LTCM’s crisis did not stem from blind faith in mathematical models.

Evidence

Nor does the second hypothesis advanced in the commentary blind faith in mathematical models explain the crisis. Models were much less critical to LTCM’s trading than commonly thought. Many of the pricing anomalies it sought to exploit (such as the premium of shares in Royal Dutch over those in Shell, or the swap-spread example discussed in appendix G) could be identified without sophisticated modeling. Although models were important to how LTCM’s trades were implemented and to assessing the risks involved, all those involved knew that models were approximations to reality and a guide to strategy rather than a determinant of it. — Donald MacKenzie, An Engine, Not a Camera, 1017

Categorization

• XREF: connects to: LTCM’s partners treated models as engines of inquiry, not exact market reproductions — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 153; LTCM’s near-collapse was commonly blamed on blind faith in financial models — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 152; LTCM’s extreme leverage did not necessarily mean extreme risk — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 982 (+5 more)

Broader Connections

• A model imposed from above proved unprepared for the crisis #corroborates (0.85) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 785
• The financial system failed to foresee crisis because its risk theory denied catastrophes #qualifies (0.75) — Mark Blyth, Austerity, 100
• Models are abandoned for availability of alternatives, not merely false predictions #complicates (0.75) — Donald MacKenzie, An Engine, Not a Camera, 514