I wouldn’t blame Scholes/Merton for the 2008 market collapse. Their models are fine if you assume normally distributed returns IIRC. They can be tweaked with more realistic return distributions, but the financial companies didn’t bother. IBGYBG: “I’ll be gone, you’ll be gone.” Also, there are other more advanced option models.
Were Scholes/Merton selling their model in a big way? Not to my knowledge. Here’s what Warren Buffet wrote on the subject:
The Black-Scholes formula has approached the status of holy writ in finance, and we use it when valuing our equity put options for financial statement purposes. Key inputs to the calculation include a contract’s maturity and strike price, as well as the analyst’s expectations for volatility, interest rates and dividends. If the formula is applied to extended time periods, however, it can produce absurd results. In fairness, Black and Scholes almost certainly understood this point well. But their devoted followers may be ignoring whatever caveats the two men attached when they first unveiled the formula.
Over at crank.net, they distinguish between fringe, cranky, crankier, crankiest, and illucid. Much of the discussion above centers upon fringe science, near-fringe science, and legitimate peer-reviewed hypotheses that are not widely accepted by the scientific community. That’s not crackpot stuff, it’s not cranky, and it’s not woo.
Fringe stuff deserves skepticism, but some of it may have value some day, though most of it will not. I’m not convinced that cranky thinking has ever played a useful role, never mind the crankier, crankiest, or illucid.
The OP dates their claims from 1971-75, but I’d accept evaluations going back to 1950. By that time, the nature of the scientific method was broadly if roughly understood. We might find some borderline material in 1950-1970, but that is interesting in its own way.
The longest duration that ball lightning has been filmed was 1.64 seconds. That doesn’t sound much like the old tales about lightning balls that lasted for minutes and traveled around inside rooms frightening the servants. I suspect that a real (but very-short-lived) phenomenon has been mixed up with some Victorian tall tales and paranomal woo.
Eh, to your point, the model might not have been absolute shit, but the obvious answer… “Communism”… fell way beyond the time limit established by the OP.
OTOH, both of these guys were founders of Long Term Capital Management, which blew up in 1997… and the Street completely and totally ignored what this meant for the model. They both went on to join hedge funds which, yes, turned to crap in 2008.
Again, were there not a time limit, I would’ve answered Communism.
The OP asks about woo that turned out to be science. There’s also the matter of science that turned out to be woo. I don’t think Black/Scholes is an example of that. But Freudianism might be. Karl Potter indicated in the 1930s that Freudianism and Marxism were in fact not science. But that assertion wasn’t broadly accepted for decades.
I had forgotten that Scholes was involved with the notorious LTCM and JohnT’s link notes that Scholes later helped establish another hedge fund that went belly up. Backpeddling a little, I would say that the Black-Scholes model is still a workhorse in modern finance and I’m not aware of anyone who says it’s currently worthless. Plenty are skeptical about technical analysis, but I’d argue that technical analysis isn’t Black/Scholes.
ETA Dr. Deth: [Acupunction is technically a subset of Traditional Chinese Medicine. Herbs can be pharmacologicaly active. Wiki says that, " A large share of its claims are pseudoscientific, with the majority of treatments having no robust evidence of effectiveness or logical mechanism of action," which I don’t dispute.]
I had never heard that, nor did i ever hear of it being called 'woo". I mean, maybe a few scientists thought that, but couldnt get any studies, etc, but it wasnt out there in the “woo-o-sphere” like those pulp magazines, etc.
Yeah, I mean sugar pills were known and not called woo- but were unproven. Yeah, a good faith healer or woo practitioner or anyone the patient trusts- telling them that this will make them better- can work- especially if the "practitioner sincerely believes and cares.
Which works often for mild- moderate back pain, but NOT due to Chiropractic woo. And it wont cure colds or the flu or anything else.
Science observes things and tries to come up with theories for it, whereas woo comes up with theories, and comes up with a product/approach to apply the theory, and then looks for ways to fit some other phenomenon to the theory.
For example, take the idea that crystals (or other produces or devices) cure things with vibrations. Nobody has ever observed a crystal curing anything. But people like the idea of vibrations, and crystals have some vibrational qualities that non-crystalline mateirals don’t. Plus crystals are pretty. So people go around trying to retrofit problems to a solution that’s nice to think about.
