Nassim Nicholas Taleb, author of the widely discussed The Black Swan and Fooled By Randomness, is out with a new paper. “The Fourth Quadrant: A Map of the Limits of Statistics”pursues a thesis very familiar to his readers, namely that economistsand finance professionals put society at risk by offering false comfortin the form of statistical models.
Risk Does Not Equal Volatility

The novel effort here is Taleb’s attempt to map out which kinds ofrisks and events are more-or-less adequately captured by statistics,and which ones fall into the unquantifiable “black swan” category.Events that fall into this unanalyzable fourth quadrant (see imagebelow) are characterized first by what logicians would call multivalenttruth-conditions: they are not all-or-nothing, true or falseoccurrences, but rather may have varying degrees of realization.Second, the “payoffs” or impacts of such events may be nonlinear.

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