“The Physics of Wall Street,” by James Owen Weatherall
In The Physics of Wall Street, author James Owen Weatherall casts the global financial crisis as a consequence of misusing science. Weatherall, an assistant professor in the Logic and Philosophy of Science department at UC Irvine, details how sophisticated physics came to be harnessed for modeling financial data during the latter half of the 20th century and how the resulting models came to be deployed in practice by traders with little understanding of the underlying science. One takeaway from the book is that the trading community needs to devote more attention to the fragility of the models it uses. Weatherall notes that, “Making simplified assumptions can lead to the solution of a problem that you otherwise couldn’t solve–but that solution is only going to be a reliable guide to how the world works when the assumptions you’ve made are approximately true.” This notion, which may be obvious to physicists, does not necessarily translate when applied outside their domain.