Thursday, November 13, 2008

Venn diagram for economics

A = set of people who can do math and are, perhaps, sympathetic to the idea of optimizing rational agents.

B = set of people with psychological insight into human decision making and group behavior.

(A and B) = the intersection of A and B = the people who can understand markets.

A - (A and B) = autistic people who like math ; they make crazy assumptions about efficient markets.

B - (A and B) = average (non-economist) social scientist who is intimidated by math but can see economists are making crazy assumptions.

Most physicists start in A - (A and B) but have been trained to recognize when models fail to reflect reality, so they eventually migrate into (A and B). Most successful traders and hedge fund managers are in (A and B). Alan Greenspan only recently migrated there after 40 years ;-)

Related links: heterodox economics, Mirowski's Machine Dreams, intellectual honesty, confessions of an economist


Carson C. Chow said...

what happens to autistic physicists?

Steve Hsu said...

They start and stay in (A - (A and B)) ...

Actually even an autistic physicist will notice that Black-Scholes can't be a very good approximation if vol shoots up from 20 to 50 in a few week period... Our training is sufficiently rich that we know a phase transition when we see it :-)

David said...

Our training is sufficiently rich that we know a phase transition when we see it :-)

If only I had time to stop and think about this.

RY said...

So are the vast majority of economists?

Binary Options Artist said...

funny venn diagram. i like it.  i also like the one that explains the economics of the EUR bailout of Greece from the binary options news update, at 

Kennon Gilson said...


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