Paul Wilmott and Emanuel Derman, in an article in Business Week a couple of years back (at the height of the financial crisis) came up with a model-makers oath. It goes:
• I will remember that I didn’t make the world and that it doesn’t satisfy my equations.
• Though I will use models boldly to estimate value, I will not be overly impressed by mathematics.
• I will never sacrifice reality for elegance without explaining why I have done so. Nor will I give the people who use my model false comfort about its accuracy. Instead, I will make explicit its assumptions and oversights.
• I understand that my work may have enormous effects on society and the economy, many of them beyond my comprehension.
While I like this, and try to abide by it, I want to add another point to the oath:
As a quant, it is part of my responsibility that my fellow-quants don’t misuse quantitative models in finance and bring disrepute to my profession. It is my responsibility that I’ll put in my best efforts to be on the lookout for deviant behavour on the part of other quants, and try my best to ensure that they too adhere to these principles.
Go read the full article in the link above (by Wilmott and Derman). It’s a great read. And coming back to the additional point I’ve suggested here, I’m not sure I’ve drafted it concisely enough. Help in editing and making it more concise and precise is welcome.
Interestingly, Nassim Taleb has a new book titled ‘The Bed of Procrustes’. It takes its title from Greek mythology: the story of a man who made his visitors fit his bed to perfection by either stretching them or cutting their limbs. It represents Taleb’s view of modern civilization’s hubristic side effects—modifying humans to satisfy technology, blaming reality for not fitting economic models, inventing diseases to sell drugs, defining intelligence as what can be tested in a classroom, and convincing people that employment is not slavery.
Clearly, this is what ails the quant community. Finding exotic models to suit unrealistic scenarios that have no place in reality. In reality, reality cannot effectively modeled by mathematics (However, he paradoxically says his next book will focus on that!).
I think quants are unfairly blamed, (ususally because of math hatred in US society), it must be the jock type managers who should be blamed for misusing the models. Di*K swagging type people who act overly confident because they think they are masters of the universe are the one who needs to be blamed. Anyone who has a decent hold of mathematics will tend to be naturally humble
The last statement is not necessarily true! I personally know a dozen Ivy league math profs here who ‘have a decent hold of mathematics’ but not an iota of humility.
Nassim Taleb says ‘Everything is good in moderation; but we do not know what is moderation’.