Forecasting Lessons from the Financial Meltdown

After the financial markets melted down, some of the blame was attributed to the models and computer systems that had been put in place by so-called “quants” or math whizzes, who had developed very sophisticated mathematical models to make trading decisions. While the systems did not trigger the meltdown, they certainly set the markets into a more rapid tailspin. What did they do wrong, and what can forecasters, who are also “quants,” learn from the meltdown? First and foremost they should take and live by a modified Modeler’s Hippocratic Oath that was developers by two financial quants. LARRY LAPIDE | Dr. Lapide is a Research Affiliate at MIT and a Lecturer at the University of Massachusetts, Boston Campus. He has extensive experience in industry, consulting, business research, and academia as well as a broad range of forecasting experiences. He was an industry forecaster for many years, has led forecasting-related consulting projects for clients across a variety of industries, and has researched as well as taught forecasting. He was also a market analyst researching forecasting and supply chain software. (This is an ongoing column in The Journal, which is intended ...