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> I hope others see that our markets are designed. They are human artifacts. They are not natural laws to be accepted as-is. “Markets” are not the same thing a

> I hope others see that our markets are designed. They are human artifacts. They are not natural laws to be accepted as-is. “Markets” are not the same thing as “the market”. Markets are human artifacts; the market is an emergent behavior. It’s governed by laws beyond our control as surely as the behavior of materials are governed by thermodynamics. If the behavior of your markets fails to match the reality of the market, the best you can hope for is to only introduce a small amount of inefficiency. Of course, utopians who ignore the real nature of the market usually find themselves lethally encumbered by deadweight loss. > your goal is to allow companies to be judged on their own merits, instead of someone else's. What is this supposed to mean? Why would a company’s subjective evaluation of themselves be a better basis for market valuation than the evaluation of the people who actually buy and sell interest in that company?

mlyle 6y ago
"The market" hardly exists in a bubble entirely outside of human sentiment and human institutions. Human institutions; the prevailing ways that capital moves; legal institutions; customary behaviors, mores, etc, all have a profound impact on not just markets but also The Market (tm). The edifices we create are important.
munificent 6y ago
> Markets are human artifacts; the market is an emergent behavior. If "the market" is a 2d array of 1 and 0 that emerges from a cellular automata, then "markets" are the rules for that automata. The human artifact defines the rules and incentives that cause the emergent behavior seen by aggregating all market participants. There is no Platonic ideal "markets" independent of the human structures where they operate any more than you can define how fast a pendulum swings without specifying its length.
- centimeter 6y ago
  "Markets" (locations or brokers designated for trade) represent a very small fraction of all human economic activity. Conflating the rules of NYSE with the rules of the market is a mistake. > There is no Platonic ideal "markets" independent of the human structures You need to understand that there absolutely is a single "the market" and it's not platonic at all. It refers to the sum behavior of all human economic interaction, which is absolutely a physical reality.
SolarNet 6y ago
> It’s governed by laws beyond our control as surely as the behavior of materials are governed by thermodynamics. It's funny you make this comparison. Because so many of these supposed laws about "the market" violate an effective equivalent to the second law of thermodynamics for information systems: P=/=NP. The claims often made about the transcendent nature of the laws governing "the market" violate the computational properties of reality as we understand it [1]. If "the market" behaved as so many claim then we would have proof of P=NP. Evolution is also an emergent behavior, of biochemical systems. But we also understand how it functions as an algorithm. So much so we now use it to aid in the design the wing shapes of our planes, the design of new high efficiency radios, and to find new algorithms. The entire universe is governed by laws beyond our control. That doesn't prevent us from understanding them and bending them to our will. As we have done with ropes and levers, atoms and proteins, so too can we understand and engineer markets. As it happens markets are likely in a similar class of algorithm as evolution: efficient approximations of NP problems. This is why people use markets as the basis of things like prediction markets, scheduling algorithms, and bin packing. "The market" is a claim to the "god is in the gaps" no different than intelligent design is. It even does the whole song and dance of elevating an approximation algorithm to some unknowable divine will. An approximation algorithm we already understand and use in engineering everyday. [1] Make no mistake, bits of information are physically connected to reality, a non-trivial NP algorithm running on human timescales would boil the oceans. See: https://en.wikipedia.org/wiki/Landauer%27s_principle https://en.wikipedia.org/wiki/Landauer%27s_principle
- QuesnayJr 6y ago
  This isn't known to be true. In terms of computational complexity, market clearing is PPAD (https://en.wikipedia.org/wiki/PPAD_(complexity) https://en.wikipedia.org/wiki/PPAD_(complexity)). It may turn out that PPAD is computationally tractable even if P != NP, though it is thought to be unlikely.
