Quants
| Mon Mar. 9, 2009 5:56 PM PDT
Dennis Overbye has a piece in the New York Times today about "quants," the geeks and nerds who have converged on Wall Street in recent years and tried to use mathematical models to outsmart the market and generate vast sums of risk-free cash for their employers. I've read a bunch of stories in this genre, and most of them have something in common that's always slightly puzzled me. See if you can guess what it is based on these excerpts from Oberbye's piece:
Emanuel Derman....left particle physics for a job on Wall Street...."it had the quality of physics"....forerunner of the many physicists and other scientists who have flooded Wall Street....physics Web site arXiv.org....“My Life as a Quant: Reflections on Physics and Finance”
....Asked to compare her work to physics....There are a thousand physicists on Wall Street....Physicists began to follow the jobs from academia to Wall Street in the late 1970s....Lee Smolin, a physicist at the Perimeter Institute for Theoretical Physics in Waterloo....J. Doyne Farmer, a physicist and professor at the Santa Fe Institute.
....“I think physicists should go back to the physics department and leave Wall Street alone”....Eric R. Weinstein, a mathematical physicist....Nigel Goldenfeld, a physics professor at the University of Illinois....too many physicists on Wall Street.
Did you figure it out? What's the deal with physicists? They always seem to be at the center of these stories, but the fundamental tool of the quants is math. So why not mathematicians instead of physicists?
Overbye suggests a couple of possibilities. #1 is the glut theory: "Physicists began to follow the jobs from academia to Wall Street in the late 1970s, when the post-Sputnik boom in science spending had tapered off and the college teaching ranks had been filled with graduates from the 1960s. The result, as Dr. Derman said, was a pipeline with no jobs at the end."
#2 is the affinity theory: "The Black-Scholes equation resembles the kinds of differential equations physicists use to represent heat diffusion and other random processes in nature. Except, instead of molecules or atoms bouncing around randomly, it is the price of the underlying stock."
Those both sound plausible, if incomplete, so here's another thing to think about. Even among the number crunching set, physics has a reputation as the most aggressive, male dominated branch of geekdom: only 14% of physics PhDs are women, the lowest of any of the sciences. (Math is pretty male dominated too, but pales compared to physics: 29% of math PhDs are women.) If the first thing that "aggressive and male dominated" reminds you of is the big swinging dick world of high finance, give yourself a gold star. Call this the testosterone theory: physicists are attracted to Wall Street because they like the atmosphere.
Any other theories? Leave 'em in comments.
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Comments
The Charlie Epps Theory?
Submitted by michael7843853 on Mon Mar. 9, 2009 6:11 PM PDT.
The Charlie Epps Theory? Like Charlie , they think everything can be defined by equations. Could their affinity for randomness combined with new high speed global trading techniques be a major factor in the rise of the mindless, in a traditional economics sense, crazy speculation that has turned the stock market into a casino?
Wall St probably wanted
Submitted by Anonymous (not verified) on Mon Mar. 9, 2009 6:12 PM PDT.
Wall St probably wanted physicists because physicists use math to solve problems while mathematicians just have fun with math. It's also probably the case that physicists hire other physicists. Physicists do it (or did it) because they pay lots and lots and lots of money.
I think Wall St. probably
Submitted by Anonymous (not verified) on Mon Mar. 9, 2009 6:14 PM PDT.
I think Wall St. probably started hiring physicists because physicists use high powered math to actually solve problems. Math is more interested in math for its own sake. There are plenty of mathematicians on Wall St, however.
As for the physicists, we do it (or did it) because Wall St. pays lots and lots and lots of money. After a few thankless years as a poorly paid postdoc, that's nice.
Say what you want, but
Submitted by Mudge (not verified) on Mon Mar. 9, 2009 6:19 PM PDT.
Say what you want, but physicists tend to be nerdy, not macho in any traditional sense. The key difference between mathematicians and physicists is that physicists use mathematics to solve real problems and mathematicans use mathematics to solve mathematical problems (there are exceptions). Physicists solved quantum mechanics to describe the atom, mathematicians discuss Fermat's theorem. If Wall Street is a situation yearning for systematic definition, physicists are the natural branch of science to attack it.
The reason it's physicists
Submitted by Ben V-L (not verified) on Mon Mar. 9, 2009 6:26 PM PDT.
