Slightly behind the pack, it seems, I’ve suddenly started hearing about “ergodicity economics”, presented as an alternative to expected utility (EU) theory. Commenter James asked me about it here, and I also received from a colleague a copy of a paper in Nature, by Ole Peters, who appears to be the main developer of this idea. The essential idea of ergodicity is that the long-run distribution of outcomes for a dynamic process should match the uncertainty of the process at any point in time. You can get something more precise in Wikipedia. Expected utility starts with preferences over uncertainty at a point in time. Peters argues that things are better understood in terms of evolution over time. I haven’t followed all of the details of this argument as yet.
What piqued my interest is that the discussion involves a lot of discussion of probability weighting and particularly the idea that extreme low-probability outcomes may be overweighted. The most famous expression of this idea is the cumulative prospect theory put forward by Kahneman and Tversky in 1992. Their original prospect theory applied the same weighting function to all events, which raises a number of difficulties. These were resolved using the idea of rank-dependent probability weighting which I proposed in a paper in 1982 (under the name ‘anticipated utility’ and now usually called rank-dependent utility or RDU) .
The underlying reasoning is that, in a dynamic process repeated over time, taking low-probability extreme risks will (very probably) catch up with you. I’m pretty sure I made an argument of this kind in support of RDU back in the 1980s, but I haven’t been able to locate it for now.
This is one of many independent rediscoveries of the rank-dependent approach, with a variety of motivations. I think this reflects the fact that the RDU is, in some sense, the natural generalization of EU.
22 thoughts on “Ergodicity economics and rank-dependent utility”
Sunday brush up in…
“Seeking Ergodicity in Dynamic Economies
(Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)
(Research School of Economics, Australian National University, Australia)
In estimation and calibration studies the convergence of time series sample averages plays a central role. At the same time, a significant number of economic models do not satisfy the classical ergodicity conditions. Motivated by existing work on asymptotics of stochastic economic models, we develop a new set of results on limits of sample moments and other sample averages using an ordertheoretic approach. Our results include a condition that is necessary and sufficient for convergence over a broad class of moment functions. We discuss implications, sufficient conditions and a range of economic applications.”
Ergodicity – the biggest mistake ever made in economics
“Paul Samuelson claimed that the “ergodic hypothesis” is essential for advancing economics from the realm of history to the realm of science.
“But is it really tenable to assume – as Samuelson and most other neoclassical economists – that ergodicity is essential to economics?
“The answer can only be – as I have argued here, here,here, here and here – NO WAY!
“Samuelson said that we should accept the ergodic hypothesis because if a system is not ergodic you cannot treat it scientifically. First of all, that’s incorrect, although I think I understand how he ended up with this impression: ergodicity means that a system is very insensitive to initial conditions or perturbations and details of the dynamics, and that makes it easy to make universal statements about such systems” …
Documentary Of The Week: Ergodicity In Economics And Finance
Written by John Lounsbury
“Ergodicity is a property sometimes misapplied in economics. A system is ergodic if the time average of a process and the position average are identical. This week’s video is a lecture that explains just what that means in simple processes and how economics is impacted. Hat tip to @LarsPSyll who has this video on his blog. Prof. Syll refers to the subject as “wonkish” (which it may well be), but its understanding is of fundamental importance for anyone interested in economics and financial systems.”
Time for a Change: Introducing irreversible time in economics – Dr Ole Peters
At 9.40 Dr Ole Peters shows non ergodic system result of ensemble vs time and then introduces infinity!
“Is Infinity Real? ”
By Sabine Hossenfelder
Isn’t the real point that populations, the real economy and the real environment are non-ergodic? As Lars Syll writes:
“To understand real-world ”non-routine” decisions and unforeseeable changes in behaviour, ergodic probability distributions are of no avail. In a world full of genuine uncertainty – where real historical time rules the roost – the probabilities that ruled the past are not those that will rule the future.”
At 22mins during –
“Time for a Change: Introducing irreversible time in economics”
– Dr Ole Peters introduces history of probability mentioning Cardano. What an interesting life.
