A grandmother's intuition for fat tails works better than half-learned, people who have never really encountered risks and have been writing about it reading books, says world-renowned author and former risk manager Nassim Nicholas Taleb.
Nassim Taleb, Statistician and Author of the best-selling book The Black Swan, addressed an audience on the concept of fat tails, risks and 'the expert problem' from the sidelines of India Risk Management Awards.
Fat tails are a statistical distribution phenomena. It is like a bell curve with the opening of the bell stretched out – making the opening fatter. As most statistical distributions are expected to be “normal” distributions – or bell curve in shape; the fat tails phenomena is most often an unexpected, highly improbable result with an outsized impact.
He said that in the process of mitigating very small risks, one can exacerbate big risks.
"A lot of what we see today is a reaction of our grandmothers coming back to say, 'you know what, I want the people in the middle, the bureaucrats, to understand something about us, about what we need, about the real world,' because we have sort of lost touch with the real world, particularly in the EU [European Union]" he said.
Taleb has been an outspoken critic of most economists and policymakers and says they do not have 'skin in the game'. He has said that policy makers who have not encountered actual risk have a superficial understanding of society and as they suffer from what he terms as the 'Intellectual Yet Idiot' or IYI problem.
"The IYI pathologizes others for doing things he doesn’t understand without ever realizing it is his understanding that may be limited," he has said in his blog.
He has also said that the track record of economists in predicting events is monstrously bad. It is beyond simplification; it is like medieval medicine.