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Joseph Stiglitz on the Problem With Wall Street's Risk Models

Tuesday - 5/14/2013, 4:05pm  ET

"Investors should be skeptical of history-based models," Warren Buffett warned in Berkshire Hathaway's 2009 annual shareholder letter. "Constructed by a nerdy-sounding priesthood using esoteric terms such as beta, gamma, sigma and the like, these models tend to look impressive. Too often, though, investors forget to examine the assumptions behind the symbols."

"Our advice: Beware of geeks bearing formulas."

In this clip, Nobel Prize-winning economist Joseph Stiglitz discusses the problem with Wall Street's risk models in a recent interview I conducted in his office at Columbia Business School. Have a look (transcript follows):