Too Much Faith in Models

Posted on September 29, 2008
Filed Under Business |

I read an interesting article today asking where were the quants? After all, wasn’t their job to model all this risk and help avoid it? Their failure reminds me of my first encounter with a simulation error.

Years ago when I was designing digital logic circuits, we had a circuit that was failing it’s simulation. These simulations typically gave signal level outputs, and we knew what they should be (because we controlled the data going in) so we wrote programs to check the expected output with the real output and show us any anomalies. After a couple days of trying to debug one particular error, I finally decided the problem was with the software, not the design.

Now, you have to understand that blaming everything but the design is a common trait for newbie designers. So, having a couple years of digital design experience under my belt, the attitude of my boss when told that the software was wrong was “come on Rob, you should know better by now. Check the design again.” But I was convinced the design was correct, so I went out on a limb and built the circuit and tested it for real in the lab. It passed. Now, everyone on the team was suddenly concerned about this discrepancy.

To make a long story short, one of the most advanced engineers on our team figured out that the simulation software was adding a delay to a design element that had no delay. We had inserted the element just to simplify a signal name change, and while I won’t go into the details of how hardware simulators work, the crux of it is that they need to insert pauses to update all the signals, and a pause was incorrectly being inserted here that affected the timing of all the later signal outputs.

The lesson here is that you shouldn’t work with models that you don’t understand, because on the rare occasion they are wrong, you don’t have the experience and/or intuition to know it. Watching the Wall Street collapse, I wonder how many people were trading on models that they didn’t really understand.

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