The risk analyst Nassim Nicholas Taleb has condemned economics laureate Robert C. Merton as “blind” to risk. Report: Claire Robinson
The letter from over 100 Nobel laureates attacking Greenpeace for opposing GMOs in general and GMO golden rice in particular has become mired in a new scandal.
Last week the publicity stunt was shown to have links to Monsanto. Representatives of NGOs – including Greenpeace, the subject of the laureates’ attack – who tried to attend the press conference about the letter were astonished to find their way blocked by none other than Jay Byrne, Monsanto’s notorious former communications director and president of the PR company V-Fluence, which is known to work for Monsanto. He is on record as having identified Greenpeace as a target for attack as far back as 2010.
Knowledgeable critics also denounced the letter on the grounds that most of the signatories had no expertise in relevant fields such as toxicology, agriculture, or risk assessment.
Now another disturbing fact has come to light about one of the signatories. Out of all the signatories, Robert C. Merton is the only authority on risk, but it’s not the sort of authority that would seem worthy of respect.
“When genius failed”
Robert C. Merton shared the 1997 Nobel memorial prize in economics with Myron S. Scholes for their work in quantitative finance.
During the 1990s Merton and Scholes were directors of the American hedge fund management firm Long-Term Capital Management (LTCM).
The firm commanded about $4.6 billion in money under management at its height. But in 1998, following the 1997 Asian financial crisis and 1998 Russian financial crisis, LTCM lost all of its capital in less than four months. The Federal Reserve had to intervene and organize a bailout, but the fund liquidated and dissolved in early 2000.
Merton and Scholes’s theories took a public beating, not least in a best-selling book by the financial journalist Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management.
Merton: Black swan-blind
Merton’s involvement in the “blown up firm” LTCM was pointed out on Twitter by the statistician, former trader, and risk analyst Nassim Nicholas Taleb. Taleb is the originator of “black swan theory”, which explains the disproportionate role in historical affairs of unforeseen events of extreme consequence in the fields of history, science, finance, and technology, as well as the psychological biases that blind people to the likelihood of such events. Taleb has written a book on his theory, titled Black Swan, and a paper that classifies GMOs as “black swans” that pose the risk of “global harm”, as well as related discussion documents.
In his Twitter comment on the laureates’ letter promoting GMOs, Taleb picked out Merton as the only signatory with any knowledge in risk management, except as an “inverse expert”. In my interpretation, that’s someone whose theories and actions you observe in order to do the opposite. Taleb says Merton had deemed the risk of LTCM’s collapse “to be in the order of 1 in many trillions”. Taleb’s verdict is that Merton is “black swan blind”.
Another GMO promoter presided over catastrophic financial crisis
Merton is not the only GMO promoter to suffer from black swan blindness. The British public is regularly treated to GMO promotionals authored by Matt Ridley. Ridley is a journalist and businessman. But he was also chairman of the Northern Rock bank when it collapsed in 2007. Ridley told the Treasury Select Committee tasked with investigating the collapse that the bank had been hit by "wholly unexpected" events and defended the way he and his colleagues had been running it.
The committee, however, begged to differ. It concluded: “The directors of Northern Rock were the principal authors of the difficulties that the company has faced since August 2007… The high-risk, reckless business strategy of Northern Rock, with its reliance on short- and medium-term wholesale funding and an absence of sufficient insurance and a failure to arrange standby facility or cover that risk, meant that it was unable to cope with the liquidity pressures placed upon it by the freezing of international capital markets in August 2007.”
Taleb said of Ridley: “He is a very intelligent and knowledgeable man, except that he is not qualified to talk about hidden and catastrophic risk, or to comment on the systemic potential harm of GMOs. In fact, I am surprised that he did not learn from his blowup and I would take his opinion on the subject of extreme risks as an inverse-indicator.”
In other words, we should take note of what Ridley says and do the opposite.
Laureates clueless about risk and complex systems
Taleb believes that there is a broader problem of knowledge afflicting the laureates. He commented on Twitter that “a typical aged Nobel today” did his “formative work in the 60s, 70s, maybe 80s” and is likely to be “clueless about complexity and the difficulty in understanding interactions in highly dimensional systems and their forecastability”.
He adds that not one of the signatories has bothered to put in the necessary research or “engaged in real world activity… to verify the track record of golden rice, or realize that hunger is a problem of distribution, not technology. You don’t advocate risky brain surgery when a good night’s rest could do – the age-long principle of intervention has been primum non nocer [‘First, do no harm’].
“Better to give people rice plus vitamin rather than open the Frankenbox to fatten the pockets of Biotech. One has to be quite lacking in basic common sense to suggest otherwise.”
The risk-taking yet disaster-prone record of the two GMO promoters, Merton and Ridley, raises key ethical questions. Should we allow people who are at least partly responsible for catastrophic ruin to influence crucial and potentially irreversible choices about our food and agriculture?
Or should we strip them of the authority they claim and take back those choices into our own hands?
It’s a no-brainer.
Report: Claire Robinson