Humble Pi: When Math Goes Wrong in the Real World

by Matt Parker

It would be remiss of me not to say something about the global financial crisis of 2007–8. It was kicked off by the subprime-mortgage crisis in the United States, then rapidly spread to countries all around the world. And there are some interesting bits of mathematics that fed into it. My personal favorites are collateralized-debt-obligation (CDO) financial products. A CDO groups a bunch of risky investments together on the assumption that they couldn’t possibly all go wrong. Spoiler: they all went wrong. Once CDOs could themselves contain other CDOs, a mathematical web was built that few people understood. I love my math, but, looking back at the global financial crisis as a whole, I don’t claim to understand what went wrong. If you want to look into it in greater depth, there are countless books out there dedicated to just this one topic. Or (if you’re old enough) watch the film The Big Short. I’m not going to say anything about it. Instead I’ll talk about a more interesting and concrete example of people not understanding math: company boards giving chief executive officers (CEOs), that is, the people in charge of companies, pay awards.