Wall Street’s Math Wizards Forgot a Few Variables

September 14, 2009 | Source: New York Times

In the wake of the meltdown of 2008, researchers are now incorporating human behavior into finance, looking at whether the mechanisms and models being developed to explore collective behavior on the Web, for example, can be applied to financial markets.

The risk models of Wall Street’s quants proved myopic, they say, because they were too simple-minded — they didn’t sufficiently take into account human behavior, specifically the potential for widespread panic, say finance experts and economists.