More Science See Inside A Formula for Economic Calamity Despite the lessons of the 2008 collapse, Wall Street is betting our future on flimsy science By David H. Freedman Illustration by Kyle Bean The market crash of 2008 that plunged the world into the economic recession from which it is still reeling had many causes. One of them was mathematics. Financial investment firms had developed such complex ways of investing their clients’ money that they came to rely on arcane formulas to judge the risks they were taking on. Yet as we learned so painfully three years ago, those formulas, or models, are only pale reflections of the real world, and sometimes they can be woefully misleading. The financial world is not alone, of course, in depending on mathematical models that aren’t always reliable for decision-making guidance. Scientists struggle with models in many fields—including climate science, coastal erosion and nuclear safety—in which the phenomena they describe are very complex, or information is hard to come by, or, as is the case with financial models, both. But in no area of human activity is so much faith placed in such flimsy science as finance. This is only a preview. Get the rest of this article now! Select an option below: Buy Digital Issue Customer Sign In *You must have purchased this issue or have a qualifying subscription to access this content It has been identified that the institution you are trying to access this article from has institutional site license access to Scientific American on nature.com. Click here to access this article in its entirety through site license access. ADVERTISEMENT Scientific American is a trademark of Scientific American, Inc., used with permission © 2013 Scientific American, a Division of Nature America, Inc. All Rights Reserved.