Another comment on "The Black Swan". In the glossary on pages 308-309 Taleb defines:
Lottery-ticket fallacy: the naive analogy equating an investment in collecting positive Black Swans to the accumulation of lottery tickets. Lottery tickets are not scalable.
By scalable Taleb means having unlimited upside.
The analogy to lottery tickets is unwelcome to Taleb because he advocates a strategy of betting on long shots which you are hoping will pay off because of unexpected events ("Black Swans" in his terminology). This looks something like buying lottery tickets but buying lottery tickets is generally a stupid strategy. The reason is not because they don't have unlimited upside (the millionfold gains available in typical state lotteries are greater than are plausibly possible in most other venues) but because the tickets cost too much. The New York State lottery seems to return about 40% of the amount bet which I think is fairly typical. So if you could buy lottery tickets for 10 cents on the dollar they would be a fine investment.
Taleb believes markets don't properly price in the possibility of extreme events, Black Swans. This is plausible but there is a problem in trying to take advantage of such mispricing. Namely, as the example of lotteries shows, people like making long shot bets. So any particular long shot bet may be overpriced (as lottery tickets are). So you can't just blindly bet on long shots (lest you violate another of Taleb's precepts which is don't be the sucker) you have to locate good long shot bets. But Taleb doesn't offer much help in that regard.
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