tag:blogger.com,1999:blog-3046071861494986299.post4408615842647137551..comments2023-08-26T05:08:54.898-07:00Comments on Magic, maths and money: Lady CreditTim Johnsonhttp://www.blogger.com/profile/06952723922503939504noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-3046071861494986299.post-10079212586259065992013-09-02T04:19:20.370-07:002013-09-02T04:19:20.370-07:00Credit given is the counterpart of subjective prob...Credit given is the counterpart of subjective probability, and one could say something about 'rational' constraints on credit. Under stable conditions one would expect credit given by successful lenders to be rational, in some sense. But there are exceptional conditions under which, as for mortgages around 2006-7, credit may be irrational or at least misguided or risky, in some sense.<br /><br />Discussions around probability under conditions of reflexivity tend to degenerate into quasi-religious wars. A theory of credit would need to address the same technical issues, but may be able to avoid the controversies.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-3046071861494986299.post-67990460186124234552013-08-23T06:57:05.504-07:002013-08-23T06:57:05.504-07:00I agree the chronology is important. I have it in...I agree the chronology is important. I have it in my head that anthropologists believe personal relationships precede religious beliefs, but don't know where that comes from<br /><br />Cheers<br /><br />TimTim Johnsonhttps://www.blogger.com/profile/06952723922503939504noreply@blogger.comtag:blogger.com,1999:blog-3046071861494986299.post-76180828989969833012013-08-23T05:27:42.161-07:002013-08-23T05:27:42.161-07:00It may seem like a small point, but I think it is ...It may seem like a small point, but I think it is significant.<br /><br />You say "One particular manifestation of gift giving is sacrifice" - I'd say that works the other way round. That, if you like, gift giving was born of sacrifice. <br /><br />I think the chronology is important because it tells us something about money. You quote Ingham. The sentence of his that has stayed with me is;<br /><br />"The very idea of money, which is to say, of abstract accounting for value, is logically anterior and historically prior to market exchange."<br /><br />Ingham uses this truism to make case for (broadly speaking) State Theory. But for me, the sentence point to something far more profound. It says Money exists at very deep level in our minds.<br /><br />Perhaps this is why commodity theories are so sticky. They recognise Money as a reality - of which I think it is an aspect - whereas 'social relations' theory abstract it. And this conflicts with something both primal to our nature and also mundane to our lives.<br /><br />As usual, excellent stuff Tim. Thanks. I've read no Defoe. I really must remedy that. I love the sexualisation/gendering stuff. That's very interesting for a Freud fan like me !<br /><br />MBGhttps://www.blogger.com/profile/18404729484594219550noreply@blogger.comtag:blogger.com,1999:blog-3046071861494986299.post-48362460850739586712013-08-17T04:28:26.947-07:002013-08-17T04:28:26.947-07:00Essentially market has no way of self-correcting i...Essentially market has no way of self-correcting itself, the collective wisdom is an ensemble of individual ignorance, that gets hidden by following what others are doing.<br /><br />Bandwagon behavior, and coupled to it the 'free-rider' problem has wide scale ramifications from equity and derivatives trading to public accountability in capital raising and deployment and in many other areas including the simple experiment of finding the best candidate for a job amongst a large number of applicants. The behavior in most bourses as the opening bell is sounded till the closing has similarities that can be attributed partially to the effects of information asymmetry or sometimes to potential difficulty to actually get a mathematical solution to a complex problem where unknowns are either large or a simplistic linear model may not be the right fit to get as close to the reality as possible. Relying on availability heuristic or copying the behavior of others is the more ‘sensible’ response, which may not be the more rational one. The engines through which these actions get guided or influenced is a more recent study where market participants could actually be incentivized to act on signals of others rather than actively seek information for a more personal inquiry. Inquisitorial journey into areas where timely information and perfect information could be rarity further compounds this problem plaguing financial markets in particular.<br /><br />Abhijit Banerjee in his seminal paper in 1992, titled, “A Simple Model of Herd Behavior”, introduced the topic of ‘everyone doing what everyone else is doing although private information suggests doing something quite different’. His simple model brought to the fore the disastrous consequence of such an eventuality, "In equilibrium we find the reduction of informativeness be so severe that in an ex ante welfare sense society may actually be better off by constraining some of the people to use only their own information." The Nash equilibrium that creates the most efficient solution is itself based on sequential acceptance of other’s choices which are themselves based on choices exercised prior to theirs, which may or may not be based on rationale. Lack of informativeness in the final outcome is a very pretentious denouement of the bandwagon effect. <br /><br />Collective conclusion of the market based on sequential reasoning, where informativeness is itself scarce and on a shaky ground leads to the general argument that when the market as a whole could be taking an irrational decision, the chances of that being deciphered and acted on by an individual participant is remote. When market itself is one third unwise, as individual participants respond seeing the response of others as in the Asch experiment, the self-correcting principle of the market falls flat, or at least the mathematical fallacy is no more on a shaky ground. <br />This leads us to the conclusion that bubbles can only burst when the crisis is full blown, when the collective conclusion leads to this denouement where the Nash Equilibrium shifts; the collapse of a paradigm only needs one small nudge against a mountain of wisdom that is more unwise.<br />Anonymoushttps://www.blogger.com/profile/14075186641564390804noreply@blogger.comtag:blogger.com,1999:blog-3046071861494986299.post-46392619358779384602013-08-17T01:26:11.609-07:002013-08-17T01:26:11.609-07:00Your discussion of LTCM at the end, reminds me of ...Your discussion of LTCM at the end, reminds me of May's approach to looking at confidence effects in the inter-bank loan network:<br /><br />Arinaminpathy, N., Kapadia, S., & May, R. M. (2012). Size and complexity in model financial systems. Proceedings of the National Academy of Sciences, 109(45), 18338-18343.<br /><br />Do you think this is on the right track for the sort of pragmatic views of finance (and science more broadly) that you have been discussing? I've been a very captivated (although silent) reader so far, looking forward to move. I would love to read your views on <a href="http://egtheory.wordpress.com/2013/03/19/finance-and-ecology/" rel="nofollow">May's connection of ecology and finance</a>.Artem Kaznatcheevhttps://www.blogger.com/profile/10862186635014217785noreply@blogger.com