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March 02, 2015 at 07:00 PM
Edward Frenkel, a mathematics professor at the University of California, Berkeley, has emerged in recent years as a high-profile celebrator and explainer of mathematics. His book “Love and Math” (Basic Books, 2013) was a New York Times bestseller, which is particularly impressive considering that the book delves into such abstract topics as “the Langlands Program,” an effort to uncover hidden links among diverse branches of math.
Frenkel, who recently started a website edwardfrenkel.com, is a passionate proponent of better math education and communication. Math-centered technologies such as 3D printing are making math increasingly central to society, he emphasizes, and governments and businesses use math in many ways that affect people’s lives, for example in inflation calculations that play into public and private benefits and contracts.
The global financial crisis, Frenkel argues, was sparked in substantial part by improper use of mathematical models by financial institutions. More generally, in his view, financial professionals and clients alike have much to gain by taking a greater interest in math—and much to lose by not doing so.
I asked Frenkel to discuss some intersections of finance and math in an email interview, which appears in slightly edited form below.
Research: You wrote in “Love and Math” that “the global economic crisis was caused to a large degree by the widespread use of inadequate mathematical models in the financial markets.” Do you see signs that lessons have been learned, in how the models are constructed or used?
Edward Frenkel: Surely, people are now more aware of the dangers of misuse of mathematical models. But memories tend to fade away, so I am afraid we will go through such calamities again and again, unless major structural changes are made. One [thing] that troubles me is this extraordinary gap between those who create mathematical models (the so-called “quants”) and the decision makers. It is clear that in the past many of the decision makers didn’t fully understand those models, nor did they try to understand. I think the attitude was “as long as the models work and we make profit, we’ll be fine” rather than “let’s find out what these models are actually doing.” And that’s very dangerous: Mathematics is a powerful weapon that can be used for good and for ill.
The film “Margin Call” provides a good reference point for this phenomenon; the higher up the executives, the less they know about these models. “I don’t get any of this stuff,” they say, with defiance and pride. This creates a disaster for their firm and the financial markets. The person who sounds the alarm is the one who understands math, but his bosses don’t pay attention until it’s too late. And then, after the crash, those decision makers were blaming the “quants.” How convenient!
Are we going to learn from this lesson? Are we going to reduce this gap? There are many other urgent issues that need to be addressed, but this one is very important, in my opinion.
Are you worried about a brain drain, in which the financial sector draws mathematical talent away from other fields?
