Ethics and responsibility · Ethics
Who is responsible when a trusted mathematical model fails?
Banks and investors use mathematical models to price risk. When those models fail, the consequences can be global. This question asks how responsibility should be shared between the model, its makers and its users.
Claims
- Models are tools; responsibility lies with the people who decide to rely on them beyond their limits.
- Model makers who state their assumptions clearly have met their responsibility.
Counterclaims
- The authority of mathematics can discourage users from questioning a model, so its makers share responsibility for how confidently it is presented.
- Some risks, such as rare extreme events, are systematically underestimated by common models, so the mathematics itself can mislead.
Real-life situations from mathematics
Long-Term Capital Management
This hedge fund, whose partners included the Nobel-winning economists Robert Merton and Myron Scholes, relied heavily on mathematical models. In 1998 it suffered huge losses, and the US Federal Reserve organised a rescue by banks to avoid wider damage.
The 2008 financial crisis
Many analyses of the 2008 crisis argued that models used to price mortgage-linked securities underestimated how likely it was that many borrowers would default at the same time.
Check dates and figures in a reliable source before you use them, and cite that source.
Use this in your TOK work
Essay. Fits titles about trust in experts, models and the ethics of knowledge.
Exhibition. A bank statement or a loan agreement showing an interest rate is an everyday object for a prompt about consequences of knowledge.
Link it to the prescribed title or the exhibition prompt you are working on, in your own words. See using maths examples in your essay and choosing exhibition objects.
Themes and study heading
Knowledge and politics Knowledge and technology Ethics
Responsibility in making and using mathematics.