The problem was not that the models were wrong, it was that what they were trying to accomplish was unmodelable. Nassim Nicholas-Taleb’s The Black Swan explains this far better than I can.
My reading of Taleb’s book was the opposite: he says quite explicitly that the finance models behind the crash were wrong, being based on Gaussian distributions, which did not fit the phenomena being modelled. He contrasts the Gaussian with power-law distributions, although I admit I don’t know if he has done any mathematical modelling of the finance markets using those.
I don’t know what exactly he has done, modeling-wise, but he seems to have made a hell of a lot of money during the financial collapse. Whether this is long-term better modeling than the kind he criticizes or largely due to sampling coincidences, remains to be seen.
My reading of Taleb’s book was the opposite: he says quite explicitly that the finance models behind the crash were wrong, being based on Gaussian distributions, which did not fit the phenomena being modelled. He contrasts the Gaussian with power-law distributions, although I admit I don’t know if he has done any mathematical modelling of the finance markets using those.
I don’t know what exactly he has done, modeling-wise, but he seems to have made a hell of a lot of money during the financial collapse. Whether this is long-term better modeling than the kind he criticizes or largely due to sampling coincidences, remains to be seen.