I was taken by Cardamo. And the ensemble vs time graphs made me think of a friend always trying to beat the odds – horses and cryoto. He is studying this while searching for his bitcoin key. If you knew when to reset… hmmm.
Even Feynman lost! Nic the Greek won.
“THE PERFECT BET: HOW THE SCIENCE OF GAMBLING INFLUENCES EVERYTHING AROUND US
“Punters have been trying to beat the bank since numbers were invented. And as a new book reveals, mathematicians’ early efforts have led to science underpinning everything from computing to the insurance industry
“To tackle the dice problem, Pascal enlisted the help of Pierre de Fermat, a wealthy lawyer and fellow mathematician. Together, they built on Cardano’s earlier work on randomness, gradually pinning down the basic laws of probability. Many of the new concepts would become central to mathematical theory.
…” Bernoulli solved the wager problem by thinking in terms of “expected utility” rather than expected payoff. He suggested that the same amount of money is worth more – or less – depending on how much a person already has. For example, a single coin is more valuable to a poor person than it is to a rich one. As fellow researcher Gabriel Cramer said, “The mathematicians estimate money in proportion to its quantity, and men of good sense in proportion to the usage that they may make of it.”
“When Feynman tried the game, he was particularly unlucky, losing five dollars right away. It was enough to put him off casino gambling for good.
“… consistently make money. Marilyn called Nick the Greek over to their table, and Feynman asked how it was possible to make a living gambling. “I only bet when the odds are in my favour,” Nick replied. Feynman didn’t understand what he meant. How could the odds ever be in someone’s favour?
“Nick the Greek told Feynman the real secret behind his success. “I don’t bet on the table,” he said. “Instead, I bet with people around the table who have prejudices–superstitious ideas about lucky numbers.” Nick knew the casino had the edge, so he made wagers with naive fellow gamblers instead. Unlike the Parisian gamblers who used the martingale strategy, he understood the games, and understood the people playing them. He had looked beyond the obvious strategies – which would lose him money – and found a way to tip the odds in his favour. Working out the numbers hadn’t been the tricky part; the real skill was turning that knowledge into an effective strategy.”
‘By dissecting successful betting strategies, we can find out how gambling is still influencing our understanding of luck – and how that luck can be tamed.”
The Perfect Bet: How Science and Maths are Taking the Luck Out of Gambling
Listen to “The Book on Games of ChanceThe 16th-Century Treatise on Probability”
By Gerolamo Cardano
Buy the book $70 @ princeton!
Central to Nassim Taleb’s thinking
View at Medium.com
Adding to my points:
1. Surely, the real point is that populations, the real economy and the real environment are non-ergodic?
“To understand real-world ”non-routine” decisions and unforeseeable changes in behaviour, ergodic probability distributions are of no avail. In a world full of genuine uncertainty – where real historical time rules the roost – the probabilities that ruled the past are not those that will rule the future.” – Lars Syll.
2. In the lecture that KT2 linked to, Dr. Ole Peters seems to be talking about finance and investment economics. I wonder what the link is to the whole of economics? I am not necessarily saying there isn’t one and I am not saying Dr. Ole Peters could cover that in one lecture. His lecture is worth watching that’s for sure. Perhaps the implied link is in the key points below.
Key points are that;
(a) physicists and economists don’t appear to be talking about precisely the same concept when talking about “ergodicity”.
(b) Dr. Ole Peters strongly implies that modern economics made a fundamental mathematical mistake in the “Nobel lineage” Menger, Arrow, Samuelson, Markowitz et. al. This mistake leads to a chain of errors.
One can suspect (my strong interpretation) that these errors are fundamental for (conventional) economics and collapse (conventional) economics as a valid discipline. The Marx, Veblen, Bichler & Ntizan and Lars Syll investigations also seem to collapse (conventional) economics as a valid socioeconomic, political economy and scientific discipline. The environmental collapse also collapses (conventional) economics as a valid discipline. There can be no argument that efficient allocation is occurring when what is being allocated (the free gifts of nature) is being comprehensively destroyed in a manner which will prevent any worthwhile future allocation at all. My own empirical philosophy ontological investigations suggest (to me at least) that conventional economics has a false ontology; meaning a false map, false relational structures, false categories and a false taxonomy of the base existents relevant to the discipline.. No objective discipline can progress with validity while having a false (subjective) ontology at base.
