"History is a wonderful thing, if only it was true"

Tuesday, September 29, 2009

Couple of pieces on the dismal science

Been a bit behind in getting some things posted that I've bookmarked over the last month.
Some reflect my long held opinion that "rocket science" works on The Street ... until it doesn't.
Failure to recognize that markets are based on crowd behavior and changing psychology. People are not always rational, both in the economy and in markets.

I hope that the investment/economic crisis of the last year or so has been a lesson learned.

How Did Economists Get It So Wrong? - NYTimes.com:

"It’s hard to believe now, but not long ago economists were congratulating themselves over the success of their field. Those successes — or so they believed — were both theoretical and practical, leading to a golden era for the profession."

Unboxed - Creating Quant Models That Are Closer to Reality - NYTimes.com:

"The risk models proved myopic, they say, because they were too simple-minded. They focused mainly on figures like the expected returns and the default risk of financial instruments. What they didn’t sufficiently take into account was human behavior, specifically the potential for widespread panic. When lots of investors got too scared to buy or sell, markets seized up and the models failed."

No comments: