WE KNOW LESS THAN COMPUTER MODELS SAY WE DO.

WE KNOW LESS THAN COMPUTER MODELS SAY WE DO. My post earlier this week on findings by John Ioannidis that a sizable percentage of published scientific studies are later invalidated is important for understanding the current financial crisis. Studies based on computer models have a higher rate of invalidation than other studies. And people tend to overrate the accuracy of computer models. Any computer model is necessarily simplified. If it includes 500 variables, it still leaves all the others out. For example, the Long-Term Capital Management models in 1998 apparently assumed that liquid markets would continue to exist.