Andrew said “Central to Nassim Taleb’s thinking” and eight in queue;
Nassim Nicholas Taleb
“The title is blown up but the article is right on point. You miss on ergodicity, you get nothing in decision-making under uncertainty.
There’s a lot out there now suggesting neoclassical economic theory is wrong in the most thoroughgoing sense. It’s certainly amusing to see economists (like the one mentioned in the article) getting sniffy when a physicist tells them their maths is wrong. Same thing when philosophers tell them their ontology is wrong. The problem is when economics drives the earth and society to collapse, as it is doing now, then it develops a massive empirical credibility problem. Same when it drives massive inequality. Is it any wonder people are now radically doubting “conventional” economics in multiple fields? Meaning in maths, physics, ecology, biophysics, thermoeconomics, socioeconomics, social sciences, political economy, philosophy (ontology) and moral philosophy. Seems to me, conventional economics is out on a limb all on its lonesome.
Insofar as J.Q. is an unconventional economist, and he is that very considerably, then he is not out on this limb anywhere near as far as the neoliberals. indeed, his Fabian-like (dare I call it that?) socialist and democratic principles definitely put him on the right side of the balance, IMHO. It’s just that J.Q. is “not radical enough”… yet. But then who is radical enough for me? 😉 Well, there are a few. Marx, Engels, Veblen, Bichler and Nitzan, Blair Fix, plus now Ole Peters perhaps. Talib I remain very “iffy” about. He seems too opportunist to be a socialist and he probably isn’t one.
Of course, I will continue my “conventional economics has a false ontology” campaign in the Sandpit.
Worthwhile Swedish initiative? Peters’ higher education and academic career have been in the UK, but obviously there’s a Nordic background.
JQ, I think you should read the paper from Ole Peters more carefully. It has nothing to do with RDU, and he explicitly repudiates all utility based economic models. Instead, his theory hinges critically on the absurd, and unjustified, claim that decision makers should maximize the growth rate of wealth.
Peter Wakker, along with Jason Doctor and Tong Wang, have a response to Peters’ paper here https://www.nature.com/articles/s41567-020-01106-x.pdf?origin=ppub. The response is suitably polite yet scathing.
There is now a response by economists to that Peters paper in Nature:\
Andreas Ortmann – I am unable to access. Another link or low / highlights?
Ikon, I too’ “wonder what the link is to the whole of economics?” I guess we await JQ and others.
Taleb – “70% prob of win 30% chance of loss = go bust.”
And he calls bs on others, and endirses Ole Peters work. In Feb this year.
8 mins. Ernestine make like / dislike this as implies a fault with Arrow.
“How you will go bust on a favorable bet. (Kelly/Shannon/Thorp)”
Ikon said ‘There’s a lot out there now suggesting neoclassical economic theory is wrong “…
You may appreciate this paper. The writer invokes philosophy, and finance history from Huygens to the “failure of Long Term Capital Management (MacKenzie 2003b); and the choice of 0.3 as the correlation parameter used in pricing CDOs in the lead up to the Credit Crisis (MacKenzie 2011) are both problems of a monism related to a belief in the indubitability of mathematics. ” Long read and for me, a great history lesson as well.
“Reciprocity as a Foundation of Financial Economics
…” The second implication concerns the role of mathematics in finance. Mathematics is widely regarded as delivering indubitable results, and on this basis a price derived mathematically has authority. However, in the context of communicative action, language is not a truth carrier but rather it is a linguistic device to enable the transmission of understanding. This is the role of Fibonacci’s mathematics in medieval finance, highlighted by Sigler (Fibonacci and Sigler 2003, Introduction); it enabled a calculation to be written down that could then be copied, modified and improved by others. In not recognising this role for mathematics, financial economics has been perceived by many as being capable of delivering accurate asset prices in the face of radical uncertainty. The Black–Scholes pricing formula was once claimed to be the most successful equation in economics (Ross 1987, p. 332).
