The Corner

Clouds, Not Clocks

Good piece here in the New York Times Science section — the one reason to hope the Times will stay in business — on the Wall Street “quants” (quantitative analysts), who are either the culprits or the scapegoats of the collapsing stock market, depending on your point of view (me: scapegoats).

The overarching problem here is related to A. N. Whitehead’s fallacy of misplaced concreteness. It’s happening a lot, not just in financial sciences. Science at large is now tackling systems of intractable complexity: in climatology, economics, biology, genetics, neuroscience . . .  Systems Theory will get you just so far, then a black swan will show up and slap you with a black wing.

We’re dealing with clouds here, not clocks. Calling your trade “financial engineering” is all very well; but if you think your derivatives-pricing model will last as long as the Verrazzano Bridge, you’re dreaming.

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