In Modeling Risk, the Human Factor Was Left Out

In the Business section of yesterday’s New York Times, there was an excellent article entitled “In Modeling Risk, the Human Factor Was Left Out”. Among other things, this article points out the dangers of people treating financial models like black boxes and not fully grasping model limitations. The article’s main premise is not that the models are wrong or culpable as far as the financial crisis concerned. Rather, the problem boils down more to fundamental failures in human judgment.