6 ms·

Time to read! https://twitter.com/ben_golub/status/1338175642932715520?s=21 https://twitter.com/ben_golub/status/1338175642932715520?s=2...

deleted 6y ago
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juskrey 6y ago
Many words about how economics is like physics, hence Peters makes a terrible insults to generations of respectful academics. And not a single word about how they are still missing the ruin problem, and how ergodicity is a dead simple and exact answer to it
- drdeca 6y ago
  The main article doesn't seem to refer to "the ruin problem" either. What is that?
  - juskrey 6y ago
    Ole should repeat it on more occasions, since this is what it's all about: economic unit is not an average of the same imaginary economic units following different paths, some of which can end in a bankruptcy. Instead single bankruptcy will end the whole process, this is a ruin problem. That is economic unit is an average on its own timeline, not space.
  - deleted 6y ago
    [deleted]
  - deleted 6y ago
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  - nullc 6y ago
    #!/usr/bin/python3 import random #100 people start with $100 balances=[100]*100 #They take 10000 bets with an _expected_ return of 1.25x. # ... so they should end up with ~1.2e1000 at the end... for i in range(10000): balances=[0 if x<=0 else random.choice([x*2,x//2]) for x in balances] #Yet all or almost all are bankrupt: print(len([x for x in balances if x<=0]))
    - ulucs 6y ago
      > # ... so they should end up with ~1.2e1000 at the end... Who has ever claimed this? Also, people end up with zero because you are doing integer division in your code (ie the simplified expected return is wrong). Here are my results with 100 bets, and 10000 bet takers. The average return is also on the upward trend, but not really close since CLT doesn't really apply to this distribution: >>> sum(balances)/1000000 24546192.840913434 >>> print(len([x for x in balances if x<=100])) 5426 >>> print(len([x for x in balances if x>=100])) 5381 >>> print(len([x for x in balances if x>100])) 4574
      - nullc 6y ago
        Keeping it integer specifically was useful to avoid running out of precision using Python's multi-precision integers. You can show ruin without any flooring division: #!/usr/bin/sage import random balances=[Rational(100)]*100 for i in range(10000): balances=[0 if x<=0 else random.choice([x*2+2,x/2-1]) for x in balances] #Yet all or almost all are bankrupt: print(len([x for x in balances if x<=0])) The key points are that there is a state that a participant can't recover from (e.g. ending up bankrupt) and you do enough trials that are reasonably likely to eventually wander into it. One that is the case 100 bets with 10000 betters and 10000 bets with 100 betters stop being the same thing. And this is a very realistic and physical assumption because real investments have integerization, fees, overheads, etc. You can't invest a femto-cent in the market, and certainly not get the same relative returns as someone investing 100k.
        ulucs 6y ago
        But that's factored in EUT anyway: you simplify the compound lottery and it turns out you have a huge probability of hitting zero. You might ask whether people will take the bet, and that's where the utility comes in. Enough risk averseness, and noone will take a return of a million dollars with a 1% chance of happening at a price of 100%
  - davidgl 6y ago
    This article linked above covers it well, highly recommended: https://taylorpearson.me/ergodicity/ https://taylorpearson.me/ergodicity/
  - xapata 6y ago
    In a pithy form, it's the fact that in the long run we are all dead.