The reason it's physicists and not mathematicians is because it's not what mathematicians do. Something like Nash game theory, okay, that counts as math, but extracting the behavior of some functions that satisfy coupled, stochastic, nonlinear partial differential equations, well, you'd be better advised to knock on doors in a physics department or an applied math department. A number theorist isn't going to help you much.
@I think Wall St. probably
Submitted by enplaned (not verified) on Mon Mar. 9, 2009 6:30 PM PDT.
Anonymous above is correct -- professional mathematicians (at least of the theoretical kind) are generally interested in investigating the structure of mathematics, not necessarily using the resulting math to solve real-world problems.
Physicists are also, by nature, problem-solvers. Pose a problem, they start working it almost immediately, with order-of-magnitude estimates to start with, and then with more and more sophisticated tools until they think they've gotten close enough.
I don't think the macho thing is necessarily correct. I've known a lot of physicists and while you're right, they're mostly male, they don't seem like alpha males to me. I know, I grew up among physicists. And in fact, on the typical hierarchy within investment banks, quants have never necessarily occupied the high-ground.
abstraction level
Submitted by Anonymous (not verified) on Mon Mar. 9, 2009 6:31 PM PDT.
Pure mathematics is a universe of abstraction all its own. It really does not translate very directly into things like finance. It doesn't, for example, usually involve numbers, the way high school calculus does -- it's just much more abstract.
Applied math, physics, and economics, in that order, generally move from abstraction-land to application-land. As you move down the line, you see more empirically estimated constants, more real-world data (sometimes). That's an oversimplification: some modeling in physics and in economics remains extremely abstract.
To my mind, what's happened here is essentially that a cancer took over finance: a cancer of overvaluing ever higher-order math, and ever more technically complex models, regardless of those models' real applicability. Many people have noted this problem in economics: too much high-wattage math, too little connection to reality. As this cancer metastasized, finance began increasingly to fetishize hiring people with the technical skills to do the high-powered math modeling, even if those people were not good at thinking through how the models related to reality, and really did not know finance. What mattered was the technical chops. And physics Ph. D.'s have that in spades, and know how to use it to make models of things; it's close enough to what the finance models look like that it's an easy transition. Math Ph. D.'s, who are less numerous anyway, have skills that translate a lot less easily into finance-world -- altogether too abstract.
This comment gets it
Submitted by The Lounsbury (not verified) on Tue Mar. 10, 2009 4:57 AM PDT.
As a professional in the area with cross-cutting experience - with the Big Centres and across fields - this seems quite right for the big investment banks. One should differentiate, I would note, between the more plain vanilla banking of the classic commercial banks and commercial banking arms of the money centre banks and the "High Finance" of the money centre I-Banks. The Physicist angle seems well explained by their job alternatives plus their training orientation to problem solving on issues superficially similar to financial challenges.
Many of the models worked reasonably well under 'plain vanilla' circumstances, and the Anon commentator supra has it perfectly right, the "Quants" in general were poorly trained and positioned to as Anon supra puts it, "to thinking through how the models related to reality" and understanding the shifting and upon which many assumptions (contra physical world physics modelling) were built.
Physicist are real-world problem solvers
Submitted by T.R. Elliott (not verified) on Mon Mar. 9, 2009 6:31 PM PDT.
I have a bachelors and masters in physics (and a bachelors in applied math as well). So I'll take a guess. I see a couple reasons: (1) The cream of the mathematicians' crop do unworldly theoretical stuff. Applied math is a second class citizen. Hence the idea of solving real world problems is not as much of interest to the top notch mathematicians (2) Theoretical physicists like to solve problems. They are problem solving machines. These problems--other than string theory and the likes--have real world implications. So physicists are quite happy to look around for problems to solve--including in finance. (3) Modern economic theory is in fact a cut-and-paste job from classical physics. That is in fact one of the problems with economic theory as pointed out by physicists. But it makes the terrain familiar to them.
And physicists are arrogant
Submitted by T.R. Elliott (not verified) on Mon Mar. 9, 2009 6:35 PM PDT.
