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Posts Tagged ‘Wall Street’

A quantitative biologist clueless about quants nonetheless muses about them

In Finance and business on May 14, 2009 at 12:41 am

An obligatory link to an article about quants, now the dust has settled a bit: Recipe for Disaster: The Formula That Killed Wall Street, in ways of a delayed follow-up to Sarah’s previous post.

Also, a slight update, and a past opinion piece.

And finally, another word from Wired The Plight of the Quants.

This phenomenon was something I was vaguely aware of—the serious study of economics is mathematics-heavy, and mathematics is a wonderfully translatable tool, so the fact that Wall Street started recruiting physicists and mathematicians doesn’t seem surprising, at least to an outsider. However, how does their skill set differ from that of pure mathematicians on one end and economists on the other? I’ve occasioned glances into the conceptual rifts between physicists and mathematicians (when Bill Bialek was lecturing for Integrated in my freshman year, he would often apologetically, but bemusedly, point out that particular approximations are anathema to purists—this turned out to be a recurrent theme throughout the first two years of Integrated).

This brings me to a second personal observation, and that is the parallel between quants’ emergent influence and the movement of physicists to biology in the last half century. Our biology departments (all two of them) are filled with those who want to use quantitative methods to study problems, whether it’s because they allow you to zoom in on areas of interest instead of searching an entire space, attach probabilities to certain models and hypotheses, generalize specific problems so that you can see a continuum of similar problems, predict outcomes., etc. Why was it that they wanted to study biological problems? Is it because life poses a different kind of challenge, just as unexplored and mysterious as our universe at large, and tickles their fancy for problems with deep-reaching consequences? Because living organisms are able to turn normal physical laws and properties on their head, rendering them seemingly paradoxical and unrecognizable, and therefore begging explanation? Because people gradually began to realize that biological problems can be described by the same differential equations that describe other physical phenomena? I say these things partially to poke fun at empty dreamers, partially because I suspect people are much more whimsical in their career choices than I expect them to be, and partially because, in all honesty, there is something to be said about choices that people often claim were random and whimsical. There were probably plenty of objective reasons behind biologists’ realization that they needed to turn to a different toolbox, but I wonder more about the psychology of those that were involved in the paradigm shift.

When I was at UPenn over the summer, I heard about a few string theorists (including the professor I worked for) who had turned 180° and started working on information theory in biological systems. This is entirely different from the streamlined university educations that we have today that try (with certain success) to churn out individuals who have quantitative biological backgrounds, and start work on biological problems from the get-go. These programs attract a different kind of people, so I wonder how quantitative biology’s culture will change in 10 years, if at all.

The interesting discrepancy between physicists’ induction into biology and the article’s description of quants’ role in financial institutions is strange to someone who’s so familiar with the day-to-day physics envy that pervades the natural sciences (I’m a molecular biology major), even if it is often self-referential and invoked humorously. Much of the anger directed at quants by traders, businesspeople, etc. just seems to be part of the economic blame game, rather than some existing historical rivalry, and the public’s anger is sure as hell one of those “Let’s torch the unknown” kind of gig. I’m sure that if the economy were doing fine, no one would even hear about quants, who would anonymously continue their financial research. It was pointed out by one of the interviewees in the primary Wired article that science isn’t about making money (nor is it about never making mistakes)—there is a pretty big difference between people who go into financial engineering from the get-go, and people who end up there because they liked math and ended up in applications.

And even then, being a college student, you see where adults get their start and you can manage to be a bit more forgiving. Sure, it makes you wonder how many random (and sometimes anguished) decisions ended up shaping our lives irreversibly (I’m reminded of a friend who swung over to English from astrophysics). It also reminds you of how immature people start out in a field, and then proceed to grow up, becoming empathetic and worldly—but stay with the occupation from a previous life’s choice. And yes, I am making the generous assumption that most people grow up. My point is that many people like making money, and it makes me feel uncomfortable when people who have been making an honest living have had their careers ridiculed and scorned by other questionably self-righteous adults just because they were unfortunate enough to be stuck in the 21st century with greedy management obsessed with short-term goals. I mean, how do you ever pinpoint the source of the problem? It’s easy to paint in broad strokes and act as if the cause was conveniently captured by a particular group of people in particular window in time. If there’s anything good that has come out of this at Princeton, it’s the heightened interest in charity work and taking time off before settling down with a job (according to a survey of the student body conducted by the student government, results available here). I don’t think it’s particularly great that all the future problem-solvers are scared, because it’s going to be difficult to solve an economic problem if all the young people are running in the opposite direction (if Wall Street is even interested in hiring anyone these days), but at the same time, forcing goal-oriented people to slow down and grow up a little more before taking on a full-time life commitment is not a bad thing at all.