måndag 8 juni 2009

Did Math Cause the Financial Crisis?

Did mathematicians cause the financial crisis by constructing financial instruments which nobody could understand? Maybe: See  
But admitting to not understand cuts the branch your are sitting on, if you present yourself as expert on financial analysis.  It is not an excuse of the President of the US to not understand the mathematics of going to war, for example. As responsible you have to understand, or at least you must try to understand. If you cannot understand, then you should change responsibilities.

When a financial bubble is forming, everybody wants to jump on the train, and this seems to be an unavoidable feature of capitalism, see Instability of Capitalism.

What can be learned is that understanding the possibilities and in particular the limitations of mathematical modeling, is very important in economics, engineering and all the other application areas of mathematics. If decision-makers view Mathematics as Magics, then completely wrong decisions can be made.

The moral is that a modern mathematics education can help to keep our society from collapse. But the present mathematics education does not fill this need well, because it was formed in the pre-computer era of the scientific revolution of the 18th century. Reform is needed! Now! See my blog of June 3 Change of Paradigm in Science and Engineering.

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