4 ms·

> 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 ins

> 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 ago
After 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.
- DannyBee 9y ago
  Well, actually, they kinda do. Also, https://arxiv.org/abs/1002.2284 https://arxiv.org/abs/1002.2284
  - naasking 9y ago
    From your link: > Financially, the “economic calculation problem” of von Mises (1920) and Hayek (1935) suggests, among other things, that, even if a free market is not perfectly efficient, it will certainly be more efficient than a regulatory or government alternative. In other words, even if mispricings occasionally occur, most of the time they are smaller than any other alternative system So the paper possibly disproves a particular kind of efficiency (weak form efficiency), but that's not the colloquial meaning to which I was referring.
LolWolf 9y ago
I've seen this paper enough to warrant a comment. The paper makes no reduction that the market is computing in P, so it's unclear to me how this conclusion of P=NP iff EMH is warranted by the paper. Perhaps more clearly showing the connection between 'complexity' in the general sense and EMH is this paper[0], showing that even (eps, eps)-weak (or approximate) Nash equilibria are communication-hard (exponential in the number of players), would be the first that has convinced me that markets are highly unlikely to be efficient. --- [0] https://arxiv.org/pdf/1608.06580.pdf https://arxiv.org/pdf/1608.06580.pdf

natalyarostova 9y ago

After 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.

DannyBee 9y ago
Well, actually, they kinda do. Also, https://arxiv.org/abs/1002.2284 https://arxiv.org/abs/1002.2284
- naasking 9y ago
  From your link: > Financially, the “economic calculation problem” of von Mises (1920) and Hayek (1935) suggests, among other things, that, even if a free market is not perfectly efficient, it will certainly be more efficient than a regulatory or government alternative. In other words, even if mispricings occasionally occur, most of the time they are smaller than any other alternative system So the paper possibly disproves a particular kind of efficiency (weak form efficiency), but that's not the colloquial meaning to which I was referring.

LolWolf 9y ago

I've seen this paper enough to warrant a comment. The paper makes no reduction that the market is computing in P, so it's unclear to me how this conclusion of P=NP iff EMH is warranted by the paper. Perhaps more clearly showing the connection between 'complexity' in the general sense and EMH is this paper[0], showing that even (eps, eps)-weak (or approximate) Nash equilibria are communication-hard (exponential in the number of players), would be the first that has convinced me that markets are highly unlikely to be efficient. --- [0] https://arxiv.org/pdf/1608.06580.pdf https://arxiv.org/pdf/1608.06580.pdf