During a visit to the London School of Economics as the 2008 financial crisis was reaching its climax, Queen Elizabeth asked the question that no doubt was on the minds of many of her subjects; "Why did nobody see it coming?" The response, especially by the University of Chicago economist Robert Lucus was blunt: Economics could not give useful service for the 2008 crisis because economic theory has established that it cannont predict such a crisis. As John Kay writes, "Faced with such a response, a wise sovereign will seek counsel elsewhere." And so might we all.
Hat tip ~ Richard Bookstaber - The End of Theory
Welcome to The Institute for Modular-Finance...™
Macros - Micros & Markets... Metrics - Math & Multiple Models... MFiM... Modular-Finance~in~Motion™
Multiple Models - Multiple Data Sets - Context Matters!...
New Models Wanted:
"In a world where the future is inderterminate and depends on reflexive interactions between human behavior, expectations and reality, the concept of a single model of how the economy operates, assumed by rational expectations, is an absurd delusion."
Hat tip ~ Antole Kaletsky, CAPITALISM 4.0
Modular-Finance Theory: A New Paradigm for Financial Markets:
"There isn't a single story. The way we understand economics and economies is by learning from lots of sources and thinking about them in a lot of different ways."
"you can't understand how the financial crisis came about without understanding the politics of the relationship between the financial sector and government and the anthropology of the cultures of these organizations, or indeed without appreciating the history of bubbles and financial crisis."
Hat tip ~ John Kay, British Economist, Economics in the Real World
Math is Overated
"The good news is that, contrary to common perception, math for its own sake does not grt you far in the economics profession. What's valued is "smarts": the ability to shed new light on an old topic, make an intractable problem soluble, or devise an ingenious new empirical approach to a substantive question. In fact, the emphasis on mathematical methods in economics is long past its peak."
Trading Economics: a new theoretical system
Hat tip ~ Wang Zhenying
Crisis destroy, but crisis also create.
The outbreak of each crisis gives rise to new economic theories. Marx's theory of Surplus Value was created amist frequent economic crisis in the late 19th century and Keynes's revolutionary theory was put forward during the Great Depression in the 1930's. Today, with a worldwide financial tsunami only now receding, people are expecting a new economic theory in response to the failure of the pre-crisis mainstream.
During a visit to the London School of Economics as the 2008 financial crisis was reaching its climax, Queen Elizabeth asked the question that no doubt was on the minds of many of her subjects: "Why did nobody see it coming?" The response, at least by the University of Chicago economist Robert Lucus, was blunt: Economics could not give useful service for the 2008 crisis because economic theory has established that it cannot predict such crisis. As John Kay writes, "Faced with such a response, a wise sovereign will seek counsel elsewhere." And so might we all.
Hat tip ~ Richard Bookstaber, The End of Theory
"What the human being is best at doing is interpreting all new information so that prior conclusions remain intact."
~ Warren Buffett
Connecting The Dots:
As Maria Popova puts it, "In order for us to truly create and contribute to the world, we have to be able to connect countless dots, to cross-pollinate ideas from a wealth of disciplines, to combine and recombine these pieces and build new castles." This understanding of creativity as connection and recombination makes the blank piece of paper not only unhelpful but actually counterproductive. So, ditch it.
In Design Thinking & Systems Thinking, We must start with ....What IS....and work from there...