Newsweek issue June 8, 2009, has an article about how many math and physics geeks have turned Wall Street into their playground, become partly responsible for the financial meltdown we're in now, and how some others math geeks are trying to see through the way financial engineering has worked.What struck me right in the beginning is this analogy:
"Imagine an aeronautics engineer designing a state-of-the-art jumbo jet. In order for it to fly, the engineer has to rely on the same aerodynamics equation devised by physicists 150 years ago, which is based on Newton's second law of motion: force equals mass times acceleration. Problem is, the engineer can't reconcile his elegant design with the equation. The plane has too much mass and not enough force. But rather than tweak the design to fit the equation, imagine if the engineer does the opposite, and tweaks the equation to fit the design. The plane still looks awesome, and on paper, it flies. The engineer gets paid, the plane gets built, and soon thousands just like it are packed full of people and sent out onto runways. They fly for a while, but eventually, because of that fatal tweak, they all end up crashing."
(Revenge of the Nerd)
The article goes on to imply that it is the quant people that think they can forge chaos into equations to foretell financial happenings. Doing so, they have brought false prophecies to Wall Street and its believers essentially have brought it down.
I couldn't help but draw some similarities to our world of market research. In a similar manner, the quants often use formulaic surveys to form correlations that aren't necessarily there in real life. More often than not, I've encountered questions like "rate this" and "do you agree/disagree with that?". Even though the quants have solid methods to churn the answers people give for this kind of questions into some insights, the problem might lie not in this "churning" but all the way in the beginning: the survey questions. OK, here's another analogy: If you, a butter-making pro, are churning like hell and you don't get butter, the problem is not in your techniques, but it's in what you're churning. Can you churn, say, water into butter?
Standing in the ethnography playground, my co-workers and I have always been advocates for a holistic approach in market research. While I have much respect for quantitative methods, as least for the shear coverage of the population that we qualitative people could never dream of, I think research should start with exploring "what's going on," a part of it is testing what/when/where/who to ask and how to ask them. And we do it through careful observation in context of what's happening in the subject matter. It is qualitative exploration that identifies the cream so quantitative survey can churn it into butter.
We go deep for the quants to go broad. Together, we all will get a good picture of what we're after.
The mathematician in the article lamented about how the credit market has run, "They built these things on false assumptions without testing them, and stuffed them full of trillions of dollars. How could anyone have thought that was a good idea?" The entire article is quite captivating and relevant. Give it a good read!
1 comments: