Re: flow or stock?

["Christian Gregory" <christian11@xxxxxxxxxxxxxx>]

> You raise a key question to which there are three possible answers.
>
> 1.  Samuelson: non-ergodicity = no economic science.
>
> 2. Isaac: non-ergodicity = crude economic "science".
>
> 3. Yours truly: non-ergodicity = go back to basics.
>
> Gunnar

Gunnar,

Thanks for your reply. Two questions and a comment:

1. What, in your view, is the content of the basics?

2. Do you think that traders who, for example, do look at financial research
from Morgan Stanley etc. set the kind of store by it that critics of the EMH
suggest they do? Isn't it possible that you (as market participant or
researcher) wouldn't have to believe, pace the strong form of the EMH, that
the markets were *really* always right (and the future was ergodic) to
participate in the market, but that, as a matter of practice, you had to act
"as if" markets were efficient, which could be pretty different?

3. To paraphrase Henry Liu, it seems to me that the truth is what makes you
money. In which case, criticism of the EMH looks like a displaced criticism
of financial markets themselves and their practical effects--ie structured
finance obscures any and all clear price "signals," and so makes them more
volatile and damaging to the economy as a whole. Without a model to counter
the ergodic ones (ie capm, etc.), you're left saying to baby-boomers . . .
what? put all those savings in a CD? real estate? index funds? bonds? Throw
it away since we can't know the future?

Christian