Notre Dame fire - When probability of 0 becomes 1

indigopixie's picture
Rank: Monkey | 33

Notre Dame is in flames and it is a very sad thing to see...

How much do these unbelievable and tragic events remind us that our status quo can be shaken up easily? Is any method of pricing risk correct enough? Are we only pretending that we know what we are doing? How fat are the tails of the modern world?

Comments (61)

Apr 15, 2019

I'm not too sure about the risk aspect, but I find things like this horrifically sad. Notre Dame was in a unique group of places that can transcended the labels we associate with and assign to others, such as race, religion, national identity, etc. Some of the other places I think of are the Sagrada Familia, the Eiffel Tower, St. Peter's, and Ground Zero, and probably a few more I'm missing. These places aren't solely defined by the religion or ethnicity or actions that sparked their creation, but instead by their ability to inspire people. Notre Dame was one of those places, and if it goes down today, it will truly be a loss to the world.

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Apr 16, 2019

You forgot the Kaaba Black Box in Mecca, Leshan Giant Buddha and the Wailing Wall as other places that are not defined by religion and ethnicity

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Apr 16, 2019

Would agree that the black stone in Mecca is not defined by a single religion.

Apr 16, 2019

While the Kaaba is beautiful and one of the most important sites in the world, I would not agree that it transcends it's religious affiliation because I'm pretty sure non-Muslims aren't allowed in Mecca, whereas people of all denominations are welcome at the Vatican and Wailing Wall. It's kind of a lame rule too because I'd love to see Mecca.

Apr 16, 2019

Why does there always have to be that one guy that takes it there...

Apr 15, 2019

I agree completely.. I cannot believe what I am seeing. It got me very sad and worried. Not that we can ever predict anything, but when we wake up some things we find less likely than others and this just shouldn't have happened.

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Apr 15, 2019

It's just such a bummer and a grim reminder that stuff like this can happen, even to something that people all across the world treasured. Nothing is invincible.

Apr 15, 2019

How do markets price this risk? Do we just tip toe around this elephant in the room and hope it doesn't affect us? Because even though this event might not affect any of our DCFs, it increases the awareness of fragility of the world one event at a time. We are saddened by this, but we should also do and act and employ ourselves to talk about and point, with our fingers, no matter how rude it may be toward this elephant. Markets aren't doing that now and it is scary.

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Apr 15, 2019

When Genius Failed is a good read that drives home the point that tails are fatter than we realize.

Ultimately the observable sample size of human histories is 1.

Apr 18, 2019

leptokurtosis - you can capture and quantify it

things are near the mean and near the tails more often than a normal distribution would assume

Apr 15, 2019

Who thought the probability was zero to begin with? It's a building....buildings catch fire from time to time.

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Apr 15, 2019

In a continuos infinite sample space probability of any single outcome is zero prior to the experiment. That's why we assign probabilities to events rather than individual outcomes.

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Apr 16, 2019
indigopixie:

In a continuos infinite sample space probability of any single outcome is zero prior to the experiment. That's why we assign probabilities to events rather than individual outcomes.

I'm pretty sure the insurance premium on the building wasn't $0 given your "0% chance" hypothesis.

Apr 16, 2019

I don't know if the insurance business works strictly with probabilistic theory but my logic was: sample space is continuous and infinite because in one day anything can happen, so infinite number of outcomes. If Notre Dame fire is one of those outcomes, according to the theory, probability is zero. Someone please correct me if I'm wrong.

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Most Helpful
Apr 15, 2019

I was in Paris after I graduated college 2 years ago and didn't have the time to visit the inside of the Cathedral and just checked out the exterior. I thought to myself "I'll definitely be back to Paris again, I'll check it out then." Looking back, I definitely could have squeezed in some time.

All throughout high school and college I was a huge Avicii fan. I always wanted to go to one of his sets but never could make it work, always thinking to myself "I'll make to EDC/Ultra next year". RIP Avicii. Definitely could have made the money and time work in retrospect.

I knew an acquaintance in college who was from India and had not gone back home for two years of college. A break in the semester or academic year would always come and he'd say "flights are way too expensive" or "it'll take too much time away from studying/recruiting". His dad passed away in a car accident before he could go back home to visit. I'll never forget him crying hysterically "it was just fucking money and a week out of my time. $2k fucking dollars. I let that get in the way of seeing my dad. useless fucking money and a useless week"

Life is short. Nothing is certain except for today. Enjoy the moment and always tell yourself "fuck it" and make time for the experiences. It might cost you some time and money today, but it will not cause you regret later. Cheers

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Apr 16, 2019

+SB. As someone who just lost a very close friend, who was probably the person I knew who was best at just saying "fuck it" and living in each moment, I could not agree with you more. People should not let themselves be completely restrained by fears or concerns. While I believe there needs to be a balance, I feel like so many people don't make the effort to truly live life for themselves. It's something I want to work on, hence all of my recent posts about travel and festivals and whatever. It's something everyone needs to take the time to do.

Edit: it reminds me of something my mom once said to me--"nobody is on their deathbed wishing they put in more time at the office." Facts.

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Apr 16, 2019
thexfactor336:

I was in Paris after I graduated college 2 years ago and didn't have the time to visit the inside of the Cathedral and just checked out the exterior. I thought to myself "I'll definitely be back to Paris again, I'll check it out then." Looking back, I definitely could have squeezed in some time.

All throughout high school and college I was a huge Avicii fan. I always wanted to go to one of his sets but never could make it work, always thinking to myself "I'll make to EDC/Ultra next year". RIP Avicii. Definitely could have made the money and time work in retrospect.

