The Most Highly Improbable Lawsuit Threat of All?

Nassim Nicholas Taleb, author of the hip and happening business and econ theory book The Black Swan: The Impact of the Highly Improbable, wants to see more accountability in…well, not exactly sure…in loaning your prestige to an idea that might have influenced someone into committing an act that led to the value of an asset falling? At any rate, he's full of the sort of vim, vigor, and outrage that's as rare as…hm, not sure what metaphor I'm groping for here.

Anyway, Bloomberg has the scoop:

"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…..

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."…

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

Wired did an interesting cover feature on high-end math and financial risk last year.

Comments

[Warty]

Who fucks sheep now?

[Montani Semper Liberi]

I’m pretty sure this was tongue in cheek. He is just saying the economics “Nobel” has no credibility, which isn’t a particularly surprising revelation around here.

[Dee Pocketz]

Go after Big Tobacco Prizes and they’ll settle out of court.

[Jimmy J.J. Walker]

I want to make the Nobel accountable

Dy-no-mite!!

[Ron L]

rim-shot

[prolefeed]

Looks like he might also have been looking to get free publicity for his book (which is well worth reading, BTW).

[Rhayader]

Yeah, some parts seemed to belabor the obvious, and others soared over my head, but on the balance I enjoyed it.

[Old Mexican]

“People are using Sharpe theory that vastly underestimates the risks they’re taking and overexposes them to equities,” Taleb said.

But… But… The models! The mathematical models! Perfect competition! Perfect Knowledge! Reality sucks anyway, I prefer my mathematical models! People are dumb, math is pure, math is perfect!

Or was that “meth”?

“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.”

I agree – you should blame them for keeping your brain in a jar.

[P Brooks]

More ignorant redneck hate speech.

What a rat-bagging teafucker.

[Paul Krugman]

I have a Nobel prize, which means everything I ever say or do is correct 100% of the time.

For instance, at the moment governments aren’t spending nearly enough money.

[fish]

I have a Nobel prize,I am your ex-wife, which means everything I ever say or do is correct 100% of the time.

For instance, at the moment governments you aren’t spending nearly enough money on me right now.

Sounds pretty familiar doesn’t it?

[The Gobbler]

You know the best thing about throwing out your wife? You no longer have to buy her shit on Valentines Day, her birthday, your (former) wedding anniversary, and Christmas.

[fish]

…but every day isAlimony Day!

[fish]

Yeah but the comment is really about how everything that no-talent ewok says boils down to….You just never spent enough to make it all work!

[colson]

“Yeah but the comment is really about how everything that no-talent ewok Paul Krugman says boils down to….You just never spent enough to make it all work!”

[colson]

crap. now I killed it. Sorry fish.

[The Gobbler]

Depends on who represents you in family court.

[zoltan]

Stop marrying materialistic bitches, you fool.

[fish]

Ah Zoltan…if only you had reached me sooner!

[Brandybuck]

You are Exhibit A in why the Nobel Committee needs to be grounded and sent to their rooms.

[T]

So people used a model they didn’t fully understand to make decisions about the world. A world which does not conform in many significant aspects to the model, I might add. And somebody can be sued for this?

Sweet. I’m suing Shigley, Mischke, Budynas, and Industrial Press next time anything I design fails.

[fish]

I’m suing Shigley, Mischke, Budynas, and Industrial Press!

Frauds all!

I recommend Tacoma Narrows Bridge Builder Publishing, for all my structural engineering reference needs!

[Hugh Akston]

The families of people who are killed by Nobel Peace Prize winners should get first crack at lawsuits.

[Old Mexican]

+1

[cynical]

Was thinking the same thing.

[The Estate of ManBearPig]

Anybody know a good lawyer?

[Mad Max]

The best way to win the Nobel Peace Prize:

(a) Kill lots of people – not in a serial-killerish way, but for political motives and on behalf of a government or organization.

(b) Sign some agreement promising to stop killing people under certain conditions.

You don’t even have to comply with the agreement (although you can if you’re a sucker) – you just have to sign it!

[roystgnr]

So if you plug correlated risks into an equation designed for uncorrelated risks, you then get to sue the guy who came up with the equation? How about if you plug flatware into power outlets? Look at that poor electrocuted guy; clearly the outlet must be broken!

[mattrue]

Exactly. I think people have a better case suing human nature.

[Forbes]

I think that’s called hyperbole.

