Mark Kermode’s (2014) review of The Wolf of Wall Street (Scorsese, 2013) opens somewhat confusingly with a quote from a review of the 1929 film of the same name that bemoans the “madness, women and swindling”. Michael Lewis (1989) told some less than legal tales in Liar’s Poker; Jordan Belfort went to jail, as recorded in his memoir The Wolf of Wall Street (2007); Gordon Gecko’s comeuppance in Wall Street (Stone, 1987) was supposed to be a lesson. Yet Lewis’s latest Flash Boys (2014) contains more of the same. Based on both cohort and longitudinal analysis, then, the probability of traders breaking the law to make more money is significantly higher than for any other profession, as is the probability of them getting arrested. The stats show that bankers are terrible at interpreting stats.
Ye Olde Bankery
Bankers have always need statistics. Back in the days of the inn-keeper minding the merchant’s stash of gold and loaning it out in the meantime, he needed to estimate the probability of the cargo ship carrying said merchant sinking, and the chances of him coming back for his gold before the horse-and-cart loan to the local smith was repaid. These days there are people whose job it is to calculate the probability of you defaulting on your mortgage, and if you do default, the probability that the loan will ever be repaid. Statistical analysis of trading now relies on real-time processing of millions of trades and financial reports, usually employing Bayesian probabilities as it happens.
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