A theory based on actual observation, even if it sounds crazy, has a small chance of turning out to be a right guess simply by virtue of the fact that it starts by trying to explain something that was actually happening.
A theory that’s just based on things that sound cool has basically no chance of turning out correct. It invents a theory based on next to nothing and then tries to find applicable phenomena. Nobody ever observed a crystal curing a disease with vibrations. People just decided that crystals cause vibrations in ways that affect other things, because it sounds cool, and then they decided that curing disease is one of those things.
Things like that have an astronomically small chance of being scientifically proven out, not least because there’s no point spending any time or money designing an experiment on an arbitrarily chosen theory.
I think “science” has done a pretty decent job of ignoring “woo”. What has been notable have been cases where a possible but questionable idea has been entertained for a time, often because people would like it to be true, or because they were motivated by national pride, or some other cause. But the tentative nature of the idea was generally kept in mind, until it was disproven.
I mean, we’ve had:
N-rays
Polywater
Cold Fusion
X-ray Lasers (by which I mean spurious early reports that didn’t pan out
I never would have considered a chiropractor until a friend’s wife fell and hurt her wrist. She was deep in all sorts of woo and insisted on seeing a chiropractor and needed someone to driver her. Her regular chiropractor was on vacation so my wife took her to a guy right up the street from us. He immediately told her she had a broken wrist and had to go the hospital to get X-rayed and see a specialist who could set it.
Couple of years later a minor but nagging back problem wasn’t improving from the muscle relaxants my doctor gave me. I’d heard of several doctors that said chiropractors were pretty good at relieving minor back pair so I went to see him. I described the feeling, he simply looked at my back and asked “Is the problem right here?” while putting his finger right on the spot. He used some kind of heating device on my back, pulled my arm up and out to the side, a little massaging and it felt a little better. He had me come back a few days later, repeated the minor procedure and within a couple of days it was all better. Did it help? Yes, maybe. Maybe I would I have gotten better in a couple of days anyway. Didn’t hurt, no discussion of any other chiropractic practices. Maybe some physical therapy or even massage would have done as well. But not all chiropractors dangerously ignore serious medical conditions in favor of skeletal manipulation and other nonsense.
There seems to be a split among chiropractors between those who use it to relieve aches and those who think it can cure diseases. The former seems to work, the latter is pure woo. I don’t know what the split is these days.
I think so. I was very disappointed when a couple of years ago, the WHO ‘endorsed’ Traditional Chinese Medicine, presumably in response to political pressure.
Good for him! What has been called ‘medicine’ for millenia has been mostly nonsense.
One or two things sometimes worked by accident: herbs with useful properties for example. But mostly it was the placebo effect. Wasn’t until scientific method began to be applied that any real progress was made.
One way to evaluate how many chiropractors know their limitations is the percentage who still embrace the discredited notion of chiropractic “subluxations”, mysterious misalignments of vertebrae supposedly putting pressure on spinal nerves and thus causing all manner of diseases, despite there being no correlation between the function of the nerves and diseases which chiro manipulations are supposed to alleviate or cure.
One recent study found that many chiropractic schools, particularly in the U.S. still teach about “subluxations”* in their curricula. Another demonstrated that chiro clinic websites commonly invoke subluxations in appeals to potential patients.
*a chiropractic “subluxation” which is essentially invisible and not reproducibly identified on imaging should be distinguished from an orthopedic subluxation, which is partial dislocation of a joint diagnosed via physical exam and imaging, most commonly an x-ray of the affected joint.
I just read a column in last week’s Economist magazine about Trump’s nutcase latest nominee for Surgeon General, Dr. Casey Means.
“Women are lunar beings who exist on a 28-day moon cycle, inherently reflecting the cycles and patterns of the universe,” she has said. When trying to find love, she wrote in her book, she joined Bumble - and also did “full moon ceremonies” and asked the trees for help. She told readers to embrace the “woo woo.”
We should take her at her word. Talking to the trees is woo woo. Disputed science is not. That’s a valuable, perhaps even crucial, distinction.
Are those things actually woo? I think they fall into the disproven hypotheses category, like phlogiston, the luminiferous ether, Lamarckian inheritance (of acquired characteristics), Hoyle’s steady state universe, and so on. In other words legitimate hypotheses that happened to be incorrect (or mostly incorrect in the case of inheritance of acquired characteristics).