“However since Black Monday in 1987 market practitioners have been more sceptical of the accuracy of the Black–Scholes equation, and as Haug and Taleb (2011) point out, traders rarely use the formula and prefer practical heuristics. In contemporary markets, the prices of standard, exchange traded derivatives are determined by ‘the market’, while exotic, over-the-counter derivatives are too complex to be priced analytically. … Problems that MacKenzie has investigated: the super-portfolio in relation to the failure of Long Term Capital Management (MacKenzie 2003b); and the choice of 0.3 as the correlation parameter used in pricing CDOs in the lead up to the Credit Crisis (MacKenzie 2011) are both problems of a monism related to a belief in the indubitability of mathematics. Replacing the negotiation between market agents with an algorithm that delivers a theoretical price replaces ‘knowledge’, generated through communication, with dogma. This is an almost trivial observation to (successful) market participants (e.g. Tett 2009; Beunza and Stark 2012; Duhon 2012, especially Chap. 12).
“… Our paper ends with a discussion of how our claim and explanatory hypothesis would affect our experience of markets. Specifically we argue that not-for-profit mechanisms should be encouraged while certain activities, such as order stuffing, should be inhibited and market manipulation, in general, cannot be tolerated on the basis that it is insincere. More generally we call for greater public engagement with financial practice and the substitution of ‘carrot and stick’ by ‘professional’ regulation of financial practice. The objective is that this paper can contribute to this process, not least by contributing to a reversal in the trend for economics education to promote greed, as identified in Wang et al. (2011) and supports the arguments in Jackson (2010) and West (2012).”
…The case that finance isbased on reciprocity, not on profit maximisation, immediately justifies the arguments in Stern for inter-generational reciprocity, in particular, and long-term investment at low, but sure, returns, in general.”.
Peters’1 Perspective on the possible role of ergodicity in the formalism of economics provides a fresh take on an established problem, yet his remedies are unjustified and give an inaccurate impression of the economics field as a whole (Supplementary Information).
Expected utility (EU) concerns choices between probability distributions over outcomes. Utility U assigns a subjective value to each possible outcome. Then the probability distribution with the highest EU value (probability-weighted average U) is chosen. This procedure involves imagining consequences that may not happen. We do such scenario planning every day, and—contrary to Peters’ claims1—we need not invoke ‘parallel universes’ to do so.
Peters shows that his ergodic model, when assuming ergodicity, has some mathematical properties similar to EU. Peters criticizes EU, and then all of economics, for supposedly assuming ergodicity implicitly (Supplementary Information). Yet this dynamic assumption is outside the scope of EU as a static theory. Furthermore, mathematical isomorphisms between intertemporal and other choices have been demonstrated previously2.
Peters approvingly cites an experimental work by Meder et al.3, but we must note that static EU is inappropriately applied to a dynamic context there (Supplementary Information). Specifically, Meder et al.3 report inconsistencies in EU-utility measurements that, in turn, are interpreted as a falsification of EU. Such falsifications of EU are not new4, however, and numerous other falsifications of EU have been reported in the past5. Many economists have therefore used improved theories, including prospect theory6, which have found widespread use7. Peters’ citation of a falsification of EU to criticize all of economics is therefore unwarranted. Also, although some ergodic predictions seem to be faithful to preference, others do not. Would a person ever prefer a process that, after three rounds, diminishes wealth from US$10,000 to 0.5 cents over one that yields a 99.9% chance of US$10,000,000 and otherwise US$0? Ergodic theory predicts that this is so because the former has a higher average growth rate (Supplementary Information).
Peters suggests that intertemporal growth is the primary factor that explains economic phenomena. He suggests that the dependence of utility and other attitudinal characteristics on persons is not important, as with objects studied in physics. But kicking a person is not like kicking a rock—different people react differently. We cannot predict human choices directly from stimuli. Thousands of economic studies find interpersonal variations8, and they work well to explain behaviours such as undersaving and smoking, to make only two examples.
