By: James Owen Weatheral
After the economic meltdown of 2008, Warren Buffett famously warned, “beware of geeks bearing formulas.” But as James Weatherall demonstrates, not all geeks are created equal. While many of the mathematicians and software engineers on Wall Street failed when their abstractions turned ugly in practice, a special breed of physicists has a much deeper history of revolutionizing finance. Taking us from fin-de-siècle Paris to Rat Pack-era Las Vegas, from wartime government labs to Yippie communes on the Pacific coast, Weatherall shows how physicists successfully brought their science to bear on some of the thorniest problems in economics, from options pricing to bubbles.
Weatheral began thinking about the The Physics of Wall Street during the fall of 2008, offering this introduction: In the year since the quant crisis, the U.S. economy had entered a death spiral, with century-old investment banks like Bear Stearns and Lehman Brothers imploding as markets collapsed. Like many other people he was captivated by the news of the meltdown. In article after article he came across the legions of quants: physicists and mathematicians who had come to Wall Street changed it forever.
The crisis was partly a failure of mathematical modeling. But even more, it was a failure of some very sophisticated financial institutions to think like physicists. Models—whether in science or finance—have limitations; they break down under certain conditions. And in 2008, sophisticated models fell into the hands of people who didn’t understand their purpose, and didn’t care. It was a catastrophic misuse of science.
The Physics of Wall Street is riveting history that will change how we think about our economic future. ISNB: 978-0-0547-31727-4