Santa Fe Institute

"Wall Street’s Math Wizards Forgot a Few Variables"

Sept. 14, 2009 9:41 a.m.
According to finance experts and economists, the market meltdown was due to the failure of Wall Street's mathematical models of risk, which were too simple-minded. One scientist incorporating human behavior into models of risk is J. Doyne Farmer, SFI Professor. His research involves models of markets, institutions and their complex interactions, applying a hybrid discipline called econophysics. “You don’t need a model of human psychology to see that there was a danger of impending disaster,” Dr. Farmer observed. “But economists have failed to make models that accurately model such phenomena and adequately address their couplings.”
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