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Mandelbrot Beats Economics in Fathoming Markets

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Re: Mandelbrot Beats Economics in Fathoming Markets

#41

Post by dreamdu5t »

pixcavator wrote: post #29
dreamdu5t wrote: post #19

Earlier quoted context omitted.

The way it's typically used today is meaningless. It came from economists asserting the difference between modeling human behavior vs. the behavior of physical objects. In that sense it is not meaningless. It's an important distinction that in order to model human behavior, we have to accept that people's goals are myriad and constantly shifting, and that we can only come to know their goals or preferences by them be…

>"economists asserting the difference between modeling human behavior vs. the behavior of physical objects" Is it really that different? Try to attach an object to several springs and see if it behaves "rationally".

It is very different.

Physical objects do not have free will. They don't act towards goals. They conform to unchanging mathematical patterns.

Humans do not. What I do today cannot be accurately used to determine what I will do tomorrow.

Re: Mandelbrot Beats Economics in Fathoming Markets

#42

Post by saraid216 »

leot wrote: post #28
dreamdu5t wrote: post #9

Earlier quoted context omitted.

"Rational agents" in the context of economics does not mean people make the best choices for maximizing capital preservation. It means that human behavior is inherently rational because only an individual knows if his choices were in his best interest.

Capitalism forces people to try to be rational. To claim that humans are inherently rational is to deny the widespread existence of psychological pathologies.

Like the hyperrationality of sociopaths?

Re: Mandelbrot Beats Economics in Fathoming Markets

#43

Post by dreamdu5t »

arijo wrote: post #22
dreamdu5t wrote: post #15

Earlier quoted context omitted.

The ECB purchases member countries' debt. They move bad or weak assets off the balance sheets of the weak member banks into the balance sheets of the ECB. The stated purpose of the European Financial Stability Facility is to pool sovereign debt. The owners and shareholders of the european central bank are the central banks of member countries. I didn't say anything about northern European countries being superior. It…

The ECB buys souvereign debt incurred by countries that have no option but to borrow money from banks that demand very high interest rates - much higher than the interest rates the ECB charges comercial banks. The purpose of the European Financial Stability Facility is to prevent german and french banks to go bankrupt in case any of the attacked countries default. "It's a completely factual statement to say some coun…

I don't know what your trip is with "northern countries." I never brought up specific countries or mentioned Spain or Portugal.

I was simply pointing out a fact that the ECB pools sovereign debt, and because of that will suffer from the tragedy of the commons - perverted incentives.

Re: Mandelbrot Beats Economics in Fathoming Markets

#45

Post by VladRussian »

bandushrew wrote: post #23
JonnieCache wrote: post #3

It staggers me that so much prevailing thought still leans towards the idea of complex, highly connected systems as inherently stable, with their natural state as equilibrium. It dates back to the victorians, with their "All things Bright and Beautiful" view of god's creation, which was shattered by darwin. How long it takes us to learn the important lessons. This view was prevalent in the world of ecology for decade…

I think maybe a key mistake economists make regularly is equating an equilibrium with a lack of change. In nature stability - on average - is often achieved by matching peaks and troughs, not by a lack of change (nature abhors a lack of change) (see vacuum fluctuations)

>In nature stability

or at least in somewhat understandable models beyond simple linear ones:

http://mathworld.wolfram.com/StrangeAttractor.html

Re: Mandelbrot Beats Economics in Fathoming Markets

#46

Post by [deleted] »

bandushrew wrote: post #23
JonnieCache wrote: post #3

It staggers me that so much prevailing thought still leans towards the idea of complex, highly connected systems as inherently stable, with their natural state as equilibrium. It dates back to the victorians, with their "All things Bright and Beautiful" view of god's creation, which was shattered by darwin. How long it takes us to learn the important lessons. This view was prevalent in the world of ecology for decade…

I think maybe a key mistake economists make regularly is equating an equilibrium with a lack of change. In nature stability - on average - is often achieved by matching peaks and troughs, not by a lack of change (nature abhors a lack of change) (see vacuum fluctuations)

[deleted]

Re: Mandelbrot Beats Economics in Fathoming Markets

#47

Post by jacques_chester »

JonnieCache wrote: post #3

It staggers me that so much prevailing thought still leans towards the idea of complex, highly connected systems as inherently stable, with their natural state as equilibrium. It dates back to the victorians, with their "All things Bright and Beautiful" view of god's creation, which was shattered by darwin. How long it takes us to learn the important lessons. This view was prevalent in the world of ecology for decade…

> It staggers me that so much prevailing thought still leans towards the idea of complex, highly connected systems as inherently stable, with their natural state as equilibrium.

