The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood.
Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.
- J.M. Keynes
Monday, January 25, 2016
Monday, January 11, 2016
Complexity Economics - A Darwinian World...
The notion that the economy is an evolutionary system is a radical idea, especially because it directly contradicts much of the standard theory in economics developed over the past one hundred years. It is far from a new idea, however. Evolutionary theory and economics have a long and intertwined history. In fact, it was an economist who helped spark one of Charles Darwin's most important insights. In 1798, the English economist Thomas Robert Malthus published a book titled An Essay on the Principle of Population, as It Affects Future Improvements of Society, in which he portrayed the economy as a competitive struggle for survival and a constant between population growth and humankind's ability to improve its productivity. It was a race that, Malthus predicted, humankind would lose. Darwin read Malthus's work and described his reaction in his biography.
Here then I had at last got a theory by which to work.
Darwin's great insight into the critical role of natural selection in evolution was thus inspired by economics. It was not long after Darwin published his Origin of Species that the intellectual currents began to flow back the other way from evolutionary theorists to economists. In 1898, the economist Thorstein Veblen wrote an article that still reads remarkably well today arguing that the economy is an evolutionary system.
In October 1838, that is fifteen months after I had begun my systemic enquiry, I happened to read with amusement "Malthus on Population", and being well prepared to appreciate the struggle for existence which everywhere goes on from long-continued observation of the habits of animals and plants, it once again struck me that under these circumstances favorable variations would tend to be preserved and unfavorable ones to be destroyed. The result would be the formation of a new species.
Here then I had at last got a theory by which to work.
Darwin's great insight into the critical role of natural selection in evolution was thus inspired by economics. It was not long after Darwin published his Origin of Species that the intellectual currents began to flow back the other way from evolutionary theorists to economists. In 1898, the economist Thorstein Veblen wrote an article that still reads remarkably well today arguing that the economy is an evolutionary system.
Modular-Finance~in~Motion...
In Theory...Theory and Practice are the Same... In Practice they Are Not...
The Folly of Modern Finance....
"There is a burning desire to think of finance as a science like physics or engineering...
We want to think it can be measured cleanly, with precision, in ways that make sense. If you think finance is like physics, you assume there are smart prople out there who can read the data, crunch the numbers, and tell us exactly where the S&P 500 will be on Dec 31, just as a physicist can tell us exactly how bright the moon will be on the last day of the year.
But Finance isn't like physics. Or, to borrow an analogy from investor Dean Williams, it's not like classical physics, which analyzes the world in clean, measurable ways. It's more like quantum physics, which tells us that - at the particle level - the world works in messy, disorderly ways, and you can't measure anything precisely because the act of measuring something will affect the thing you are trying to measure (Heisenberg's uncertainty principle). The belief that finance is something precise and measurable is why we listen to strategists. And I don't think that will ever go away.
Finance is much closer to something like sociology. It's barely a science, and driven by irrational, uninformed, emotional, veneful, gullible, and hormonal human brains."
Hat tip ~ Morgan Housel, The Motley Fool
We want to think it can be measured cleanly, with precision, in ways that make sense. If you think finance is like physics, you assume there are smart prople out there who can read the data, crunch the numbers, and tell us exactly where the S&P 500 will be on Dec 31, just as a physicist can tell us exactly how bright the moon will be on the last day of the year.
But Finance isn't like physics. Or, to borrow an analogy from investor Dean Williams, it's not like classical physics, which analyzes the world in clean, measurable ways. It's more like quantum physics, which tells us that - at the particle level - the world works in messy, disorderly ways, and you can't measure anything precisely because the act of measuring something will affect the thing you are trying to measure (Heisenberg's uncertainty principle). The belief that finance is something precise and measurable is why we listen to strategists. And I don't think that will ever go away.
Finance is much closer to something like sociology. It's barely a science, and driven by irrational, uninformed, emotional, veneful, gullible, and hormonal human brains."
Hat tip ~ Morgan Housel, The Motley Fool
Saturday, January 9, 2016
Modular-Finance Theory...
Theories of "complex adaptive systems" (of which this is one) follow the basic structures-context-changes template, but in addition, they are combinatorial: complex structures are built up of simple structures and complex changes occur as a result of combinations and sequences of simple changes. ( DR p11)
Saturday, January 2, 2016
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