EconTalk Emanuel Derman on Theories, Models, and Science
Mar 12, 2012
Emanuel Derman, a Columbia University professor and author who transitioned from physics to finance, shares his insights on the nature of truth in the sciences versus finance. He critiques traditional economic models, highlighting their limitations in capturing market complexities, especially during crises. The discussion also touches on the relationship between theories and models, emphasizing their distinct roles. Derman offers valuable career advice for aspiring quants, urging a balance between theoretical knowledge and the unpredictable nature of the finance world.
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From Physics Postdocs To Wall Street
- Emanuel Derman left academic physics after repeated short postdocs and a tenure-track move that strained family life.
- He transitioned into industry roles (Bell Labs) before moving to Wall Street in 1985 seeking stability and applied work.
Goldman's Culture Shift After Going Public
- Derman described cultural shifts at Goldman as it grew and went public, becoming less congenial and more secretive.
- He attributed earlier partnership culture to locked-in partner capital that suppressed sociopathic behavior.
Models Are Metaphors, Theories Describe Reality
- Derman distinguishes theories as attempts to describe how the world really is and models as metaphors mapping unknowns to known analogies.
- Models provide intuition via limited analogies but are not literal descriptions like scientific theories.
