The Green Lumber Problem, outlined in Nassim Taleb’s upcoming book Antifragile, is essentially misunderstanding which facts are relevant vs those which are not in regards decision making under uncertainty.

From Nassim:

 

“In one of the rare noncharlatanic books in finance, descriptively called What I Learned Losing A Million Dollars, the protagonist makes a big discovery. He remarks that a fellow called Joe Siegel, the most active trader in a commodity called “green lumber” actually thought that it was lumber painted green (rather than freshly cut lumber, called green because it had not been dried). And he made a living, even a fortune trading the stuff! Meanwhile the narrator was into theories of what caused the price of commodities to move and went bust.

The fact is that predicting the orderflow in lumber and the price dynamics narrative had little to do with these details —not the same ting. Floor traders are selected in the most nonnarrative manner, just by evolution in the sense that nice arguments don’t make much difference.”

Here is a public discussion about the topic on his Facebook Page (Facebook account not required).

9 Comments
  1. Dan says:

    I think this is interesting on a few levels.

    1. We have the top commodity trader not even knowing what commodity he is trading. Ironically (and tragically) this guy would be giving talks and advice to people who have no idea as to the lack of his knowledge.

    2. Taleb has finally found a book about what not to do! I often tell people that I cannot advise them what to do, but I can tell them what not to do. Im ordering it now. Great find.

    3. We just dont know. We dont know what information is important and what isnt, but we dont even know that we dont know that!

    • adam morris says:

      Exactly. You might also be interested in the Psychology of Intelligence Analysis by Richard Heuer. Its a compendium of info on the the flaws of gathering intelligence and attributing value.

  2. Doug Huffman says:

    Is there a site for comments on Antifragile? I’ve finished my first read.

    Figure 19. Nonlinearity and less is more (& Procrustean Bed) – The label “Less is More” confuses me, at least, as the independent variable Dose X should be mentioned first. Then it would read More Dose is Less Response and describe the negative slope.

    Convex and concave traditionally require privileged points of view, the same curve being concave and convex to observers on either side.

    I’ll see what happens to my attempt to post comments. I begin my first re-read.

  3. Marge Innaverra says:

    I had the same confusion about convex vs. concave and assumed it was some B-school thing I wasn’t privy to.

  4. Marge Innaverra says:

    Wait a minute…green *LUMBAR*?

  5. Mirio Mella says:

    Pinnacle Sports have written an article based on the Green Lumber Fallacy and how it relates to the difference between knowledge of sports, and that of sports betting.
    http://www.pinnaclesports.com/online-betting-articles/07-2013/green-lumber-fallacy.aspx

    Nassim was complimentary about the article on his official twitter feed,

    Btw you have the incorrect spelling of Lumber (Lumbar sic)

  6. Nikolaz says:

    y = f(x), where
    y is a measure of payoff, benefit or gain and x is the stimulus that causes this.
    Convexity is a matter of perception yes. But as in most cases in mathematics and science, we adopt a convention in this regard for convenience.

    Convex as such would generally refer to a function that appears dented inwards (for a certain interval of x values) when looking from the positive extreme of the y-axis. i.e. Its 2nd derivative is positive for all values of the said interval of x.

    I do agree however that Nassim’s narrative is often not very precise in language.

  7. […] really like Taleb’s Green Lumber Fallacy, where the most successful trader in green lumber thought it was literally lumber painted green. […]

  8. […] diligent and intelligent capital investment, you are playing your gut and hope to win a lottery. Green lumber! You sell green lumber and all you care to hear is “green lumber” and in a three bullet email […]

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Nassim Taleb’s “Green Lumber Problem”

Posted on

August 9th, 2012

Category

General, Writing