smart folks are so used to being "right" in every day life they cant stand it when mr. market tells them they are wrong...so they hold or worse yet, add to the losing position until they are both the smartest & poorest person in the room.
This is probably the most insightful thing anyone said here. For most people, blowing up either means losing their own money (even as a fund, the founders are usually heavily invested) or means completely destroying their career. However, once you reach a certain level of fame (phd or no phd), there is very little downside to taking outsize risks. There are multiple examples of traders blowing up (quants or otherwise) and moving on to another venture.
Actually, they still are the smartest guys in the room. If I can collect big fee's from AUM long enough to become a multimillionaire before I blew up the fund and walked away rich, I'm ok with that. Sure beats flipping stocks and having to be smart all the time.