Although it is true that our consumption of economic goods develops over time, time is not the most central aspect of all our decisions. For many of our decisions, other equally ubiquitous aspects such as risks, strategy and the balancing of pros and cons are more central. Just because something is ubiquitous, it should not be confused with being explanatory; for example, we can argue that everything consists of molecules, but it is not a reason to think that all questions in economics, geography and throughout life should be answered by molecular dynamics. We therefore caution that there is no single paradigm that is superior for answering all (economic) questions.
Economists use static EU for static decisions, when dynamics are not central. Otherwise, a dynamic model is used. Additive or multiplicative growth are specified whenever appropriate, and usually without the need to assume ergodicity. Such examples are common throughout finance and economics, including life-cycle consumption theory or Grossman’s model of health9. In such cases, it is the consumption paths that are optimized, and not just the entire final wealth state, as in Peters’ models.
We conclude with an appeal to physicists to think carefully about human behaviour to help improve economics.
I must admit I oscillate between regarding Economics as a tar-baby and a morass. Abandon all hope ye who enter into it to theorize and debate! Poor young Ole Peters! He has aimed a blow at the tar-baby. He has entered the black swamp to fight the tar-baby. He will be stuck and glooped up in the interminable, undifferentiated, sticky, ideological matrix that is economics and its lack of a coherent ontology.
Modern conventional economics is still at the stage of being a theology of wealth, a medieval schoolman’s prescription for logic and an alchemist’s vision of science. Personally, I call BS on the whole discipline unless it can develop an objective ontology of economic objects and produce empirically validated results at the global scale. Empirical is as empirical does. If conventional economics destroys the real world (climate change, sixth mass extinction etc.) with its prescriptions, as it is currently doing, then it cannot be empirically justified. That is really the end of the debate right there.
Of course, we cannot entirely blame conventional economics. Geostrategic competition and human nature themselves are certainly playing their roles in the biosphere destruction process. However, conventional economics has prescribed itself as the answer to these and all issues. It is this overweening claim by economics, or by its boosters, that it can manage everything, that it is the prescription for everything, that is actually the central problem.
Economics prescribes endless growth in a finite system, the biosphere. Economics prescribes that dynamic, unstable endless growth be modelled and managed by equilibrium theory. Right there we see the ontological inconsistency. The refusal to limit or tailor economic parameters and models to the known empirical limits and behaviors encapsulated in the fundamental laws thus far discovered by science; the laws of thermodynamics for example. That economics ignores ergodicity as understood by physics is as nothing compared to its ignoring of thermodynamics, climate physics and ecological paramters.
Economics (conventional economics) is the incorrect decision system for managing scarce resources. This is empirically proven by the extant outcomes. Instead of managing scarce resources (for example the benign benefits of the Holocene climate, the free gifts of natural cycles and bioservices) in a conserving manner, it has ransacked the earth system so that it now stands on the brink of total collapse. I have posed this question before. How is it “efficient” to destroy the systems we depend on for life? There can be no remaining pretense of allocative efficiency when confronted these outcomes. Conventional economics, via capitalism, does not achieve efficient use of scarce and limited resources. It achieves destruction of scarce and limited resources.
Surely, economics stands in need of a complete instauration or renovation at the very least. Indeed, I would not recommend renovation. I would recommend tearing down the entire house of conventional economics and starting again. This is what will happen in any case. It will be torn down for us by natural forces. The comprehensive collapse of capitalist civilization will enforce either human extinction or the most extensive and radical reappraisal of economics possible; a radical reappraisal so emergently novel that we can no more fully imagine it yet than feudalists could have imagined the rise of capitalism.
However, my guess is that the next economic system on earth will be catabolic scavenging combined with hunter gathering. The hunting and gathering will be very poor in many localities. The earth in previous hunter-gathering times was a veritable cornucopia compared to what it will be this time around. So, all these arguments about (conventional) economics are somewhat beside the point. The entire grounds of global reality on which conventional economics stands will be so radically altered that conventional economics will inevitably collapse and disappear with the system it built and which built it, in that reflexive, feed-back manner of such systems where substructure and superstructure continually influence each other.
