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Models.Behaving.Badly.: Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life
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Models.Behaving.Badly.: Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life

3.32  ·  Rating Details ·  281 Ratings  ·  33 Reviews
Emanuel Derman was a quantitative analyst (Quant) at Goldman Sachs, one of the financial engineers whose mathematical models usurped traders' intuition on Wall Street. The reliance traders put on such quantitative analysis was catastrophic for the economy, setting off the series of financial crises that began to erupt in 2007 with the mortgage crisis and from which we're s ...more
Hardcover, 240 pages
Published October 25th 2011 by Free Press (first published October 13th 2011)
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Jan 25, 2015 Jani-Petri rated it did not like it
Hodpodge of autobiographical notes, pseudo-scholarly philosophy, basic physics, and simple finance. Pretty terrible I think. Why was this book written?
Dec 09, 2016 Joe rated it really liked it
I can understand why some people were disappointed with this book. It's not what I expected when I purchased it. There's a good deal of memoir, philosophy, history, and physics in the book before Derman talks about Economics and the Financial Markets. It is worth it. Derman makes the obvious case that the model is not the thing it represents (similar to how Derrida and other Deconstructionists explained that a word is a symbol for a thing, and not the thing itself). He also stresses the importan ...more
Jun 17, 2013 David rated it it was ok
This book comes across as a self-published work in that the author rambles among his favorite topics rather than delivering a cohesive story/message. No doubt an acquisitions editor would have wielded a cleaver. Perhaps the author felt that he had already covered the failures of financial modeling in his earlier book, so he felt he should only lightly touch upon 'that topic' in this book. If the author had kindly written the book that matched the title, I would have been a happy camper.

Moving be
Bob Nichols
Nov 20, 2012 Bob Nichols rated it it was ok
I read this book because I had seen a reference to a chapter on Spinoza's theory of emotions. As outlined by Derman, Spinoza's primitive sensations are desire, pain and pleasure. Desire involves all our "'strivings, impulses, appetites and volitions.'" The consequences of desire are pleasure and pain, which we evaluate as good and bad. Pleasure and pain are transitions between greater and lesser perfection, but are not states themselves. These "primitives" constitute our essence and underlie "al ...more
Keith Swenson
Overall, a good three star book. Interesting ideas, and obviously a very knowledgeable guy, but not very mainstream and so not really a "must read" book.

Chapter 1 - The most annoying chapter. I think he started with grandiose ideas for the book, and he takes us on a meandering tale of his own personal background and how he was the smartest kid on the block. I almost dropped the book at this point, but no, I am the type who has to finish every book I start. And actually, I am glad I did.

Chapter 2
Jul 31, 2014 Terry rated it it was ok
My first give away that this book would blow should have been the praise granted it by Nassim Nicholas Taleb. When describing a book as a mixture of things it probably means it's a pastiche rather than a narrative and this book had nearly no narrative. The first 140-150 pages made little cohesive sense and seemed to focus on a kind of romance Derman had with physics and specifically QED. His explanation of electrons and holes in a sea of negative energy electrons rubbed me the wrong way as even ...more
Greg Linster
Dec 27, 2012 Greg Linster rated it really liked it  ·  review of another edition
Models Behaving Badly is part memoir, part history, and part science -- Emanuel Derman does a nice job of explaining the difference between a model and a theory, and overall it's great book that I highly recommend reading.

Derman points out that financial models use the mathematics and style of physics; however, they are fundamentally different from the models used in the physical sciences. Financial models, even at their best, provide a gross oversimplification of reality.

