Ole Peters Profile picture
Jul 13, 2020 4 tweets 1 min read Read on X
1/
The generalization of this argument is instructive.

When faced with danger, do nothing to mitigate the danger, otherwise you'll feel safe and forget there's a danger.

2/
When it's cold, don't put on clothes, or else you might forget it's cold and die of hypothermia or slip on surprise-ice.

In a car: don't put on your seat belt, are you crazy?

Traffic lights: always cross at red to avoid that false sense of safety.
3/
Ill? Well don't go to the doctor, he'd put you right at ease!

Vaccines. Are you kidding me!

Insurance. The behavioral economists have covered that: only if you suffer from cognitive maladaptation will you insure your belongings.
4/

Hungry? Whatever you do, just don't eat or else you might starve.

Confused? Don't read Joseph Heller.

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More from @ole_b_peters

May 15
1/n
A thread about ergodicity economics and world peace, why not.

A quantity is ergodic if its average over an ensemble of systems is the same as its average over time.

Ergodicity economics questions whether ergodicity holds.

But what's that got to do with world peace?
In the social context, the ensemble is usually a population, and the ergodicity question becomes this: does the average over the population represent what happens to the typical individual over time?

So this is about the relationship between collectives and individuals.
You may think: whatever is good for the collective must be good for the individual because the collective is made up of individuals.

In economics, that corresponds to working with "the representative agent," and it's precisely the ergodicity error.
Read 9 tweets
Nov 22, 2023
Let's make a list of people who have discovered problems in economics.

Feel free to add your own favorites.
@ThomasHerndon1: as a graduate student exposed the Reinhart and Rogoff paper, which had had trillion-dollar austerity consequences around the world, as jaw-droppingly flawed.
@StephanieKelton: exposed that the public narrative about the mechanics of the monetary system, which is also taught in economics departments, has little to do with the mechanics of the monetary system.
Read 5 tweets
Aug 4, 2023
..emotions also running high on the blog.

Tom is rather upset about the coin toss. Mathematics is an emotional subject.

https://t.co/DNNxVbZbkiergodicityeconomics.com/2023/07/28/the…
Image
Update: Tom is still rather angry. He has now worked out how to compute expected value.

Perhaps tomorrow he will notice that we agree with his computation of the expected value but are also curious about the time average. Image
Next update: Tom seems less angry now because he has run his simulation successfully. We don't know what he has simulated, but everybody wins, and that, surely, is a good thing. Image
Read 8 tweets
May 20, 2023
1/7
Since people seem curious, here's a bit more detail because it's a nice ergodicity story.

The question was: how can paupers and billionaires emerge in a population of identical agents?

I think the ergodicity-economics answer is underappreciated in economics.
2/7
Imagine a population of N agents all of whose growth rates have the same statistical properties.
In the simplest case, at each time step generate N Gaussian random variates and use them as the exponential growth rates.
Everyone's expected wealth is identical for all time.
3/7
However, individually some are luckier and some less so. Because the process is the usual assumption in economics, exponential growth, random differences are exponentially amplified over time.
Result: ever-increasing inequality and log-normally distributed wealth.
Read 7 tweets
Oct 14, 2022
1/4
Hysteresis is a fancy word for "it matters how you got there."

A 5% interest rate is one thing if you've arrived there from 10%; it's something else if it's been 0% for years.

Low and falling rates are systemically ingrained now.

ergodicityeconomics.com/2017/08/14/wea…
2/4
This raises a question I've been wondering about for some years: what happens when we (try to) increase interest rates again?

It's not (just) the level that matters but the path. After 40 years of falling rates, the economic system is used to the trend. Now what?
3/4
You could say "just keep going with the trend." Technically possible but it leads to another dislocation.

The discounted cash-flow value of yielding assets hits a singularity at zero discount rate. It's a phase transition whose critical point we've been flirting with.
Read 4 tweets
Oct 12, 2022
Help! I don't know the details of this work. Of course banks are unstable because of their key function in the financial system. Of course that instability manifests through bank runs.
Did these researchers just say as economists what everyone else knew or is it something deeper?
I know that the financial sector is sort of non-existent in a general competitive equilibrium view of the world. Ken Arrow listed it as one of the failings of economics: that finance shouldn't really be there but clearly is. Did they discover the financial sector for economics?
From @philipcball's article I understand that there's a simple set of equations associated with this work, maybe something recognizable to a physicist. What is that set of equations and what is the essential property that provided new insight?
Read 4 tweets

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