ut he goes one step farther. He says on a long enough time scale, as long as you have an absorbent barrier (e.g. no capital left to wager or death), then you will end in ruin unless you engage in these types of strategies. This is true even if you have the edge.
Taleb: … Actually, what I’m saying is even stronger. I am saying that even if you have the edge, in the presence of the probability of ruin, you will be ruined. Even if you had the edge … If you play long enough. Unless you engage in strategies designed by traders and rediscovered by every single surviving trader, very similar to what we call, something called the Kelly Criterion, which is to play with the house money. In other words, you start betting in a casino, the strategy is as follows: You go with $100, whatever you want; and you bet $1. If you lose your bet less than a dollar, you bet, say, 90 cents, or whatever; and if you make money, you start betting with the house money. And this is called, playing with the market money or playing with the house money. And so increase your bet as you are making money, and you reduce your bet as you are losing money. And that strategy is practically the only one that allows you to gamble or engage in risky strategy without ruin.
Normally we think about it the other way around. If we have a slight edge, we should just keep playing and in the long run, we’re better off since we have the edge. But what Taleb is saying is in the presence of absorbent barriers, we’ll eventually hit ruin using a naive strategy.
This makes sense in a way since. On a long enough time scale we’re all dead. Also, randomness doesn’t behave as people normally expect and long runs are more common than we anticipate.