Nassim Taleb Thinks Everyone Is Stupid

Wall Street's ability to plan for risk is a joke, as far as Nassim Nicholas Taleb is concerned.

Taleb tells Fortune in Fear of a Black Swan that as "portfolio models got worse and worse in tracking reality, their use kept increasing as if nothing was happening. Why?"

Two reasons, Taleb argues.

Reason one: Business schools. They "accelerated their teaching of portfolio theory as a replacement for our experiences. It looks like science, and they have been brainwashing more than 100,000 students a year."

Reason two: The Nobel committee. "The problem may also be the Nobel in economics that gave a stamp to these junky theories. Someone needs to make the Nobel committee account for this, for the damage to society -- and I hope to do so."

That's pretty strong stuff, but the blogosphere hasn't taken him to task for it. The Bristlemouth investing blog frets that Taleb's theories are going mainstream. The Skeptical CPA grumbles that Taleb picks on banks.

But Taleb is basically saying that financial models are useless, because random things happen that don't fit the model. Really, it seems like what happens on Wall Street is that people make big bad bets and then bank on the odds. That's not a problem with the financial models (and I'm not saying that financial models don't kill markets, people kill markets). I don't have an MBA, but plenty of people I know who have them seem to be able to make decisions that are informed by models but not dictated by them. Of course, I haven't worked on Wall Street, and maybe the people who work there really are just sheep who do what their computers tell them.

Besides, under Taleb's theories about randomness, isn't this just bad luck? Tell me what you think, BNet.