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MIT Economist Has a New Theory of Finance
- allenleein 9y agoYou can use this (https://github.com/njuljsong/wsjUnblock https://github.com/njuljsong/wsjUnblock) to bypass the paywall.
- asimpletune 9y agoWhat is the legality of making something to help people not pay for stuff? Not trying to be confrontational, I sincerely don’t know + don’t feel sorry for them.
- boznz 9y agoI haven't tried it either but I'm pretty sure there is no legality issues outside of the US, probably dubious legality inside the States but I wouldn't want to go up against their lawyers to prove it..
- emmelaich 9y agohttps://en.wikipedia.org/wiki/Adaptive_market_hypothesis https://en.wikipedia.org/wiki/Adaptive_market_hypothesis
- nscalf 9y agoSince undergrad while taking economics classes, I thought this was entirely obvious. And honestly, I still do. To assume everyone is a rational actor is to assume everyone is perfect: they don't make mistakes, they don't have asymmetric information, etc. You can already see the changes that this articles suggests should happen in practice with high speed trading. I'd love a more detailed article, because this describes something obvious and vague.
- bllguo 9y agoYou may be misinterpreting things. Relevant from Wikipedia: "Lo argues that much of what behaviorists cite as counterexamples to economic rationality—loss aversion, overconfidence, overreaction, and other behavioral biases—are, in fact, consistent with an evolutionary model of individuals adapting to a changing environment using simple heuristics." And as an aside, I am pretty tired of people saying things like this, without fail, in every thread about economics. A simplified model is better than no model at all. People have been trying to account for irrationality for ages. It's not particularly astute to recognize that individuals are not perfectly rational.
- cat199 9y agonor is it particularly astute to create an entire discipline used to justify our entire social order on a theory that is known at the onset to be incorrect, all the while claiming it is more 'rational' and less 'superstitious' than the ones that came before it..
- dsacco 9y agoWhich theory specifically is used to "justify our entire social order"? How do we know it's incorrect, and what are the criteria for a successful theory?
- alexandercrohde 9y agoWell, I don't intend to defend the blanket phrasing of GP, let's take for example GDP and it being taken seriously as a measure of a country's progress. I would wager just about any undergrad could come up with a superior measure to GDP.
- deleted 9y ago[deleted]
- cat199 9y agothe bold new idea of GDP/capita, perhaps.. hmm.
- mrjaeger 9y agoHas anyone read Adaptive Markets? If so would you recommend it? I'm concerned about this line from the article: > Lo’s next step is to develop mathematical models to test the ability of his hypothesis to explain market behavior. Is there any experimental data to back up his theoretical framework? It's a very tempting idea to buy into (people in general work things out, on an individual level they make a lot of mistakes). I worry about his arguments following logically but falling apart once his theories have been tested.
- cgio 9y agoIf he is the Lo I think he is then his textbook on econometrics (Mckinsey & Lo?) is one of the best. I would guess econometric studies support his insights already but he tries to formulate experimental results in a consistent model that aligns with his theory.
- Nicholas_C 9y agoLo & MacKinlay. Anytime I hear Andrew Lo I think of MacKinlay as I heard their names used together 1,000 times during undergrad.
- cgio 9y agoThank you. I knew I probably had the name wrong. It's been a few years since my undergrad years and that's a painful reminder.
- mattmanser 9y agoYes, it's the same person: http://alo.mit.edu/biography/ http://alo.mit.edu/biography/
- darawk 9y agoI found Adaptive Markets to be pretty weak. I was excited to read it, but I didn't finish it, because I found the content to be relatively facile and substanceless. YMMV, though.
- Tloewald 9y agoDoesn’t seem like a new theory so much as a description of a possible lemma (...real soon now) for behavioral economics.
- cm2187 9y agoOn the path of a new revolutionary attempt to predict the past!
- anigbrowl 9y agoI'm sure I'll like his book, but this article is shallow to the point of being trite. Any recommendation for a better intro?
- Animats 9y agoYes. When I reached the end of the article, I was looking for the button for page 2. But there wasn't one. Come on, Bloomberg. Does this guy do crowd simulations, or something like that?
