Randomness

There are 2 types of randomness, ie

i) generally if your sample is large enough, no single instance will significantly change the aggregate or the average, ie

"...endure the tyranny of the collective, the routine, the obvious, and the predicted..."

Nassim Taleb, 2007

ii) inequalities, such as one single observation can have a disproportionate impact on the average or the total, ie

"...that tyranny of the singular, the accidental, the unseen, and the unpredicted..."

Nassim Taleb, 2007

(NB Strategies to handle randomness as expressed by volatility, risk, uncertainty, etc include spreading your exposure to reduce vulnerability to, and/or reliance on, one or few activities, and encouraging diversity in thinking and experience.) Assign a price to risk; risk is related to uncertainty and/or volatility. The more risky the activity, the greater the expected rate of return, ie risk premium. Link risk and return via cost benefit analysis of risk premiums.

Sometimes changes in technology have unexpected impacts. For example, Viagra was initially tested as a hypertension drug. To have an appreciation of the impact of unexpected events, we need to understand the political, sociological, demographic, etc fads and trends.

"...Owing to the growth of scientific knowledge, we overestimate our ability to understand the subtle changes that constitute the world, and what weight needs to be imparted to reach such change..."

Nassim Taleb, 2007

 

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