I have to disagree with the comment above. There are some nerdy and non-macho physicists, but my experience from dealing with them at UCSD--and those who graduated from MIT and the likes--is that they are not nerdy. In fact, it's the mathematicians who tend to be a bit unworldly, spacey even. Theoretical physicists I've deal with are in our face arrogant. Richard Feynman is a classical example of a fairly down-to-earth yet also arrogant physicists. He wasn't nerdy at all.
One other possibility: there
Submitted by JBL (not verified) on Mon Mar. 9, 2009 6:36 PM PDT.
One other possibility: there may simply be more physicists then mathematicians, so anyone recruiting heavily from the combined pool will get more physicists. (I think all the other reasons offered are plausible, too.)
why physicists instead of mathematicians?
Submitted by beowulf888 (not verified) on Mon Mar. 9, 2009 6:36 PM PDT.
Why physicists instead of mathematicians? Simple. Mathematics is largely a theoretical discipline (i.e. proving a theorem). Physics uses mathematics as practical tool to describe the universe. And the quants on Wall Street have been just as successful as their colleagues they left behind studying String Theory -- i.e. not very.
I doubt that it will surprise
Submitted by daCascadian (not verified) on Mon Mar. 9, 2009 6:39 PM PDT.
anyone that the following item has the name Nassim Nicholas Taleb attached to it.
"Options traders use a pricing formula which they adapt by fudging and changing the tails and skewness by varying one parameter, the standard deviation of a Gaussian. Such formula is popularly called "Black-Scholes-Merton" owing to an attributed eponymous discovery (though changing the standard deviation parameter is in contradiction with it). However we have historical evidence that...It is time to stop calling the formula by the wrong name."
Also there appears to be lots incorrect w/Black-Scholes-Merton but then nothing is perfect now is it ?
Oh, and it's ALWAYS the money.
"Radix malorum est cupiditas" - whomever
Physicists also have to put food on their families
Submitted by SRW1 (not verified) on Mon Mar. 9, 2009 6:51 PM PDT.
Well, building the kinds of theoretical risk models used in the financial sector requires a certain degree of familiarity with probabilistic concepts plus the ability to formalize them. That presumably heavily biases the universe of candidates towards physicists and mathematicians. Among these two groups, the formal math training of physicists is far more orientated towards concrete applications, as opposed to the more abstract one for mathematicians.
Probably more important though is the fact that the job prospects for physicists in their field of study for the last decade or so were absolutely abysmal. The perspective was either to achieve tenure or to drop out of physics. That is why so many physicists ended up in the business of building risk models for financial companies. I remember to have come across an article about that phenomenon something like six or seven years ago.
Why do they do it
Submitted by Etaoin Shrdlu (not verified) on Mon Mar. 9, 2009 7:18 PM PDT.
Try Occam's razor: They do it for the money.
Quants
Submitted by captialistimperialistpig (not verified) on Mon Mar. 9, 2009 7:36 PM PDT.
Put me down for the testoserone theory. Physicists are much more capable of imagining themselves as swinging a pair.
And we prefer solving problems to proving theorems.
I think T.R. Elliott is on
Submitted by Anonymous (not verified) on Mon Mar. 9, 2009 7:45 PM PDT.
I think T.R. Elliott is on to something.
In my experience, Physicists have a tendency of applying themselves to all kinds of areas, including areas they know little about. Now, many physicist are quite smart. Problem is, few of them are as smart as they think they are.
And the other points are also true of course. Getting academic positions is very hard given the market, and physicists tend to have good mathematical skills. But you will also find lots of mathematicians, and even theoretical computer scientists when the market gets tough.
Arrogance
Submitted by rege (not verified) on Mon Mar. 9, 2009 7:47 PM PDT.
First off physicists, at least the good ones, are adept at boiling down messy real world problems to their essential bits which they in turn express mathematically. These mathematical models may none the less be intractable-think of the Navier-Stokes Equations.
A second trait of a good physicist is the ability judiciously introduce mathematically ad hoc approaches based on physical insight. In the latter case, think of Dirac's introduction of his delta function to deal with unbound spectra in quantum theory. No self respecting mathematician would let his name be associated such an unrigorous approach to solving a problem although very often, as was the case of the delta function, mathematicians eventually supply rigorous underpinning.
The success of their approach has created a certain arrogance in the physics culture, which someone has already noted. This arrogance has lead to a long history of physicists jumping fields in the search of interesting problems For example, Max Delbruck, an accomplished physicist jumped to biology and eventually shared the 1969 Nobel Prize in Medicine.
