Welcome to Econ Talk, part of the Library of Economics and Liberty. I'm your host Russ Roberts

of George Mason University and Stanford University's Hoover Institution. Our website is econtalk.org

where you can subscribe, find other episodes, comment on this podcast, and find links to

another information related to today's conversation. Our email address is mailadicontalk.org. We'd

love to hear from you. It is March 5th, 2009 and my guest today is Nassim Nicholas

Taleb, author of Food by Randomness and the Black Swan. And one of the few thoughtful people

alive today who can say, I told you so. Nassim, welcome back to Econ Talk.

Well, thank you very much. Two years later, a lot of things happened.

Yeah. Now, you have long been a critic of attempts to master risk and the uncertainty of life

with mathematical tools. Tell me what you said before this happened and how it has turned out.

Where were you right and were you wrong anywhere?

No, my point was that it's not so much a critique of mathematics as much as it is a critique

of methods to estimate rare events. We don't know much about rare events by definition because

they're rare. When someone tells you this event should have happened once every 10,000

years and if the gentleman is not 10,000 years old, you know that he's getting that probability

from outside his own personal experience and the smaller the probability, the more you

have to rely on some a priori, specification or on a model, on some representation of

the world. So my point is that the smaller the probability, the more fragile it's going

to be with estimation. And the smaller the probability in some areas, we're going to have the

larger the impact. Look, for example, a 10-year flood has a higher probability than a 100-year

flood, but the 100-year flood with a smaller probability will be massively more consequential

and you don't really care about the probability, you care about the probability time, the impact

...