Nassim Nicholas Taleb's Contribution to Economics

Nassim Nicholas Taleb's Contribution to Economics
Nassim Nicholas Taleb is a Lebanese-American author and scholar specializing in studying uncertainty, probability, and randomness problems. He was born in Amioun, Lebanon, in 1960 to Minerva Ghosn and Nagib Taleb: his family has a monarchial history of wealth and political influence that stretches back to his great-great-great-grandfather, who was the governor of Mount Lebanon back in 1866 (Nast, 2002). His affluent background allowed him to attend the 'Grand Lycee Franco-Libanais,' a well-respected French lycee (a term employed in the French education system to refer to the sixth form of college) in Beirut. Nassim Nicholas Taleb went ahead to earn his bachelor's degree and master's degree from the University of Paris in France. He secured a doctorate in management science from the Paris Dauphine University, where he majored in mathematical finance and wrote the essay "The Microstructure of Dynamic Hedging" under the tutelage of French scholar Helyette Geman (MacTutor, 2020). In 1983, the Lebanese-American author and scholar gained his MBA from the Wharton School of the University of Pennsylvania in Philadelphia, the U.S. Fifteen years later.
Nassim Nicholas Taleb did not set out to be an author and scholar but first started as a derivatives trader for The First Boston Corporation, a New York-based bulge bracket investment firm, where he was relatively successful. He managed to earn huge profits for the bank, notably when the stock market slumped in October 1987. The Lebanese-American author and scholar would later collaborate with Mark Spitznagel, an American hedge fund manager and financier investor, to found the hedge-fund company Empirica Capital LLC in 1999. During their partnership, Nassim Nicholas Taleb founded the Black Swan Strategy. This trading strategy would prove profitable when the NASDAQ plummeted in 2000. The Lebanese-American author and scholar made a considerable fortune: Empirica Kurtosis LLC, one of the several funds operated by Empirica Capital LLC, managed to secure more than 60% profit in 2000. Unfortunately, the succeeding years were not as profitable, and the partnership hedge fund company made significant losses over the next two years. For instance, the company only made less than 10% in 2003 and 2004 (TheFamousPeople, 2021).
In the following year, Nassim Nicholas Taleb closed the fund corporation down and decided to pursue a life in academia. In a Wall Street Journal article, he would later confess that he decided to quit his trading career to focus on becoming a writer and scholar. Given his extensive career of twenty years in the financial markets, the Lebanese-American author and scholar published several mathematical and philosophical works, including the highly acclaimed Incerto, a five-volume theoretical composition on improbability. Since quitting his trading career, he has been a professor at several tertiary institutions. For instance, in addition to his stints at the Courant Institute of Mathematical Sciences, New York University, and the University of Massachusetts between 1999 and 2005, he was a visiting professor at the London Business School. Between 2009 and 2013, the Lebanese-American author and scholar worked as a professor at the New York University Tandon School of Engineering, where he focused on risk engineering (TheFamousPeople, 2021). From 2009 to 2013, he also worked as a scholar at the Said Business School and the University of Oxford. He regularly conducts classes in quantitative finance, over and above, and serves as one of the co-faculties at the New England Complex Systems Institute.
Nassim Nicholas Taleb's Contribution to Economics
Aside from his educational experience, Taleb has extensive professional experience in essay writing, mathematical statistics, trading, risk analysis, and aphorism. This combination of experiences made him a global figure concerned with uncertainty, probability, and randomness through his work. His famous work, The Incerto, is a volume of philosophical essays on fate consisting of four books: Fooled by Randomness, The Black Swan, the Bed of Procrustes, and Antifragile. Fooled by randomness focuses on the fallibility of human knowledge and the role of probability and chance in life. In Antifragile, Taleb discussed how some things benefit from shock, risk, and uncertainty. He also brought the Black Swan metaphor to the center of risk analysis debates. From this work, he developed what has come to be known as the Black Swan Theory through one of his most successful books, The Black Swan.
The Black Swan Theory
The Black Swan theory (also called the theory of black swan events) metaphorically implies that rare occasions that come as a surprise have a massive effect and are often inappropriately. The term is borrowed from an ancient European saying that assumed black swans did not exist until when they encountered them through their forays into the New World (Taleb, 2007). The theory focuses on explaining three main issues. First is the disproportionate role of hard-to-predict, high profile, and rare events that contradict normal expectations in technology, history, finance, and science. The 2008-09 economic recession, for instance, is an example of such events. It is an example of a rare occasion that is hard to predict and for which people do not always learn from or prepare adequately. However, Taleb speculates that there is potential for gains in its randomness. For instance, during the 2008 economic recession, some people like Taleb made gains while others lost their savings.
The second aspect is the non-computability of the likelihood of meaningful events through scientific techniques. In other words, the theory shows that events such as the 2008-09 recession cannot be sufficiently predicted because of the nature of small probabilities. The Prospect Theory explains that these small probabilities make people assume that such events will never occur. In essence, Black Swan events have a low probability of occurring, and therefore, people generally think they will never happen. Lastly, the theory also focuses on the psychological bias that blind people, both individually and in the community. Often, people are blinded to the uncertainty and the role of rare events in historical affairs. As a result, they neither learn from them nor prepare for the same adequately. The key theme, in theory, is that unexpected high magnitude events are extreme outliers and, collectively, play a more significant role than regular or expected occurrences.
Importance of Theory and its Difference from Others
In his work, Taleb means that black swan events are impossible to predict because of their extreme rarity. Thus, people must always consider that a black swan even...