Models.Behaving.Badly.

Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life

Recommended by Nassim Nicholas Taleb, and 1 others. See all reviews

Ranked #90 in Econometrics

Emanuel Derman was a quantitative analyst (Quant) at Goldman Sachs, one of the financial engineers whose mathematical models usurped traders' intuition on Wall Street. The reliance traders put on such quantitative analysis was catastrophic for the economy, setting off the series of financial crises that began to erupt in 2007 with the mortgage crisis and from which we're still recovering. Here Derman looks at why people--bankers in particular--still put so much faith in these models, and why it's a terrible mistake to do so.

Though financial models imitate the style of physics by using the...

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Nassim Nicholas Taleb AuthorHere is what I wrote in my endorsement: Emanuel Derman has written my kind of a book, an elegant combination of memoir, confession, and essay on ethics, philosophy of science and professional practice. He convincingly establishes the difference between model and theory and shows why attempts to model financial markets can never be genuinely scientific. It vindicates those of us who hold that financial modeling is neither practical nor scientific. Exceedingly readable. From the remarks here, people seem to be blaming Derman for not having written the type of books they usually read... They are... (Source)


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