In his "Financial Model
Eugene Kernes
Jul 11, 2016 Eugene Kernes rated it it was amazing  ·  review of another edition
Shelves: decision-making
The difference between theory and models are vast. Theory expounds an idea that is or is close to exact reality. Models tries to mimic reality but being like reality in not reality. Theories are unconditional, reactions that happen no matter the environment. Models are conditional based on circumstances. If a theory is good, it becomes fact which is why all facts are already theories. Confusing theory and models creates problems in reality and make it harder to learn from them. The author has gr ...more
Jul 27, 2012 Ilya rated it it was ok
Shelves: economics
As he tells in his book My Life as a Quant, Derman is an elementary particle physicist turned quantitative financial analyst. He wrote a short book to distinguish between theories and models. Physics has theories, which describe the nature of the universe, and apply beyond the domains in which they were formulated, as Maxwell's theory of electricity and magnetism turned out to also apply to light. Finance has models, which describe humans behaving in a particular way under certain circumstances, ...more
Kevin Hollins
Jan 22, 2012 Kevin Hollins rated it it was ok
I enjoyed Derman's first book, but this Models.Behaving.Badly. was not what I had expected. My expectation (which may have not been justified) was that the book would delve into financial models, VaR, etc. and break down the errors in the assumptions (Gaussian distributions, for example) that cause the models to misbehave in abnormal market environments. This was not that book. It felt like the subject matter wandered around in a somewhat indulgent way. It's a shame because Dr Derman has conside ...more
Jan 29, 2012 Benjamin rated it it was amazing
Awesome book. Took me three sittings to get through it, I hate Spinoza but his philosophy was a great addition to this book to clear up some fundamental distinctions between what we do in science and what the wackjobs in economics do when they "model."
This book is a perfect addition to N.N. Taleb's "Black Swan" and a perfect rejoinder to these silly bankers who can't model their way out of a darkened room and who are constantly proclaiming that what they do is good for themselves and (LOL) even
Dec 01, 2011 Katie added it
Shelves: first-reads
I won this book through Goodreads First Reads giveaways. This book has a fascinating concept and has a real potential to shed some light on the use of faulty economic models in our economy. However, the author gets hung up sometimes on explaining the models in a way which is not overly accessable or interesting to the average reader, making it difficult to get through. A book with interesting ideas and good potential, but sometimes it gets hung up on technical details.
Mike Ratner
Jan 30, 2012 Mike Ratner rated it really liked it
One third autobiography, one third philosophical essay and one third a treatise on the nature of financial markets, this books defies expectations. It is full of insights, some on the surface and some buried in what is perhaps an unnecessarily complex and meandering landscape of ideas. A type of book you need to go back to and re-read, perhaps several times, in order to feel like you comprehend it.
Dec 26, 2011 Tucker rated it liked it  ·  review of another edition
I wanted to like this book more than I did. I was hoping for a long discussion of the authors experiences with the various financial models he worked with on Wall Street (and their limitations). Instead I got a lot of philosophy and light-weight physics (in fairness to him, I had just finished a Brian Greene book, so pretty much anything would have looked lightweight), and only about 50 pages of financial models. Those 50 pages were good, but I wanted 200 pages of it, not just 50.
Jan 17, 2014 Kris rated it really liked it
Shelves: non-fiction
"No model is correct, but models can provide immensely helpful ways to estimate value. I like to think of financial models as gedankenexperiments, like those Einstein carried out when he pictured himself surfing a light wave, or Schrodinger when he pictured a macroscopic cat subject to quantum interference. I believe that's the right way to use mathematical models in finance, and the way experienced practitioners do use them."
Nick Klagge
Nov 25, 2012 Nick Klagge rated it it was ok
Shelves: economics
I had somewhat high hopes for this book, but was pretty disappointed. Derman is all over the map, and makes a lot of superficial connections between things that don't really seem connected. It seemed to me more like he wanted to write a book than like he had a great idea that he decided to write a book about. I have his "Modeler's Hippocratic Oath" tacked up at my desk at work, but I'm afraid this book didn't do much to add to those few sentences.
Sep 25, 2012 Nilesh rated it liked it
A book where only the last third is interesting. The author tries to connect to philosophy to models and that is what indeed expected and wanted but he ends up spending too much time there. Two thirds of the book devoted to philosophy is too much. Ultimately that part becomes uninteresting and boring leading to disillusionment. it also makes one wonder "What did i learn ?"
May 03, 2012 Victor rated it did not like it
La verdad es que el libro me ha decepcionado bastante, se pasa el 40% del libro hablando que nada tienen que ver con los modelos, por ejemplo, el judaismo. Hace una comparación entre los modelos en la física y en las finanzas, explicando las diferencias... el problema es que para trasmitir la idea del libro hubieran bastado 15 páginas, y no un libro entero, el resto es puro relleno.
Katherine Collins
May 05, 2014 Katherine Collins rated it it was amazing
Shelves: science-data
I first saw Professor Derman present at the Grant’s conference in New York. That was my first introduction to his work, and I like his mindset – he’s not dismissive of models’ usefulness, but rather conscious of their limitations. In addition, Derman has a refreshing liberal arts sort of approach to modeling that makes his commentary accessible even to the non-quant.
Neil Rempel
Feb 10, 2016 Neil Rempel rated it really liked it  ·  review of another edition
"When models in physics fail, they fail precisely, and often expose a paradox that opens a door. When models in the social sciences fail, they fail bluntly, with no hint as to what went wrong and no clue as to what to do next. With no way forward, people try to restore the status quo at any cost.

- page 192
Dimitri Bianco
Jan 01, 2015 Dimitri Bianco rated it it was amazing  ·  review of another edition
Amazing book and a must read for modelers. Emanuel takes the time to lay the understanding of theory and models and concludes with issues in the financial markets. His conclusion that the West supports capitalism only in good times while it abandons capitalism for quick fixes in bad times is remarkably accurate.
Jan 16, 2012 Steve rated it it was ok
There are nuggets of brilliance in this book, and I agree with the author's thesis. The passages relevant to the author's argument were too few, as quoted Goethe and Spinoza as much as compose his own work.
Theodore Kinni
Jan 18, 2016 Theodore Kinni rated it it was ok
Shelves: owned
A real slog: too much personal content, too many digressions, and a ponderous writing style get in the way of what should have been an enlightening read about the downside of modeling.
Jul 03, 2015 Song rated it it was ok
Dec 28, 2011 Smh624 rated it it was ok  ·  review of another edition
Very disappointing. Some interesting insights in the first half of the book. The second half is shockingly simplistic and obvious.
May 08, 2014 Luke rated it liked it
If you just want to know about models in the financial world like me. Read only page 140 onwards. Ignore the rest.
Kim Mathew
Jul 11, 2014 Kim Mathew rated it really liked it
have to be a bit of a geek to like...i guess i am a geek
Chris Sarda
May 28, 2012 Chris Sarda rated it it was amazing
Great book. Very even handed about the financial crisis and a way to understand the math and ideas behind economic modeling and the people behind them.
Peter Tillman
Jul 06, 2016 Peter Tillman rated it did not like it  ·  review of another edition
Recommended to Peter by: Burton Malkeil WSJ
Shelves: did-not-finish
Bad book. Sounds good, got good reviews -- but see the 1 & 2* reviews at Amazon, such as "very shallow comments about economic and financial models." Avoid, avoid.
Jason Green
Dec 27, 2014 Jason Green rated it did not like it  ·  review of another edition
Do yourself a favor and skip to page 139.
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“Cruelty links all three primitives [pleasure, pain, and desire]: Spinoza defines it as the desire to inflict pain on someone we love or pity. Financial speaking, cruelty is analogous to a convertible bond whose debt and equity depend on three economic underliers: the stock price, the level of interest rates, and the credit worthiness of the company's debt.” 0 likes
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