Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Mandelbrot Beats Economics in Fathoming Markets

bloomberg.com

Post reply on HN
Print view View original

31–40 of 59 posts

Re: Mandelbrot Beats Economics in Fathoming Markets

#31

Post by Symmetry »

tbrownaw wrote: post #21
TheCowboy wrote: post #16

Earlier quoted context omitted.

There are many models considered common knowledge in economics that possess strong explanatory and predictive power. Though in recent times people tend to pick and choose which models they base their thinking on, depending upon their chosen political agenda. Brief example: There has been a lot of political hand waving about possible inflation or even hyperinflation. If you look at a version of the Phillips Curve, une…

> Phillips Curve Wikipedia seems to think that the 1970s in the US show that it doesn't work.

Yes, the Philips Curve is pretty much the poster child example of the Lucas Critique. That is, observed invariants often cease to be invariant when policy changes. When we well and truly went off the gold standard the Philips Curve ceased to have predictive power for the US economy.

More details: http://www.themoneyillusion.com/?p=9677

Re: Mandelbrot Beats Economics in Fathoming Markets

#32

Post by dimitar »

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…

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'.

Re: Mandelbrot Beats Economics in Fathoming Markets

#33

Post by dereg »

beagle3 wrote: post #12
smokeyj wrote: post #10

I'm always perplexed by the notion of trying to "model" an economy. I don't understand how aggregate statistics about a market reveal any insight into how to create sustainable value. I feel like it's similar to knowing the past winning numbers on a Roulette table, because it provides no actionable insight to future winning numbers.

On the contrary. Taking your analogy further: In economy, you find out that whenever "Gentleman Jim" bets, he tends to win 70% of the time, rather than the 49% everyone else gets. Now, depending on policy, you either: a) forbid jim to play b) readjust jim's token-to-money conversion ratio so he is on par with other players c) invest your money with jim Note, though, that this being a zero sum game, anything other tha…

Nassim Taleb addresses this sort of thinking. He calls it a "ludic fallacy", which is the over application of games to our down detriment. http://en.wikipedia.org/wiki/Ludic_fallacy

Re: Mandelbrot Beats Economics in Fathoming Markets

#34

Post by ndefinite »

cynicalkane wrote: post #30

This article is a straw man. I don't think most economists would seriously suggest that the market lives, should live, or ideally would live in a static equilibrium. I know that most economists wouldn't say they can predict the fluctuations of the market. The ones that think they can, of course, get disproportionate amounts of airtime on CNBC or wherever, so it's an understandable misapprehension.

I agree with you. I stopped reading at

"almost without exception, economists since Adam Smith have viewed economic systems as being in balance or equilibrium, and as having a natural tendency to return there after any disturbance. In this view, crises can be understood only as anomalies, the consequences of unusual outside shocks."

That quote shows a huge lack of contextual knowledge. A more accurate quote could be that since BEFORE Adam Smith Economists have disagreed on this point. (Menger/Walras, Rothbard/Schumpeter etc etc etc)

Re: Mandelbrot Beats Economics in Fathoming Markets

#35

Post by nasmorn »

balinvadasz wrote: post #26
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.

I disagree completely. What about all inherent biases which make humans do things not in their best interest (they just think it is in their best interest, but many times they don't think, they panic) ? See: - Loss aversion http://en.wikipedia.org/wiki/Loss_aversion - Sunk cost effects: http://en.wikipedia.org/wiki/Sunk_cost - Status quo bias: http://en.wikipedia.org/wiki/Status_quo_bias

As a trained economist I can attest to the fact that most micro economist view these issues you raised as basically irrelevant. I understand that it is basically damning experimental evidence but it is completely disregarded.

Re: Mandelbrot Beats Economics in Fathoming Markets

#36

Post by robrenaud »

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…

For those confused readers, superavit is the Spanish and Portuguese word for surplus.

Re: Mandelbrot Beats Economics in Fathoming Markets

#37

Post by JonnieCache »

dimitar wrote: post #32
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…

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?

Re: Mandelbrot Beats Economics in Fathoming Markets

#38

Post by _delirium »

nasmorn wrote: post #35
balinvadasz wrote: post #26

Earlier quoted context omitted.

I disagree completely. What about all inherent biases which make humans do things not in their best interest (they just think it is in their best interest, but many times they don't think, they panic) ? See: - Loss aversion http://en.wikipedia.org/wiki/Loss_aversion - Sunk cost effects: http://en.wikipedia.org/wiki/Sunk_cost - Status quo bias: http://en.wikipedia.org/wiki/Status_quo_bias

As a trained economist I can attest to the fact that most micro economist view these issues you raised as basically irrelevant. I understand that it is basically damning experimental evidence but it is completely disregarded.

I'm not very up on microeconomics, but isn't behavioral economics a hot field currently? Or are they still seen as outside the mainstream?

Re: Mandelbrot Beats Economics in Fathoming Markets

#39

Post by dreamdu5t »

balinvadasz wrote: post #26
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.

I disagree completely. What about all inherent biases which make humans do things not in their best interest (they just think it is in their best interest, but many times they don't think, they panic) ? See: - Loss aversion http://en.wikipedia.org/wiki/Loss_aversion - Sunk cost effects: http://en.wikipedia.org/wiki/Sunk_cost - Status quo bias: http://en.wikipedia.org/wiki/Status_quo_bias

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.

Re: Mandelbrot Beats Economics in Fathoming Markets

#40

Post by _delirium »

dreamdu5t wrote: post #39
balinvadasz wrote: post #26

Earlier quoted context omitted.

I disagree completely. What about all inherent biases which make humans do things not in their best interest (they just think it is in their best interest, but many times they don't think, they panic) ? See: - Loss aversion http://en.wikipedia.org/wiki/Loss_aversion - Sunk cost effects: http://en.wikipedia.org/wiki/Sunk_cost - Status quo bias: http://en.wikipedia.org/wiki/Status_quo_bias

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 cliff was there, among other possibilities.
Post reply on HN