Blog: Blaise Pascal and the Great Asymmetry

Blaise Pascal, the brilliant seventeenth-century French philosopher and mathematician, became a devout Christian in his later years. As one of the original probability theorists, he rationally explained the pious life using mathematics rather than simple faith. He argued that if heaven and hell exist as discrete outcomes in the afterlife and that the probability of each was arbitrarily assigned to be 50 percent, one must still choose the virtuous lifeHis rationale rested on the difference in the severity of the outcomes: He reasoned that an eternity of heavenly bliss was infinitely preferable to one of never-ending damnation.
The antithesis of a central banker, Nassim Taleb deals with asymmetry at length and discusses managing a portfolio in an asymmetrical environment. He argues that investments should position you to take advantage of relatively infrequent but asymmetrical events. That is, should a negative outcome occur, you should have a greater exposure to favorable results than unfavorable ones.
Further, by definition, the unknown is unknowable. We are not, for instance, taking sides in the inflation/deflation debate. That does not prevent investors, however, from hypothesizing about asymmetrical outcomes that might result from either eventuality, thus making investment decisions that seek the safe side of such situations.
(This article originally appeared here on August 24, 2018)

