William H Janeway

High risk and a leap in the dark – venture capital isn't for everyone. How can anyone seeking to invest in it gain a better understanding of the risks and potential rewards? For the investor who wants to add a bit of spice to their dealings, venture capital looks like the perfect solution. The risks are sufficiently vertiginous to satisfy any adrenaline junkie – and the returns can be astonishing. Take Google, the small technology firm that two venture capital firms (Kleiner Perkins Caulfield & Byers and Sequoia Capital) paid around $25m for a 20 per cent share of in 1999, and which now has a market capitalisation of more than $556bn. But assessing the possible returns of venturing capital is not straightforward. The very concept of an "average" return is meaningless: while the occasional huge success can deliver stratospheric returns, most investments fail or succeed only to a modest extent. So if the chances of striking it that lucky are low, easier access to data for returns on a broader range of venture capital investments could at least help identify factors that might highlight the talents of fund managers able to make wise investment choices. It would also enable…

Has mathematics become too complex and too dominant a force in modern economics? Yes, says Cambridge Judge Business School's Michael Kitson; no, says economist Dr William H. Janeway. Here both experts set out their views on what's needed to help avoid a repeat of the recent financial crisis. Mathematics is an indispensable tool for economists – but has it become too dominant in economics? Michael Kitson, Senior Lecturer in International Macroeconomics at Cambridge Judge Business School, suggests that an over-reliance on mathematics may have been an important contributory factor in the failure of most economists – in business, in government and in academia – to predict the international financial crisis. In the wake of that crisis, many economists have questioned the principles of economics as practised today, particularly ideas around rational behaviour, or the idea that the economy will naturally return to equilibrium. "But often their solution seems to be that the mathematics used wasn't good enough, that you just need to change the assumptions upon which the models were based," says Kitson. "Better maths will help, but what will help more would be to allow economics to become an eclectic subject again. You need talented mathematicians, but they need…

In a debate with Cambridge Judge Business School's Michael Kitson, Dr William H. Janeway, the famed American venture capitalist and economist, argues that economics is now the most data-rich of the social sciences and thus requires more complex underlying models. I do not believe that economics went wrong because of using mathematical models. It's more complicated than that. The first question is whether it is possible to understand complex processes without to some extent constructing models. Any attempt to examine the dynamic relationships and interdependencies within a complex system is going to require simplified models that isolate some elements from the whole, so that they can be examined with rigour. In fact, the problem with economics is that the maths has been too simple. The mathematics adopted by economists from statistical mathematics in the late nineteenth century required radical simplification: the construction of homo economicus, the "rational" maximising agent in an economics abstracted from the other social sciences and from society and culture. Now economics is the most data-rich of the social sciences, because it's largely about transactions. So it lends itself to quantification and statistical analysis. In turn, any such analysis requires deployment of an underlying model. The more…