This is an outline of the book:
Models.Behaving.Badly
Chapter 1. A Foolish Consistency A personal account of my experiences with models that failed.
Models that failed * Capitalism and the Great Financial Crisis * Divining the future: models, theories, and intuition * Time causes desire * Disappointment is inevitable * To be disappointed requires time, desire and a model * Living under apartheid * Growing up in "The Movement" * Tat Tvam Asi Chapter 2. Metaphors, Models and TheoriesThe various ways we have of understanding the world and predicting its future. Theories tell you what something is. Models tell you merely what something is like. Intuition is a merging of the understander and the understood.
* Language is a tower of metaphors * The hole in the Dirac sea * Metaphors become real: the discovery of the positron * Absence is a presence * Analytic continuation * Every fact is a theory * Building a model airplane * Why is a model a model? * Why is a theory a theory? * A puzzling case of monocular diplopia * Making the unconscious conscious again
Chapter 3. The AbsoluteAn illustration of a theory: Spinoza's Theory of the Emotions
* The Tetragrammaton * The Name of the Name of the Name * The Irreducible Nonmetaphor * Spinoza's Theory of the Emotions * Fiat Money * How to Live in the Realm of the PassionsChapter 4. The SublimeElectromagnetism, a perfect theory. The role of intuition.
* The Birds of the Air * The Best Theory in the World * No Logical Path to It
* Electricity and Magnetism * Their Qualities * Their Quantitative Laws * Ampère's Sympathetic Understanding of the Phenomena * Faraday's Imaginary Lines of Force * Maxwell's Factual Field * The Beasts of the FieldThe ultimate goal would be: to grasp that everything in the realm of fact is already theory.
Goethe,Maxims and Reflections
- Part III. Models Behaving Badly
Chapter 5. The InadequateThe efficient market model: a model and an analogy but NOT a valid theory.
* Financial models are not the physics of markets * In finance, uncertainty is everywhere * The difference between uncertainty and risk * The Efficient Market Model * The relation between risk and return * Risk is like pleasure * The Black-Scholes Model * CAPM * Alpha and beta * Why the Efficient Market Model fails * The unbearable futility of modelingThere is nothing so terrible as activity without insight.
Goethe,Maxims and Reflections
Chapter 6. Breaking The CycleHow to cope with the inadequacies of models, via ethics and pragmatism.
* The Perfect Cage * The Mysteries of the World * Models That Failed * How to use financial models * Beware of Idolatry * The Financial Modelers' Manifesto * Markets and Morals * Tat Tvam Asi
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