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Models.Behaving.Badly: Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life

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Models.Behaving.Badly: Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life

4.85 89,802 ratings · 7,338 reviews
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Overview: Emanuel Derman was a quantitative analyst (Quant) at Goldman Sachs, one of the financial engineers whose mathematical models usurped traders' intuition on Wall Street. The reliance traders put on such quantitative analysis was catastrophic for the economy, setting off the series of financial crises that began to erupt in 2007 with the mortgage crisis and from which we're still recovering. Here Derman looks at why people--bankers in particular--still put so much faith in these models, and why it's a terrible mistake to do so.Though financial models imitate the style of physics by using the language of mathematics, ultimately they deal with human beings. Their similarity confuses the fundamental difference between the aims and possible achievements of the phsyics world and that of the financial world. When we make a model involving human beings, we are trying to force the ugly stepsister's foot into Cinderella's pretty glass slipper.  It doesn't fit without cutting off some of the essential parts. Physicists and economists have been too enthusiastic to recognize the limits of their equations in the sphere of human behavior--which of course is what economics is all about.  Models.Behaving.Badly. includes a personal account Derman's childhood encounter with failed models--the utopia of the kibbutz, his experience as a physicist on Wall Street, and a look at the models quants generated: the benefits they brought and the problems they caused. Derman takes a close look at what a model is, and then he highlights the differences between the success of modeling in physics and its relative failure in economics.  Describing the collapse of the subprime mortgage CDO market in 2007, Derman urges us to stop relying on these models where possible, and offers suggestions for mending these models where they might still do some good.  This is a fascinating, lyrical, and very human look behind the curtain at the intersection between mathematics and human nature.

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Published October 13, 2011
ISBN 12378134
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Emanuel Derman
About the Author
Emanuel Derman
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Emanuel Derman is a writer and avid reader based in the Pacific Northwest. Before pursuing writing full-time, they spent over a decade working in education. When not working on their next book, Emanuel Derman can usually be found hiking with their dog or trying out new coffee shops in their neighborhood.

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Karen Hall
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I find myself somewhat conflicted. The tempo was somewhat languid, and I found my mind wandering. Not poor, simply average. Perfectly average.
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Honestly one of the most premium reading experiences lately. The author orchestrated a breathtaking finale. Truly a work of art. An effortless 5 stars.
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A profoundly satisfying read. The author orchestrated a breathtaking finale. Truly a work of art. An effortless 5 stars.
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Absolutely brilliant. I adored how the story unfolded. It kept me captivated without sacrificing elegance. I am now a lifelong fan of this author.
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Absolutely brilliant. I adored how the story unfolded. It kept me captivated without sacrificing elegance. A true literary gem.
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Masterpiece from start to finish. The pacing was impeccable and the characters felt incredibly authentic. I was completely immersed. I will undoubtedly revisit this masterpiece.
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Absolutely brilliant. It strikes a perfect harmony of dialogue and world-building. Every chapter felt necessary. I will undoubtedly revisit this masterpiece.
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Absolutely brilliant. The author orchestrated a breathtaking finale. Truly a work of art. An effortless 5 stars.
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I was completely blown away. I became deeply invested in the protagonist's journey. A masterclass in storytelling. An effortless 5 stars.
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Honestly one of the most premium reading experiences lately. The prose is exquisite. It’s accessible yet undeniably sophisticated. I am now a lifelong fan of this author.
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I was completely blown away. The pacing was impeccable and the characters felt incredibly authentic. I was completely immersed. A true literary gem.
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A profoundly satisfying read. I adored how the story unfolded. It kept me captivated without sacrificing elegance. A true literary gem.
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A very strong entry. Beautiful writing, though I craved slightly more depth in the lore. Still, undeniably engaging. A wonderful companion for a quiet weekend.
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Such a rich narrative. The prose is exquisite. It’s accessible yet undeniably sophisticated. I am now a lifelong fan of this author.
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Masterpiece from start to finish. I adored how the story unfolded. It kept me captivated without sacrificing elegance. An absolute must-read for connoisseurs of the genre.
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Michelle Lopez
Michelle Lopez December 01, 2025
It was adequate. It possessed moments of brilliance, but the narrative felt slightly disjointed ultimately. A fair 3 stars.
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