Re: [Pen-l] Benoit Mandelbrot and the wildness of financial markets: SciAm

[Jim Devine <jdevine03@xxxxxxxxx>]

ravi wrote:
> http://www.sciam.com/blog/60-second-science/post.cfm?id=benoit-mandelbrot-and-the-wildness-2009-03-13<

Mandelbrot says that "A very large part of economic theory is just
physical theory with the words changed."

But standard economic theory is not like quantum mechanics at all even
though both give an important role to randomness. Maybe we can
reconcile the standard economics of randomness with Mandelbrot by
saying that financial markets and the like can take a "quantum leap"
from his "mild" randomness (of economic theory) to "wild" randomness"
(of the recent financial panic/crisis). In the latter, the financial
markets have "more energy."

So the received wisdom of neoclassical finance applies only in
"normal" times, with "abnormal" times hitting without warning? More
likely, sustained "normal" times beget "abnormal" times as in Minsky.
In his terms, we might see a "quantum leap" in randomness due to
increase leveraging. That is, leverage increases the "energy" of
financial markets.

However, this does not really explain why there's a "leap"
(quantitative change becoming qualitative) rather than a gradual rise
in "energy."

Just wondering...
-- 
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) -- Karl, paraphrasing Dante.
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