| 11 May 2010
In one of life's many ironies, Nassim Taleb, author of The Black Swan, is being fingered as advising on a fund that might have contributed to last Thursday's "Flash Crash."
Nassim Taleb's response was predictable (and in my opinion likely correct)
"Just landed all I can say is that the explanation is in "robustness and fragility" in the second ed. of The Black Swan ironically coming out tomorrow, particularly the discussion on 'weakening of causality'."
What does that mean? Basically, crashes are endogenous (they come from within, or are inherent) to markets. No cause exists, they are inevitable to the workings of complex adaptive systems where one thing leads to another and each element or actor reacts in random and unpredictable ways. With millions of actors sometimes it all just lines up in a way that leads to these kinds of bizarre outcomes. The image above is from Benoit Mandelbrot who theorizes about just these matters. The chaotic, but identifiable patterns in complex systems that are not easily identified in advance or managed ever.