People are overly cautious about events that are unlikely. People don't understand the following is that if you have a er stock market crash, and the option nan can cover a 30, forty, 50 hundred years of piane. The point is that you cannot generalize from an experiment that is not natural to natural settings. And we identify it exactly with the mistake people make - making a statement derived from a variable that has a bounded payos and generalizing to thing tat have open ended payofsi.
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.