Big Primes, Small Numbers, Sarah Palin and the Financial Crisis

Numerically interesting is the fact that California congressman Mike Thompson recently obtained a $211,000 grant for USDA research in France to study the control of a kind of fruit fly.

Note that this is only $61,000 more than the cost of Palin's campaign wardrobe. I kid you not.

Did Mathematicians Cause the Financial Crisis?

Finally, I'd like to note that some commentators have blamed mathematicians and physicists for the financial crisis. The claim is that their introduction of derivatives and other unfathomably complex financial instruments somehow led to the credit crunch and related maladies.

The counterargument points out that mathematicians are not at fault if the various mathematical models they constructed are misused. For example, I often come across people who misinterpret some piece of statistical software and then draw absurd conclusions from their misinterpretations.

On the other hand, there might be a small bit of responsibility that can reasonably be assigned to mathematicians. If the assumptions underlying a particular mathematical model are unwarranted, then the mathematicians who constructed it are at least partially culpable.

An example of an earlier crisis, the collapse of the Long-Term Capital Management hedge fund in 1998, is relevant. Two of the fund's founding partners, Robert Merton and Myron Scholes, were Nobel Prize winners, but despite their presence on the board of LTCM, this earlier debacle roiled the world's financial markets and, had not emergency measures been enacted, might have seriously damaged them.

Here too, however, it's not true that the LTCM collapse was primarily the fault of the Nobel laureates and their models. Most analysts believe it was a consequence of a "perfect storm" in the markets, a vanishingly unlikely confluence of chance events. The specific problem encountered by LTCM was, as it is today, a lack of liquidity in world markets, and this was made worse by the disguised dependence of a number of factors that were assumed to be independent.

Consider, for illustration's sake, the probability that 3,000 specific people will die in New York on any given day. Provided that there is no connection among them, this is an impossibly minuscule number. But if most of these people work in a pair of buildings, the independence assumption fails. The 3,000 deaths are still extraordinarily unlikely, but not impossibly minuscule.

Bottom Line

So whether the topic, like 13-million-digit Mersenne primes, seems far removed from our everyday lives or, like the financial crisis, promises to affect our houses, jobs and well-being, mathematics is implicated. Let's hope there are enough young people who appreciate scientific research and are good at quickly discerning the difference between eight yellow dots and seven blue ones. Without them we'll end up behind the eight ball.

John Allen Paulos, a professor of mathematics at Temple University, is the author of the best-sellers "Innumeracy" and "A Mathematician Reads the Newspaper," as well as of the just-released "Irreligion: A Mathematician Explains Why The Arguments for God Just Don't Add Up " His "Who's Counting?" column on ABCNews.com appears the first weekend of every month.

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