By Stephanie Baker – Oct 8, 2010
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.