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> It really is a science. Physics is a science. Math is. Or Biology. Finance is not. Because it deals with the madness of crowds. > Recipe for Disaster: The F

by 323 4y ago

> It really is a science. Physics is a science. Math is. Or Biology. Finance is not. Because it deals with the madness of crowds. > Recipe for Disaster: The Formula That Killed Wall Street > And Li's Gaussian copula formula will go down in history as instrumental in causing the unfathomable losses that brought the world financial system to its knees. > Nassim Nicholas Taleb is particularly harsh when it comes to the copula. "People got very excited about the Gaussian copula because of its mathematical elegance, but the thing never worked," he says. "Co-association between securities is not measurable using correlation," because past history can never prepare you for that one day when everything goes south. "Anything that relies on correlation is charlatanism." https://www.wired.com/2009/02/wp-quant/ https://www.wired.com/2009/02/wp-quant/

JumpCrisscross 4y ago
> Physics is a science. Math is. Or Biology. Finance is not. Because it deals with the madness of crowds. If you follow the scientific method, it's science. If you write an observational essay, it's not. You can build theories around falsifiable, replicable experiments pertaining to the madness of crowds. The error bars are longer. But they are not infinite.
- 323 4y ago
  You are correct. But when people say "finance is science" what they usually mean is "here is the complicated math that proves you can't lose money on this, we've modeled everything". As the joke goes, 6 sigma events happen in finance every week.
  - JumpCrisscross 4y ago
    > when people say "finance is science" what they usually mean is "here is the complicated math that proves you can't lose money on this, we've modeled everything" 100% agree. When I was an algorithmic derivatives trader, we joked that the math was there to scare up investors and scare off compliance. Little did we know...
  - Ygg2 4y ago
    > we've modeled everything That's a great science joke.
  - bawolff 4y ago
    This is silly. This is like saying physics is not science because the nutjobs claiming we will recieve divine revelation by praying to "the quantum energy field" use physics-y terms in their BS.
- ipsin 4y ago
  Re: "The error bars are not infinite." I feel like they are infinite? Because, for example, in hyperinflation, there's no upper bound on how long someone is going to keep printing money. Any given instance will stop at a finite number, but you can't bank of that being the high water mark.
  - jmopp 4y ago
    Of course that can happen. But it's a low-risk event that falls outside the, say, 99% confidence interval. It's like the notion of a 100-year flood. Of course there could be a tsunami or a dam failure that completely inundates an entire city, but at some point you've got to accept a small risk and ensure you are covered for it.
  - regularfry 4y ago
    Error bars aren't limits, they're percentiles.
- j7ake 4y ago
  If you generate a process using a Cauchy distribution, you can observe finite error bars, but actually the variance of the generating process is infinite. No matter how hard you model you won’t be able to predict processes that are fundamentally unpredictable. And you would get fooled because you only observe finite amount of data. It is surprising how complicated the math gets even if you try to model very simple processes (eg think of the n-body problem and how complexity increases with every addition of a body). It is not a given that complicated models mean you’re modelling a complicated process.
- arinlen 4y ago
  > If you follow the scientific method, it's science. OP's claim was that quantitative finance was *hard science*. Requirements regarding predictability are way more stringent than merely observing stuff and seeing how it responds to an input.
  - JumpCrisscross 4y ago
    > OP's claim was that quantitative finance was hard science* These are colloquial terms [1]. We might as well argue about whether Pop Tarts are ravioli or tacos sandwiches. [1] https://en.wikipedia.org/wiki/Hard_and_soft_science https://en.wikipedia.org/wiki/Hard_and_soft_science
    - c0balt 4y ago
      What is(n't) a taco is a semi-solved problem[0]. [0]: https://cuberule.com/ https://cuberule.com/
    - arinlen 4y ago
      > These are colloquial terms [1]. Colloquial terms whose concrete meaning does not correspond to OP's claim. There is no ambiguity in this: if your models are not testable and fail to predict behavior then it's not hard science.
smugma 4y ago
Math is not science. Arithmetic and geometry were two of the original liberal arts (defined by Plato). Math doesn’t follow the scientific method. Math is a foundation for much of science and social science, but it is distinct from them.
- jmopp 4y ago
  I always tell people, Maths isn't a science. It's theoretical philosophy.
  - auggierose 4y ago
    I think it is rather the most practical philosophy there is.

