Computer models? I am still amazed at the quasi-religious worship accorded these things. I used to build computer models, back when I was an analyst. Even the best models rely on dubious assumptions that put the conclusions at risk. All financial models are basically contraptions put together with Airfix and balsa wood. Would you fly to Peru in a plane built by a hobbyist? That's what you're doing when you invest based on a "model."To which I would add, I knew the modelers who built the risk systems for bank trading desks before the crisis. I worked with them at two different, industry-leading software companies. Modeling is an artful collection of shortcuts designed to save you doing real work.
Closer to home, Arends comments on "experts." God, we love them in ACW, in a fully religious way:
The experts? What suckers most people are for letters after the name, technical jargon and all that jazz. Two thirds of finance [and ACW history - DR] is a snow job. Montier, an expert in behavioral finance, cites some fascinating experiments that psychologists have done to show just how we are wired for this. MRI scans have found that listening to expert advice can actually override the independent judgment parts of our brain. They've done studies where they found people were willing to take stupid bets just because an expert told them it was okay.I think ACW readers are in better shape with regard to modeling mania and expert-worshipping compared with the general public, but we still have a way to go to become more critical of what we consume and recommend.
