lukeprog comments on Rationality Quotes September 2012 - Less Wrong

7 Post author: Jayson_Virissimo 03 September 2012 05:18AM

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Comment author: lukeprog 09 September 2012 11:47:06PM 14 points [-]

...the 2008 financial crisis showed that some [mathematical finance] models were flawed. But those flaws were based on flawed assumptions about the distribution of price changes... Nassim Taleb, a popular author and critic of the financial industry, points out many such flaws but does not include the use of Monte Carlo simulations among them. He himself is a strong proponent of these simulations. Monte Carlo simulations are simply the way we do the math with uncertain quantities. Abandoning Monte Carlos because of the failures of the financial markets makes as much sense as giving up on addition and subtraction because of the failure of accounting at Enron or AIG’s overexposure in credit default swaps.

Douglas Hubbard, How to Measure Anything