Less celebrated physicist have also jumped fields with less than stellar results. One must, after all, know and understand the new field before stripping away details and simplifying.
In summary, my guess is that physicists have the intellectual temperament needed to tackle the messy problems of finance and the arrogance to think they could do it, but with no physical intuition to guide them and a lack of a deep knowledge of economics they screwed the pooch.
You have a point
Submitted by Paul Camp (not verified) on Mon Mar. 9, 2009 7:51 PM PDT.
And I, a physicist, will readily admit it. I've been thoroughly disgusted by some of the egocentric antics my colleagues get up to at meetings (like the guy who stood up to ask a question and delivered himself of a 15 minute monologue about how the preceding talk had simply ripped off his work of years earlier).
Overbye has one point. From the mid-70's through the early 90's, Ph.D. production in physics vastly outstripped the job supply. This, in part, was driven by an NSF report predicting impending doom and gloom as the Sputnik generation retired. One of the earliest mass movements on the internet was the Young Scientist's Network, organized to fight this myth. But in large part it is driven by the internal dynamics of academia. You advance by means of publications and grants, and that requires graduate students. One professor may produce 50 Ph. D.'s in a career, then retire. And the academic job market just doesn't expand that quickly. The sad truth is that every stage of the academic pipeline is driven by stakeholders whose interests are mostly at odds with one another.
By itself, though, these phenomena only explain why Ph. D.'s seek other careers, not physicists specifically. Chemistry is at least as testosterone-driven but they don't invade Wall Street.
What is unique about physics is that it deals with phenomena that can be profitably modeled numerically. Chemistry and other disciplines deal with systems that are still, for the most part, too complex to be easily modeled. But constructing rigorous analytical models is basically all that physicists do, and even more so for particle physicists. So Overbye's second point is close, but not quite on. Mathematicians also deal with differential equations, but only so they can prove theorems about them. The meat of physics is creating and solving differential models of real systems. We spend a career simplifying complex real phenomena to their absolutely essential features.
And it works well enough often enough to really feed in to that testosterone driven aspect of the community.
Physics and Finance
Submitted by Don the libertarian Democrat (not verified) on Mon Mar. 9, 2009 8:07 PM PDT.
"http://streamer.perimeterinstitute.ca/mediasite/viewer/NoPopupRedirector.aspx?peid=122be933-0394-4405-802b-2d48a2803191&shouldResize=False"
I'd like to recommend the above lecture on Gauge Theory and Inflation by Eric Weinstein. It's pretty clear.
He seems to want to show that Gauge Theory applies in many areas, thereby showing that it's a basic feature of the universe I suppose. In any case, his presentation shows why some physicists are interested in economics and finance. It could be that this view is quite common, and explains both the use of physics and why physicists are thought to be competent at economics and finance. Just a thought.
(Original anonymous here --
Submitted by Anonymous (not verified) on Mon Mar. 9, 2009 8:24 PM PDT.
(Original anonymous here -- sorry for the double post.)
Weinstein's view isn't common. A fair number of people know that there have been attempts to apply gauge theory to finance, but most people just find it amusing and don't really care.
I'll repeat again. Physicists go to Wall St because they'll hire us and they pay gobs of money. Sure, it's not batshit insane amounts of money like the traders get, but after grad school and a postdoc or three, 250k per year means quite a change in lifestyle.
But the good news is, apparently we will always have Lee Smolin to tell us what we're doing wrong no matter what field we work in.
(Please read the prior sentence as dripping with sarcasm.)
Everyone wants to have
Submitted by B (not verified) on Mon Mar. 9, 2009 8:25 PM PDT.
Everyone wants to have people who can come up with models to describe complex phenomena. Diverse academic disciplines, diverse industries, government agencies, everyone.
You do have to understand the system you are modeling. In the academic world this is the goal and the model is the tool. You can actually learn a lot with the wrong model. I suppose that's true in industry but it's not the goal.
"Big swinging dick world"? I've known quite a few physicists myself. I think you met the wrong ones.
Must we be swinging?
Submitted by SDJim on Mon Mar. 9, 2009 8:35 PM PDT.