If a philosophical and wisdom tradition remains (be it religious or secular) among the human remnants post-capitalism, then capitalism, as both the prescribed excrescence and described subject matter of conventional economics, will be so excoriated by the tribe that if any man or woman dare utter a sentence in favor of it and all its non-cooperative selfishness, then he or she will be summarily thrown over a high cliff. That at least is my dystopian prediction of our future.
Andreas Ortmann, your detailed reply is both detaiked and sincerely appreciated.
AO “Peters’ citation of a falsification of EU to criticize all of economics is therefore unwarranted.”
And an excellent analogy re the dilemma of physics vs sociology & economics;
AO “[Peter’s] suggests that the dependence of utility and other attitudinal characteristics on persons is not important, as with objects studied in physics. But kicking a person is not like kicking a rock—”
As Ikonoclast points out, all we have is the physical limits of the biosphere, and even with technology advances, the planet is being abused by the growth paradigm.
You said “We therefore caution that there is no single paradigm that is superior for answering all (economic) questions.”
Do you see a path for physics and economics to come together in some manner?
Dr Peter”s study has, if nothing else, provided an excellent sounding board for further discussion. And provided me, as per usual via this blog, a great deal of information and continual learning.
I was hoping for something less absolute a condemnation, as you interpret Dr Peter’s work, of economics as a whole.
**** thanks again ****
I in my enthusiasm for an interface between economics & physics, although dated, this seems bridge not too far, for physicsist and economists … [Ikon feel free to update me]. The references of this paper /book are many and varied attempts at physics economics. Ymmv as I am unable to vouch for…
“18 Insights from Thermodynamics for the Analysis of Economic Processes
“Non-equilibrium Thermodynamics and the Production of Entropy (pp.243-254)
Authors: Matthias Ruth
“The laws of thermodynamics constrain transformation of materials and energy, and thus have implications for economic processes. This paper provides an overview over the uses and applications of concepts from thermodynamics in economic analysis at the level of individual processes and explores potential constraints at larger system levels – the economy as a whole and the ecosystems within which economies are embedded. Specific emphasis will be placed on the ways in which insights from equilibrium and non-equilibrium thermodynamics can be used to better describe – and understand – economic activity and its interactions with the global environment.”
Again, sincerely appreciated.
“your reply is both detailed and sincerely appreciated.”
Don’t use mobile without my glasses!
@Evan In the piece I link https://ergodicityeconomics.com/2020/03/06/probability-weighting-and-ergodicity-economics/, Peters very clearly relates his work to RDU (in the prospect theory version).
@Evan & @Andreas As I would expect from any paper in which Peter Wakker was involved, the response is polite, careful, and devastating.
Orthodox economics continues to ignore its fundamental ontology problem, IMHO. It’s very difficult to find a clear statement of the ontology of fundamental economic objects. If you or anyone could point me to a clear statement of modern orthodox economics’ ontology of fundamental economic “objects” I would be grateful. If I know little of the opposing case then I will know little enough of my own.
The paper linked to below is one of the few that comes up on a standard, non-scholastic search for an ontology of economic objects.
“An Ontology Of Economic Objects – Zuniga, Gloria L – .American Journal of Economics and Sociology, April 1999.
Click to access MPRA_paper_5566.pdf
“Menger’s general theory is a description of laws governing six economic objects: economic goods, commodity, money, value, price, and exchange.” – Zuniga.
Clearly, I can assume Menger also talks about persons, as economic agents, and about scarcity and utility. Zuniga certainly does so in her paper. Thus we would have to add Homo economicus or the “representative agent” plus scarcity and utility as economic objects. Already, Menger’s alleged initial list is supplemented as follows. I will interpolate my own thoughts a little;
1. Human (as representative agent);
3. Scarcity (as in useful things tend to be scarce or competed for);
4. Economic Good (as that which has utility and is drawn into the economic system);
5. Commodities (as traded goods perhaps?);
9. Exchange (Market?
Obviously, this list is not exhaustive. One could extend the list of economic “objects” (meaning subjects, objects and processes), or the list of categories of economic “objects”, much further. But this list might have some claim to being a set of fairly fundamental economic objects in a modern economy.