I knew an acquaintance in college who was from India and had not gone back home for two years of college. A break in the semester or academic year would always come and he'd say "flights are way too expensive" or "it'll take too much time away from studying/recruiting". His dad passed away in a car accident before he could go back home to visit. I'll never forget him crying hysterically "it was just fucking money and a week out of my time. $2k fucking dollars. I let that get in the way of seeing my dad. useless fucking money and a useless week"

Life is short. Nothing is certain except for today. Enjoy the moment and always tell yourself "fuck it" and make time for the experiences. It might cost you some time and money today, but it will not cause you regret later. Cheers

Sure. But in one of those cases, your father dies. In the other, you miss out on a non-unique and non-personal experience. One of those things is not like the others.

And look, it sucks. Notre Dame is a shining example of the ingenuity and artistry of humankind. But it's still there. The original roof and the steeple burned and will be lovingly recreated, this time in a way that it won't burn down. Most of the important art inside was saved. The building itself is stone. A better way to look at it, is that this was inevitable. It wasn't every a "0 going to a 1" probability. It was always a 100% chance this would happen. The question was when. Now the parts of the structure most likely to burst into flame will be rebuilt to be less flammable, and next time there is a fire, there will be a lower chances of lives or truly irreplaceable artworks being lost.

Apr 16, 2019

Is Notre Dam some god protected structure....you said probability of zero just want to know how you arrived at that conclusion ?

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Apr 16, 2019

Look at my previous comment.

Apr 16, 2019

I love how the fake news reports that despite renovation work not being performed with the building vacant at the start of Holy Week, a completely accidental fire broke out destroying the whole Cathedral in about an hour. Nevermind the fact that yesterday was the day a prior miscreant was sentenced for attempting to damage the church as well as other churches being vandalized or set afire to in recent weeks.

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Apr 16, 2019

We could likely never know the truth because mainstream media continuously lies and/or presents biased coverage.

Apr 16, 2019

Macron has started this policy of omitting information about perpetrators whenever there is an ''accident'' like a van running into a police car, so yeah. Orwellian world here we go.

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Apr 16, 2019

Nassim Taleb has written extensively on the topic. I recommend all of his books.

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Apr 16, 2019

I've heard a lot of people absolutely eviscerate his writing as overly broad at best and nonsensical at worst and it's held me back from giving him a read, but maybe I'll check it out now.

Edit: @neink

Apr 16, 2019

Hmm, I strongly doubt that. The thing with Taleb is that he's personally an asshole, he picks fights with people over a lot of things, has this habit of playing ''I told you so'' over people's misfortunes and that obviously turns off many others or gets him a lot of criticism. Unfortunately, him being an asshole doesn't make him wrong.

His conceptual work over black swans, antifragility, broad criticism of the abuse of normal distributions in predictive models and how the real world is ''fat tailed'' is top notch though. I also recommend reading Mandelbrot.

edit: I'll give you an example
xiv

this is the XIV ETF that blew up last year and just one application of what Taleb describes as ''Day of the Turkey'' and it's also another example of what the OP mentions in terms of probability. Indeed when it happened Taleb had a day of gloating.

The real issue is that if you work in risk management and don't understand this kind of things, then your company is essentially gambling and you got lucky so far.

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Apr 16, 2019

Makes sense. Cheers for the recommendations I'll give them all a look.

Apr 16, 2019

The problem with Taleb, having read Black Swan and abandoned everything else he's written, is that he has had one good idea and has coasted on it. The idea of a black swan event was a good one, and he did a good job making that concept accessible to the masses. Everything else he's written is another variation, usually a very close variation, on this idea. He's pedantic, not particularly knowledgeable when it comes to proving out his secondary/corollary ideas, and as others have said, prone to picking fights with other people, who are sometimes better informed.

Antifragile, for example, was one of the worst pieces of literature I've had the misfortune to read. Honestly where I lost it was at the end of his intro chapter, where he's giving examples of his three systems. Most of it is utter horseshit which he clearly doesn't understand, but beyond that, he uses his own fictional characters, created for the purpose of illustrating a Black Swan event, to justify his classification of categories. That's unforgivable, for a serious author, to use characters he previously created as a justification for a new point.

And on top that, the concept of antifragilility in particular was so broad and expansive that it lost all meaning. Moreover, the entire idea is crafted without any context to history.

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Apr 16, 2019

Taleb says many things that are right, no doubt. The problem is that Taleb likes to think he is the lone voice of reason among idiots. He likes to think that he's the one who figured out that the real world is "fat tailed" and that modeling based upon normal distributions is imperfect. In reality, everyone already knows what Taleb says. Most of the applied mathematics and statistics world doesn't take Taleb seriously. Everyone agrees he has some nice/cute analogies to explain things.

However, his actual papers that he tries to publish usually are riddled with mathematical errors and irrelevant stuff. Taleb tends to abuse overly complicated mathematics that he himself does not appear to understand in order to come across as more intelligent by the masses of libertarian post-grads who don't really know what they are talking about but he makes fun of Obama so he must be right.

In short, Taleb is not the person who discovered that returns are "fat tailed" or any of the other stuff that he seems to pretend that he discovered or been the first to say. Taleb, as I mentioned above, is also frequently and provably wrong. He is very good at coming up with intuitive explanations and stories to motivate his arguments that do not hold under close scrutiny. It's usually then that he turns into an "asshole".

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Apr 16, 2019
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