Black swans are difficult to predict but we still need maths in finance
Black swans are difficult to predict but we still need maths in finance
- February 11, 2013
- An article by James Weatherall, logic & philosophy of science assistant professor, is featured in the City A.M. (London) February 11, 2013
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From the City A.M.:
Since the 2008 crash, we’ve heard steady criticism of the role of physicists in finance.
The terms quants, derivatives and models have all taken on nasty connotations. But
if you think about mathematical modelling in the right way, this criticism is wrongheaded.
One of the most prominent critiques is an argument from psychology. It suggests that
ideas from physics are doomed to fail in finance because they treat markets as if
they’re composed of quarks or pulleys. Physics is fine for space travel but, as Newton
said, it cannot predict the madness of men. This draws on ideas from behavioural economics,
which tries to understand markets by drawing on psychology. As markets are about the
foibles of humans, they cannot be reduced to formulas.
For the full story, please visit http://www.cityam.com/forum/black-swans-are-difficult-predict-we-still-n....
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