The Turkey Problem: Followers Lose Everything!
The "Turkey Problem" was introduced by Nassim Nicholas Taleb in his bestselling book "The Black Swan". It tells the story of a turkey that, at first, is fed every morning by a farmer who brings a bowl of corn. Over time, the turkey becomes accustomed to this routine, and every morning, upon hearing the farmer approach, it knows it’s time to eat. Gradually, the turkey concludes a pattern: whenever the farmer approaches, it’s time for a feast, and this is the happiest moment of its day.
On Thanksgiving Day, the farmer approaches the turkey coop as usual, and the turkey rejoices as always. However, what the turkey doesn’t realize is that the farmer is not carrying corn, but an axe. Because it’s Thanksgiving, the farmer has come to kill the turkey for dinner. The poor turkey, facing its imminent death, may not understand why the pattern it deduced - “the farmer comes, there’s corn to eat” - no longer holds true.
The essence of the Turkey Problem is that we forcefully seek patterns in events that have no patterns, or we generalize from a limited small sample to draw conclusions. In financial investment, this behavior is commonly seen.
In the investment field, we often encounter strategies or models that perform excellently in normal market conditions, but when a trend emerges, the losses can be catastrophic. This phenomenon is vividly referred to as the “Turkey Strategy”, like fattening a turkey only to slaughter it later.
Crypto Quant Channel: Don’t wait until the trend arrives to start understanding the trend; the trend is your long-term friend.