One of the casualties of the current global economic crisis is traditional finance/economic theory.
A world of electronic interaction, declining resources, increasing population and terror threat are not amenable to 19th century modeling.
In My Life as a Quant, Emanual Derman says, "...some of the same forces that compelled physicists to move out of academia made Wall Street begin to endorse them...financial markets seemed to become more volatile...the mathematics of finance closely resembles the mathematics of physics... "
In Quantum Investing, Stephen Waite says, "In coming years it will be necessary for investors to be familiar with quantum physics...complexity theory...uncertainty lies at the heart of quantum theory...expect the unexpected..Nature appears to be far messier and more unpredictable than any single mathematical equation can capture."
Adam Smith's economics (modified slightly by Keynesian perspective) is no longer relevent. Nor is portfolio theory. Only a combination of physics, complexity science and actuarial science has a chance of helping policymakers find a way out of the global economic wilderness.
Lee
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