How to Predict a Stock Market

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Qliet: I want to get to a paper you wrote with philip tetlock on prediction, ecause i think it's full of some insights. You talk about a distinction between binery, variable in vanilla events, bindary events in vanilla events. Explain what the difference is. Qliet: In real life, we have a third dimension, depths of the event. Su for examptle, you can predict the mark is gong to go down. That can go down 20% or a tenth ofa %. The binarye, it's its most predictions are er finery. It can take as e valuof zero or one or oos. Cannot

Nassim Taleb of NYU-Poly talks with EconTalk host Russ Roberts about his recent paper (with Constantine Sandis) on the morality and effectiveness of "skin in the game." When decision makers have skin in the game--when they share in the costs and benefits of their decisions that might affect others--they are more likely to make prudent decisions than in cases where decision-makers can impose costs on others. Taleb sees skin in the game as not just a useful policy concept but a moral imperative. The conversation closes with some observations on the power of expected value for evaluating predictions along with Taleb's thoughts on economists who rarely have skin in the game when they make forecasts or take policy positions.