3 ms·

This is a fascinating example of 'if you have a hammer, all you see is nails'. It seems odd that this has been published at all - but then again, it is most lik

This is a fascinating example of 'if you have a hammer, all you see is nails'. It seems odd that this has been published at all - but then again, it is most likely to be published in journal that is not domain-specific. The author seems to miss that "economics" is a vast field spanning the whole spectrum from applied economics, over theoretical economics, mathematical finance, financial mathematics, to pure mathematics (with physicists working along the whole spectrum, so this is not a consequence of the author's background per se). He fails to engage at the right level. From a theoretical mathematician's point of view all models are wrong - they are just deductions from assumptions. From an applied economist's point of view are models are right - they explain some observed phenomena. Ergodicity is not a niche topic, most intermediate courses on stochastic processes will cover it. Will loosening an assumption about the properties of stochastic processes yield different, potentially better models? Maybe. Will it lead to a revolution in economic theory? Unlikely. Again, odd that this has been peer-reviewed. See also the reply here, which is rather damning [1] And the author's reply to the reply. [2] [1] https://www.nature.com/articles/s41567-020-01106-x https://www.nature.com/articles/s41567-020-01106-x [2] https://www.nature.com/articles/s41567-020-01108-9 https://www.nature.com/articles/s41567-020-01108-9

deleted 6y ago
[deleted]
xapata 6y ago
While I am sympathetic to the author's claims, I was surprised to see that the author didn't "strong man" the prevailing economics views. Anyone trying to keep up with recent macroeconomics research could randomly sample papers and probably half would analyze only the equilibrium growth path as if it were a certainty that the equilibrium were stable.
javitury 6y ago
Thanks for sharing the economics' reply, I found it very interesting. All the good stuff is in the supplement. They argue that Peters' model produces extreme risk aversion in lotteries with (near) zero payoffs, and such risk aversion is not backed by empirical work or even by intuition. "Would a person ever prefer a process [A] that, after three rounds, diminishes wealth from US$10,000 to 0.5 cents over one [B] that yields a 99.9% chance of US$10,000,000 and otherwise US$0? Ergodic theory predicts [A] [... but] [v]irtually everyone will prefer B" That is, growth models don't behave well at or near zero. Personally, I enjoyed reading Peters solution to the St. Petersburg paradox and how the ergodicity framework is applied to economics in such a concise and intuitive manner. But I am reluctant to think that this ergodicity framework will completely remove the "psychological" aspects of economics. The utility of agents still needs to be accounted for. The ensembles that Peters describes are heterogeneous, and agents can derive different amounts of utility even if wealth or growth rates are equal. Think about insurance.

deleted 6y ago

[deleted]

xapata 6y ago

While I am sympathetic to the author's claims, I was surprised to see that the author didn't "strong man" the prevailing economics views. Anyone trying to keep up with recent macroeconomics research could randomly sample papers and probably half would analyze only the equilibrium growth path as if it were a certainty that the equilibrium were stable.

javitury 6y ago

Thanks for sharing the economics' reply, I found it very interesting. All the good stuff is in the supplement. They argue that Peters' model produces extreme risk aversion in lotteries with (near) zero payoffs, and such risk aversion is not backed by empirical work or even by intuition. "Would a person ever prefer a process [A] that, after three rounds, diminishes wealth from US$10,000 to 0.5 cents over one [B] that yields a 99.9% chance of US$10,000,000 and otherwise US$0? Ergodic theory predicts [A] [... but] [v]irtually everyone will prefer B" That is, growth models don't behave well at or near zero. Personally, I enjoyed reading Peters solution to the St. Petersburg paradox and how the ergodicity framework is applied to economics in such a concise and intuitive manner. But I am reluctant to think that this ergodicity framework will completely remove the "psychological" aspects of economics. The utility of agents still needs to be accounted for. The ensembles that Peters describes are heterogeneous, and agents can derive different amounts of utility even if wealth or growth rates are equal. Think about insurance.