I think we all know what has been going on in the finance markets of late without having to go into it. There is more than enough evidence to suggest bankers were too heavily reliant on financial modeling in helping them price fairly complex instruments across various asset classes. According to sensible geeks banks continued to follow these models even when it was obvious there were red lights going off everywhere in terms of pricing and valuation.
I worked as a trader for a while and saw my fair share of models used either for trading or valuation purposes. Trading models were basically useless as they were essentially trend following in various degrees. They made money when the trend was in full swing, but they gave all the money away when there was no trend. Valuation models to assess risk across markets arriving at a firm wide risk envelope were not only silly, they were actually quite dangerous.
Why then are we relying on models to predict climate change and adjust our way of life as a result? Are they more accurate than financial models in figuring the impact of GHG’s in climate for a period of 100 years? The IPCC has handed out confidence levels of 90% as a result of models suggesting global temps will rise around 2 degrees over the next 100 years.
I highly recommend reading the link that shows just how human minds can close down as a result of group think. I’m seeing speculative evidence this is also happening to climate scientists that mostly rely on models to make climate predictions.
We live in interesting times.