- wazoox 6y ago
  Economics is not like physics at all. It's a social science, rooted in many social assumptions and compromises and power relationships between human beings and groups. Most attempts to negate this are just tortuous ways to justify the current power structure.
  - imtringued 6y ago
    There is a small nugget that is as hard as physics. Namely the tools can be analyzed in their theoretical performance. But economics is deeply tied to politics. What type of economy you have is entirely dependent on current leadership. It's the government that sets the basic foundation and rules upon which the economy is built. Some governments decided to go to either extreme. Communism or capitalism. There is a price equilibrium, assuming one is allowed to exist, which is dependent on your government, but where exactly it lies is also entirely dependent on the laws the government set. If the government bans garbage disposal in rivers then it would be completely unreasonable to insist that the equilibrium price should stay the same. By this same logic if there is an inherent injustice or imbalance it exists in the laws the government created. One prominent example would be the central bank flooding the market in a way that benefits existing asset holders, one could have done the exact opposite as well or maybe even done a little of both. It's not a question of which is the right action, the question is "What kind of economy do you want?" and the central bank has spoken.
    - wazoox 6y ago
      Precisely. "What kind of economy do you want?" is a political question, that has no definite, scientific answer. And more restrictive economic questions, very often, also are political questions that should be democratically debated and decided, but are instead presented as "scientific" in nature, with the pretension that "we should do as our experts said" (whose experts exactly?).
ssivark 6y ago
That Twitter thread is tautological trash, to put it politely. It seems more interested in protecting turf than directly critiquing (or even understanding) Ole Peters’ central point. It is absolutely silly, bordering shitposting, to respond to a claim about subtle/hidden assumptions by claiming: > Expected utility theory makes 4 assumptions, which are stated precisely and concisely in every graduate textbook. Ergodicity is not among them. when the whole point is that the conventional economics literature might have ignored a subtlety.
- QuesnayJr 6y ago
  It's not. You can read the proofs to see that they aren't missing a step. If you don't want to do that, I can give some indirect evidence. The "conventional economics literature" begins with a theorem of von Neumann and Morganstern, published in 1944. This is the John von Neumann of math and physics fame. In particular, von Neumann was one of the architects of ergodic theory. He proved the mean ergodic theorem all the way back in 1932. It would be pretty surprising indeed if it was von Neumann who missed the subtlety.
  - ReflectedImage 6y ago
    It would be more correct to say economists misinterpreted what von Neumann said.
    - QuesnayJr 6y ago
      They didn't, though. Look at von Neumann and Morganstern's "Theory of Games and Economic Behavior". There's nothing in there about time-series averages. It's a theory of games that you might play only once.
      - ReflectedImage 6y ago
        It's fairly obvious that in the real world time does play a role. This may shock you but theories advance over time. There isn't a holy paper which can never be improved on (at least not in sensible research fields).

