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Tuesday, May 13, 2008 --- 53 days ago http://seekingalpha.com/article/76926-the-siren-s-song-of-numbers?source=feed
| Todd Kenyon submits:
The world of finance is built upon a foundation of complex formulas,
dense spreadsheets, and super computers churning complex algorithms
24/7. Yet it became painfully clear over the past 9 months that this
foundation is unsound at best. With all these rocket scientists (yes
many are in fact real rocket scientists) wielding massive computing
power, how can such a thing possibly happen?
Here's how: pseudoscience, seductive details, and garbage in = garbage out.Societe
Generale's strategist, James Montier, recently published a fascinating
paper on this topic entitled "Pseudoscience and finance: the tyranny of
numbers and the fallacy of safety". In it he points out that most of us
are easily fooled by anything that sounds even vaguely scientific.
People are easily distracted by "seductive details". Anything that
sounds complex or scientific becomes instantly more believable. He
concludes, and I agree, that the scarcest commodity in this world is
not in fact oil, copper or corn, but critical thinking and skepticism. Mr.
Montier points to a variety of experiments which demonstrated that test
subjects thought that explanations were better if they contained
scientific information, even if it was meaningless. In other
experiments, subjects had difficulty recalling important information if
passages they read contained interesting, but irrelevant information.
The "seductive details" apparently captured the subjects' at ... |
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