James Owen Weatherall

What runs modern Wall Street? The answer is Quants, with their high-tech mathematical models. In this sweeping talk, James Weatherall tells the story of how in the aftermath of World War II, some innovative physicists and mathematicians saw surprising connections between physics, gambling, and finance—and put them to use to become the first quants. Captivating and accessible, Weatherall reveals the forces that have shaped financial markets, while presenting a timely perspective on how to strengthen economic models and stabilize Wall Street in the process.

Mathematical models have transformed finance, often by introducing new strategies and enabling new financial products.  In some cases, however, these models have done more damage than good, making markets less stable and introducing new systemic risk.  This makes some people think we should abandon models in finance. But that's the wrong solution. Instead, we should make models better—and become more sophisticated in how we use them. In this talk, James Weatherall describes what he see as an opportunity for making market regulation and policy-making more effective by embracing the very mathematical methods that give many people pause. He outlines his plan for an Economic Manhattan Project, the goal of which would be to develop the next generation of economic and financial theory, designed to make markets stronger and more stable.

Financial markets, some say, are so complex that there's no way to tame them except with the kind of deep understanding gained from years of hands-on experience. But this argument is bogus, for two reasons. It undersells the value of models, but just as importantly, it overstates the value of our instincts. Psychological research over the last fifteen years has revealed that we are terrible at reasoning about probability and risk. Even when real money is at stake, we make systematically irrational decisions. Meanwhile, studies consistently show that expert opinions and predictions based on them do worse than even the simplest, least realistic mathematical models. In this practical talk, James Weatherall argues that it's time to abandon the cult of the expert and recognize that our only hope of understanding complex decision-making scenarios is to embrace the most sophisticated mathematical models we can come up with.

Many recognize that to understand today's biggest problems—from global warming to the global financial crisis—voters and policy-makers need a modicum of scientific knowledge. But in fact, we need more than that. We need to understand how to put scientific knowledge into context, and to use it effectively in decision-making. This requires not just scientific literacy, but also philosophical literacy.   The issue isn't whether we can build models of financial markets. We can. The important question, as James Weatherall explains in this talk, is what to make of those models and when to trust them. And this is ultimately a philosophical question—but one that lurks very close to the surface, with ramifications for policy-makers and even investors.