Now in paperback, âa compelling, accessible, and provocative piece of work that forces us to question many of our assumptionsâ (Gillian Tett, author of Foolâs Gold).
Quants, physicists working on Wall Street as quantitative analysts, have been widely blamed for triggering financial crises with their complex mathematical models. Their formulas were meant to allow Wall Street to prosper without risk. But in this penetrating insiderâs look at the recent economic collapse, Emanuel Dermanâformer head quant at Goldman Sachsâexplains the collision between mathematical modeling and economics and what makes financial models so dangerous. Though such models imitate the style of physics and employ the language of mathematics, theories in physics aim for a description of realityâbut in finance, models can shoot only for a very limited approximation of reality. Derman uses his firsthand experience in financial theory and practice to explain the complicated tangles that have paralyzed the economy. Models.Behaving.Badly. exposes Wall Streetâs love affair with models, and shows us why nobody will ever be able to write a model that can encapsulate human behavior.