# Opinion 32: Mathematicians, and Math, Should Not
Be Blamed for the Debacle of the Hedge Funds

## By Doron Zeilberger

Written: Nov. 13, 1998

I could not have helped feeling a little gleeful at the
recent debacle of the hedge funds, and a little annoyed
at the government for the bailout, that shows that
the status of people in our society is proportional not to
their monetary worth, but rather to its absolute value.

A year or so ago, it was a triumph to math.
Myron Scholes and Robert C. Merton won an Economics Nobel
prize for co-discovering and further applying, respectively,
the famous Black-Scholes formula. Mathematicians
felt very proud that the rarefied field of stochastic
differential equations, and the Ito calculus, could be
used so effectively in Wall Street.

Then came the downfall. Is that an embarrassment to math?
Not at all. The only
mathematician in the story, who probably did AT LEAST
HALF of the work,
Fischer Black, died
a few years ago, making him ineligible to win the Nobel prize.
Even though one can never be sure, I am inclined to believe
that he would not have shared the disgrace of Merton and
Scholes who became investors, and abused their reputation,
and apparently did some old-fashioned gambling, without checking,
like a good mathematician would, that all the assumptions of
the theorem are satisfied, before drawing conclusions.

Which is hardy surprising! Neither Merton nor Scholes are
mathematicians! They are economists who are good at math.
When the Nobel committee tried to reach Scholes to inform
him about the big news, he could not be reached, since he
was out of town, playing golf. Have you ever met a
SERIOUS mathematician who plays golf?

The Black-Scholes formula started a whole new cottage
industry of `rocket scientists', who were hired by
Wall Street to implement the formula. HOWEVER,
Very Few Mathematicians were hired! They were considered
too slow, cautions and pedantic. Instead, hundreds of theoretical
physicists, who do not have any scruples using approximations
without rigorous error bounds, were preferred.

So there, Wall Street! you hired physicists, because they could come
up with a quick-and-dirty approximations in Real Time, so
that you can get rich fast. And see what happened? But,
of course you don't care, Uncle Sam would always bail you out
since he wants to avoid a crash. So, after all you are safe.

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