After the economic meltdown of 2008, Warren Buffett famously warned, 'Beware of geeks bearing formulas.' But as James Weatherall demonstrates, not all geeks are created equal. Taking us from fin-de-siècle Paris to Rat Pack-era Las Vegas, from wartime government labs to Yippie communes on the Pacific coast, Weatherall shows how a special breed of physicists successfully brought their science to bear on some of the thorniest problems in economics.
While the crisis was partly a failure of mathematical modelling, it was even more, a failure of some financial institutions to think like physicists. Models — whether in science or finance — have limitations; they break down under certain conditions. And in 2008, sophisticated models fell into the hands of people who didn't understand their purpose, and didn't care. It was a catastrophic misuse of science.
The solution, however, is not to give up on models; it's to make them better. Weatherall reveals the people and ideas on the cusp of a new era in finance. We see a geophysicist predict a massive stock-market crash by using a model designed for earthquakes. We learn about a physicist-run hedge fund that earned 2478.6% over the course of the 1990s. And we discover how an obscure idea from quantum theory might soon be used to create a far more accurate consumer price index.
