K, in the financial markets, there are rocket science types (many of them ex-mathematicians/ physicists) who came up with Black-Scholes options pricing models amongst a host of other derivatives models (including in the CDO space that exacerbated the subprime crisis). For the longest time, they'll have you believe their models are infallible. Sooner or later, one finds pitfalls. What they do next is come up with patchwork solutions. You get to a point where the model itself is internally inconsistent. Sure enough, traders still use them for lack of anything better. But one learns not to rely on them too much when they are in conflict with our smell-test instincts. That's where i am coming from, an occasional disregard for commonly accepted wisdom...
another thing- if these guys were so good at understanding or navigating the real world markets through their models, you'd have them running hedge funds or companies like goldman sachs. Other than a few who've managed to get there, most are just relegated to their cubicles developing models that the MBA types whet. If value is where the money is, it's clear who knows more about the markets, and it's definitely not the ex-mathematicians/ physicists. Heck, the theoreticians will even tell you that everything has rational expectations built in and their are no arbitrage possibilities. But if that were true, we'd not have an entire industry of traders who think they can spot such opportunities... and often do.
sorry for the digression but i thought it was important to provide context to what i was saying elsewhere...
Edited by BirdieNumNum - 11 years ago
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