  - SolarNet 6y ago
    I would argue that reinforces my point rather than weaken it. My point being that the market is an understandable thing becomes more reasonable if it turns out it's not even an intractable problem that we are discussing. But I also think you are misunderstanding the argument I was replying to in the first place, because a lot of the claims about "the market" are about the second order allocation of resources that markets cause and not (just) the clearing of them. For example market clearing is how we arrive at the price given the buy and sell orders, but the original goal was the efficient allocation of resources. For which markets are obviously not a perfect solution (it's relatively easy to create order books which end up with unfulfilled orders despite money/weight being available to argue for that allocation), even if they are a good approximate solution (via market clearing). The claims about "the market" are market fundamentalism, that the market is the ideal allocation structure, that we can't find a better or even equivalent solution, because that's just how good markets are. That was what I was rejecting. Not market clearing.
specialist 6y ago
"Why would a company’s subjective evaluation of themselves be a better basis for ..." Eric Ries gives some pretty good examples. One is to effectively decouple HFT trading from long term value investing: https://www.acquired.fm/episodes/season-5-episode-10-the-lean-startup-and-the-long-term-stock-exchange-with-eric-ries https://www.acquired.fm/episodes/season-5-episode-10-the-lea...
samatman 6y ago
The way you've put this bears more resemblance to religion than anything else. "Markets" are real things. I can walk to them, or navigate to their website, or call them up. You are claiming that there is an invisible, metaphysical "the market", which exists in the Platonic world of forms, that governs the behavior of these genuine markets. This is like reading "The Gods of the Copybook Headings", and founding a religion which worships and offers sacrifice to those gods! This "the market" you refer to is an abstraction of the behavior of real markets. It can give us all sorts of guidance as to what will happen when various rules are applied, or not, to these real markets; but comparing these broad heuristic rules to thermodynamics has me suspecting you don't understand either thermodynamics nor macroeconomics. Every market has rules. Invariably, you are not allowed to stab a vendor and take their stuff. Sometimes there are things you can't sell; sometimes only Dutch auction is allowed, and so on ad infinitum. This is simply a market with different rules from those governing other stock markets. We're all free to speculate on the consequences those different rules will have; perhaps they will summon literal Gods of the Copybook Headings, which will return upon us with actual terror and slaughter. The safe bet is that prediction and reality will be divergent. This is economics, not thermodynamics, after all.
- throwaway_fc 6y ago
  > The way you've put this bears more resemblance to religion than anything else. The connection with religion goes deeper that it seems. Mission, vision / visionary, iconic (product), (job) creator, charismatic, angel (investors). All these words had a purely religious meaning 200 years ago. This is not just natural evolution of the language. Other fields don't have this amount of religious words at all.
- tome 6y ago
  On the contrary, he/she is claiming that "the market" is an emergent behaviour of the dynamics of a system. We set up "market" and instigate rules. "The market" is what happens subsequently.
- Cederfjard 6y ago
  >We're all free to speculate on the consequences those different rules will have To echo what my sibling commenter said, those consequences are what the grandparent comment is referring to as the emergent market - because it's not possible to control or accurately predict the behavior of every single actor. It was a rebuttal to a statement saying we don't need to consider markets as pure forces of nature, because how we set them up can affect the outcome. I think everyone in this conversation agrees that it's both true that the design of a market affects how people act in it, as well as it being impossible to predict or control perfectly. The question is to what extent it actually is possible.

