Pablo Triana sends me an open letter he’s written to the Swedish central bank, telling them to please stop giving out Nobel prizes in economics to "flawed, unworldly, and
dangerous theoretical finance constructs":
At least two of the theories awarded with the Economics “Nobel” have been behind the very
worst financial crises to have afflicted the world since the 1929 crash; Black-Scholes-Merton was
the inspiration for the strategies that gave us October 1987ߥs Black Monday, the most
devastating one-day drop in the history of Wall Street (which gravely threatened to sink the
system); while Portfolio Theory was the inspiration for the creators and adopters of VaR, which
outrageously misguided guidance and capacity for forcing destabilizing liquidations were to
blame for the 1998 LTCM crisis and the current malaise (both of which, certainly, put us in
great peril).
Triana has co-authored letters with Nassim Taleb in the past, and this is very much consistent with Taleb’s views. It’s not such a bad idea: right now it’s pretty hard to say that, in aggregate, recent advances in financial economics have been, on net, a good thing. So why encourage them with Nobels?