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View Diary: Nobel Prize for Economics = neo-liberal swinefest UPDATED (197 comments)

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  •  Economists of today don't use reality (4+ / 0-)
    Recommended by:
    Sandino, Selphinea, Alumbrados, parse this

    They describe an ideal world that requires everyone to make rational decisions based on perfect knowledge.

      It doesn't exist.
    That's why economists can't make tests that other can duplicate consistently - a requirement for science.

    None are so hopelessly enslaved, as those who falsely believe they are free. The truth has been kept from the depth of their minds by masters who rule them with lies. -Johann von Goethe

    by gjohnsit on Thu Oct 17, 2013 at 11:43:33 AM PDT

    [ Parent ]

    •  Mainstream economists of today ... (0+ / 0-)

      ... do not lapse into the neoliberal tendency to pretend that they are the only economists in the room.

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      by BruceMcF on Thu Oct 17, 2013 at 01:23:34 PM PDT

      [ Parent ]

    •  It's amazing how much of the discussion here (0+ / 0-)

      is by people who apparently can't use Google.

      Economists of today don't use reality
      They describe an ideal world that requires everyone to make rational decisions based on perfect knowledge.
      Actually, a lot of the work in economics is about why markets behave on a large scale as if everyone is rational and knows all public information even when they don't.

      This is actually fascinating.

      For example, I haven't checked the cites myself, but I had a recent discussion about this topic with a behavioral economist in London.  According to him, even before the Black Scholes equation was published, option prices on public markets were quite close to the prices predicted by Black Scholes.  If you think about it, that's actually pretty amazing - somehow the markets were empirically deriving mathematically correct prices for options based on underlying asset prices and volatility before anyone knew the math on how to do this.

      •  The fact that you are using the Black Scholes (1+ / 0-)
        Recommended by:
        Sandino

        equation to prove something, after it failed so badly with LTCM, shows that you need to do some Googling yourself.

        None are so hopelessly enslaved, as those who falsely believe they are free. The truth has been kept from the depth of their minds by masters who rule them with lies. -Johann von Goethe

        by gjohnsit on Thu Oct 17, 2013 at 09:57:38 PM PDT

        [ Parent ]

        •  And if Einstein couldn't catch a thrown ball that (0+ / 0-)

          would mean that his physics was wrong?

          What do you think the failure of LTCM had to do with the Black Scholes equation (as opposed to Black's and Scholes' capabilities as investment managers)?

          •  This is an easy one (0+ / 0-)

            Myron Scholes was a member of the board of directors of LTCM.

            LTCM invested in derivatives based on the formula that Scholes invented.

            LTCM imploded in a spectacular fashion during a bull market.

             And yet you still compare that formula to Einstein's.

            None are so hopelessly enslaved, as those who falsely believe they are free. The truth has been kept from the depth of their minds by masters who rule them with lies. -Johann von Goethe

            by gjohnsit on Sat Oct 19, 2013 at 01:05:25 PM PDT

            [ Parent ]

            •  You apparently understand neither LTCM or Black (0+ / 0-)

              Scholes.

              http://en.wikipedia.org/...

              As LTCM's capital base grew, they felt pressed to invest that capital and had run out of good bond-arbitrage bets. This led LTCM to undertake more aggressive trading strategies. Although these trading strategies were market neutral, i.e. they were not dependent on overall interest rates or stock prices going up (or down), they were not convergence trades as such. By 1998, LTCM had extremely large positions in areas such as merger arbitrage (betting whether mergers would be completed or not) and S&P 500 options (net short long-term S&P volatility). LTCM had become a major supplier of S&P 500 vega, which had been in demand by companies seeking to essentially insure equities against future declines.[14]
              In short, LTCM was taking positions that could win or lose, not arbitraging.

              You also don't understand Black Scholes.

              Even if I put all my money into options that are mispriced according to Black Scholes, that does not mean that I can't get unlucky.  Black Sholes gives the current value of an option based on the underlying stock's price and volatility.  It says nothing about the future value of that option.

    •  I'm glad to know that evolution is not science (0+ / 0-)
      That's why economists can't make tests that other can duplicate consistently - a requirement for science.
      Since neither Intelligent Design nor evolution are sciences according to you, do you support giving them equal time in the classroom?
      •  So you're saying... (2+ / 0-)
        Recommended by:
        Sandino, gjohnsit

        ...that evolutionary theory (which is not a science, of course: it's a tenant of biology, which is) cannot make predictions and then scientists cannot design experiments based on those predictions, which other scientists can then duplicate?

        Sorry, did you stop in the wrong blog? The science-deniers blog is over ---> that way.

        Meanwhile, over here in the real world, every incidence of bacterial resistance to antibiotics is another fresh duplication of a prediction made by evolutionary theory. And, as you may or may not know, this is happening with worrying regularity...

      •  You need to study evolution (1+ / 0-)
        Recommended by:
        Sandino

        because you are under some basic misundestandings.

        None are so hopelessly enslaved, as those who falsely believe they are free. The truth has been kept from the depth of their minds by masters who rule them with lies. -Johann von Goethe

        by gjohnsit on Thu Oct 17, 2013 at 09:58:34 PM PDT

        [ Parent ]

        •  Go on... give me a repeatable experiment that (0+ / 0-)

          can be used to support evolution.

          How long does your experiment take?

          The evidence for evolution is more observational and mathematical.

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