Author Nassim Taleb visits JMU

The irreverent, engaging and brilliant author Nassim Taleb spoke at James Madison University Friday, Sept. 17.  Taleb, author of  "The Black Swan: The Impact of the Highly Improbable," delivered the second JIN Lecture in Political Economy for the College of Business.

Approximately 450 students, faculty and members of the public attended Taleb's lecture, "Towards Black Swan-Proofing Society," in Grafton-Stovall Theatre. 

Economics Professor J. Barkley Rosser Jr. invited Taleb to campus and was thrilled with the outcome.  "I think that this is a coup for JMU.  Dr. Taleb does not speak at very many campuses, and these are often more well-known and prestigious ones than JMU.  This was a great opportunity for the JMU community."

 

Robust v. Fragile

Taleb focused his talk on the financial concepts of robustness and fragility.  He simplified his point by comparing a book to a Kindle.  Taleb described a Kindle as fragile, saying it has small benefits such as being portable or storing many books, but a huge cost should it break or be lost.  He said a book is robust, citing books that are thousands of years old and still being read today.

Taleb's lecture was a combination math, history, business and theory lesson. 

He identified two provinces, Mediocristan and Extremistan, introduced in "The Black Swan," to explain our troubled economy.  In Mediocristan exceptions happen but do not affect the total.  In economic terms the law of large numbers works predictably well.

In Extremistan, Taleb said, "Exceptions play a massively large role.  The past doesn't help explain the future because large deviation events do not have a precursor."  The "Black Swan" warns that the financial systems we currently have cannot handle Extremistan. 

Taleb's warning was clear.  "In 25 years, things that are fragile now are going to break," said Taleb.

 

Questions and Solutions

Students and faculty members asked questions regarding debt, financial regulation and black swan theory. 

Taleb explained that he does not have a black swan theory similar to a mathematical theory; rather he has an idea of black swan robustness. 

When asked about education's role in transforming the economy Taleb quoted a favorite aphorism that he applies to regulators, "Education helps the wise get slightly wiser, but education can make the fool vastly more dangerous."

Taleb did offer solutions to our economic downturn, but first offered this warning: "The problem isn't the recovery or recession, it is the risk in our situation."

"The unique solution to the system is definancialization, progressively transform debt to equity and make banks less relevant," said Taleb.  He emphasized that creating this type of policy takes courage.

Finance major Parth Joshi asked Taleb if he would accept the chairmanship of the Federal Reserve if the role was offered?  Taleb, quick to shake his head 'no,' said, "I think I am more influential writing books." 

 

Sept. 21, 2010