APURVA HENDIIn one of Nassim Taleb's seminal works, The Black Swan, he describes black swan events by drawing a parallel with the story of a Turkey, intended for the laity. I've been pondering this story for a while now and I haven't had much luck picking a side; albeit the author leaves us with no choice.
The story in brief: There's a turkey that's fed every day by a butcher and every day confirms to the turkey — that the butcher loves the turkey with increased statistical confidence, compounding trust and what have you. And this goes on for a long time until November, when a large surprise, a black swan event, befalls the turkey — but not as much for the butcher.
Now, Taleb argues to bring home the point that we should not be turkeys by discounting the impact of extreme events. My dilemma, however, surfaced when I read about Daniel Kahneman's interpretation of this story. He said: "I have a problem with it because when I look at this, at your story, I think the turkey has a pretty good life, until, you know. I think that this sort of worry-free life that the turkey enjoys until Thanksgiving, this is something that we aspire to. That is, people do want robustness, they do want predictability, they do dislike risk and this is very clear in your case, the focus being on extreme events, so you don't put a lot of weight on however many days the turkey has to enjoy life without worry."
I'm curious to learn how others would opine here. Would you rather live a 'worry-free' life and suffer from a cataclysmic event or would you bare small losses for the larger part and benefit handsomely from a fat-tail risk?