by 323 4y ago

JumpCrisscross 4y ago

> Physics is a science. Math is. Or Biology. Finance is not. Because it deals with the madness of crowds. If you follow the scientific method, it's science. If you write an observational essay, it's not. You can build theories around falsifiable, replicable experiments pertaining to the madness of crowds. The error bars are longer. But they are not infinite.

323 4y ago
You are correct. But when people say "finance is science" what they usually mean is "here is the complicated math that proves you can't lose money on this, we've modeled everything". As the joke goes, 6 sigma events happen in finance every week.
- JumpCrisscross 4y ago
  > when people say "finance is science" what they usually mean is "here is the complicated math that proves you can't lose money on this, we've modeled everything" 100% agree. When I was an algorithmic derivatives trader, we joked that the math was there to scare up investors and scare off compliance. Little did we know...
- Ygg2 4y ago
  > we've modeled everything That's a great science joke.
- bawolff 4y ago
  This is silly. This is like saying physics is not science because the nutjobs claiming we will recieve divine revelation by praying to "the quantum energy field" use physics-y terms in their BS.
ipsin 4y ago
Re: "The error bars are not infinite." I feel like they are infinite? Because, for example, in hyperinflation, there's no upper bound on how long someone is going to keep printing money. Any given instance will stop at a finite number, but you can't bank of that being the high water mark.
- jmopp 4y ago
  Of course that can happen. But it's a low-risk event that falls outside the, say, 99% confidence interval. It's like the notion of a 100-year flood. Of course there could be a tsunami or a dam failure that completely inundates an entire city, but at some point you've got to accept a small risk and ensure you are covered for it.
- regularfry 4y ago
  Error bars aren't limits, they're percentiles.
j7ake 4y ago
If you generate a process using a Cauchy distribution, you can observe finite error bars, but actually the variance of the generating process is infinite. No matter how hard you model you won’t be able to predict processes that are fundamentally unpredictable. And you would get fooled because you only observe finite amount of data. It is surprising how complicated the math gets even if you try to model very simple processes (eg think of the n-body problem and how complexity increases with every addition of a body). It is not a given that complicated models mean you’re modelling a complicated process.
arinlen 4y ago
> If you follow the scientific method, it's science. OP's claim was that quantitative finance was *hard science*. Requirements regarding predictability are way more stringent than merely observing stuff and seeing how it responds to an input.
- JumpCrisscross 4y ago
  > OP's claim was that quantitative finance was hard science* These are colloquial terms [1]. We might as well argue about whether Pop Tarts are ravioli or tacos sandwiches. [1] https://en.wikipedia.org/wiki/Hard_and_soft_science https://en.wikipedia.org/wiki/Hard_and_soft_science
  - c0balt 4y ago
    What is(n't) a taco is a semi-solved problem[0]. [0]: https://cuberule.com/ https://cuberule.com/
  - arinlen 4y ago
    > These are colloquial terms [1]. Colloquial terms whose concrete meaning does not correspond to OP's claim. There is no ambiguity in this: if your models are not testable and fail to predict behavior then it's not hard science.

smugma 4y ago

Math is not science. Arithmetic and geometry were two of the original liberal arts (defined by Plato). Math doesn’t follow the scientific method. Math is a foundation for much of science and social science, but it is distinct from them.

jmopp 4y ago
I always tell people, Maths isn't a science. It's theoretical philosophy.
- auggierose 4y ago
  I think it is rather the most practical philosophy there is.