Tuesday, December 23, 2008

Keeping It Simple

A while back I had read this short story titled Quant in which a Wall Street in which the mind of a developer of trading strategies is so valuable that his firm will do anything to stop him from leaving. To say more, would be to give the plot away but suffice it to say that the story was part of the Wall Street Noir collection.

It is stories like this and the movies based on it that have for the longest time perpetrated the myth of the math and statistical geniuses who get to be the masters of the universe because of their vastly superior intelligence. They live in their ivory towers inside iridescent bubbles that we can all watch in awe but cannot touch. The rest of us, must repose our faith in their ability to best manage our hard earned money; for left to our own devices we'd sink without a trace in the turbulent seas of finance and investing like a ton of bricks.

Recent events have proved that these so-called geniuses were playing ducks and drakes with people's retirement savings. They did not understand the exotic instruments they had created any better than the rest of us - at least from what proof there is to see of such understanding. Clearly, the rumors of their razor sharp brains and absolutely mastery of numbers must have been a tad exaggerated. This article on math whizzes throwing their lot with data mining is rather disturbing. If they exhibited a similar lack of competence and substituted what was missing with impenetrable hubris a la Wall Street, a lot of bad decisions would be made with equally painful consequences for those whose data is being quarried willy-nilly.

It almost always a really bad idea when what you are doing is so arcane that you cannot distill it for the understanding for the average person with a functional level of intelligence. After all Richard Feynman wrote Six Easy Pieces and Stephen Hawking wrote A Brief History of Time. Millions of regular people around the world read these books and got a good sense of what was being talked about. Surely, it cannot be any harder to describe to a layperson what exactly a quant does.

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