More on Weaknesses of Models

I read the following in the Economist;

Edmund Phelps, who won the Nobel prize for economics in 2006, is highly critical of today’s financial services.

"Risk-assessment and risk-management models were never well founded," he says. "There was a mystique to the idea that market participants knew the price to put on this or that risk.

But it is impossible to imagine that such a complex system could be understood in such detail and with such amazing correctness... the requirements for information... have gone beyond our abilities to gather it."

This is absolutely the problem I mentioned in Are the Questions Sound? and Wall Street Clowns and Their Models. Phelps could easily be describing information security models.

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Richard Bejtlich is teaching new classes in DC and Europe in 2009. Register by 1 Jan and 1 Feb, respectively, for the best rates.