Michael Perelman wrote: > But, we never really know what > the fundamentals are, other than > they are not too euphoric or not > too pessimistic.
We never know the true probability distribution of *any* interesting variable in the social sciences. That includes the ever shifting "fundamental" price of assets. So, what do human beings tend to do in a case like this? Apparently, they tend to form expectations about the main characteristics (average, dispersion, etc.) of that distribution conditional upon the information they have. With just a bit of technical sophistication, some humans will even use samples of observations to draw inferences about the characteristics of the unknown distribution. For that, if some conditions hold approximately, they can use laws of averages, convergence in probability, central limit theorems, etc. -- mathematical facts predicated on the very weak assumptions of probability theory (a Russian product refined by Soviet mathematicians). The procedures thus developed tend to work in practice, somewhat. It seems that randomness is not (completely) random. Marx's concept of value is an expectation: social labor required on average to reproduce a commodity. Marx didn't have a chance to study Markov, Lyapunov, or Chebyshev, but if he had, he'd have adopted the framework. I mean, probably. If people in the financial markets do this, how come they get the "fundamentals" so wrong? Maybe their perspective is not that of the working class. Maybe they don't care about human survival, let alone building communism. Maybe they only care about profits in the short run. Their "fundamentals" are not our fundamentals. They calibrate their models according to their interest and horizon of interest. Garbage in, garbage out.
