1/ Turns out @profplum99 just did a 3-hour podcast with @PeterMcCormack (thanks for the shout-out).
Well done!
Here is something important to understand as we discuss these issues, and it's one reason I believe progress in economics and policy may come from the finance sector.
2/ One thing we know about living things is that they self-reproduce. That means they grow multiplicatively.
The reason capitalism feels so alive is that capital and personal wealth do the same. Every finance professional knows this; it's the geometric Brownian motion model.
3/ So what happens by default to inequality in these systems?
It increases indefinitely. Roughly, one entity ends up dominating. Econophysicists call this "wealth condensation" -- do nothing, let the system run, and wealth condenses into the hands of a small elite.
1/ A)
Orthodox economics: people decline the St. Petersburg lottery because it decreases their utility averaged over the statistical ensemble.
B)
Ergodicity economics: people decline the St. Petersburg lottery because otherwise they'd lose money over time.
2/ A) creates a problem by averaging over the statistical ensemble, i.e. imagined worlds. Because that has little to do with reality, a fudge factor is introduced: the utility function.
B) insists on one reality. No problem created, no fudge required.
1/ Sometimes it helps to say why we do things. So why worry about ergodicity in economics?
The ergodicity problem means, e.g., that economic models overlook the fundamental benefit of cooperation, a cornerstone of complexity theory - why structure emerges in living systems.
2/ Formally, the failure happens because expected utility theory (EUT) optimizes expected value, and expected value is irrelevant and inaccessible to decision makers (it's even called `expected' utility theory...)
EUT in turn is the basis for game theory.
3/ Game theory is hugely influential in (geo-)politics.
It doesn't seem like a good idea to leave a fatal flaw, which makes us blind to the value of cooperation, in the theoretical foundations of how we conduct international politics.
1/ How can I put this?
"Expected utility maximizers don't maximize utility."
Why? Because utility is not usually an ergodic quantity in the mathematical models used by economists, and maximizing its expected value doesn't mean much in the real world.
2/ I've written a blog post about this with @hulme_oliver, where we spell out the mathematics and give you an interactive app.
Try it out for yourself. Maximizing expected utility destroys actual utility. ergodicityeconomics.com/2025/05/28/exp…
3/ What does that mean?
I would say it means that this core concept of orthodox economics -- utility -- is meaningless and misleading.
But don't take my word for it - this is known: empirically, expected-utility theory and its descendants like prospect theory etc don't work.
1/thread🧵
Almost 20 years ago, I started thinking about the ergodicity problem in the context of economics. That turned out to be surprisingly fruitful, and now there's a book about it.
This work soon attracted the attention of some extraordinary thinkers. I had met them because we were all members of the community around the Santa Fe Institute @sfiscience. Among them were Murray Gell-Mann, Ken Arrow, Reuben Hersh, and Cormac McCarthy.
I benefited immensely from their encouragement and their generosity with their time.
1/9 I read @davidbessis book last year. It's brilliant!
It brought back many memories of conversations with Reuben Hersh, who is briefly mentioned.
Mathematics as a human creative act, not as axioms, deductions, and finally theorems. Seeing the answer, and using logic to check.
2/ Pappus wrote (paraphrased by Polya).
'Analysis:' start from what is required (the result) and trace it back to something you know to be true.
'Synthesis:' reverse the process and walk back to the result.
The human process is analysis: see the result, then understand how you know it.
But we write too much synthesis.
3/ @davidbessis emphasizes the most valuable aspect of mathematics: learning to educate our intuition.
This leads him to a critique of Kahneman's System 1 (intuition) and System 2 (logical mechanical 'thought').
System 1 is not fixed. The whole point is to change it: David's System 3.