Mandelbrot Beats Economics in Fathoming Markets • Hacker News Board

Re: Mandelbrot Beats Economics in Fathoming Markets

#51

Post by JonnieCache » Wed, Dec 07, 2011, 10:29 PM UTC

jacques_chester wrote: post #48

saurabh wrote: post #17

Earlier quoted context omitted.

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.

I have always thought Curtis' overall theme (or one of them) was of powerful people drawing their grand plans, but always ultimately having them thwarted by external circumstances out of their control.

Re: Mandelbrot Beats Economics in Fathoming Markets

#52

Post by hristov » Wed, Dec 07, 2011, 10:31 PM UTC

This article is pretty idiotic and yet another another attempt by new economists to try to excuse the terrible financial policies of the last 10 years under the silly and completely wrong slogan "nobody could have possibly predicted it would all turn out this way." This of course was the same excuse used for the housing crisis (even though most of the country actually predicted it) and for the Iraq debacle.

Take this quote "Nothing in mainstream “neoclassical” finance theory explains these persistent crises." That may be true but if so it merely reflects a weakness of neoclassical finance theory and not of our knowledge of economics as a whole.

In fact Keneyesian theory explains the boom and bust cycle as well as the periodic crises very well and has a pretty good solution for dealing with them. In fact we did deal with them pretty well during the postwar period of expansion and prosperity. Then of course we started progressively departing from Keneysian theory under the tutelage of the Chicago school and the crises, as if by clockwork, started intensifying and the crashes started getting worse.

So the answer is obvious, the theory is well known. The problem is that the new economists do not want to admit it because (i) they do not want to admit they are wrong and (ii) they sure as hell do not want the correct medicine that Keynesian theory prescribes.

So they go on with this ridiculous farce where they pretend that the economics crises are some unexplained phenomenon.

Re: Mandelbrot Beats Economics in Fathoming Markets

#53

Post by jacques_chester » Wed, Dec 07, 2011, 10:34 PM UTC

JonnieCache wrote: post #51

jacques_chester wrote: post #48

Earlier quoted context omitted.

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.

I have always thought Curtis' overall theme (or one of them) was of powerful people drawing their grand plans, but always ultimately having them thwarted by external circumstances out of their control.

I personally felt that he

1. Identifies baddies and eeeevil plaaaans

2. Said plans go wrong because evil is dumb

3. Smugness.

Or something like that. Essentially his problem is mixing history with histrionics. He's not a documentarist, he's an entertainer. A music video director.

Re: Mandelbrot Beats Economics in Fathoming Markets

#54

Post by _delirium » Wed, Dec 07, 2011, 10:52 PM UTC

dreamdu5t wrote: post #41

pixcavator wrote: post #29

Earlier quoted context omitted.

>"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.

Ah, but that's assuming something very much in debate. Humans are actually quite predictable in many ways, though not as well as springs (currently). Aggregate behavior can often be predicted to reasonable accuracy, at least as well as with other complex, non-human systems like the weather. And even individual behavior can be predicted with enough information (and neuroscientists can even predict some specific decisions seconds in advance, given the right instrumentation). Just knowing some demographic and contextual information about a person hugely reduces your error on predicting what their "choices" will be.

Re: Mandelbrot Beats Economics in Fathoming Markets

#55

Post by leot » Wed, Dec 07, 2011, 11:22 PM UTC

saraid216 wrote: post #42

leot wrote: post #28

Earlier quoted context omitted.

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?

or depression

Re: Mandelbrot Beats Economics in Fathoming Markets

#56

Post by fanf2 » Wed, Dec 07, 2011, 11:25 PM UTC

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'.

There is also positive feedback in markets due to irrational exuberance and herd behaviour.

Re: Mandelbrot Beats Economics in Fathoming Markets

#57

Post by dreamdu5t » Wed, Dec 07, 2011, 11:27 PM UTC

_delirium wrote: post #54

dreamdu5t wrote: post #41

Earlier quoted context omitted.

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.

Ah, but that's assuming something very much in debate. Humans are actually quite predictable in many ways, though not as well as springs (currently). Aggregate behavior can often be predicted to reasonable accuracy, at least as well as with other complex, non-human systems like the weather. And even individual behavior can be predicted with enough information (and neuroscientists can even predict some specific decisi…

It's a little different because the weatherman isn't forcing his predictions on you.

The debate takes on a different dimension when you're talking about political policy, when the weatherman passes a law forcing everyone to wear raincoats on days of high chances of precipitation.

Re: Mandelbrot Beats Economics in Fathoming Markets

#58

Post by ctchocula » Thu, Dec 08, 2011, 1:07 AM UTC

Indy_Dh wrote: post #20

Symmetry wrote: post #4

Wait, did economists think at one point that the distribution of movements in a stock market followed a Gaussian pattern? I mean, amateur statisticians approximate things to Gaussian distributions all the time to make the math easier, but that's hardly a problem unique to economics. As to the Omori distribution, have they actually succeeded in making forward looking predictions with it, or were they just fitting a mo…

When they say "fat end of the tail," a Gaussian distribution is not necessarily implied. They are simply saying that when you go to the extreme ends of any distribution, almost any statistical model will begin to fall apart. If you look normalized data and look at a Q-Q plot, you will no doubt see problems at the extremes of the distribution, making those predictions more difficult. As for the Omori distribution, I d…

Black swan theory is an interesting read.

Re: Mandelbrot Beats Economics in Fathoming Markets

#59

Post by mathattack » Thu, Dec 08, 2011, 10:29 AM UTC

It is a fast oversimplification to say that economists lose and Mandelbrot wins. Eugene Fama (http://en.wikipedia.org/wiki/Eugene_Fama) whose Phd thesis coined the concept of stock prices following a random walk simultaneously wrote about Mandelbrot distributions (http://www.jstor.org/pss/2350971).