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An Engineer in Fairyland – Financial engineering?

An Engineer in Wonderland has a new home. You can find this particular entry here. If you wish to leave a comment, please do that on the new blog.

My fundamental complaint is that real engineering is built on science, and financial engineering is built on bollocks.

I think what confuses people is that in both cases there is a lot of maths between the foundations and the engineering.

Under one are the rules of nature, so all is well.

Under the other are partial observations of the fickle nature of human behaviour.

Worse, the rules of nature are invariant – actually, that is a good and handy thing.

The worse bit is here: It is the poorly-predicted feedback effect in financial engineering that allows the humans to see the results, which modifies their behaviour, which wobbles the parameters, which affects the results, which…..

So, I could imagine a valid thing called ‘financial science’, maybe run by disinterested aliens, which uses the same maths, but keeps the results secret from ‘the market’.

Over a long time it could build up a picture of how humans behave and interact with finances.

If they did it for a very long time, and chaotic effects were not in evidence, they could allow for all the behaviours of the humans who make up The Market, and build financial engineering on that.

Although I suspect that somewhere there it would reduce to 0=0, only revealing that the whole thing is based on smoke and mirrors.

The Jupiter Journal of Science would refuse to publish the paper because of the inconclusive results, and the aliens would never get to name the effect.

Although I think it already has a name.

It is not financial engineering, it is the King’s New Clothes.

‘Alice’

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Tags: Alice, aliens, bollocks, Engineer in Wonderland, engineering, finacial, maths, partial observations, wonderland

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