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Mandlebrot's proof that markets are inherently unstable

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Fried Egg Posted: Thu, Feb 12 2009 1:44 PM

Apparently Mandlebrot demonstrated that unhampered markets are inherently unstable and develop speculative bubbles.

I have yet to read this paper but apparently it is a bit technical:

http://www.e-m-h.org/Mand66.pdf

Has anyone else heard about this and have any thoughts on the matter?

 

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ladyattis replied on Thu, Feb 12 2009 2:29 PM

These are just tentative thoughts from a cursory examination, so bear with me.

What I gather from the paper so far is a lack of framing the nature of economies as 'ecologies' is the first problem with it (hell, it's the same issue I have with Austrian views on economies, but that's not important at this time...). As such, I think it follows if we set things from the perspective of mathematical models then instability, fluctuations, and unpredictability are bad/undesirable features in an economy (as you really can't make a decent set of equations to resolve all possible cases that could arise). So, I'm very leery of the idea of using pure math to explain a very human situation without digging deep into the human interactions first and foremost, regardless of who produces the model and for what reason(s).

 

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Juan replied on Thu, Feb 12 2009 3:15 PM
In a word, it's just positivism. Empty mathematics. Meaningless.

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Aquinas : "much more reason is there for heretics, as soon as they are convicted of heresy, to be not only excommunicated but even put to death."

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Fried Egg replied on Fri, Feb 13 2009 7:52 AM

I was hoping for a more in depth austrian critique of these ideas...

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I'll try get it on one of the Austrian prof yahoo groups and see what they think.

Freedom of markets is positively correlated with the degree of evolution in any society...

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Juan:
In a word, it's just positivism. Empty mathematics. Meaningless.

I haven't read the paper, I plan to though. But, I want to comment on the attitude that somehow the austrian framework makes mathematics meaningless. Math is in reality a logical system, and each equation has a "real world" meaning that can be deduced. As always, if the assumptions or the process is wrong then the conclusions will be wrong, but this does not mean that relationships derived from sound theory cannot be expressed at all using mathematics.

I understand the austrain concern of subjective values and multiple variables (I'm just saying that spoken words, in a logical progression, can be broken down into mathematical proofs). 

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JackSkylark:

I haven't read the paper, I plan to though. But, I want to comment on the attitude that somehow the austrian framework makes mathematics meaningless. Math is in reality a logical system, and each equation has a "real world" meaning that can be deduced. As always, if the assumptions or the process is wrong then the conclusions will be wrong, but this does not mean that relationships derived from sound theory cannot be expressed at all using mathematics.

I understand the austrain concern of subjective values and multiple variables (I'm just saying that spoken words, in a logical progression, can be broken down into mathematical proofs). 

Very true but I think Juan's main side swipe was that he was using a positivist methodology and since this is not applicable to economics then the maths therein in meaningless.

 

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Physiocrat:

Very true but I think Juan's main side swipe was that he was using a positivist methodology and since this is not applicable to economics then the maths therein in meaningless.

I agree, I was too broad in my post (and was not directly focused on Juan's post). But I absolutely agree that the positivist methodology makes the conclusions meaningless.

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Juan replied on Fri, Feb 13 2009 10:16 AM
Physiocrat:
Very true but I think Juan's main side swipe was that he was using a positivist methodology and since this is not applicable to economics then the maths therein in meaningless.
That was my poorly made point, yes. Thanks for clarifying.

February 17 - 1600 - Giordano Bruno is burnt alive by the catholic church.
Aquinas : "much more reason is there for heretics, as soon as they are convicted of heresy, to be not only excommunicated but even put to death."

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The entreprenuerial experience is unstable, uncertain, and speculative.  Consider the steps:

  • Person comes up with an idea.
  • Person says I think I can make money with this idea.
  • Person saves money develops prototype.
  • Prototype fails
  • Person comes up with new ideas until prototype suceeds
  • Prototype converted to product
  • Product doesn't sell
  • Person comes up with new idase until product succeeds.
  • and so on...

An unproven idea is by its' very nature speculative and uncertain.

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