- tomjakubowski 9y agoLo’s investment management firm, AlphaSimplex Group, has posted a decent intro here, and a link to a more comprehensive (15pg) essay (2004): https://www.alphasimplex.com/insight/the-adaptive-markets-hypothesis-market-efficiency-from-an-evolutionary-perspective/ https://www.alphasimplex.com/insight/the-adaptive-markets-hy...
- anigbrowl 9y agoThanks so much. I would probably have overlooked that thinking it was out of date.
- pdog 9y agoIf Andrew Lo's theory of adaptive markets is any good, why isn't he rich? This looks like dressed up technical analysis.
- dsacco 9y agoKeep in mind the following: 1. Economic theories can be empirically descriptive without being constructively prescriptive (much like other theoretical disciplines, such as math or physics), 2. You're reading about his work from what is effectively a watered down blurb on a Bloomberg webpage, 3. He actually is the founder and chief investment officer of a fund with over $5B AUM, so yes, he likely is "rich".
- javiramos 9y agoHis fund, AlphaSimplex ($5AUM), has had very poor returns since inception.
- SolarNet 9y ago> The efficient-markets hypothesis says markets are rational and self-regulating, but it doesn’t account for crashes and crises It's also a computationally insane assertion, if it were true then markets are capable of computing NP in P (which even with the human element would still be an impressive find; especially considering the `n` it's commonly proposed over in "formal" economic settings is in the area of tens of thousands). It's like people who claim they made a perpetual energy machine are claiming things that are physically insane. Except it's not just some cranks, it's entire fields that haven't caught up to the ideas computer science has discovered. The adaptive market hypothesis appears to resolve this by tying the efficient market hypothesis to the biology of the computational unit. Since biological systems (appear to) obey the principles of computation, the issue is fixed. Overall it seems a better way forward by connecting pseduo-sciencey intuitive aspects of economics (that violate what we now know about the properties of information) to real science.
- natalyarostova 9y agoAfter doing my MSc in Political Economics and studying lots of Game Theory, I became more interested in computer science. I remember watching a Stanford lecture online on computational game theory. He explained many games are NP hard, and while this is only my own experience, we never once covered that idea in any of our courses on political/economic game theory. To be honest, I'm not sure any of the older economists or Political Scientists were all that familiar with it (I'm sure the incredibly bright younger post-docs were though). That really blew my mind, because up until that point I guess I had sort of taken it on faith -- without really getting it -- that these game models were accurately representing reality. I guess it sounds obvious after the fact that they aren't, but it was one of the biggest insights I've ever experienced.
- naasking 9y ago> It's also a computationally insane assertion, if it were true then markets are capable of computing NP in P Unless I missed it, they don't assert that markets are optimal, which seems to be what you're saying, but merely efficient and thus, it would be hard (but possible) to do better.
- thanatropism 9y agoAndrew Lo's test for long memory/fractal order of integration is standard in econometrics packages such as RATS, Eviews, Stata, etc. It's a technical clarification of vaguer ideas put forward by Mandelbrot, Hurst, etc. but it still means the man's no Taleb, he's the real stuff.
- dgudkov 9y agoWhat's wrong with Taleb? Not arguing, just curious.
- mi100hael 9y agoNot OP, but survivorship bias, mostly. He's maybe not wrong, but he's also not very rigorous in his arguments.
- nl 9y agoThis. Also, the unacknowledged inconsistency of his arguments is ridiculous: ~"Unpredictable events happen more frequently than people expect. I'm 100% right about this prediction of the future and you are an idiot if you disagree".
- dmichulke 9y agoI think he meant rather: - it's hard (impossible) to predict population statistics from a sample with size 1, ceteris paribus. Over the short term, you have sample size 1 for rare events, over the long term ceteris paribus doesn't hold. - people "coerce" everything into a normal distribution in order to get a handle on things which is of course wrong if the thing you look at is not normally distributed. Finance comes to mind.
- nl 9y agoSorry the two sentences in the quasi-quote are separate things. The first sentence is his book 'Black Swans' and the second is his Twitter feed. I should have made that more clear.
- WillReplyfFood 9y agoLet me guess: "A optimal market configuration is when power and money aggregate at".. placeResearchDonatorHere.." ."
- Frye 9y ago#harambe