Models. Behaving. Badly.

Now in paperback, "a compelling, accessible, and provocative piece of work that forces us to question many of our assumptions" (Gillian Tett, author of Fool's Gold).Quants, physicists working on Wall Street as quantitative analysts, have been widely blamed for triggering financial crises with their complex mathematical models. Their formulas were meant to allow Wall Street to prosper without risk. But in this penetrating insider's look at the recent economic collapse, Emanuel Derman--former head quant at Goldman Sachs--explains the collision between mathematical modeling and economics and what makes financial models so dangerous. Though such models imitate the style of physics and employ the language of mathematics, theories in physics aim for a description of reality--but in finance, models can shoot only for a very limited approximation of reality. Derman uses his firsthand experience in financial theory and practice to explain the complicated tangles that have paralyzed the economy. Models.Behaving.Badly. exposes Wall Street's love affair with models, and shows us why nobody will ever be able to write a model that can encapsulate human behavior.

“"This is a thoughtful book for anyone interested in the overlap between the hard sciences and the soft sciences, from physicists to bankers. But finance academics beware, Professor Derman, with an iron fist in a velvet glove, gives them a good slapping." Paul Wilmott, co-author "Financial Modelers' Manifesto"”

"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, Ph.D., Managing & Founding Principal AQR Capital Management

Emanuel Derman is a professor at Columbia University and Director of the university's program in financial engineering. Until his retirement in 2002, he spent sixteen years at Goldman Sachs as a quant.

"This concise and elegantly written book examines how chiefs develop and maintain political power in prestate complex societies, or what anthropologists commonly refer to as chiefdoms. . . . [It] is path-breaking in its sophisticated dissection of the relationship between ideology and other sources of power that narrows the gap between cultural evolutionary, Marxist, symbolic, and human agency theories of complex society development."-The Annals of the American Academy of Political & Social Sciences "In the present volume, Earle weaves together variation and pattern to bring us the very best of anthropology. . . . [Earle's] latest work is a powerful synthesis of theory and data that leaves us with both a better understanding of the political economy of chiefdoms and a solid foundation for future research into critical questions about the origins and maintenance of centralized polities and systems of social control."-American Anthropologist

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