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 start with my old crusade against "quants" (people like me who do mathematical work in finance), economists, and bank risk managers, my prime perpetrators of iatrogenic risks (the healer killing the patient). Why iatrogenic risks? Because, not only have economists been unable to prove that their models work, but no one managed to prove that  the use of a model that does not work is neutral, that it does not increase blind risk taking, hence the accumulation of hidden risks.


Figure 1 -  My classical metaphor: A Turkey is fed for a 1000 days--every days confirms to its statistical department that the human race cares about its welfare "with increased statistical significance". On the 1001st day, the turkey has a surprise.

(...)

By the "narrative fallacy" the turkey economics department will always manage to state, before thanksgivings that "we are in a new era of safety", and back-it up with thorough and "rigorous" analysis. And Professor Bernanke indeed found plenty of economic explanations--what I call the narrative fallacy--with graphs, jargon, curves, the kind of facade-of-knowledge that you find in economics textbooks. (This is the find of glib, snake-oil facade of knowledge--even more dangerous because of the mathematics--that made me, before accepting the new position in NYU's engineering department, verify that there was not a single economist in the building. I have nothing against economists: you should let them entertain each others with their theories and elegant mathematics, and help keep college students inside buildings. But beware: they can be plain wrong, yet frame things in a way to make you feel stupid arguing with them. So make sure you do not give any of them risk-management responsibilities.)



In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sun Sep 21st, 2008 at 02:05:55 PM EST

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