Kevin, I'm kinda surprised at you--and me, too. I've never thought of myself as prudish, or of you as prudish, either, but I was stunned by your descent into the vulgar swinging, and I was also stunned by my reaction to it. I thought, "Kevin must be pissed off," which is something I would never post on your blog, but since you said "dick" I can say "pissed", right?
Let's take it up a notch next time--WTF, we don't want them to think we're slobs.
Charming, Naive
Submitted by The Lounsbury (not verified) on Tue Mar. 10, 2009 5:08 AM PDT.
You perhaps don't know the rather famous reference from which Drum has taken the phrase Big Swinging Dick. Yes, the final word is DICK, dick dick dick. It is a quote from a moderately well-known book, and a specific reference to a specific part of the Wall Street world. One should think that not expecting Drum to censor utilisation of such quotes is reasonable, even for the strangely prudish.
One of the more charming features of the financial world is one gets over such strange aspects of pointless Victorian prudery.
The bulk of the comments
Submitted by divF (not verified) on Mon Mar. 9, 2009 8:39 PM PDT.
The bulk of the comments attribute the preponderance of physicists on Wall Street to their problem-solving proclivities / capabilities. I would like to suggest that the opposite is true. The prestige areas of theoretical physics, for the last 50 years, have been dominated by increasingly sophisticated theoretical constructs chasing smaller and smaller amounts of usable data. The most extreme example of this is string theory, for which there is no possible experimental verification in the forseeable future. However, more garden-variety high-energy physics suffers from this as well, due to the ever-increasing costs of building accelerators, relative to extent to which the results can distinguish amongst various theories. This is very much in contrast to theoretical physics prior to that time, which had much closer contacts to a rich ecosystem of laboratory experiments, as well as to more applied areas. In the early days of quantum mechanics experiments that could validate the theory were within range of a university physicist's own laboratory, and there were many such experiments. To find the problem-solvers in the current era, one should look to applied science and engineering. As an aside, some of these areas are in fact quite mathematical: for example, computer science is a strongly mathematical discipline, not surprising since many of the founders of computer science were trained in mathematics departments.
An additional feature of theoretical physics is its strongly hierarchical social structure (in this way, it is very much like pure mathematics). You've either proved the big result, or you're a failure.
Both of these features of theoretical physics have obvious connections to finance.
My keen insight is a little late
Submitted by dp (not verified) on Mon Mar. 9, 2009 8:42 PM PDT.
As noted in several comments, physicists do applied math, mathematicians do theoretical math, and this is an applied math phenomenon.
programming
Submitted by Ross Best on Mon Mar. 9, 2009 8:42 PM PDT.
If you went into physics hoping to be a physicist and ended up being a programmer for the real physicists you might be willing to move from Berkeley to London for more money. Or so I gathered from a Ph.D. physicist-programmer last year.
Wall Street quantification & String Theory
Submitted by J. Frank Parnell (not verified) on Mon Mar. 9, 2009 8:47 PM PDT.
As a doctoral physicist who chose to feed his family by posing as an engineer (not that hard if you understand and accept what engineers are supposed to do), my observation is that some physicists are nerdy and some aren't, but there does tend to be a stronger streak of arrogance and other worldliness compared to the other sciences. I wonder how much in common the coming crash of string theory has with the crash of Wall Street quantification theories.
I think that a more
Submitted by Anonymous (not verified) on Mon Mar. 9, 2009 9:02 PM PDT.
I think that a more pertinent question is "Why physicists, rather than theoretically-oriented engineers?" There are certainly more engineers than physicists, and both groups have the technical know-how and capabilities. My guess is that there's a social factor-- once some physicists got into "financial engineering", the skids were greased and others followed more easily.
why physicists?
Submitted by Tom (not verified) on Mon Mar. 9, 2009 9:08 PM PDT.
It's because we understand the purpose of a model while understanding enough of the math to use it as a tool.
If you want to break the market into its eigen-modes and understand which one are doing what a mathematician is not who you want. Not that they couldn't do it, but it's not what they're going to be interested in.
rene is mostly right.
Submitted by BigTom (not verified) on Mon Mar. 9, 2009 9:13 PM PDT.
