The eggheads who run Wall Street's "quant funds," using complex algorithms to play the markets but neglecting the human element, screwed up as badly as everyone else during the Dow's recent dive. "They are very smart in front of a textbook but not smart enough to understand very elementary things in reality," one critic tells the Washington Post.
In fact, the Dow's drop was rooted at least partially in massive selloffs by the panicking quant funds, which couldn't react to unexpected occurrences. One expert says the models don't sufficiently take into account extremely rare events like the recent credit clampdown. What's more, the quant funds all invest quite similarly, so mistakes can add up quickly.