[Rhayader]

Yeah, that’s the vibe I was getting too.

[BakedPenguin]

Cool! Fuck you, Black-Scholes, you guys are paying up big time!

[hmm]

If my Monsanto options make money do I owe Black and Scholes some of my profits?

[BakedPenguin]

Not unless they sue you.

[hmm]

Stunt to get publicity.

[The Gobbler]

At any rate, he’s full of the sort of vim, vigor, and outrage that’s as rare as…hm, not sure what metaphor I’m groping for here an honest column by Dave Weigel.

[rac]

Intentional infliction of we’re in a fucking mess.

[fresnodan]

The belief in economics is to reality what the belief in Christian science is to science.
Take an economics article, and whatever variables they are talking about, substitute Catholic or Baptist, and it will make no less sense. Its worse than wrong – its incapable of being proven wrong.

[robc]

Christian science…Catholic…Baptist

ummm…I think you meant something different by that first time than what you wrote.

[robc]

first term.

[Old Mexican]

The belief in neo-classical economics (which is based on simplistic mathematical models for human behavior) is to reality what the belief in Christian science is to science.

FIFY.

[Brandybuck]

It’s not just neo-classical. Keynesians have a pretty odd view of the world too.

[Ron L]

BTW, the book isn’t much good either; pretty much 300 pages saying ‘things can happen that you don’t expect!’ with a *lot* of padding.

[Nostradamus]

“things can happen that you don’t expect”

I expect everything. Except the Spanish inquisition. No one expects that.

[Montani Semper Liberi]

The book is about how to build systems, particularly financial ones, that do not expose themselves to negative Black Swan events. It also explains the flaws in current financial risk management models, which seem obvious in hindsight, but weren’t so obvious back in 2007 when the book was first published. I don’t know how you read the book and all you could get from it is that “things happen that we don’t expect.”

[robc]

You cannot build a system unexposed to Black Swans.

I thought part of the point of the book was to realize this fact.

[Donald Rumsfeld was Clearer]

“There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know.”

[Brandybuck]

I had to tell my boss that today. She did not understand. The concept of not knowing what you don’t know was way beyond her.

[Rhayader]

Well, she is a boss. You don’t get to that position without being stubbornly unperceptive and dull.

[Montani Semper Liberi]

You’re right. I made a bad choice of wording. A Black Swan event is one that can’t be predicted, so they are impossible to be totally protected from. I should have said “build systems that minimize the effects of a negative Black Swan event”

[Rhayader]

Yeah, that’s a pretty good description. His central thesis is that the “Black Swan” is unavoidable, but that systems can be designed to minimize the downside of negative black swans while reaping the benefits of positive ones. He says that traditional economic models assume away black swans, and are highly vulnerable to negative ones.

[Brandybuck]

Correct. We are in our current situation not because certain events weren’t accounted for, but because it was assumed all events were accounted for.

“All risk has been mitigated! There is no downside! Real estate will never drop in value! Foreclosures will never rise above a tiny percent! There will always be a buyer for our junk!”

[Ron L]

Rhayader|10.13.10 @ 2:35PM|#
“His central thesis is that the “Black Swan” is unavoidable, but that systems can be designed to minimize the downside of negative black swans while reaping the benefits of positive ones. He says that traditional economic models assume away black swans, and are highly vulnerable to negative ones.”

But then if you follow his work, you find that models which profit from black-swan events suffer when things go as planned; i.e., pretty much all the time.
He may avoid the odd major melt-down; losing a similar amount on a regular basis.

[Rhayader]

Yeah he spends some time talking about that. He readily admits that he often realizes small losses. But there’s something to be said for preventing major catastrophe while leaving open the possibility for a big payout.

[T]

There’s always going to be some event you didn’t plan for. Part of the issue with any system design is to build in failure modes that aren’t catastrophic. You want the system to fail in predictable ways with the minimum of collateral damage.

Unfortunately, large parts of our infrastructure weren’t designed. They just evolved. So while they can be analyzed from a systems approach, they sometimes can’t be fixed as a system. Sometimes, you have to rip everything out and start over from scratch if you want to fix the issues.

[P Brooks]

If you believe the real estate agent when she says, “This property will NEVER be worth less than it is today!” you deserve whatever you get.

[Barely Suppressed Rage]

What if it’s pre-disastered?

[Mad Max]

Can we sue the Pulitzer Committee for its prize to Walter Duranty?