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Ole Peters Profile picture
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7 Oct, 4 tweets, 3 min read
Tuesday's Nobel Prize in Physics is - among other things - a celebration of Giorgo Parisi's contributions to the progress physicists have made in understanding ergodicity and ergodicity-breaking.

Fittingly, though no doubt by sheer coincidence, I was invited a few weeks ago...
...by Annalen der Physik - yes, the journal which publishes the Physics Nobel Lectures - to write a review article on Ergodicity Economics. So I'm using all my channels to find out what people have done.
If you have used concepts and techniques surrounding ergodicity in work which deals with economic processes, please let me know and consider submitting it to #EE2022, @EE_Conf_LML via:
ee2022.rsvpify.com

Abstracts will be accepted until 17 October 2021.
Speakers include Jean-Philippe Bouchaud, who has worked extensively on ergodicity in physics, finance and economics, @ProfJohnKay, @TaroniAndrea, Giulia Livieri, @UCherubini @HarryDCrane @rorysutherland, and myself.

The full program will be published on 15 November.

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More from @ole_b_peters

Ole Peters Profile picture
7 Oct
1/8
 Very roughly, why @giorgioparisi's @NobelPrize is relevant to #ErgodicityEconomics.

Giorgio Parisi's best-known work in statistical mechanics is in the area of spin glasses.
Real glasses are sort of liquids but they flow very slowly. If you look at a very old window pane..
2/8
 ..in a church, say, you will see that it's thicker at the bottom. That's because the glass has flowed down. The glass wants to flow and lower its energy but its internal disordered structure makes that very hard.

Spin glasses model this. They are systems which take a very...
3/8
 ...long time to find their ground state, i.e. the state of minimum energy.

On humanly relevant time scales -- decades or centuries -- such systems may just not equilibrate.

When ergodicity holds, time averages are identical to expectation values. This requires a system...
Read 8 tweets
Ole Peters Profile picture
4 Oct
1/4
 There used to be a clear definition of "economically rational."

This meant: maximize expected wealth.

When confronted with reality, this model fell flat on its face. People don't do it.
2/
 Utility was introduced, but with it the meaning of "rational" became unclear.

Was utility a means of describing irrational behavior, or was maximizing expected utility the new rational?

Both notions exist in the literature.
3/
 Making matters worse, "expected utility theory" exists in different forms: Bernoulli's original 1738 form is incompatible with von Neumann and Morgenstern's 1944 form.

When people say "expected-utility theory," some mean this, some mean that.
Read 4 tweets
Ole Peters Profile picture
9 May
1/5
 The Copenhagen experiment showed that Ergodicity Economics (EE), limited to its predicted utility functions for given dynamical settings, is a better fit to human behavior than classic expected-utility theory with a freely chosen single utility function.
2/5
 I don’t find this terribly interesting. Classic expected-utility theory is conceptually flawed, and science is more than data-fitting. However well or poorly it fits observations, one would have to reject expected-utility theory anyway.
3/5
 Here is what's interesting: I didn’t think EE would perform well in the Copenhagen experiment because I had bought into the narrative that the tested behavior was shaped by evolution over millions of years and cannot be re-learned on short time scales.
Read 5 tweets
Ole Peters Profile picture
22 Dec 20
1/7
Brilliant interactive animation of the coin toss.

Expected value: blue line.
Realizations: red/grey lines.

If you play for long enough, the slope of _any_ red line will point down, with mathematical certainty.
2/7
 Early treatments of these problems, in the 17th century, assumed that people should optimize expected wealth (blue line). If they did, they would voluntarily play this game -- the blue line points up.

But real people didn't behave this way. They declined the offer to play.
3/7
 This happened before it was known that expected wealth (blue line) is not what happens over time (long-time limit of any red line).

So people were puzzled.
The solution to this puzzle is called expected-utility theory (EUT), developed in 1738.
Read 7 tweets
Ole Peters Profile picture
7 Aug 20
1/7
 I disagree with the implicit statement by Mervyn King - wondering what @ProfJohnKay thinks - that maximizing expected utility is reasonable in the small world of a simple model.

My critique is more devastating and less palatable: it's a thought error to optimize this object.
2/
 In other words, we don't need to make the model more realistic for expected utility maximization to become a bad idea. It's a priori the wrong object, namely: changes in utility are non-ergodic. Their expectation value has no physical meaning for an individual decision maker.
3/
 I'm sorry if this ruins formal economics, but it's time we talked about it like grown-ups: the economic formalism is unacceptable from a quantitative-science point of view.

Before it's worth discussing how realistic it is, we have to correct the flaws in its implied physics.
Read 7 tweets
Ole Peters Profile picture
2 Aug 20
1/9
This feels relevant to @Twitter ...

Friedemann Schulz von Thun came up with a way of clarifying things people say.

In his scheme, any statement is dissected into four components
* factual
* self-revelation
* relationship
* appeal
2/9
The speaker, intentionally or not, sends messages on all of these levels.
The listener, intentionally or not, hears messages on all of these levels.
3/9
Communication problems arise when we confuse different levels. My intention may be to make a purely factual statement, and I may fail to consider its relationship content. That can be hurtful.
Read 9 tweets

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