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It's the algorithm, stupid

Tom Feilden | 11:31 UK time, Wednesday, 15 April 2009

Could maths - or rather the lack of it - turn out to lie at the root of problems like the credit crunch, telecommunications bottlenecks, and even climate change?

That's the logic behind the launch of an £8m partnership that aims to solve the massive numerical problems posed by the latest advances in science, medicine and engineering.

The new centre - The Numerical Algorithms and Intelligent Software Centre, or NAIS - is the brainchild of scientists at Edinburgh, Strathclyde and Heriot-Watt Universities. It will develop the supercomputing skills and complex mathematical algorithms needed to make sense of the vast amounts of data produced in climate models or on financial markets.

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Better modelling of the risks they were running could have helped city traders avoid some of the worst pitfalls of the credit crunch, according to Professor Andrew Cairns at Heriot-Watt University.

Although he does concede the real problem was that bankers didn't fully understand the mathematical and computer models they were using on the trading floor.

Perhaps a more comprehensive grasp of the basics, a course in mathematics 101, would be a better bet for safeguarding the city's future.

Comments

  • Comment number 1.

    Oh no! Give 'em a mathematical model and they'll follow it blindly, just like Sat navs!
    It'll be "The computer said yes" the next time things go base over apex
    There's NO substitute for good judgement!

  • Comment number 2.

    gordon10 - you've misunderstood the article, they already use mathematical models and have done for years, the point is they don't understand the models... the article is suggesting that they receive training so that they do understand.

    Also, saying that there is no substitute for good judgement is a bit of a non-sequitur... being 'good' judgement and all.

  • Comment number 3.

    I think that's the paradox - what "they" need is better models at the same time as learing to rely on them less. At the end of the day, there's no substitute for reality.

  • Comment number 4.

    Have a look at Nassim Nicholas Taleb's 'Black Swan'. The guy is an experienced trader and is damning about mathematical modelling of risk, and traders who use such models. He is especially damning of economists such as Merton and Scholes, whose models both won them Nobel Prizes and destroyed their company Long Term Capital Management.

    Teach people the fundamentals of running successful companies, and of choosing on this basis which companies to invest in. Sack the risk analysts, and severely restrict trading in derivatives. With respect to Professor Cairns, nobody will ever know how to model business risks. Taleb's book can tell you why this is so.

  • Comment number 5.

    I tell my students to read John Allen Paulos's
    book `innumeracy - Mathematical Illiteracy and Its Consequences'. This book should be recommended reading in schools. Money isn't the root of all evil...innumeracy is!

    Declan Groves
    Leeds

  • Comment number 6.

    The problem with the bankers was not that they didn't "understand the models" it's that they didn't care, and wanted to make short-term profits while the bubble was still hot. "Oh I know this can't last forever, but I might as well capitalize while it does last!"

  • Comment number 7.

    Bionic-Badger is right. Once it collapsed I would say the same thing. "Oh, I didn't understand it correctly."
    It's not the math that's the problem, it's the lack of morals and greed that should be looked at.

 

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