the black swan there's that idea that visconti you know the filmmaker uh when he he handed the box that contained jewels made sure the jew was inside of it yeah in the movie when even though it was just a prop yeah exactly exactly it was not you're not supposed to see them but it's just like he made sure it was authentic there's this idea of being authentic when you write about something you don't want to be an imposter you want to or i thought i mean people may never know that i i could write in chinese and people may never know that i don't know chinese right but you can't do it you cannot should never be an imposter likewise i don't like people who write about probability not knowing it and then use fortune cookies formulas and verbalistic formula particularly this is present among psychologists they are fake it shows that something about a fake person you notice because they will uh be fake elsewhere you see well i like the idea that that practicing authenticity even in places where it's not observable builds a habit that that will protect you in cases when you might forget and go out in your pajamas to the grocery so i think it's a beautiful idea yes yes i mean the whole idea of them and also in fields like for example if you only write about subjects that you didn't discover on wikipedia but things that are natural it doesn't it looks clundy a little bit compared to the the the researcher who knows how to fake and write reports but people detect it people detect authenticity my guest today has been sim nicholas talab assim thank you thank you very much thanks a lot thanks again this is econtalk part of the library of economics and liberty for more econ talk go to econtalk.org where you can also comment on today's podcast and find links and readings related to today's conversation the sound engineer for econ talk is rich goyet i'm your host russ roberts thanks for listening talk to you on [Music] monday you

Channel: EconTalk

Views: 49,309

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Id: CyOsUbK8PiE

Length: 67min 20sec (4040 seconds)

Published: Mon Jul 27 2020

Reddit Comments

[u/crlflt]

Sav Sadirov did a nice job summarising key points:

https://savsidorov.substack.com/p/tldr-nassim-nicholas-taleb-on-the

[u/_Ghatotkach_]

This is a good one