Zuniga states most insightfully that;
“The chief point that I would like to drive home in … epistemic clarification is that economic objects are not reducible to either beliefs or to some intrinsic property of things. Economic objects, as social phenomena, are the product of beliefs and objective properties of things, some of which are physical facts and others are social facts.”
Zuniga thus recognizes that the social sciences, of which economics is one, study that most difficult arena where the physis and nomos meet in a kind of iterative and relfexive physis-nomos interaction (of “physical facts” and “social facts”). More empirically it can be considered as an interaction which will probably need a combination of complex systems science and complex systems philosophy to investigate it and to establish so far as possible an objective ontology.
I assume both you and I start from a position of generic realism. The Stanford Encyclopedia of Philosophy defines generic realism as follows:
a, b, and c and so on exist, and the fact that they exist and have properties such as F-ness, G-ness, and H-ness is … independent of anyone’s beliefs, linguistic practices, conceptual schemes and so on.”
Even this seemingly clear position leads to its own reflexive complexities The claim itself is already, in a quite genuine sense, an a priori axiom founding an ontology. It already contains an assumption. By explicit mention, it sets up another category beside the first category of the objectively real. That second category is the category of beliefs, linguistic practices, conceptual schemes, social mores, customs, cultural myths and so on, which constitute in broad terms, the nomos. The basic definition of generic realism essentially contrasts the physis and the nomos and sets them up as “opposed relative existents” which by definition both exist but and exist in a kind of opposed relation.
However, let us take as a given this statement of generic realism. There are pragmatic reasons for doing so. Hard science frames its fundamental laws according to this view of generic realism. What one opines about physics laws like the Laws of Thermodynamics cannot change the operation of such fundamental laws. This is the view of physics and physics has much empirical evidence to back that view up.
Taking a step back we could envisage that social sciences and economics might, as a methodological choice, endeavor to push generic realism and hard science (physis) type explanations as far as they can reasonably go before perforce introducing necessary discussion of nomos “objects” and the further effects of these on the socioeconomy. At a certain point, we will of course have to recognize that nomos-governed behaviors do lead or induce real human minds and real human bodies to engage in purposive manipulations of the physical with intended outcomes.
The above cogitations indicate a need to re-start the project of economic ontology from the physis, first admitting to the ontology only those objects of physis (physical substance) status which are empirically declarable as physical and economic objects. The first object so admitted would be humans as we are (among other things) physical objects and humans create the real economy. Physical utility we can also admit at this stage as the utility (use value) of physical resources, forces and objects for the survival, maintenance and development of human bodies and brains (as objects) is empirically clear. Physical abundance and scarcity (as relative abundance and scarcity) we could also admit at this stage. After that, the problem becomes more difficult. We then enter the zone of cultural creations. Goods in the modern socioeconomy have an added aspect of psychological and cultural perceived necessity above and beyond material necessity.
All of this above is to not even begin to sketch out a new ontological project for economics. It is simply to note that the project exists in current orthodox form but is failing to re-examining ALL of its assumptions, ALL of its a prioris. One can say this in the light of new science and new philosophy, especially of the complex systems variety. One can also say it in the light of new empirical information. Ecological limits are now near. This clearly affects economics and orthodox economics, theoretical and applied, clearly has not grappled properly with this problem yet.
In summary, I do continue to wonder if you will engage on the issue of the ontology of economics. It seems to me as if many orthodox economists consider that the fundamental ontology of economics is already completely settled. Given the deplorable state of the macro (you commented on this yourself in the past), the deplorable state of the natural world and its dwindling capacity to bestow the free gifts of nature and finally the still-contested nature of micro-economics it would seem premature to assume that the project for the fundementeal ontology of economics is complete or subtstantially complete. RDU is a form of ontology for sure but I would argue that it is not genuinely fundamental enough and already takes too many a prioris for granted.
