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RomeoStevens comments on Mathematicians and the Prevention of Recessions - Less Wrong
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There's Renaissance technologies making obscene returns consistently for decades.
According to Wikipedia, the founder advised people to invest with Bernie Madoff...
Madoff fooled Simons for 10 years. He told Stony Brook to invest in Madoff in 1991. In 2003, Renaissance decided that Madoff was a fraud and pulled out. Simons told Stony Brook to pull out, but they left in 50%.
Many people investing with Madoff thought he was a fraud, just that he was defrauding someone else (eg, frontrunning his brokerage clients). It's not clear that they pulled out because they realized he was a fraud or because they worried that Spitzer would investigate him. Their suspicions triggered a failed investigation of Madoff not because they complained to the SEC, but because when the SEC audited RenTech, it found emails discussing Madoff.
Oddly, the wikipedia article seems to be based on the first WSJ article I linked, not the Bloomberg one it cites.
Hindsight bias?
It's mild evidence against the "top level math talent will be able to identify bubbles before they burst" hypothesis, but only mild because I don't think Madoff was transparent enough to be obviously unstable in the way that the housing market was.
Considering that the wikipedia article about Madoff didn't exist until the scandal was unveiled ... probably. (I checked the Wikipedia history when I first heard about it in Dec 08, check the history for yourself. )
Yeah, it's a cheap shot. Madoff fooled a lot of people, and detecting fraud takes a different skill set.
How would we go about making it such that someone who contemplated perpetrating that sort of fraud would be very likely to conclude, "Nah, there's no way that would work; if I tried that, I'd just end up in prison like Madoff"?
Trump up the trials, studiously avoid mentioning the obvious fact that there's a bunch of people living large on top of a Ponzi scheme right now.
Hmm. I thought I mentioned Renaissance in this post, but for some reason it says Medallion, which is one of their funds. Apparently I derped earlier, fixing it now.