Robert Merton delivered the The Nathan and Beatrice Keyfitz Lectures in Mathematics and the Social Sciences this past Thursday to a delighted audience of about 300 people who packed the large auditorium at the Bahen Center. He touched on many important aspects of the financial crisis, including the structural challenges posed by the intrinsic "put option" embedded in any risky loan, the role of composition when seemingly prudent actions taken by individuals in isolation lead to large systemic risks, and the limitations of mathematical models, which in his view cannot be judged separately from their users and applications. Contrary to populist clamors for "common sense", he said that the crisis accentuates the need for more quantitative research in finance, since none of these problems will go away by a magical return to "simplicity" in the financial world. Needless to say, I agree with all that, otherwise we would not have gone ahead with a thematic program on this subject.
Apart from the lecture itself, I had the privilege to host him at Fields during the afternoon and to take him out for dinner afterward together with other distinguished guests associated with the Institute. We were unanimously impressed by how engaging he was, not only by being ready to share personal experiences from the vantage point he occupied for the past 40 years, but also being genuinely interested in the research ideas that we timidly put forward for discussion.
At least for me, it was undoubtedly the high moment of the program so far, the kind of stuff that makes it all worthwhile.