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

Sue for that too.

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


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.


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

Peter Principle

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.


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.


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

Grant Tanabe

@ 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.

Dan Green

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.


TA -

Taleb has ridiculed the Economics Nobel long before the crisis. You shouldn't make statements about something you don't have any knowledge on. A quick reference of the index of one of his books would have sufficed.

I am having a hard time picturing how he would sue the Swedish Central Bank. I believe his goal is to apply consequences to those who deserve them (he also says that society should claw back bankers earnings) Suing the Swedish Central Bank implies that a person/organization is responsible for the results of their actions - even if those are just awards - if you are powerful enough to influence others actions. I believe these are correct ethically, but there is not enough political will to accomplish it (which I think it needs to actually happen).

Drill-Baby-Drill Drill Team

Alfred Nobel invented and marketed the world's most dangerous material: TNT. It is compact and powerful and it is the preferred tool of terrorists for blowing up planes, buildings, mosques and churches, vehicles and cafes. And it is also a major tool of air forces and ground armies. Artillery is a meat grinder.

Maybe the Nobel Committee should instead be sued for plastique explosives as our world blows up around us.


Anything that lends macroeconomics legitimacy is suspect.

David Orlowski

Not only did Taleb write about it, speak about it, publish about it, he made money off it, just like he said he would. And it isn't true that "nobody" paid attention to him. Here's just one example: in 2005, *Fortune* called his 2001 book "Fooled By Randomness" one of the 75 smartest books ever:


Are you telling me that we can't predict the future when it's staring us in the face because we're blinded by greed?

Ian Kemmish

Why not sue all economists EXCEPT Markowitz, Miller and Sharpe for failing in 15 whole years to spot and point out the flaws which Mr Taleb now asserts were obvious?

There is in any case an obvious and trivial defence against Mr Taleb's suit.

Mr Taleb claims a) to be an economist, and b) that the Nobel Prize conferred legitimacy in the eyes of economists upon these theories.

Clearly, Mr Taleb does not believe that ALL economists were taken in. Unless he is also claiming to be the smartest living economist (which might explain why he doesn't like the prize committee), then a significant number of other economists were also NOT taken in. Maybe even the majority. So his case collapses.

greg zurbay

The idea that sub-prime loans, once chopped up to be securitized to investors would then be rated A-1 sounds like fraud to me. If in fact the Nobel prize was awarded for this act of transformation, then a lawsuit should be filed. My understanding is the system went into a black hole due to the absolute lack of belief that the securitized financial paper was worth an A-1 rating. Whoever was responsible for that transformation does deserve to be placed in a deep dark hole for the rest of their existence for the amount of suffering they are responsible for. The Free Market and no oversight (thanks to Phil Gramm's 250 page bill of 1999 (written by the financial industry) gave us the petri dish resulting in our financial meltdown. There is plenty of blame to spread around, but Phil and the financial power houses are where the real culpability lies.


I have fond memories of attending a conference of financial risk managers at which Nassim Taleb was a keynote speaker. He began his speech by glaring at the audience and saying in the most belligerent tone possible that what they were doing was fraudulent and dangerous (I don't remember the exact words). He then dared anyone to challenge his claim. The most amazing part was that no one tried very hard to do so, and no one seemed especially outraged by Taleb's attack. Maybe they all thought he was a nut, but it seemed to me that although no one acted on Taleb's views back then, a lot of people even back then understood that there were at least some valid points in what he was saying.


i think they mean mother teresa in 1979.

Ike Solem

The Nobel Prizes in Physics, Chemistry and Medicine are based on a consistent scientific approach that economists have persistently refused to follow.

It's called the modern reductionist perspective: medicine is informed by chemistry, and chemistry is informed by physics, and the language of physics is mathematics. There are no "medical principles" which somehow overrule physics - rather, every medical treatment is based on chemical and physical knowledge of the patient - blood pressure, blood chemistry, etc.

Economists have deviated mightily from this principle by refusing to include physical reality in their 'econometric models' - and as a result, their models are little more than mathematical fantasies that can be tweaked by their creators to support any economic ideology whatsoever.

Like Marxism? No problem - find some 19th century physical model that relates energy to "heat" and "work", and replace those variables with suitable Marxist notions, tweak the equation just so, and you can "prove" that communism bring the greatest benefits to the most people - but don't look at the Aral Sea or the various other disastrous results of Central Committee planning.

If unregulated cartel capitalism is more your thing, i.e. the fruits of neoclassical economic theory, just follow in the steps of the 19th century economists:

"The physical theory that the creators of neoclassical economics used as a template was conceived in response to the inability of Newtonian physics to account for the phenomena of heat, light and electricity. In 1847 German physicist Hermann von Helmholtz formulated the conservation of energy principle and postulated the existence of a field of conserved energy that fills all space and unifies these phenomena. Later in the century James Maxwell, Ludwig Boltzmann and other physicists devised better explanations for electromagnetism and thermodynamics, but in the meantime, the economists had borrowed and altered Helmholtz's equations."

This is why economists are sequestered in business and liberal arts departments, well away from any physicists, chemists, biologists, ecologists and medical science researchers - their basic assumptions are over 100 years out of date.

Never mind all that - how about some leeches and cupping? Tiny animals cause disease, you say? Too small for the eye to see? What rubbish! What you really need is a mercury enema and some more bleeding - and yes, I am an "expert in my field."


Tim H

But that isn't right. The Swedish central bank doesn't "award" the economics Nobel, they only funded the endowment back in 1968. The prize is administered by the Nobel Foundation and winners are selected by the Royal Swedish Academy of Sciences just like physics and chemistry prizes.


One could hardly say suing the Nobel committee for poorly chosen peace prizes would be equivalent.

The Vietnam war and the East Timor genoicde didn't get worse because Kissinger was given the prize any more than the state of peace in the middle east deteriorated when Arafat recieved his. The causal relationship between the economics prize and the financial crisis may be more credible but at the end of the day financial analysts and fund managers are ultimately responsible for their own poor decisions. Taleb is the exception to the insanity that abundantly proves this rule.