Nassim Taleb gives a turkey as an example of relying too much on what you think you know to guide your behaviour in his book, The Black Swan. Imagine you're the turkey. Each day, you get fed more than the last day, and your weight goes up, you feel healthier and happier, and life is good. A chart of your growth might look something like this:
The point is, if finance is just applied epistemology, and the people working in finance know this, why don't they act accordingly? And why, in The Economist , can I read stuff like this and get all upset on a Sunday?
IN JANUARY 2007 the world looked almost riskless. At the beginning of that year I gathered my team for an off-site meeting to identify our top five risks for the coming 12 months. We were paid to think about the downsides but it was hard to see where the problems would come from. Four years of falling credit spreads, low interest rates, virtually no defaults in our loan portfolio and historically low volatility levels: it was the most benign risk environment we had seen in 20 years.