Tuesday, March 11, 2008

Reblog: Exposing Michael Lewis

reblogged from Paul Kedrosky's blog:

Falken Blog exposes Michael Lewis.

I thought this was an interesting point. I love Michael Lewis and think Moneyball is an incredibly important book, and it just happens to be written about baseball players. However, if you've taken a few finance classes, at least Professor Petersen's at Kellogg, you quickly learn that Black Scholes is an option valuation framework that works well in a perfect world. We don't live in a perfect world so it's foolish to depend too much on it.

My guess is that people in finance take risks and when those risks backfire, they look to blame a framework rather than their own judgment.