4 ms·

Computer model of the Economy explains its instability

7 points by nickb 18y ago

mblakele 18y ago
Summary of the article: the elimination of the uptick rule is responsible (http://en.wikipedia.org/wiki/Uptick_rule http://en.wikipedia.org/wiki/Uptick_rule has some good background). This is all new to me, and sounds compelling, but I have a question. If the elimination of the uptick rule in mid-2007 is exacerbating market volatility, why don't the market authorities (NYSE, NASDAQ) reinstate the uptick rule on their own? Is it that they aren't allowed to make their own rules, within the SEC's regulatory oversight? Perhaps they see the increased volatility as a good thing for them? Are they so spooked by the current economic weather that they don't see the larger picture?
- lacker 18y ago
  It is far from clear that the uptick rule has anything to do with volatility, and the NYSE and NASDAQ want to be impartial third parties; they don't want to impose restrictions that are controversial among the traders.
lacker 18y ago
There are many, many different models that can explain economic instability. It is much harder for a model to predict what would happen if you changed a rule. In particular the uptick rule is the sort of thing that could easily have drastically different effects in a model than in real life, since it is focused on stopping "panics".
Dilpil 18y ago
Oh come on. The uptick rule? Great example of a thought experiment used to contradict the results of experiments actually carried out under real circumstances. (+ 5 points: http://math.ucr.edu/home/baez/crackpot.html http://math.ucr.edu/home/baez/crackpot.html) Letting traders, market makers, and other market participants make bets on the value of a stock is vitally important. Liquidity is a good thing, highly informed markets are a good thing. Is it really so terrible that insolvent companies' stocks go down?
- yummyfajitas 18y ago
  I believe the hypothesis (supported by the model) was that the loss of the uptick rule combined with a bubble bursting caused the crisis. An analogy: I did an experiment. I eliminated the "always back up your data" rule for a week. Nothing bad happened. Are you going to come up with thought experiments telling me this is a bad idea, in contradiction of my real experiment? I don't actually buy the hypothesis, but it isn't technically a thought experiment contradicting a real one.

7 points by nickb 18y ago

Summary of the article: the elimination of the uptick rule is responsible (http://en.wikipedia.org/wiki/Uptick_rule http://en.wikipedia.org/wiki/Uptick_rule has some good background). This is all new to me, and sounds compelling, but I have a question. If the elimination of the uptick rule in mid-2007 is exacerbating market volatility, why don't the market authorities (NYSE, NASDAQ) reinstate the uptick rule on their own? Is it that they aren't allowed to make their own rules, within the SEC's regulatory oversight? Perhaps they see the increased volatility as a good thing for them? Are they so spooked by the current economic weather that they don't see the larger picture?

lacker 18y ago
It is far from clear that the uptick rule has anything to do with volatility, and the NYSE and NASDAQ want to be impartial third parties; they don't want to impose restrictions that are controversial among the traders.

lacker 18y ago

There are many, many different models that can explain economic instability. It is much harder for a model to predict what would happen if you changed a rule. In particular the uptick rule is the sort of thing that could easily have drastically different effects in a model than in real life, since it is focused on stopping "panics".

Dilpil 18y ago

Oh come on. The uptick rule? Great example of a thought experiment used to contradict the results of experiments actually carried out under real circumstances. (+ 5 points: http://math.ucr.edu/home/baez/crackpot.html http://math.ucr.edu/home/baez/crackpot.html) Letting traders, market makers, and other market participants make bets on the value of a stock is vitally important. Liquidity is a good thing, highly informed markets are a good thing. Is it really so terrible that insolvent companies' stocks go down?

yummyfajitas 18y ago
I believe the hypothesis (supported by the model) was that the loss of the uptick rule combined with a bubble bursting caused the crisis. An analogy: I did an experiment. I eliminated the "always back up your data" rule for a week. Nothing bad happened. Are you going to come up with thought experiments telling me this is a bad idea, in contradiction of my real experiment? I don't actually buy the hypothesis, but it isn't technically a thought experiment contradicting a real one.