My fake discipline comment is a direct response to the havoc wrought by attempting to place a normal distribution, which worked so nicely in insurance when dealing with things like lifespan, on top of a chaotic system like finance. Long Term Capital Management, Value at Risk, and other models from very, very smart quantitative minds who simply misunderstood the problem space and almost took down the world economy. I call that a "fake discipline".
Though - come on. Do not run into the cognitive framework where you start to compare disciplines. Viewing disciplines along ranks can start messing with you.
When I said I have read about FE and LTCM in the "Black Swan", I meant that the people working there are not complacent. The author of that book for example seems genuinely active - though might not be considered likeable. The virtue of the author's criticism to the field that he belongs, he shows the fluidity adherent to him and others within finance.
Let's compare it to an example from the automotive industry. Companies out of Detroit have been complacent, which had run into serious design troubles. They were in the business of making mediocre cars. When faced with the prospect of bankruptcy, Ford had the chance to reform before the financial crisis hit. GM and Chrysler - which was owned by Benz earlier - leadership flew to Washington to ask for unspecified amount of money. I cannot assign causality of badness in the current networked world, but the physical/manufacturing car guys seemed to be worse than LTCM. And they had the nerve to face California in court over car emission requirements. So, there are other people that have not acted with diligence to the community.
It is about people though. It is not about disciplines. It is all about people.
I don't understand. A fake discipline is a field that is complicated, important, and one where even smart people have difficulty understanding/modelling?
Is environmental engineering also a fake discipline since it's difficult to model and various disasters have resulted?
Hehe. Yes, I appreciate your clarification. That is true - especially as LTCM was full with PhDs. Though it also extends to a multitude of "empty suits" positions.
These bright minds needed to think in that structured fashion in order for them to have the world make sense to. It is an excellent point. Nevertheless, with experience and ambition judgement becomes better.
I would like to point out research in low-probability events, response to too-big-to-fail, fat tails and black swans in defense of emerging Financial Engineering and Risk Management. The best defense of it that I have ever seen was in the book "The Black Swan".
fake discipline might have been a poor choice of words. My intent was to indict a process of using quantitative skills in a manner that was supposed to "add rigor" to finance, to encapsulate and tame risk. It didn't work.
