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| bill... |
 Posted: Tue Sep 15, 2009 6:28 am |
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Roger Bagula wrote:
[quote:a64e4c5e4d]http://www2.canada.com/vancouvercourier/news/letters/story.html?id=dd0c106f-298c-4ddb-ae4a-71b8eae95e6e
Sunday » September 13 » 2009
Classic economic thought devoid of 'fractal' theory
Geoff Olson
Vancouver Courier
Friday, September 11, 2009
Remember fractals? In the mid-'90s, the paisley-like patterns were
everywhere...
[/quote:a64e4c5e4d]
Guy Sorman, author of "Economics Does Not Lie: A Defense of the
Free Market in a Time of Crisis"
His presentation at the New York City Harvard Club is available at:
http://www.booktv.org/Watch/10705/Economics+Does+Not+Lie+A+Defense+of+the+Free+Market+in+a+Time+of+Crisis.aspx
Transcribed starting 42m 15s into the presentation he is asked a
question:
Kay Ajerman? of Commentary Magazine:
"You quoted Mandelbrot twice approvingly in his characterization
of the market and of wild randomness yet in the beginning of
your speech you said that economics grounding as a science has
been solidified by the ability of data and the application of
mathematical and statistical models which I would think
Mandelbrot probably would take contention with. Do you believe
that in addition to helping economists verify their hypotheses
or check them empirically against reality the reliance on, or
should I say over reliance on, mathematical models is a blind
spot in the circles of academia in economics and it fails to
take into account the wild randomness and the unpredictability
of financial and economic cycles and do you think it trumps
sometimes common sense and a healthy account of human nature?"
Guy Sorman:
"Um Hum. Um, there are at least three questions in your
question so I try to make a distinction. Starting with the
notion of wild randomness. What Mandelbrot says and tries to
show is that in nature you don't have wild randomness, you have
what he calls mild randomness. Physical events can be predicted
to a certain extent. And he has built a mathematical model, I
don't want to be too technical there, on the fractal model.
Fractal models show that many chaotic events, like noise for
example, do follow a mathematical pattern and can therefore be
predicted and the consequences have been extremely important,
for example in telecommunication. The Mandelbrot mild
randomness mathematical model applies to nature and physical
events. Okay? Chaos is not that chaotic, that is what he says.
Then he tried and many others tried to transfer his model to the
financial market and when looking at the data, and we have data
since the late 19th century starting with the cotton exchange in
New York which are the oldest financial data which are available
it appears that no pattern ever appears, it is completely
random. And any mathematical model which tried to introduce
kind of a prediction in the evolution of the prices and the
market, all these models have been proven wrong, including many
models which have been used these recent years, at least not to
loose money. And these models were attempt to predict the
evolution of the prices. They all failed. And the conclusion
of Mandelbrot is to say at that stage we have no mathematical
tool or not enough knowledge to predict the financial market,
therefore randomess is mild in the physical nature, in the
financial world randomness is complete or wild. This is what we
know at that stage. Okay? And I won't elaborate, but you have
many mathematical models I am sure which come to your mind which
have been extremely popular until the recent stock exchange
crisis and these models are proved not to be extremely precise.
...."
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