I think it's more that

1. Systems that spin irreversibly out of equilibrium usually fall apart and so are not observed; and

2. For a long time, there was a dearth of mathematical tools for dealing with complex or chaotic systems.

Most attacks on economists about believing in this or that $obviously_ridiculous_belief are strawmen, giving credit neither for the subtleties of the actual concepts nor the self-awareness of economists themselves.

Re: Mandelbrot Beats Economics in Fathoming Markets

#48

Post by jacques_chester »

saurabh wrote: post #17
adaml_623 wrote: post #6

Earlier quoted context omitted.

I agree with your first 2 sentences but I think that Adam Curtis's 'films' should not be watched by anyone. Especially someone trying to think about something like stability and connected systems. His train of thought narration and brilliant music is just opium for people who aren't concentrating.

I agree. I have watched almost all of his documentaries. In retrospect, everything looks like a con. He narrates history as if it was a big plan by the people in power but he forgets how utterly chaotic the world is. And yes, it is opium and I enjoyed watching his work.

Curtis basically falls for the animistic fallacy: that all events are caused by conscious agents. This is the same pathway that leads to both religion and conspiracy theorists.

Re: Mandelbrot Beats Economics in Fathoming Markets

#49

Post by jacques_chester »

JonnieCache wrote: post #37
dimitar wrote: post #32

Earlier quoted context omitted.

Negative feedback in markets often brings stability to a dynamical system and there is reason that there are negative feedback loops in markets. A popular model of a negative feedback relationship in markets is called the 'Demand curve'.

Can this still be said when we're considering the economy of a whole country, or the whole world?

Both. Trade exists across invisible lines, even when the owners of the invisible lines forcibly try to prevent them.

Re: Mandelbrot Beats Economics in Fathoming Markets

#50

Post by dreamdu5t »

_delirium wrote: post #40
dreamdu5t wrote: post #39

Earlier quoted context omitted.

The problem is those bias' can only be revealed through action. No matter what you assert somebody's preference is, the preference is only revealed through action. You can say me going to football games is not in my best interest, but the fact that I act by going to a football game demonstrates that it is.

This requires asserting as an axiom that people never make mistakes or get tricked, though, are always aware of all relevant information, and are in possession of an accurate mental model of how their actions are likely to affect themselves and the world. I mean, you can't really infer that someone's preference was to fall off a cliff by the mere fact that they did fall off it; they might not have realized that the c…

> This requires asserting as an axiom that people never make mistakes or get tricked

Not having all the information doesn't negate that I'm the one making the choice. I think you're still referring to "rationality" in the logical sense of 2+2=4 being rational, not in the context of economics.

> I mean, you can't really infer that someone's preference was to fall off a cliff by the mere fact that they did fall off it; they might not have realized that the cliff was there, among other possibilities.

I didn't say all preference is revealed through a single action. I was trying to illustrate that action is the only way to determine preference.

For example, if I have a choice of going to McDonald's or Wendy's, you can't know which one I actually prefer unless I act and choose one over the other (thus preference is ordinal, not cardinal).

If I go to Wendy's, it would be absurd to say that I preferred McDonald's, since I chose to go to Wendy's. Thus, only through action is preference revealed. In the same way, it's absurd to say that someone else made a mistake when they bought an Apple product, because you're speaking of your preferences, since you can't actually know what's going on the head of the other person.

What "rational agent" means in the economic context is, that if Person A goes to Wendy's that says nothing about Person B's preference for Wendy's, since both have free will unlike inanimate objects.

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