4 ms·

The Ergodicity Problem in Economics

38 points by mmhsieh 7y ago

thedudeabides5 7y ago
tl dr lots of economics uses models that don't deal well the realities of time, because it makes the math a lot harder. Dealing with the reality of time and path dependence makes the models a lot more complex, but often more accurate.
- Gibbon1 7y ago
  > because it makes the math a lot harder. https://en.wikipedia.org/wiki/Streetlight_effect https://en.wikipedia.org/wiki/Streetlight_effect
photojosh 7y ago
I've been following the author for a while now (no personal connection), and I'm taken with the ideas. Mainly because it's never seemed right to me that economics' "rational person" doesn't resemble anyone in the real world. [0] also out today explains it starting from a concrete example: > the coin toss game seems worth playing because equal probability of a 50% gain and a 40% loss are no different from a 5% gain.* > Why people don't choose to play the game, seemingly ignoring the opportunity to gain a steady 5%, has been explained psychologically-- people, in the parlance of the field, are "risk averse". But according to Peters, these explanations don't really get to the root of the problem, which is that the classical "solution" lacks a fundamental understanding of the individual's unique trajectory over time. You can also get his full lecture notes at [1]. [0] https://www.santafe.edu/news-center/news/fix-economic-theory-changes-everything-gambles-inequality-ponzi-schemes https://www.santafe.edu/news-center/news/fix-economic-theory... [1] https://ergodicityeconomics.com/lecture-notes/ https://ergodicityeconomics.com/lecture-notes/
bluechair 7y ago
Does Nassim Nicholas Taleb have a HN account because I’d love to hear what he has to say about this paper.
- skullgrid 7y ago
  This is not a direct reference to the linked Nature article (which is essentially a review article, I think), but Taleb is definitely a fan of Peters' work [1]. [1] https://medium.com/incerto/the-logic-of-risk-taking-107bf41029d3 https://medium.com/incerto/the-logic-of-risk-taking-107bf410...

38 points by mmhsieh 7y ago

tl dr lots of economics uses models that don't deal well the realities of time, because it makes the math a lot harder. Dealing with the reality of time and path dependence makes the models a lot more complex, but often more accurate.

Gibbon1 7y ago
> because it makes the math a lot harder. https://en.wikipedia.org/wiki/Streetlight_effect https://en.wikipedia.org/wiki/Streetlight_effect

photojosh 7y ago

I've been following the author for a while now (no personal connection), and I'm taken with the ideas. Mainly because it's never seemed right to me that economics' "rational person" doesn't resemble anyone in the real world. [0] also out today explains it starting from a concrete example: > the coin toss game seems worth playing because equal probability of a 50% gain and a 40% loss are no different from a 5% gain.* > Why people don't choose to play the game, seemingly ignoring the opportunity to gain a steady 5%, has been explained psychologically-- people, in the parlance of the field, are "risk averse". But according to Peters, these explanations don't really get to the root of the problem, which is that the classical "solution" lacks a fundamental understanding of the individual's unique trajectory over time. You can also get his full lecture notes at [1]. [0] https://www.santafe.edu/news-center/news/fix-economic-theory-changes-everything-gambles-inequality-ponzi-schemes https://www.santafe.edu/news-center/news/fix-economic-theory... [1] https://ergodicityeconomics.com/lecture-notes/ https://ergodicityeconomics.com/lecture-notes/

bluechair 7y ago

Does Nassim Nicholas Taleb have a HN account because I’d love to hear what he has to say about this paper.

skullgrid 7y ago
This is not a direct reference to the linked Nature article (which is essentially a review article, I think), but Taleb is definitely a fan of Peters' work [1]. [1] https://medium.com/incerto/the-logic-of-risk-taking-107bf41029d3 https://medium.com/incerto/the-logic-of-risk-taking-107bf410...