Models. Behaving. Badly: Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life

Praise for Models.Behaving.Badly.

"Emanuel Derman has written my kind of book, an elegant combination of memoir, confession, essay on ethics, philosophy of science, and professional practice. He convincingly establishes the difference between model and theory and shows why attempts to model financial markets can never be genuinely scientific. It vindicates those of us who hold that financial modeling is neither practical nor scientific. Exceedingly readable."
—NASSIM N. TALEB, author of The Black Swan

"This is a compelling, accessible, and provocative piece of work that forces us to question many of our assumptions. As Derman explains so clearly, models are not 'bad' in themselves; on the contrary, they are crucial for modern society. However, they have been used in a dangerously sloppy and careless way, with sometimes terrible results. Derman explains this clearly and draws heavily on his own lifetime experience—ranging from growing up in apartheid South Africa to working in the scientific field and then as a financial engineer on Wall Street—to provide a moving and fascinating set of illustrations of these principles. The conclusion is unexpectedly optimistic—if people choose to listen."
—GILLIAN TETT, author of Fool's Gold

"An engaging and personal meditation on the limitations of our ability to predict the future, especially—but not only—in the context of financial markets. He is not interested in blame or politics, but in the deeper lessons to be drawn from the financial crisis. As a physicist who was also highly placed in the financial world, he explains clearly the difference between prediction and advice, theory and model, and knowledge and wisdom."
—LEE SMOLIN, senior researcher at Perimeter Institute for Theoretical Physics; author of The Trouble with Physics, The Life of the Cosmos, and Three Roads to Quantum Gravity

"If you don't want your models to behave badly, you should study carefully these words of wisdom on the philosophy of quantitative modeling. Emanuel Derman has always been one of the most respected quants on Wall Street. Now he has proven that he is also one of the most thoughtful. Though in the sequel he should tell us what happened to the large man over the Sudan!”
—CLIFFORD S. ASNESS, PhD, managing and founding principal, AQR Capital Management