When the eggheads at Long Term Capital Management hedge fund started trading a decade ago, they solemnly believed that their cutting-edge financial models gave them an infallible edge.

But in the event, these Nobel Prize-winning economists were tripped up by two fundamental problems: first, their clever models did not take account of “crowded exits” – or the possibility that investors might panic and head for the door, creating wild price swings; and second, these rational models failed to recognise that seemingly unrelated assets could be linked simply by being owned by the same investors – leading to the type of “irrational” market swings that eventually destroyed LTCM.