Brillant NYT review of James Owen Weatherall's new book The Physics of Wall Street: A Brief History of Predicting the Unpredictable has conceived me to feed my Kindle with the obligatory buy with one-click. But more importantly I want to learn how "convincingly" he refutes Taleb's Black Swan's.
The Physics of Wall Street” “is a book about the future of finance,” he writes in his introduction. “It’s about why we should look to new ideas from physics and related fields to solve the ongoing economic problems faced by countries around the world. It’s a story that should change how we think about economic policy forever.”
This is a lofty goal, made all the more ambitious by the blunders of physicists on Wall Street in recent decades, blunders he describes well but with an extremely generous view. Sure, he concedes, the crisis “was partly a failure of mathematical modeling,” but he declares that the real problem “was a failure of some very sophisticated financial institutions to think like physicists.”
Weatherall wants a new Manhattan Project to determine what’s wrong with economics, and he thinks it should be based in no small part on the contributions of physics-oriented economists, some of whom he believes have been treated unfairly by the establishment. At his worst, he sees conspiracies. Was an economics graduate student penalized when she proposed using “gauge theory,” a tool from mathematical physics, to set the Consumer Price Index? Weatherall suggests as much, implying that her “new and mathematically rigorous method” threatened a plan to lower the reported rate of inflation and thereby reduce Social Security benefits.
He has little use for Nassim Taleb, whose best-selling book “The Black Swan” argues that the models used by traders disastrously underestimated the possibility of very negative outcomes — the black swans. To say that a model failed, Weatherall contends, is not to say that no models can work. “We use mathematical models cut from the same cloth to build bridges and to design airplane engines, to plan the electric grid and to launch spacecraft,” he writes. If you don’t trust them, why are you driving over the George Washington Bridge? “After all, at any moment an unprecedented earthquake could occur.”
The Physics of Wall Street” “is a book about the future of finance,” he writes in his introduction. “It’s about why we should look to new ideas from physics and related fields to solve the ongoing economic problems faced by countries around the world. It’s a story that should change how we think about economic policy forever.”
This is a lofty goal, made all the more ambitious by the blunders of physicists on Wall Street in recent decades, blunders he describes well but with an extremely generous view. Sure, he concedes, the crisis “was partly a failure of mathematical modeling,” but he declares that the real problem “was a failure of some very sophisticated financial institutions to think like physicists.”
Weatherall wants a new Manhattan Project to determine what’s wrong with economics, and he thinks it should be based in no small part on the contributions of physics-oriented economists, some of whom he believes have been treated unfairly by the establishment. At his worst, he sees conspiracies. Was an economics graduate student penalized when she proposed using “gauge theory,” a tool from mathematical physics, to set the Consumer Price Index? Weatherall suggests as much, implying that her “new and mathematically rigorous method” threatened a plan to lower the reported rate of inflation and thereby reduce Social Security benefits.
He has little use for Nassim Taleb, whose best-selling book “The Black Swan” argues that the models used by traders disastrously underestimated the possibility of very negative outcomes — the black swans. To say that a model failed, Weatherall contends, is not to say that no models can work. “We use mathematical models cut from the same cloth to build bridges and to design airplane engines, to plan the electric grid and to launch spacecraft,” he writes. If you don’t trust them, why are you driving over the George Washington Bridge? “After all, at any moment an unprecedented earthquake could occur.”
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