I had been a physics grad student, so I know the type. The difference between physicists and mathematicians attitude wise is pretty stark. Mathematicians are really big on the meaning of symbolically defined stuff. Physicists are happier with a combination of intuition expressed as mathematics, but often lacking the complete rigour that mathematicians require. An example might be what happens if you give a physicist and a mathematician a differential equation. The mathematician will be consumed with proving if a solution exists -or not. The physicist will assume (if he thinks nature supplied the equations), that they have a solution, and plung into trying to solve it -or to creating a method to approximate the solution. In many ways math wise, it is the physicists who break new ground, and the mathematicians who come along later and clean up all the unresolved things (and sometimes showing when the physicists were just plain wrong).
My experience wasn't that physicists were macho -not in the traditional sense of the term, but rather obsessed with things that appear fundamental. When I was at Boulder, an amazing percentage of phycists were rock climbers -and they never were satisfied with being second rate. And an amazing fraction of the hard core climbers were phyisists or ex-physicists. They are attracted to attacking things that are considered to be fundamentally really hard.
And, many many ex-physicists as has been mentioned above, found they had to turn to programming -usually for highly technical projects for a living. For many it was a choice of working in the defense industry for moderate wages, or having a go at the big bucks in finance. The ability to extract solution methods for posed problems is their bread and butter. If we want a result quickly hire a physicist. If you don't care how long it takes, but want a result that you can absolutely trust will be provably correct, then you want the mathematician.
All of the above...
Submitted by ex-physicist (not verified) on Mon Mar. 9, 2009 9:14 PM PDT.
Intellectual Arrogance. Testosterone-driven (macho nerd sounds like a contradiction, but believe me it isn't). Job-Glut. High salary as compensation for failure in the traditional physics hierarchy. All of the above.
Physics never quite grasped the fact it was considered the king of the sciences not because it was "fundamental" but because it blew things up. The sheen of the nuclear age wore off sometime during the 1970's. The cancellation of the Superconducting Supercollider in the 1980's was a truly demoralizing event for "high-energy" physicists, thought the handwriting was on the wall much earlier.
But keep in mind that economists have somewhat the same reputation-- the physicists of the social sciences.
most of my PhD
Submitted by vinc (not verified) on Mon Mar. 9, 2009 9:25 PM PDT.
consisted of wading through piles of data looking for patterns. And when I would find patterns, I'd try to create ways to visualize them, try to figure out which patterns would correlate to which other patterns, and of course I'd read the literature to figure out what they meant. From what I can see, finance would be very very similar, except with different labels on the axes :)
@ the various people bashing string theory and particle physics: physics isn't string theory. Here are demographics:
http://www.aps.org/membership/units/upload/YearlyUnit09.pdf
The 7% in "particles and fields" get all the media attention for some reason but it's really unrepresentative of the physics community.
As long as we are talking
Submitted by J. Frank Parnell (not verified) on Mon Mar. 9, 2009 9:40 PM PDT.
As long as we are talking about physicist, an interesting story on physicists and the development of relativistic quantum mechanics (note to purists: please cut some slack). A mathematical physicist named Shwinger developed a theory of quantum electrodynamics in the fifties. The major problem was it was so complicated hardly anyone could understand it. Along came an intuitive genius named Fineman who developed an alternative simpler theory based on cartoon diagrams. When asked to prove it his response was basically "it's obvious". It took a third physicist, Freeman Dyson (who had worked for the RAF during WWII analyzing the effectives of bombing raids), to sit down and establish that the rigorous complex Shwinger theory and the intuitive simple Fineman theory were in fact the same. I always thought this was a good example of the different flavors physicists come in.
It's not rocket science.
Submitted by Anonymous (not verified) on Mon Mar. 9, 2009 10:01 PM PDT.
It's not rocket science.
They go to Wall Street because that's where the money is.
The top 5% of physics Ph. D. have no difficulty getting tenure at the best of the universities, and thus the best jobs anywhere in the USA, both in terms of financial rewards as well as well unmatched autonomy- not to mention job security.
The rest have two choices: either spend the rest of your life teaching Physics 101 in state or other small colleges with not very good financial rewards, or do something else.
For these rest of the physicists, it was a manna from haven that wall street came calling, for they could not have done so well elsewhere.
There are more physicists
Submitted by Luther on Mon Mar. 9, 2009 10:33 PM PDT.
There are more physicists than mathematicians.
Bureau of Labor:
Mathematicians held about 3,000 jobs in 2006.
