While not a "real" Nobel prize, the Economics Nobel hasn't become the oxymoron that the "Nobel Peace Prize" has (Nobel invented weapons grade nitroglycerin). http://en.wikipedia.org/wiki/Nobel_Memorial_Prize_in_Economic_Sciences The only computer scientist Nobel prize winner (to my knowledge) -- Herb Simon -- got the "Economics" Nobel. I guess this is in much the same spirit that Einstein won his Nobel for the photoelectric effect. http://en.wikipedia.org/wiki/Herbert_Simon At 10:38 AM 2/12/2012, Warren Smith wrote:
The main problem with Black & Scholes was that, in the case of Long Term Capital Management, they assumed the probabilities of failure of Russian investment A, was independent of any other B.
But actually, every Russian investment in the universe got simultaneously affected by one common reason. Oops. So even an unlikelihood 10^(-10000) was of course actually quite likely. (And nonGaussianity also can matter, but not as much.)
Now normally, a scientific theory that is often off by a factor of 10^10000 would not be considered ultra good and worthy of a Nobel prize. But this is economics, where the scientific standards are a little different.
You might defend Black & Scholes by saying their theory did not need to assume Gaussianity or anything, it can be defined in a wholy general probabilistic setting. However, Myron Scholes was a major player in and paid a gazillion dollars by LTCM to be their brain trust so everybody could know that LTCM was a great company that had Nobel laureates working for them devising their plans. So evidently the independence assumption was endorsed by them.
So then LTCM failed and got a huge bailout paid for by you and me, while Black & Scholes got off scot free with Nobel prizes in hand, and all the main LTCM players walked off with gazillions in your money. The whole system was of course not reformed at all.
Now of course, you might normally think that after one of the most gigantic failures in history -- translated from money into lives this was equivalent to murdering thousands of people -- that Myron Scholes' name would be mud. But no: this is economics, so he's actually greatly lauded. Nobel himself, who had nothing whatever to do with and did not want there to be a "Nobel prize in economics," must be spinning in his grave.
Now I contend that the direct cause of this disaster was the Nobel Prize. Had the so-called Nobel prize in economics been abolished, this disaster would have been averted. This prize has by a long shot caused far more damage to the world than good. Generally speaking what happens is, some idiot is awarded the Nobel, and then every word he utters is believed like the Word Of God from then on often by immensely powerful and wealthy entities. Actually said "idiot" might be pretty good in some ways, but in many other ways he is utterly unqualified and nevertheless the "word of God" effect ensues in all areas, including the ones he is unqualified in. This in turn causes entire areas of economics to be pretty much destroyed for no good reason.
And basically, many of the Nobel prizes in economics were awarded for what, in other areas, would not be considered very impressive work. For example work by computer scientists on cryptographic money & voting protocols are far more impressive than anything that has ever won a Nobel in economics, but this work, even though economical, will never win an economics Nobel because its authors are not in the right clubs.
-- Warren D. Smith http://RangeVoting.org <-- add your endorsement (by clicking "endorse" as 1st step)
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