Friday, 13 February 2009

The great cultural blunder of the early 21st century.

Thought leadership in the financial innovations of the last twenty or so years has been mainly inspired by the work of practitioners in the world of highly sophisticated quantitative techniques such as astrophysics.
The unquestioned application of concepts and techniques from physics to finance – sometimes even called econophysics – will, in hindsight, be seen as one of the great cultural blunders of the early 21st century. It allowed those in possession of astounding levels of mathematical competence, almost certainly without malevolent intent, to hijack the interests of the financial elite who had control of almost limitless amounts of notion capital and who eventually became victims of their own hubris and ignorance. In other words these “Masters of the Universe”, to use the oft quoted phrase from Tom Wolfe, ignored the feelings of discomfort and dissonance that they had when they did not understand the nuances of highly complex financial instruments, but instead of erring on the side that such a situation contained high risk, they engaged in the wonderfully human trait of self deception and over-confidence in the face of uncertainty.

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