I can only sketch out my concerns and objections in a blog query of course. But there is something wrong in the state of Denmark; meaning in the state of the macro, the state of the micro, the state of man and state of the world of nature. These are disquieting times and they ought to lead each of us to question all our a prioris.
In addition to my above post, the Doctor / Wakker / Wang paper appears here.
The paper contains a link to the Ole Peters paper. As a layperson (WRT advanced mathematics) but some scientific literacy, my first bias is to believe the physicist about ergodicity and the mathematics behind it. The corollary of that is to disbelieve heterodox economists, their mathematics and their models on this issue at least. My general perceptions based on readings of complex systems science and complex system philosophy are that orthodox economics is a discipline with an untenable ontology. When we see the world is being destroyed according to its tenets, or at least not being saved according to its tenets, as constantly promised by its doyens, then this really just ices the empirical catastrophic cake.
I found the the Doctor / Wakker / Wang paper anything but devastating. The blithe assumption of a superior understanding over a “mere” phsyicist, no matter how tactfully put, speaks to me of a summary dismissal of Peters arguments without a proper consideration of his ontological basis for his position. The jargonistic form of the rebuttal is certainly not something aimed at or calculated to appeal to or convince the intelligent lay public. Clearly, it is addressed to a different audience, which one feels is the closed club of the academic priesthood of orthodox economics.
In any case, the whole argument appears to be about the process of financially growing wealth. That is to say it is another elitist concern which does not affect the bottom 90%, in the West, and does not affect the bottom 99% globally. I refer to those who live by subsistence, welfare and wages and whose production and consumption practices are mostly mediated by social exchanges and market exchanges for basic consumption products not for financial products. In the financial arena, my son, who is now a self-employed, self-supporting market investor with advanced tertiary qualifications in mathematics and an excellent investing record strongly so far at least inclines strongly to the view that Ole Peters is correct. His opinion of orthodox economics about matches mine without the socialist content.
To my son it is a system where being employed is clearly just another non-Kelly bet. The big players make money by being big (think monopoly and think zero real interest rates), workers are being scammed and small players, with the right mathematical skills and due diligence performance to find undervalued companies but not having inside information, really can beat the market by a large margin on average over the mid to long term with risks hedged by Kelly betting and other techniques.
I can only believe the empirical evidence I see so far. Workers are getting screwed, the climate and environment are collapsing and big or small / smart market players are still raking in the dough without real productive work by via mere financial plays.
Just to make sure: My reply was a copy and paste of the article as you did not have access to it) but somehow the authors credit did not make it; I only realize that now. So here:
Published: 02 December 2020
Economists’ views on the ergodicity problem
Jason N. Doctor, Peter P. Wakker & Tong V. Wang
Nature Physics volume 16, page1168(2020)Cite this article
It was not my words although I found myself in agreement with the authors. Peters travels on territory that clearly is does not know well.
… he does not know well …
JQ, here is an inquiring physicist seeking to understand your domain. And able to cope with the math.
“So… my name’s Lucy Keer, I did my PhD on gravitational waves from neutron stars in Southampton in the UK, and now I live in Bristol and work as a programmer. I’m still thinking about physics a lot (mostly quantum foundations), but in a more free-ranging semi-crackpot bricoleur style.”
Bell’s theorm post, interspersed with free ranging posts ala…
“The cognitive decoupling elite
“A particularly annoying example would be something like implementing the business logic for a large enterprise CRUD app where you have no particularly strong domain knowledge. Maybe there’s a tax of 7% on twelve widgets, or maybe it’s a tax of 11.5% on five hundred widgets; either way, what it means for you personally is that you’re going to chuck some decontextualised variables around according to the rules defined in some document, with no vivid sensory understanding of exactly what these widgets look like and why they’re being taxed.” …
Perhaps a quick email may see Lucy providing expertise re physics / economics / egodicity / continuous vs discreet time models.
I hope Lucy comments here.