Physicists and astronomers held about 18,000 jobs in 2006. Physicists accounted for about 17,000 of these, while astronomers accounted for only about 1,700 jobs.
Due to glut of scientists, many head into other tech areas, like computer programming. I was astounded at some of the heavyweight resumes I've seen at the Chicago Stock Exchange from top Chinese and Russian physicists looking for programming jobs. Probably ended up at McDonald's.
Then there is "hired to invent." Invent a transistor, earn a dollar. Businessman to John Bardeen: "With them two Nobel prizes and a dime you can get a cup o' coffee, smartypants."
community college or the executive suite, how to decide?
Submitted by alan (not verified) on Mon Mar. 9, 2009 11:20 PM PDT.
Physics is now so complex and the opportunities for heroic success so constricted only the top tier of brainiest people who ever lived are going to get much done.
For the rest, who are merely in the top tier of brainiest people alive, it isn't hard to imagine them thinking the odds of getting lucky on Wall Street are better than the odds of getting lucky elsewhere.
Anonymous@ 10:01 has it exactly right
Submitted by DanJoaquinOz on Mon Mar. 9, 2009 11:29 PM PDT.
Its the money. And even the elite tenured professors at the best universities, with the best academic jobs anywhere in the US, are paid peanuts relative to their potential renumeration as consultants on Wall Street. And, in fact these elite professors could also have it both ways - consulting Wall Street while on sabbatical, reaping an unprecedented financial windfall, then return to the job security, autonomy and benefits of their prestigous tenure afterwards.
I think it's fascination with black holes...
Submitted by mechanosm (not verified) on Mon Mar. 9, 2009 11:46 PM PDT.
In one discipline, matter swirls violently into a gravitational abyss from which there is no return; in the other, money swirls violently into a greed-driven abyss never to be seen again. I imagine the models match up pretty well.
As a student of maths and
Submitted by Nils (not verified) on Tue Mar. 10, 2009 12:07 AM PDT.
As a student of maths and physics I can say that physicists are better at doing math. Mathematicians are better at developing abstract tools, but they are bad at using them.
Besides: Physics is a practical science, mathematics is a humanities science. Physicians try to solve problems, mathematicians try to describe abstract mental constructs that not necessarily have anything to do with reality.
Physics is applied, math is abstract
Submitted by Anonymous (not verified) on Tue Mar. 10, 2009 4:51 AM PDT.
Its obvious to anyone who watched their college cohort dive into the maw of investment banking that the key issue is mathematical application, not math itself. Physics - with some exceptions - tends to be much more applied than math, so it lends itself well to the concreteness of finance. You will see the same trend in career choice among math majors in the Applied Math streams.
It's also worth pointing out that the math involved in physics, computer science, etc. is among the most demanding you can learn as an undergraduate anyway, so it's not surprising that firms would recruit from those disciplines. I worked in the Harvard recruiting office for four years as a student, and I saw the requests.
I think it says something about your blog...
Submitted by rayrick (not verified) on Tue Mar. 10, 2009 5:21 AM PDT.
..that it seems to be read by so many physicists! Here I was thinking I would add some fresh insights as a physics Ph.D. who found the early 90's job market crowded and now does something more lucrative (though still science related) for a private company, but the prior posters have pretty much covered everything.
While there's a certain level of arrogance among physicists, many of whom have grown up feeling like they were smarter than most of the people around them, I wouldn't characterize them as an especially macho bunch. I'll go with the crowded job market and the appeal of applied math sorts of problems (and the skill set physicists bring to bear on such problems) as the most plausible explanations.
I don't know why, but it's
Submitted by Varecia on Tue Mar. 10, 2009 6:54 AM PDT.
I don't know why, but it's probably several of the factors mentioned above. What I want to know is why no one turns to economic anthropologists. They are the most under utilized of economic professionals, and we could use a fresh perspective.
Another physicist
Submitted by Jay (not verified) on Tue Mar. 10, 2009 7:23 AM PDT.
