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One thing I wondered about after reading this article is my own "utility function". Looking at my own investment behavior, I don't think I behave as if a 10% loss is twice as painful as a 10% gain. And I think this also applies to most of the famous value investors (e.g. Buffett, Munger, Graham, Whitman).

One of the assumptions that I knock heads with all the time in my work in survival analysis is what we call the "triple i" assumption: independence of fates and identity of rates among individuals. Contagion is rampant in markets, so independent behavior among participating individuals is almost certainly moot. But so too is the idea of identity of rates. Every individual has a slightly different time horizon, required return on capital, and likely a different underlying behavioral "risk/utility function."

None of this precludes attempting to model the underlying system, but it becomes much more of a bitch. And there is the ability in such a system for real inherent ability to outperform (or underperform) the system to masquerade as random variation, and indeed be undetectable as anything other than random luck.

Yak, yak, yak, yak.

Thanks for posting the link. solasis is right. I really need to read Taleb's book.

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