Wednesday, August 15, 2007

The Pretense of Knowledge-Scientism

"Goldman Sachs ... revealed that a flagship global equity fund had lost over 30 per cent of its value in a week because of problems with its trading strategies created by computer models. In particular, the computers had failed to forsee recent market movements to such a degree that they labelled them a '25-standard deviation event'-- something that happens once every 100,000 years or more. ... 'People say these are one-in-a 100,000-years events but they seem to happen every year', says Satyajit Das, a consultant to hedge funds and investment banks. 'This episode should make people ask questions about models--I think it could lead to a real reassessment",, 14 August.

These models are jokes. Anyone with an understanding of economics and finance, particularly the efficient capital markets hypothesis, should have seen that the models are just a new form of technical stock market analysis.

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