WARNING: Physics Envy May Be Hazardous To Your Wealth
Cannot access final published version online
| Main Authors: | , |
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| Other Authors: | |
| Format: | Article |
| Language: | en_US |
| Published: |
Stallion Press for the Journal of Investment Management
2011
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| Online Access: | http://hdl.handle.net/1721.1/66315 https://orcid.org/0000-0003-0245-3364 https://orcid.org/0000-0003-2944-7773 |
| _version_ | 1811094781988700160 |
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| author | Mueller, Mark Lo, Andrew W |
| author2 | Massachusetts Institute of Technology. Center for Theoretical Physics |
| author_facet | Massachusetts Institute of Technology. Center for Theoretical Physics Mueller, Mark Lo, Andrew W |
| author_sort | Mueller, Mark |
| collection | MIT |
| description | Cannot access final published version online |
| first_indexed | 2024-09-23T16:05:01Z |
| format | Article |
| id | mit-1721.1/66315 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T16:05:01Z |
| publishDate | 2011 |
| publisher | Stallion Press for the Journal of Investment Management |
| record_format | dspace |
| spelling | mit-1721.1/663152023-02-26T10:42:24Z WARNING: Physics Envy May Be Hazardous To Your Wealth Mueller, Mark Lo, Andrew W Massachusetts Institute of Technology. Center for Theoretical Physics Massachusetts Institute of Technology. Laboratory for Nuclear Science Sloan School of Management Lo, Andrew W. Lo, Andrew W. Mueller, Mark Cannot access final published version online The quantitative aspirations of economists and financial analysts have for many years been based on the belief that it should be possible to build models of economic systems—and financial markets in particular—that are as predictive as those in physics. While this perspective has led to a number of important breakthroughs in economics, “physics envy” has also created a false sense of mathematical precision in some cases. We speculate on the origins of physics envy, and then describe an alternate perspective of economic behavior based on a new taxonomy of uncertainty. We illustrate the relevance of this taxonomy with two concrete examples: the classical harmonic oscillator with some new twists that make physics look more like economics, and a quantitative equity market-neutral strategy. We conclude by offering a new interpretation of tail events, proposing an “uncertainty checklist” with which our taxonomy can be implemented, and considering the role that quants played in the current financial crisis. AlphaSimplex Group, LLC Massachusetts Institute of Technology. Laboratory for Financial Engineering 2011-10-17T20:02:09Z 2011-10-17T20:02:09Z 2010-04 2010-03 Article http://purl.org/eprint/type/JournalArticle 1545-9144 1545-9152 http://hdl.handle.net/1721.1/66315 Lo, Andrew W. and Mark T. Mueller. "WARNING: Physics Envy May Be Hazardous To Your Wealth." Journal of Investment Management, 8.2 (2010). https://orcid.org/0000-0003-0245-3364 https://orcid.org/0000-0003-2944-7773 en_US https://www.joim.com/abstract.asp?IsArticleArchived=1&ArtID=354 Journal of Investment Management Creative Commons Attribution-Noncommercial-Share Alike 3.0 http://creativecommons.org/licenses/by-nc-sa/3.0/ application/pdf Stallion Press for the Journal of Investment Management Lo |
| spellingShingle | Mueller, Mark Lo, Andrew W WARNING: Physics Envy May Be Hazardous To Your Wealth |
| title | WARNING: Physics Envy May Be Hazardous To Your Wealth |
| title_full | WARNING: Physics Envy May Be Hazardous To Your Wealth |
| title_fullStr | WARNING: Physics Envy May Be Hazardous To Your Wealth |
| title_full_unstemmed | WARNING: Physics Envy May Be Hazardous To Your Wealth |
| title_short | WARNING: Physics Envy May Be Hazardous To Your Wealth |
| title_sort | warning physics envy may be hazardous to your wealth |
| url | http://hdl.handle.net/1721.1/66315 https://orcid.org/0000-0003-0245-3364 https://orcid.org/0000-0003-2944-7773 |
| work_keys_str_mv | AT muellermark warningphysicsenvymaybehazardoustoyourwealth AT loandreww warningphysicsenvymaybehazardoustoyourwealth |