Jim wrote:
> Isn't it conventional (orthodox) economics that assumes ergodicity?
> According to Paul Davidson, who should know, it's Keynes who rejected
> ergodicity.
Not only economists. People operating in financial markets and, in
general, people leading a life have to do this. Keynes, in his
practice as a speculator, had to do this as well. He assumed that
"the existing state of affairs will continue indefinitely, except in
so far as we have specific reasons to expect a change." Specifically,
he assumed that herd behavior (a "state of affairs") was a stable
feature of financial markets, he was right for a while and cashed in
accordingly.
> Where do conventions come from? do they fall from the sky? are they
> innate in the mind? No, they come from social practice and from
> nowhere else. People make them.
Well, what is Keynes talking about? Isn't the whole point to grasp
the laws of social practice? If the social practice that creates a
convention is a process, then you model it as a process:
\dot{x} = f(x, ...) or
x_t = f(x_{t-k}, ...)
Whether you are an 80-year-old historian or anthropologist with the
most complex, refined, and subtle understanding of concrete social
process, one way or another, with or without math, you make that sort
of stipulation. (Historians and anthropologists think that they have
a much more refined and subtle understanding of social processes than
conventional mathematical economists, something that is not so obvious
to me.) Similarly, if there's uncertainty about a social process, you
model it as a stochastic process:
x_t = f(x_{t-k}, ..., e_t)
And that is so regardless of how complicated or simplistic your notion
of the stochastic term e_t may be.
Next questions are typically about how people form their expectations
of this stochastic process, by itself or in interaction with other
processes. E.g.:
E(x_{t+k}|I_t), ...
var(x_{t+k}|I_t), ...
Cov(x_{t+k}, y_{t+k}, ...|I_t)
...
And *that* is what I'm talking about.
> By the way, the conventions that Keynes referred to are hardly
> complex.
I hope I showed that the opposite is true. How the ergodic assumption
emerges socially is far from obvious. It needs to be explained.
> Note, however, that the EMH is based on an unrealistic (Gaussian) view
> of probability with no true (Knight/Keynes) uncertainty or "black
> swans."
What do you mean by "Gaussian" view of probability?
And how is the Knight-Keynes uncertainty "more realistic"? Where's
the substantive content of "true" uncertainty? Where do you go after
you find a limit to human cognition? Where do you go after you make
the point that self-referential dynamic systems are not stable? You
either push that boundary, get around the limit, or you don't.
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