Machine Dreams Economics Becomes a Cyborg Science
Author: Philip Mirowski
List Price: $37.00
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ISBN: 0521775264
Publisher: Cambridge University Press (15 December, 2001)
Sales Rank: 288,517
Average Customer Rating: 4.5 out of 5
Customer Reviews
Rating: 4 out of 5
Note added later
The suggestion made in the last chapter is to try to identify an automaton that describes a particular market. This program will not work because of lack of uniqueness, as is explained by the work on generating partitions in nonlinear dynamics. Given any sttistical distribution, one can find infinitely-many different automata that can be programmed to generate that distribution. Mirowski's suggestion cannot be carried out in any meaningful sense for that reason. In finance theory we have recently (with Gunaratne) deduced a particular stochastic dynamics from market histograms, and there we also have faced nonuniqueness in identifying the underlying dynamics. The bigger and more immediate problem is to find nonfinancial economic data that are accurate enough to draw any meaningful conclusion from the purely empirical histograms.Now for the irritation. I find it academically irresponsible in this day and age to equate Newtonian mechanics with 'equilibrium'. From the beginning, Newtonian mechanics was about periodic and quasiperiodic orbits. The orbits that were studied prior to 1900 typically have neutral equilibria. To be 'in equilibrium' in such a case, the earth (for example) would have to sit at the center of the sun. Poincare' discovered chaos in Hamiltonian systems around 1900. In a chaotic system all equilibria are unstable but the orbits are bounded. See Ivars Peterson's 'Newton's Clock' for a description of the history of the discovery of chaos in the solar system. Toffoli and Fredkin discovered Turing machine-level complexity in a Newtonian system (constructed of billiard balls) around 1983, and Chris Moore (now at the Santa Fe Institite) showed around 1993 that certain area preserving maps are equivalent to Turing machines. In other words, Newtonian systems can exhibit not merely chaos but maximum complexity as well. The misidentification of Newtonian mechanics with 'equilibrium' or simple mechanics should now be laid to rest once and for all. It would be more accurate to say that the economists borrowed the idea of static equilibrium from Archimedes. Also, take note please that every digital computer is a Newtonian electromechanical system.
Rating: 5 out of 5
Undecidable econ vs. Perfect Rationality
I've read about 250 pages and can recommend that anyone with an interest in economics and finance should read this fantastic book. The basis for the text are the contributions of Shannon, Turing, von Neumann, Wiener, Koopmans, Marshak, and Arrow. Mirowski tells us the main story of the interaction of the Cowles Commission with RAND, which Bernstein does not at all hint at in his Capital Ideas. Having praised the book, I will now concentrate mainly on a few points of disagreement. Undecidability should not be confused with noise in stochastic processes. Systems at the transition to chaos can define automata that can perform simple arithmetic. That 'cyborg' has it's origin in the physical sciences seems farfetched (the connection between Turing and physics is supposed to be via Maxwell's demon, but was Turing really motivated by the idea of Maxwell's demon?). Nonlinear dynamics and fractals ('chaos' and fractals) certainly did not evolve from cybernetics or 'system theory' ('system theory' was based at best on an awareness of equilibria and limit cycles of differential equations, and made vague, unjustifiable allusions to holism). Cybernetics cannot really be seen as the midwife of what is now loosely called 'complexity' either, rather, that (still undefined) field grew out of nonlinear dynamics, neural networks, computability theory and molecular biology. Mirowski is right that many scientists confuse simulations with experiment and observations. I have argued against this confusion in papers and books.Mirowski paints an intriguing picture of (Gödel-influenced) von Neumann, RAND, researchers with awareness of information and computability limitations leading to agent-based modelling with some respect for empiricism on the one hand, and then, on the other hand, Arrow, the Cowles Commission and their later rejection of empirics, instead with emphasis on Bourbaki-style existence proofs leading to infinte demands on information requirements on Walrasian agents and noncomputable equilibria. We now know that agent-based modelling can easily lead to fat-tailed price distributions (as observed empirically), whereas in contrast the origin of the systematic head-in the-sand philosophy of the neo-classical economic theorists is made quite clear in this work. One can summarize the neo-clasical economic agent as follows: his dynamics are trivial (equilibrium, including Nash equilibria) but the information demands made on him to interact with other agents and locate an equilibrium point are impossible (noncomputable). Moreover, we now know that financial market statistics point toward the instability of Adam Smith's hand, so that the notion of dynamic equilibrium is complelety uninteresting so far as understanding markets is concerned.
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