Humble Pi: When Math Goes Wrong in the Real World

by Matt Parker

What counts as a mistake in finance? Of course, there are the obvious ones, where people simply get the numbers wrong. On December 8, 2005, the Japanese investment firm Mizuho Securities sent an order to the Tokyo Stock Exchange to sell a single share in the company J-COM Co., Ltd. for ¥610,000 (around $5,100 at the time). Well, they thought they were selling 1 share for ¥610,000 but the person typing in the order accidentally swapped the numbers and put in an order to sell 610,000 shares for ¥1 each. They frantically tried to cancel it, but the Tokyo Stock Exchange was proving resistant. Other firms were snapping up the discount shares and, by the time trading was suspended the following day, Mizuho Securities was looking at a minimum of ¥27 billion in losses (well over $200 million at the time). It was described as a “fat-fingers error.” I would have gone with something more like “distracted fingers” or “‘should learn to double-check all important data entry but is probably now fired anyway’ fingers.” The wake of the error was wide-reaching: confidence dropped in the Tokyo Stock Exchange as a whole, and the Nikkei Index fell 1.95 percent in one day. Some, but not all, of the firms that bought the discount shares offered to give them back. A later ruling by the Tokyo District Court put some of the blame on the Tokyo Stock Exchange because their system did not allow Mizuho to cancel the erroneous order. This only serves to confirm my theory that everything is better with a...