Nassim Taleb : What Most People Miss About AI & Bitcoin | LATEST on Gold USD World US Economy Market

I'm a statistician. So AI is a statistical machine. So statistical machine don't extrapolate. They can't. So they they almost by design made to not extrapolate. And then the other thing about AI is they think that it's going to save the US. No, why not save Pakistan? I mean AI is so uh universal. I noticed when I was after my paper, I was attacked a lot by a bunch of Bitcoiners. No, you know, there was it was it was like a wave of kids you were into Bitcoin. Now they're all into AI. It's not a currency. It's used probably it's not even useful in Syria. Think about it. You don't have the internet. How are you going to use Bitcoin? And every time we've had a crisis, an economic crisis, it does exactly the opposite of what was expected from it. So it's a speculative thing. Speculative stuff by definition never fight something speculative. It's a big mistake to think that anti-fragility is a an idea that that explains bouncing back from disorder getting better because these phenomena were well known particularly by doctors. So there are a bunch of uh what I call seemingly disconnected classes of phenomena. One, two, three, four, five, six. And these are united by a simple, extremely simple mathematical framework. And that ranges from bouncing back from disorder, going to the gym, you get stronger when you go to the gym and u uh how do you have optimal dosage in oncology. Okay, without knowing anything about about about chemotherapy. So the last one I call upregulation the effect related to benefiting from stressors. Okay. In medicine they they know something called hormesis. Okay. Where you give a poison and someone gets better after a very small dose of poison. Very very very dose uh uh response related uh post-traumatic growth in psychology. In fact, when you go when you spend time with the drones up here and uh talking to Ramy's Ray, my classmate or stuff like that, you know, and then with the stress of of who's going to shell uh next, some people develop trauma, but many more people get stronger. It's called a an upregulation response, and that's not in literature. It's rarely in literature because nobody's going to make any money selling you or trying to cure you uh post traumatic growth. Okay. So, uh hydraike outcomes in mythology where you cut one head more grow back and beliefs about rebounding from adversity. When life gives you a lemon, you make lemonade. So, that's the first class. The second one is what I call benefiting from variance. felostoasticity where you benefit from some kind of irregularity like I was told when I was a child that you should eat many many small meals a day it turns out that it gives you diabetes okay so it's the same amount you should have episodic fasting now intermittent fasting is part of the cure for diabetes and uh and but at some window like eating once a day or twice a day is okay eating once a year you know you're not going to make it. Okay. So, even in Lebanon, so there is something about the benefiting from irregularity. Like for example, before CO when we wrote about our first paper on that before CO there was an observation made by doctors that if you give someone a ventilator, you know the ventilator that kills people and they think it cures them. If you give the ventilator, if you give 100% of the dose all the time, you don't get the same outcomes as giving 80% or 120% of the heated dose. So irregularity. So this is this is what we call uh uh benefiting from this. I call it fostoasticity benefiting from variance and dispersion. By the way, it's exactly the same equation for all of them. Okay. uh stochastic resonance in physics and [snorts] signal processing where you put some noise in a system and the signal rises bit technical uh and then of course long volatility in finance for those of you in finance that was my profession is benefiting from crashes right so from disorder in markets class three what I call scaling okay an elephant looks like a mouse I mean We don't have elephants in Beirut, but we have mice, I'm sure. But you can imagine, but they're not the same. They don't scale in the same way. A a an elephant is not quite a large mouse. The the as as you grow for stability, you need to have, you know, your contact with with with the ground is in squares, but you grow in cubes. So, you have some scaling isometric effects. you're actually and and but nevertheless, you're still going to be more fragile as an elephant than a mouse. An elephant has a you know breaks very quickly. This is why we don't have a lot of elephants. And I'm sure in New York we have more mice than we have Lebanese in Lebanon. Okay? So, and that's, you know, [snorts] uh not counting every month because they don't vote. So, you don't count them. You don't have the incentive. So these are the three classes of events on a positive side. Now the opposite qualitative attitudes going to be the same with negative sign effects related to breaking under shocks. Now the interesting thing now this is uh not uh fragile but I have my my cell phone so it breaks under shock. It doesn't get better if you have a shock. Okay. the um uh and typically it's it need requires nonlinearity. So in other words, 10 shocks of intensity one will have no effect. One shock of intensity two will break it. Okay? So I mean don't try cell phones are expensive and and plus you have to pay that thing to the Lebanese state you know that tax. So don't break your cell phone. So classified harmed by this second order effect at some window harmed by by uh dispersions of outcomes. So in other words uh uh eating for example continuously may harm you having a drug at at too low a dose for a long time harms you with no benefits. Um and there are a lot of uh things that are harmed by outcomes banking portfolios. Now class six effects linked to hazards associated to the with a with the passage of time. So in other words things that don't like time things in the first category like time the second category they don't like time and like the state of Israel doesn't like time. All right for example I'll give you an example. So the decay from memoryless shocks there are things that don't get better and and time brings volatility time brings disorder. They're all linked together. So this is a technical thing. All right. So here I'm explaining [clears throat] how the the core of it is transferring properties from the dose response to the probability domain. I'm a statistician. So AI is a statistical machine. So statistical machine don't extrapolate. They can't. So they they almost by design made to not extrapolate. And and a friend of mine explained it very well. He said what does it do? It reflects a consensus okay of what made sense and and typically things in the tail don't make sense. You see so uh the other that so the the there's a few things about AI that a few anecdotes have personally that you play with AI to see if it gives you the answer. I have a theory we have a