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Modesty:
The Missing Element of Mathematical Models of the Market Shane Whelan, ( Two distinct cultures study of the capital markets as their common specialism, namely, market practitioners and academic
financial economists. The cultures differ in all that defines a culture: their
value system. Accordingly, each has a distinct body of knowledge that evolves
by a different selection process. We ask: what is the market's valuation of
the models proposed by financial economists? It is claimed that actuaries'
evaluation of such models, given their market consistent value system, can be
identified with the market's valuation. The key insights of financial
economics from 1900 are evaluated in this context. We conclude that if models
in financial economics are to be judged solely by the accuracy of the
predicted outcomes then the models developed to date are not fit-for-purpose.
We conclude that academics should be more modest when it comes to claims
about the utility of their models.
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