deleted 6y ago

[deleted]

juskrey 6y ago

Many words about how economics is like physics, hence Peters makes a terrible insults to generations of respectful academics. And not a single word about how they are still missing the ruin problem, and how ergodicity is a dead simple and exact answer to it

drdeca 6y ago
The main article doesn't seem to refer to "the ruin problem" either. What is that?
- juskrey 6y ago
  Ole should repeat it on more occasions, since this is what it's all about: economic unit is not an average of the same imaginary economic units following different paths, some of which can end in a bankruptcy. Instead single bankruptcy will end the whole process, this is a ruin problem. That is economic unit is an average on its own timeline, not space.
- deleted 6y ago
  [deleted]
- deleted 6y ago
  [deleted]
- nullc 6y ago
  #!/usr/bin/python3 import random #100 people start with $100 balances=[100]*100 #They take 10000 bets with an _expected_ return of 1.25x. # ... so they should end up with ~1.2e1000 at the end... for i in range(10000): balances=[0 if x<=0 else random.choice([x*2,x//2]) for x in balances] #Yet all or almost all are bankrupt: print(len([x for x in balances if x<=0]))
  - ulucs 6y ago
    > # ... so they should end up with ~1.2e1000 at the end... Who has ever claimed this? Also, people end up with zero because you are doing integer division in your code (ie the simplified expected return is wrong). Here are my results with 100 bets, and 10000 bet takers. The average return is also on the upward trend, but not really close since CLT doesn't really apply to this distribution: >>> sum(balances)/1000000 24546192.840913434 >>> print(len([x for x in balances if x<=100])) 5426 >>> print(len([x for x in balances if x>=100])) 5381 >>> print(len([x for x in balances if x>100])) 4574
    - nullc 6y ago
      Keeping it integer specifically was useful to avoid running out of precision using Python's multi-precision integers. You can show ruin without any flooring division: #!/usr/bin/sage import random balances=[Rational(100)]*100 for i in range(10000): balances=[0 if x<=0 else random.choice([x*2+2,x/2-1]) for x in balances] #Yet all or almost all are bankrupt: print(len([x for x in balances if x<=0])) The key points are that there is a state that a participant can't recover from (e.g. ending up bankrupt) and you do enough trials that are reasonably likely to eventually wander into it. One that is the case 100 bets with 10000 betters and 10000 bets with 100 betters stop being the same thing. And this is a very realistic and physical assumption because real investments have integerization, fees, overheads, etc. You can't invest a femto-cent in the market, and certainly not get the same relative returns as someone investing 100k.
      - ulucs 6y ago
        But that's factored in EUT anyway: you simplify the compound lottery and it turns out you have a huge probability of hitting zero. You might ask whether people will take the bet, and that's where the utility comes in. Enough risk averseness, and noone will take a return of a million dollars with a 1% chance of happening at a price of 100%
- davidgl 6y ago
  This article linked above covers it well, highly recommended: https://taylorpearson.me/ergodicity/ https://taylorpearson.me/ergodicity/
- xapata 6y ago
  In a pithy form, it's the fact that in the long run we are all dead.
wazoox 6y ago
Economics is not like physics at all. It's a social science, rooted in many social assumptions and compromises and power relationships between human beings and groups. Most attempts to negate this are just tortuous ways to justify the current power structure.
- imtringued 6y ago
  There is a small nugget that is as hard as physics. Namely the tools can be analyzed in their theoretical performance. But economics is deeply tied to politics. What type of economy you have is entirely dependent on current leadership. It's the government that sets the basic foundation and rules upon which the economy is built. Some governments decided to go to either extreme. Communism or capitalism. There is a price equilibrium, assuming one is allowed to exist, which is dependent on your government, but where exactly it lies is also entirely dependent on the laws the government set. If the government bans garbage disposal in rivers then it would be completely unreasonable to insist that the equilibrium price should stay the same. By this same logic if there is an inherent injustice or imbalance it exists in the laws the government created. One prominent example would be the central bank flooding the market in a way that benefits existing asset holders, one could have done the exact opposite as well or maybe even done a little of both. It's not a question of which is the right action, the question is "What kind of economy do you want?" and the central bank has spoken.
  - wazoox 6y ago
    Precisely. "What kind of economy do you want?" is a political question, that has no definite, scientific answer. And more restrictive economic questions, very often, also are political questions that should be democratically debated and decided, but are instead presented as "scientific" in nature, with the pretension that "we should do as our experts said" (whose experts exactly?).

ssivark 6y ago

That Twitter thread is tautological trash, to put it politely. It seems more interested in protecting turf than directly critiquing (or even understanding) Ole Peters’ central point. It is absolutely silly, bordering shitposting, to respond to a claim about subtle/hidden assumptions by claiming: > Expected utility theory makes 4 assumptions, which are stated precisely and concisely in every graduate textbook. Ergodicity is not among them. when the whole point is that the conventional economics literature might have ignored a subtlety.

QuesnayJr 6y ago
It's not. You can read the proofs to see that they aren't missing a step. If you don't want to do that, I can give some indirect evidence. The "conventional economics literature" begins with a theorem of von Neumann and Morganstern, published in 1944. This is the John von Neumann of math and physics fame. In particular, von Neumann was one of the architects of ergodic theory. He proved the mean ergodic theorem all the way back in 1932. It would be pretty surprising indeed if it was von Neumann who missed the subtlety.
- ReflectedImage 6y ago
  It would be more correct to say economists misinterpreted what von Neumann said.
  - QuesnayJr 6y ago
    They didn't, though. Look at von Neumann and Morganstern's "Theory of Games and Economic Behavior". There's nothing in there about time-series averages. It's a theory of games that you might play only once.
    - ReflectedImage 6y ago
      It's fairly obvious that in the real world time does play a role. This may shock you but theories advance over time. There isn't a holy paper which can never be improved on (at least not in sensible research fields).