theory in option trading. If you have a reason to buy an option, don't buy it. Or if you have if an investment makes sense, don't do it because other if it makes sense other it made sense to other people and they went bankrupt. So things that work, they have to be out of the box. And AI by design, if you see how Pat is built, you know, it's built around neural nets with some temperature. So they for accuracy is basically representing things. So uh uh the way what made sense. So for example, one day I try to quiz it and there is a um a uh uh there was a famous meeting in Berlin 1910. Uh there was a war between the Ottoman Empire on one side and European countries and Greece was on the other side, the opposite side. So there's a fellow called um Constantine Karatodoris, okay, who represented a big power there. So I asked Open AI who did he represent at the uh Congress of Berlin. Okay. Was there was a war between Greece and and and Turkey and other countries. Which country do you think he represented? The Ottoman Empire. Okay. But it told me he was a representative of Greece. Why? Because it went by what made sense. He has a Greek name. And so this is where you can't advance by by looking for things that make sense. It's interpolative not extrapolative. So typically the problem with statistical distribution that are thin tailed is you interpolate and work very well from weights for stuff like that. But but for the other ones you have to extrapolate outside of things you've seen based on properties of things you've seen and you can't do it or at least not now but I doubt it could do it. So it's like uh people who open a restaurant that makes sense they don't make money. >> [snorts] >> Okay, it has to be weird. Okay, and uh and and and and people after the fact will think that it's obvious. And then the other thing about AI is they think that it's going to save the US. No, why not save uh Pakistan? I mean AI is so uh universal. The system is adaptive system benefits from errors. But you don't want the errors to be too big. You see in evolution evolution is like let's say you have parthonogenic evolution. Okay. So how does a system evolve? It makes mistakes of reproduction. It's like a pax. You remember the fax those of you who were born when you had fax machines. A pax is a little blurred. So the offspring is a little different from what was intended. So you have a lot of offspring. Those who are different in a good way survive and those who are not doing well don't survive. Okay. So mistakes uh so that improves the species where it makes it more adapted to the environment. So thanks to random errors. So it's a system that benefits from errors. It's another category in the thing but I didn't put it. So a system that benefits from errors. problem is if you have too many errors too many no error it doesn't evolve too many errors it doesn't conserve its past uh gains you see okay so now let's go to the system so cybernetics computer benefits from errors but sometimes it's not enough so there's this uh thing by Netflix discovered that the best way for them to improve their system is to try to hack it internally so to make it because particularly that you could reverse you know what you've done. So I had something called the cyber monkey or what is it called the something monkey that would create mistakes in their code all the time and uh and then the the the the code would adapt to it. So you you can up to a point everything benefits from errors you say you you uh but up to a point visibly. So if you have too large a mistake the thing breaks apart. So this is why this is a local property. You have to know where you are complex and where you're not. Bitcoin has tried to become a currency. And if you show me someone who is paying her or his rent in Bitcoin or getting a salary in Bitcoin, okay, I' I'd uh you know, I change my mind. It's not has not operated as a currency because if my income is in dollars or whatever, I can't have my expenditure in Bitcoin. So it's a speculative thing. Speculative stuff. It can go to a million. It will still be a speculative thing. You see, and with with a bunch of illquid speculative and people cornering it. So I don't think that you can use Bitcoin as a uh I mean analogy success story because the price went up the tulip. It's a tulip bulb uh thing. It makes no sense. So Exante now people tell me well gold doesn't make sense. I say gold has two properties that Bitcoin doesn't have. one, I can wear it. Okay, it has the aesthetics and it also has industrial qualities. The second one, from a risk standpoint, if I put this uh gold chain in the ground, I'm going to hide it in AUB. All right, in the ground, AUB will last for a long time and in about 100,000 years, it will still be gold. There's no and they won't discover any metal [snorts] that can match it in properties. Okay? Whereas Bitcoin, if the far the they the u the people involved in maintaining Bitcoin, if one day they decide to join the Israeli army or go to the beach, okay, what would happen? 15 minutes and the thing is kaput. So you're going to tell me that at infinity that thing can match gold and properties. Plus the other thing is what's Bitcoin? It's a protocol. So my friend um my friends here in the department of the the school of engineering. If they get bored one day and and there's nothing to do, they could probably uh start another one identical to Bitcoin. So the the fact that it has market share is very transitory. Plus, if you've noticed, I noticed when I was after my paper, I was attacked a lot by a bunch of Bitcoiners. No, you know, there was it was it was like a wave of kids. You were into Bitcoin. Now they're all into AI. It's not a currency. It's used. You probably It's not even useful in Syria if you think about it. You don't have the internet. How are you going to use Bitcoin? And every time we've had a crisis, an economic crisis, it did exactly the opposite of what was expected from it. So, it's a speculative thing. Speculative stuff by definition never fight something speculative.

Nassim Nicholas Taleb is a Lebanese-American essayist, mathematical statistician, former option trader, risk analyst, and aphorist. His work concerns problems of randomness, probability, complexity, and uncertainty. #nassimtaleb #interview #financialfreedom #antifragile #market #crypto #skininthegame #tariffs #trump #china #usa #usdollar #rich #finance #investment #market #crypto #antifragile #hedgefund #bank #bankruptcy #banking #practice #theory #academia #academic #nobelprize #corporate #corporatelife #bitcoin #cryptocurrency #finance #financialeducation #lifechanging #investing #investment #gold #usdollar #rich #richlifestyle #market #system #matrix #skininthegame #financialcrisis #stoicism #stoicseneca #stoicphilosophy #stoicwisdom #probability #arabic #greek #rome #skininthegame ayn rand #rich #finance #investment #market #crypto #antifragile #hedgefund #bank #bankruptcy #banking #practice #theory #academia #academic #nobelprize #corporate #corporatelife #interview