Thursday, March 4, 2010

Nicholas Taleb Blames Financial Crisis on Aspie Finance Analysts?


I don't know how to respond to this abject stupidity.

HUNTSVILLE, Ala. (Reuters) - Did the financial system blow up because it was built and largely operated by people with many of the characteristics of a mild form of autism called Asperger's syndrome?

As explanations for the crisis go, it's on the extreme side but forms an interesting counterpoint to the "blame the looting bankers" story line.

People with Asperger's, a mild form of autism, are characterized by, among other things, a deficit of "theory of mind," essentially the ability to understand that other people have different beliefs or knowledge than themselves. Nicholas Nassim Taleb, author of The Black Swan, has written that a lack of theory of mind left many in positions of responsibility without the ability to conceive of and guard against black swans, which are rare, high-impact and hard to predict events.

There were, after all, a remarkable number of people blaming "hundred-year storms" for the crisis, which was at least in substantial part caused by an over-reliance on risk management controls and models that proved to be far too narrow. There was a love of data and a refusal to conceive of the data being not wrong, but incomplete, which led many to cling to their models of how the world was working even as it fell around them. Remember all of those reassurances that problems in subprime were "contained"?

"Note that the very same people who attack me, on grounds of political correctness, for discussing Asperger as a condition not compatible with risk-bearing, and its dangers to society, would be opposed to using a person with highly impaired eyesight as the driver of a school bus," Taleb writes in his typically provocative style.

"All I am saying is that just as I read Milton, Homer, Taha Husain, and Borges (who were blind) but would prefer to not have them drive me on the A-4 motorway, I elect to use tools made by engineers but prefer to have society's risks managed by someone who is not affected with risk-blindness."

As someone with a family member with Asperger's, I think there is a lot of truth to what Taleb says, though perhaps he expresses himself too gruffly. A love of data and models and an unwillingness to engage with ambiguity that can often mean missing the big picture are characteristic of both Asperger's and of the global financial system circa 2007. This is a far different thing from blaming the crisis on people with Asperger's, which Taleb does not.

Actually, and here I am fishing in shallower waters than Taleb, there are elements of a typical Asperger's personality which are extremely useful in guarding against manias and bubbles.


People with Asperger's Syndrome are largely immune to social pressures; they often do not recognize them, or if they do, dismiss them as silly. They can be, in many ways, like the child in the Hans Christian Andersen story "The Emperor's New Clothes." In the story the emperor is sold a new suit made of a fabric that supposedly will be invisible to anyone who is not fit for the position they hold. The suit is a fraud, but the emperor, afraid of being one himself, pretends to be able to see it. Everyone else plays along until the emperor meets a child who calls it as he sees it and pierces the illusion.

Typical people, in order to make the numberless decisions they are forced to make with only limited data, rely heavily on taking their clues from what other people are doing -- following the herd. This has a certain efficiency but, as people place a heavy weight on what others are doing, leaves them open to be swept up in manias or bubbles.

This is true for individuals buying houses in 2005 because "everyone knows they will only go up" and it is true for fund managers making "momentum" investments in dotcom stocks. Fashion, for most people, is a powerful faculty-numbing force; just leaf through some old magazines and check out what people were wearing round about 1971.

For people on the Asperger's spectrum this is far less true; regardless of what people are talking about at cocktail parties, they won't believe that we can all grow rich by buying up one another's houses, nor will they take assurances from "authorities" as the final word. Having less fear of looking stupid than the rest of us, they will stand by what they perceive. They are also, at least in my experience, far less likely than the average person to hold a position cynically; because it benefits them rather than because they believe it.

That might not be the only type of person you want in a financial system, but those are some pretty valuable characteristics for a fund manger or banking regulator.

1 comment:

  1. Michael Burry ( might be a good response.