Should the Nobel Folks Be Sued for the Financial Crisis?

The recent financial crisis clearly had many contributing villains. But if you’re looking to sue someone to recover losses,?Nassim Nicholas Taleb maintains, the choice is clear: the Swedish Central Bank, which awards the Nobel Prize in Economics*:

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.” …

“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.”

If Taleb were to actually sue, and were to be even close to successful (neither of which seems remotely possible), can you imagine the crowd who’d line up to sue the Nobel Committee for its Peace Prize? (HT: Ravin R. Pierre)

*Technically not a Nobel Prize like those in chemistry, physics, and literature, but the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel

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  1. Sue for that too. says:

    What peace has Obama brought to the world or his own country which is in a civil state of civil war still?

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  2. TA says:

    Monday morning quarterback. Taleb should have spoken up in the 15 years after 1990 if he was on to this. Oh, the “experts” are only good at counting toe tags post-mortem. I forgot.

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  3. ADL says:

    This is either a helluva stretch or some sort of joke.

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  4. Peter Principle says:

    TA: Taleb being saying this — or stuff like it — for years. Nobody paid any attention to him until the crisis.

    Sue for that too: Why don’t you come join the rest of us in THIS reality. You might even like it.

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  5. FFM says:

    Markowitz is not wrong. Its the cheaters who misuse Markowitz to their advantage; the rating agencies who had no idea what they were signing and the incapacity of regulators to detect and stop both of them.

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  6. Robin says:

    If equities are too risky, can we sue Ian Ayres? He’s suggesting we leverage up early in our lives.

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  7. Grant Tanabe says:

    @ TA

    Have your read any of Taleb’s work? He wrote virtually an entire book before the financial crisis hit about how we misconstrue the risks associated with investments and use backward looking models that fail to see the improbable coming.

    This is exactly his point. We’ve legitimized models that can never account for the uncertainty that surrounds us.

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  8. Dan Green says:

    I have concluded economic models we use, are worn out. They all seem based on, distorted historical charts and graphs. Economics is a dismal science, to begin with. Intellects from that discipline, seemed very unaware of risk factors, as their models evolved. Once the risk factor disappeared off their spreadsheets, it was like heroin for a drug addict , it gave carte blanche to greed. Now throw in the baby boomer generation, and you have a perfect storm. They will go down in history, as the most selfish generation, the US has experienced. There now are too many moving parts to be able to deter this spiral to a crash.

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