Weekend Reading
26 March 2010
The Ignominious End of the Last Living Nazi War Criminal.
And the Public Caste Continues to Rise.
Reason Taking David Brooks to School, as Usual.
Here’s to Hoping the Academic Bubble Bursts.
Ancient Inventions, a Video.
John Eastman for California Attorney General.
And finally, a bedtime story: The Libertarian Alarm Clock.
Per taking David Brooks to school:
Another critique of economic modeling (besides their demonstrated failure to predict) is a simple thought experiment. Let’s imaging that you were smart enough to come up with an algorithm and computation module that could accurately predict stock market prices at any given time in the future. The first time you made a trade based on that information, the trick would stop working. You see, the predictor was designed to predict a market in which there was no machine that could predict the market and make bets accordingly. A new machine would need to be designed with algorithms that took this into account. Again, you guessed it, as soon as a stock purchase were made it would cease to work, as it was designed to predict a market in which one machine was predicting stock prices, not with two.
To put it another way, if you want to know the temperature of something, you put a thermometer in it. The thermometer in not likely to be the same temperature as what you are testing, and the resulting temperature that you end up with is actually an average of the temperatures divided by the masses of both the thermometer and whatever it is you are checking the temperature of.
One more… Heisenberg’s uncertainty principle states that when ascertaining the position and momentum of a particle ,the more precisely you measure one quantity, the more you are forced to lose precision in the measurement of the other.
Throw in a pinch of the psychology that ultimately drives markets, and you have a recipe for a completely unpredictable system.