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Someone demonstrated a while back that the perfect market hypothesis is equivalent to P=NP. In other words, the "rational actor" so beloved of classical economi

by moomin 11y ago

Someone demonstrated a while back that the perfect market hypothesis is equivalent to P=NP. In other words, the "rational actor" so beloved of classical economics is, at best, not possible with current technology.

chrisdevereux 11y ago
Which is a actually sort of related to why markets are useful: Providing an approximation of a solution to the problem of allocating resources where an optimal solution is unfeasible due to complexity.
- jedharris 11y ago
  But has anyone proved that markets actually do approximate the (intractable) correct allocation? They could be a very poor approximation or even be actually computing something we don't want. Furthermore if the point is to approximate an optimal allocation we should be designing them with that in mind. Auction design and a few specialized solutions such as medical residency assignment do this. But given your argument we should be applying this kind of design throughout the economy.
  - chrisdevereux 11y ago
    You're right, I really meant to point out that there's an interesting relationship between markets and computational complexity (and that it's odd for the efficient markets hypothesis if it assumes that P=NP) rather than advocate for markets being an unqualified good (I'd probably describe myself as some kind of Marxist, fwiw). > But has anyone proved that markets actually do approximate the (intractable) correct allocation? They could be a very poor approximation or even be actually computing something we don't want. > They could be a very poor approximation or even be actually computing something we don't want. Well, it would be wrong to take the market allocation to define the desired outcome, but assuming we have some other understanding of what our desired outcome, we can at least assess whether it performs better or worse at the computation than some other approach, right? It's interesting also that markets seem to share properties with other sub-optimal approaches to computationally hard problems. Getting stuck in local maximas, for example.
craigyk 11y ago
And if you did have a machine that could optimally solve NP-hard problems, why not just switch to a centrally planned economy?
- jedharris 11y ago
  There would still be the problem of collecting accurate data to permit the algorithm to work. This would be expensive and people could lie to their own advantage. BUT! Most economic models assume acquiring the necessary information for decisions is free AND they assume your agents always faithfully serve your interests. So once again these modeling assumptions have made the world safe for central planning. Praise the economists!
- aidenn0 11y ago
  There's a second problem with a centrally planned economy: when you put all the power in one place, corruption can occur; even if the central planner knows the globally optimal decision, they may be incentivized to choose a solution that is suboptimal, but favors some individuals.

by moomin 11y ago

chrisdevereux 11y ago

Which is a actually sort of related to why markets are useful: Providing an approximation of a solution to the problem of allocating resources where an optimal solution is unfeasible due to complexity.

jedharris 11y ago
But has anyone proved that markets actually do approximate the (intractable) correct allocation? They could be a very poor approximation or even be actually computing something we don't want. Furthermore if the point is to approximate an optimal allocation we should be designing them with that in mind. Auction design and a few specialized solutions such as medical residency assignment do this. But given your argument we should be applying this kind of design throughout the economy.
- chrisdevereux 11y ago
  You're right, I really meant to point out that there's an interesting relationship between markets and computational complexity (and that it's odd for the efficient markets hypothesis if it assumes that P=NP) rather than advocate for markets being an unqualified good (I'd probably describe myself as some kind of Marxist, fwiw). > But has anyone proved that markets actually do approximate the (intractable) correct allocation? They could be a very poor approximation or even be actually computing something we don't want. > They could be a very poor approximation or even be actually computing something we don't want. Well, it would be wrong to take the market allocation to define the desired outcome, but assuming we have some other understanding of what our desired outcome, we can at least assess whether it performs better or worse at the computation than some other approach, right? It's interesting also that markets seem to share properties with other sub-optimal approaches to computationally hard problems. Getting stuck in local maximas, for example.

craigyk 11y ago

And if you did have a machine that could optimally solve NP-hard problems, why not just switch to a centrally planned economy?

jedharris 11y ago
There would still be the problem of collecting accurate data to permit the algorithm to work. This would be expensive and people could lie to their own advantage. BUT! Most economic models assume acquiring the necessary information for decisions is free AND they assume your agents always faithfully serve your interests. So once again these modeling assumptions have made the world safe for central planning. Praise the economists!
aidenn0 11y ago
There's a second problem with a centrally planned economy: when you put all the power in one place, corruption can occur; even if the central planner knows the globally optimal decision, they may be incentivized to choose a solution that is suboptimal, but favors some individuals.