The Formula That Killed Wall Street

The new Wired cover story is interesting, since it's the most important current event.
It's about the Wired on the Gaussian Copula function, which made it easy to calculate risk on Wall Street. Take a big bunch of financial instruments, each with their own risks, through them into the Copula function, and presto: you get the net risk.
It never took into account several important game changing factors.
Two quick examples found in the article:
1. a girl in elementary school has a 5% chance of winning the spelling bee. Once girl A wins it then girl Bs chance goes from 5% to 0%.
2. a girl in elementary school has a 5% chance of getting lice. A 5% chance that skyrockets after her twin sister who sits next to her in class gets lice.

these are the sort of things that the equation doesn't account for.
you may have a 5% chance of defaulting on your home loan, and you may have a 5% chance of losing your job, but AFTER you lose your job the probability of losing your house goes up, it doesn't remain at 5%

The Formula That Killed Wall St.