Nassim Nicholas Taleb (born 1960) (Arabic: نسيم نيقولا نجيب طالب) (alternative spellings of first name: Nessim or Nissim) [1] is a literary essayist, epistemologist, researcher, and former practitioner of mathematical finance. Though a specialist in financial derivatives, he is critical of the finance industry. He held a "day job" in a lengthy senior trading and financial mathematics career in a number of New York City's Wall Street firms, before starting a second career as a scholar in the epistemology of chance events to focus on his project of mapping how to live and act in a world we do not understand, and how to come to grips with randomness and the unknown -- which includes his black swan theory [2] of unexpected rare events. Taleb has also, in the wake of the economic crisis that started in 2008, become an activist for a "Black Swan robust society".
Warning of the global banking crisis
In 2007, in The Black Swan [3]:
Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial Institutions have been merging into a smaller number of very large banks. Almost all banks are interrelated. So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks -- when one fails, they all fall. The increased concentration among banks seems to have the effect of making financial crisis less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur ....I shiver at the thought.
The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deem these events "unlikely".
Success during the 2007-2008 financial crisis
Taleb appeared to be vindicated against statisticians in 2008, as he reportedly made a multi-million dollar fortune during the financial crisis of 2007–2008, a crisis which he attributed to the failure of statistical methods in finance. Universa, where Taleb is adviser, made returns of 65% to 115% in October 2008 in its approximately $2 billion “Black Swan Protection Protocol.”
Taleb's financial success coupled with his earlier predictions have seen him catapulted to prominence. He has appeared on numerous magazine covers and television shows to discuss his views. Taleb started being treated as a "rock star" in Davos 2009 in which he had harsh words for bankers.
In an article in The Times, Bryan Appleyard described Taleb as "now the hottest thinker in the world". The Nobel Laureate Daniel Kahneman proposed the inclusion of Taleb's name among the world's top intellectuals, citing "Taleb has changed the way many people think about uncertainty, particularly in the financial markets. His book, The Black Swan, is an original and audacious analysis of the ways in which humans try to make sense of unexpected events."
Approach to models linked to Austrian School
In his criticism of models, Taleb has taken a point of view in line with the Austrian School of economic thought. He opposes top-down knowledge as an academic illusion and believes that price formation obeys an organic process. His paper with Espen Gaarder Haug asserts that option pricing is determined in a "heuristic way" by operators, not by a model, and that models are "lecturing birds on how to fly", except that in the case of options, the birds might listen. In the book "Lecturing Birds on Flying: Can Mathematical Theories Destroy the Financial Markets?" Wiley Publishing (2009), Pablo Triana explores this topic with references to Haug and Taleb and critiques of the Black-Scholes-Merton model.
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References:
- Nassim Nicholas Taleb
- Black Swan Theory
- The Black Swan: Quotes & Warnings that the Imbeciles Chose to Ignore
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