A Formula for Economic Calamity

Despite the lessons of the 2008 collapse, Wall Street is betting our future on flimsy science

From my article in the November 2011 issue of Scientific American

The market crash of 2008 that plunged the world into the economic recession from which it is still reeling had many causes. One of them was mathematics. Financial investment firms had developed such complex ways of investing their clients’ money that they came to rely on arcane formulas to judge the risks they were taking on. Yet as we learned so painfully three years ago, those formulas, or models, are only pale reflections of the real world, and sometimes they can be woefully misleading….read more

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