`Black Swan' Author Says Investors Should Sue Nobel for Crisis

`Black Swan' Author Says Investors Should Sue Nobel for Crisis
By Stephanie Baker - Oct 8, 2010 2:56 PM ET


Nassim Nicholas Taleb, author of “The Black Swan,” said investors who lost money in the financial crisis should sue the Swedish Central Bank for awarding the Nobel Prize to economists whose theories he said brought down the global economy.

“I want to make the Nobel accountable,” Taleb said today in an interview in London. “Citizens should sue if they lost their job or business owing to the breakdown in the financial system.”

Taleb said that the Nobel Prize for Economics has conferred legitimacy on risk models that caused investors’ losses and taxpayer-funded bailouts. Sweden’s central bank will announce the winner of this year’s award on Oct. 11.

Taleb singled out the Nobel award to Harry Markowitz, Merton Miller and William Sharpe in 1990 for their work on portfolio theory and asset-pricing models.

“People are using Sharpe theory that vastly underestimates the risks they’re taking and overexposes them to equities,” Taleb said. “I’m not blaming them for coming up with the idea, but I’m blaming the Nobel for giving them legitimacy. No one would have taken Markowitz seriously without the Nobel stamp.”

Markowitz, a professor of finance at the Rady School of Management at the University of California, San Diego, didn’t return a phone call seeking comment. Miller, who was a professor at the University of Chicago, died in 2000 at the age of 77.

“People used the theory and assigned numerical forecasts to the algebra,” said Sharpe, a professor of finance, emeritus, at the Graduate School of Business at Stanford University, in a telephone interview. “But I’m not going to take the blame for the numbers they put in.”

Probability Models

In his 2007 bestseller “The Black Swan: The Impact of the Highly Improbable,” Taleb described how unforeseen events can roil markets. He warned that bankers were relying too much on probability models and disregarding the potential for unexpected catastrophes.

“If no one else sues them, I will,” said Taleb, who declined to say where or on what basis a lawsuit could be brought.

The Nobel prizes in physics, chemistry, medicine, peace and literature were established in the will of Alfred Nobel, the Swedish inventor of dynamite who died in 1896. The first awards were handed out 1901. The Swedish Central Bank founded the economics award in 1968 in memory of Nobel. Previous winners of that prize include Milton Friedman, Amartya Sen, Paul Krugman, Robert Merton and Myron Scholes.

A former derivatives trader, Taleb is a professor of risk engineering at New York University and advises Universa Investments LP, a Santa Monica, California-based fund that bets on extreme market moves.

To contact the reporter on this story: Stephanie Baker in London at

To contact the editor responsible for this story: Alec McCabe at amccabe@bloomberg.net

http://www.bloomberg.com/news/2010-...panel-liable-for-legitimizing-economists.html

 

Nothing exciting here. Just NNT being an enfant terrible and a media whore again.

 

/thread

 

Taleb sounds like a douche and should be called out as such

 

Technically speaking, why do you think he is wrong? Insulting is easy. If you do not respond with a detail account as to why you are calling him a douche, I will have to assume that the real douche here is you.

 

i ahree

 

I'd like to know too.
That book reads like it was written after the crisis, when it was published two years before. There are lines in it that bluntly state the next financial crisis will be horrendous.
He was right.
So, why is he a douche?

 

apparently Taleb is not doing great with his fund/books if he chooses to gather cheap publicity the way he does.

if one were to believe Taleb, any committee that awards any significant award should be sued sooner or later.

 

That's called an ad hominem attack btw. I happen to agree with Taleb in principal, but it's just not all that palletable of an investment strategy.

What he advocates is to buy t-bills, and use the interest income to buy far OTM options. That seems sound in theory, but I have never seen any audited results where someone actually had decent returns (or get filthy rich) by using it.

 

I'm currently reading "Fooled by Randomness". I agree he can come across as a condescending prick, but since he's just like me I think he's great.