Physicists macho? Within their own domain of comfort they try to act macho and jock-ish. Yeah, scientists tend to be nerdy and most grew up being nerds surrounded by people who weren't nerds. When they go to college, they're around more intellectually minded people but many on their own wavelength. Then they go to graduate school and they're with a group of people who are willing to undergo the hazing involved with obtaining a PhD. That's when they're self-esteem levels increase. I grew up in a poor town where I saw 6th graders slap teachers in the face. When I tell them of my schools first shooting, I draw blank stares. And that's the kind of environment where you find REAL machismo and posturing.
By the way, I read most of Derman's autobiography (thought about becoming a quant after graduation) and frankly, its BORING.
Something funny. Some of the comments expressed this belief that physicists are good at problem solving. One of the waitresses at the local bar where they ALWAYS hang out (domain of comfort) told me that she HATED it when she had to serve the physics grad students. Why? Because it took them forever to figure out how to pay the bill.
The Real Difference
Submitted by Spike (not verified) on Tue Mar. 10, 2009 8:35 AM PDT.
I was in graduate study in a program at MIT (control systems engineering) that eventually started feeding Wall Street. I was there a few years too early for the Wall Street boom and bailed when I realized that virtually all the non-teaching jobs for me would be with military subcontractors.
I can tell you what the major difference is between mathematicians and the physicists and engineers that went to Wall Street. It's statistics and probability. The modeling that has been used to develop both instruments and predictors for the instruments are built on statistical models and require a fairly deep knowledge of both probability and statistics. Most mathematicians have the capability to understand this stuff, but they aren't trained in the application of it. Physicists and engineers (in the right field) spend a lot of time working with similar models to what has been used on Wall Street. The comments about macho/male-female are ridiculously off-base, it comes down to a skill set that a certain group of people has/had.
Math=Asperger's
Submitted by Stacy (not verified) on Tue Mar. 10, 2009 8:55 AM PDT.
Speaking as a soon to be bona fide mathematician myself, in addition to all the technical reasons for mathematicians staying in pure research, there is also the matter of personality. We, in general, don't mix. Why do physicists mix? Well, I would think it's in the nature of the material...
Why did physicists screw this pooch?
Submitted by Drowned Rat (not verified) on Tue Mar. 10, 2009 10:10 AM PDT.
Kevin's original question having been well answered by now, I'd like to move on to an interesting follow-up: is there anything about physicists specifically that may have contributed to the debacle now evident in our financial world?
I'll posit, perhaps provocatively, that it's because physics is the ultimate reductionist science. The way to great insight in physics has always been to take a phenomenon from the physical world that's not understood, abstract away all the complicated "junk" that's not "essential" to the problem at hand, and solve the resulting, simplest possible system, in the process of which you hope to learn something new and fundamental. Then you can apply this new understanding to a broader, more "real life" range of situations where the fundamental behavior is harder to see.
Of course, the ability to correctly separate the "junk" from the "essentials" is often the hardest part, and what separates the great scientists whose names will be in textbooks 200 years later from the rest of us. The huge majority of practicing physicists instead concern themselves with working out solutions to the equations that those few path-finders have previously identified as representing the essentials, the "systems of interest". They just assume that the equations represent something real and important, and work on (still very difficult) clever ways to find solutions of those equations.
My impression from what I've read of quants in the financial sector is that the process of abstracting away the junk to get at the "system of interest" was done by economists or finance professionals and never much thought about by the physics types. The latter just dived happily into finding solutions for the equations, applying their skills without worrying much about whether the equations represented the essentials of the problem (which they would be ill prepared to judge). The unspoken assumption was that the underlying premises and frameworks of economic or "financial theory" rest on ground as solid as those of, say, quantum mechanics, so it was safe for the everyday worker bees to ignore those questions. Oops.
Anybody agree with this? Am I out in left field?
Black swan leading to a death spiral
Submitted by SRW1 (not verified) on Tue Mar. 10, 2009 12:53 PM PDT.
The way I understand it, you're slightly in left field, but probably not by much.
Of course, any theoretical model, even the best-founded one can succumb to the gigo problem (garbage in - garbage out). However, the real issue with financial risk models appears to have been the fact that to get the boundaries of the probable outcome right 99% of the time is no good, if, when the 1% tail end of the statistical distribution hits you, you're totally unprepared for that black swan, and, as there are no circuit breakers, your whole system goes into a death spiral.
Shorter version
Submitted by SRW1 (not verified) on Tue Mar. 10, 2009 1:02 PM PDT.
Because the pooch was a black swan.
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