In the world of finance, there is this warning story that almost every trader can tell you. It's about increasing confidence in mathematics and models. It is a story of long-term capital management.
The story begins in the 90s. A group of mathematics nerds have found ways to use mathematical models to identify market opportunities, small price contradictions. Those bets have been a huge benefit for them and their clients. They were Wall Street toast. They seemed to have solved the risk-taking puzzle. However, their overconfidence in their strategy led to one of the biggest financial explosions in US history, volatile the entire market.
In today's show, what happens when Perfect Mathematics encounters a confusion of human nature? And what have we learned (and what have we done) do not have Learning) From the legendary tale of long-term capital management?
This episode of Planet Money was hosted by Mary Child and Jeff Guo. Produced by Sam Yellowhorse Kesler and edited by Jess Jiang. It was fact-checked by Sierra Juarez and designed by Robert Rodriguez. Alex Goldmark is our executive producer.
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Music: Universal Production Music – “Funky Glitter”, “Fasing Light”, “Bus Gamer”
