Models.Behaving.Badly.
Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life
About the book
Emanuel Derman, a former head quant at Goldman Sachs, explains what goes wrong when financial models are mistaken for reality. Quants, physicists working as analysts on Wall Street, were widely blamed for setting off financial crises, and their formulas had promised prosperity without risk. Derman draws on his own experience in financial theory and practice, and notes that models in finance borrow the style of physics and the language of mathematics, yet physics theories aim to describe reality, while financial models can only roughly approximate it. He concludes that no one will ever write a model that captures human behavior.
Nassim Nicholas Taleb endorsed it as a mix of memoir, confession and essay on ethics and the philosophy of science that shows why financial modeling can never be truly scientific.
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This book has 1 recommendation
Nassim Nicholas Taleb (Flaneur)
Here 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 blaming him for being original! This is very philistinic. This book is a personal essay; if you don't like it, don't read it, there is no need to blame the author for not delivering your regular science reporting. Why don't you go blame Montaigne for discussing his personal habits in the middle of a meditation on war inspired by Plutarch?
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