mlyle 6y ago

"The market" hardly exists in a bubble entirely outside of human sentiment and human institutions. Human institutions; the prevailing ways that capital moves; legal institutions; customary behaviors, mores, etc, all have a profound impact on not just markets but also The Market (tm). The edifices we create are important.

munificent 6y ago

> Markets are human artifacts; the market is an emergent behavior. If "the market" is a 2d array of 1 and 0 that emerges from a cellular automata, then "markets" are the rules for that automata. The human artifact defines the rules and incentives that cause the emergent behavior seen by aggregating all market participants. There is no Platonic ideal "markets" independent of the human structures where they operate any more than you can define how fast a pendulum swings without specifying its length.

centimeter 6y ago
"Markets" (locations or brokers designated for trade) represent a very small fraction of all human economic activity. Conflating the rules of NYSE with the rules of the market is a mistake. > There is no Platonic ideal "markets" independent of the human structures You need to understand that there absolutely is a single "the market" and it's not platonic at all. It refers to the sum behavior of all human economic interaction, which is absolutely a physical reality.

SolarNet 6y ago

> It’s governed by laws beyond our control as surely as the behavior of materials are governed by thermodynamics. It's funny you make this comparison. Because so many of these supposed laws about "the market" violate an effective equivalent to the second law of thermodynamics for information systems: P=/=NP. The claims often made about the transcendent nature of the laws governing "the market" violate the computational properties of reality as we understand it [1]. If "the market" behaved as so many claim then we would have proof of P=NP. Evolution is also an emergent behavior, of biochemical systems. But we also understand how it functions as an algorithm. So much so we now use it to aid in the design the wing shapes of our planes, the design of new high efficiency radios, and to find new algorithms. The entire universe is governed by laws beyond our control. That doesn't prevent us from understanding them and bending them to our will. As we have done with ropes and levers, atoms and proteins, so too can we understand and engineer markets. As it happens markets are likely in a similar class of algorithm as evolution: efficient approximations of NP problems. This is why people use markets as the basis of things like prediction markets, scheduling algorithms, and bin packing. "The market" is a claim to the "god is in the gaps" no different than intelligent design is. It even does the whole song and dance of elevating an approximation algorithm to some unknowable divine will. An approximation algorithm we already understand and use in engineering everyday. [1] Make no mistake, bits of information are physically connected to reality, a non-trivial NP algorithm running on human timescales would boil the oceans. See: https://en.wikipedia.org/wiki/Landauer%27s_principle https://en.wikipedia.org/wiki/Landauer%27s_principle

QuesnayJr 6y ago
This isn't known to be true. In terms of computational complexity, market clearing is PPAD (https://en.wikipedia.org/wiki/PPAD_(complexity) https://en.wikipedia.org/wiki/PPAD_(complexity)). It may turn out that PPAD is computationally tractable even if P != NP, though it is thought to be unlikely.
- SolarNet 6y ago
  I would argue that reinforces my point rather than weaken it. My point being that the market is an understandable thing becomes more reasonable if it turns out it's not even an intractable problem that we are discussing. But I also think you are misunderstanding the argument I was replying to in the first place, because a lot of the claims about "the market" are about the second order allocation of resources that markets cause and not (just) the clearing of them. For example market clearing is how we arrive at the price given the buy and sell orders, but the original goal was the efficient allocation of resources. For which markets are obviously not a perfect solution (it's relatively easy to create order books which end up with unfulfilled orders despite money/weight being available to argue for that allocation), even if they are a good approximate solution (via market clearing). The claims about "the market" are market fundamentalism, that the market is the ideal allocation structure, that we can't find a better or even equivalent solution, because that's just how good markets are. That was what I was rejecting. Not market clearing.

specialist 6y ago

"Why would a company’s subjective evaluation of themselves be a better basis for ..." Eric Ries gives some pretty good examples. One is to effectively decouple HFT trading from long term value investing: https://www.acquired.fm/episodes/season-5-episode-10-the-lean-startup-and-the-long-term-stock-exchange-with-eric-ries https://www.acquired.fm/episodes/season-5-episode-10-the-lea...

samatman 6y ago

The way you've put this bears more resemblance to religion than anything else. "Markets" are real things. I can walk to them, or navigate to their website, or call them up. You are claiming that there is an invisible, metaphysical "the market", which exists in the Platonic world of forms, that governs the behavior of these genuine markets. This is like reading "The Gods of the Copybook Headings", and founding a religion which worships and offers sacrifice to those gods! This "the market" you refer to is an abstraction of the behavior of real markets. It can give us all sorts of guidance as to what will happen when various rules are applied, or not, to these real markets; but comparing these broad heuristic rules to thermodynamics has me suspecting you don't understand either thermodynamics nor macroeconomics. Every market has rules. Invariably, you are not allowed to stab a vendor and take their stuff. Sometimes there are things you can't sell; sometimes only Dutch auction is allowed, and so on ad infinitum. This is simply a market with different rules from those governing other stock markets. We're all free to speculate on the consequences those different rules will have; perhaps they will summon literal Gods of the Copybook Headings, which will return upon us with actual terror and slaughter. The safe bet is that prediction and reality will be divergent. This is economics, not thermodynamics, after all.

throwaway_fc 6y ago
> The way you've put this bears more resemblance to religion than anything else. The connection with religion goes deeper that it seems. Mission, vision / visionary, iconic (product), (job) creator, charismatic, angel (investors). All these words had a purely religious meaning 200 years ago. This is not just natural evolution of the language. Other fields don't have this amount of religious words at all.
tome 6y ago
On the contrary, he/she is claiming that "the market" is an emergent behaviour of the dynamics of a system. We set up "market" and instigate rules. "The market" is what happens subsequently.
Cederfjard 6y ago
>We're all free to speculate on the consequences those different rules will have To echo what my sibling commenter said, those consequences are what the grandparent comment is referring to as the emergent market - because it's not possible to control or accurately predict the behavior of every single actor. It was a rebuttal to a statement saying we don't need to consider markets as pure forces of nature, because how we set them up can affect the outcome. I think everyone in this conversation agrees that it's both true that the design of a market affects how people act in it, as well as it being impossible to predict or control perfectly. The question is to what extent it actually is possible.