I think the function of the risk free rate vs. activity takes the general shape of the green line while I believe the mob generally thinks it functions like the red line.
Imo we are currently in the area highlighted in the blue color.
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I think the function of the risk free rate vs. activity takes the general shape of the green line while I believe the mob generally thinks it functions like the red line.
ReplyDeleteImo we are currently in the area highlighted in the blue color.
Which is of limited microeconomic interest to the general public who don’t invest, and concerns an individual’s or business’s trading or investment risk aversion threshold. Has nothing to do with macroeconomic (public) solutions needed to jump start an economy with less than 2% GDP. Not all sectors are as ebullient as some might seem right now.
Why do you think that?
ReplyDelete" limited microeconomic interest to the general public who don’t invest,"
ReplyDeleteNot intended for general public...
"as nothing to do with macroeconomic (public) solutions needed "
Oh yes it does.....policy rates are too low and CB assets are too high.... we need to get further up the left slope of the green line....
"Why"
ReplyDeleteIntuition developed thru observation.... then translated into a diagram of a function...
Intuition developed thru observation.... then translated into a diagram of a function.
ReplyDeleteThis is what conventional economists do.
Well they are not very good at it then are they...
ReplyDelete"Intuition developed thru observation.... then translated into a diagram of a function."
ReplyDeleteThat's a perfectly fine way to go about trying to explain phenomena that are not easily repeatable as experiments. Can't stop there though. The essential followup is to test the function against fresh incoming data (selling a hindcast is selling snake oil). The extent to which it continues to fit incoming data tells us how well the function explains reality.
Am i missing something?
There are three processes at work in "science," which can be viewed as the confluence of theory as explanation and observation/measurement as the connection of the material to the formal. To paraphrase Kant, understanding without experience is empty and experience without understanding is blind. "Science," meaning knowledge with justification, is a combination of the general and particular.
ReplyDeleteScience begins with facts and their concatenation in time as events. Facts and events are the "raw material of creative thinking." Science is also path-dependent, historical and dynamic as an aspect of the complex adaptive system of human culture.
Scientific explanation is formal, either a logical process of reasoning or a mathematical model, however simple. That is to say, scientific explanation is deductive. It is not just the positing of information. Scientific method is way of explaining data rigorously enough so that we don't fool ourselves in the process (Feynman).
Deduction begins with starting points — principles, axioms, or postulates. These starting points have to be anchored in reality. Logical argumentation must avoid infinite regress and circular reasoning. Scientific reasoning must be based on reality, which is generally taken to mean evidence, rather than stipulation.
Math begins with stipulation. Math alone is not science. Math is the language of science.
The starting points are arrived at either by abduction, in the sense of intuition as educating guessing, or else by induction, that is, probability and statistics. Deduction assumes starting points as givens.
The starting points are either precise or estimated. The result of deduction cannot be any more precise than the inputs.
Measurement is a chief issue in science.
Measurement is either by measuring with a certain degree of precision or else estimating. Probability and statistics is a way of estimating using probability distributions and confidence levels.
Writing functions based on intuition is abduction. It is a small but important aspect of science. But it is only a starting point.
Another problem is that for an explanation to be scientific it not only has to be founded in good data but also one explanation has to be justified as the best one available at the time, pending further discovery. There are usually many explanations for the same problem. Scientific method is about rejecting the useless ones and focusing on the useful ones to find the best one available with current knowledge and evidence.
There is also the issue of consilience. A scientific explanation has to fit with the general pattern of relevant explanation across disciplines or account for how the consilient framework is off.
"Science" is not itself a general theory of everything. It is framework in which human knowledge is related based on explanation and evidence. While many studies are local and even apparently isolated from others, everything has to fit together into a coherent scientific world view to be satisfactory.
There are always loose ends at the margin and these the cutting edge of the envelope of knowledge that constitute the ever-receding horizon of knowledge as discovery advances.
I should have named the three processes at the start.
ReplyDeleteThey are deduction, induction, and abduction.
Abduction has two senses.
The first is intuition as an educated guess (C. S. Pierce).
The second, more contemporary one, is inference to the best explanation.