> It's ironic that Taleb prefers a statistic that ignores extreme examples (i.e. black swans)
No that it incorrect on two fronts.
1) MAD does not "ignore" extreme examples, it just weights them the same as other examples. Nassim argues that the weighting of extreme examples in STD is excessive and makes STD less intuitive. I really don't know how you could say that MAD "ignores" extreme examples - they obviously do influence MAD.
2) The act of computing MAD or STD on a sample of observations has no relevance to Black Swan theory. In Black Swan, Nassim defines a black swan event as an unexpected event of large magnitude or consequence. Hence, by definition, an event that has already been observed cannot be a black swan event.
To put it another way, Nassim's main point in Black Swan is that using historical observations to estimate forward risk renders one fragile to Black Swan events - you could use any dispersion metric and this is still the case.
No that it incorrect on two fronts.
1) MAD does not "ignore" extreme examples, it just weights them the same as other examples. Nassim argues that the weighting of extreme examples in STD is excessive and makes STD less intuitive. I really don't know how you could say that MAD "ignores" extreme examples - they obviously do influence MAD.
2) The act of computing MAD or STD on a sample of observations has no relevance to Black Swan theory. In Black Swan, Nassim defines a black swan event as an unexpected event of large magnitude or consequence. Hence, by definition, an event that has already been observed cannot be a black swan event.
To put it another way, Nassim's main point in Black Swan is that using historical observations to estimate forward risk renders one fragile to Black Swan events - you could use any dispersion metric and this is still the case.