Do you see patterns in Random Walks?

[kut2k2]

Quote from Samsara:

As Niels Bohr said, if you aren't shocked by quantum mechanics, you haven't understood it. It's since given way to all manner of disorienting theories, like M-theory and infinite multiverses with different laws of physics. Randomness on the quantum level is the lynchpin of all that.

However -- and I wonder if I'm the only one here who thinks this way -- I am always deeply disturbed by the assumed link between theoretical physics and human behavior. While I am an enormous fan of the philosophy of science that sprang from all that resulted from the discoveries since the 1950s, I am very skeptical of those who see this specific science as a universal metalanguage that provides a "sky hook" to certainty.

Why is randomness as defined by quantum mechanics assumed to apply to psychology, like market behavior? Is it simply because the language used to describe the former (mathematics) can be "fit" to the latter for certain periods of time?

I call it science envy. Economists and the other soft scientists have always been envious of the major advances made by the hard sciences like physics and chemistry. Economystics (as I sometimes refer to economists) were the most envious of all, so among other things they came up with their own pseudo-Nobel prize to emulate the real ones. I wonder how many people today have been convinced that the "Nobel Prize" in economics actually was something started by Alfred Nobel.

Anyway, by cloaking their pet theories in pseudo-hard-science trappings and whatnot (which was easy given that economystics deal with numbers to a greater extent than the other soft scientists do), it was "random"-this and "distribution"-that bliss for them. I've even seen some of them delusionally boast that Louis Bachelier "explained" Brownian motion before Einstein did. No joke, I've read that! :eek:

So they hold tight to RWT in part because it's one of the building blocks of their campaign to be accepted as serious "no-nonsense scientists."

And the quant firms hire physicists in the hopes that some magical transfer of enlightenment from quantum mechanics to financial meanderings will occur. And in any event they can maintain the facade of being hard scientists by surrounding themselves with coworkers who have degrees in a hard science. It's all very amusing when you look at it in the right light.

 

[MAESTRO]

Quote from trend2009:

price is not random because price has memory while random number does not have.

Now that is priceless!!!!! I should print this and frame it! Next time I do the lecture I should put this statement right in front! Unbelievable! Thank you for that! it made my day! I will be laughing during my 40 min drive home! Genius!

 

[SrRuthenate]

Thanks for the spline .pdf MAESTRO. Aside of generating a very smooth (to the second degree?) curve from the data, it seems very close to the output of a fast moving average as a proxy for the "mean". No?

 

[MAESTRO]

Quote from kut2k2:

I call it science envy. ..

Of course you do! No-nonsense, hard core practitioner who is irritated by this mambo-jumbo talk produced by the egg-head pretend scientists! I get it. As a psychologist I hear it all the time! Now tell me, how does it make you feel? Do you feel relieved now? Oh, good!

 

[MAESTRO]

Quote from SrRuthenate:

Thanks for the spline .pdf MAESTRO. Aside of generating a very smooth (to the second degree?) curve from the data, it seems very close to the output of a fast moving average as a proxy for the "mean". No?

No, not really. Look at the extension of the spline to the next data point.

 

[SrRuthenate]

OK. I'm going to play with it for a while. As price inputs to the splines do you sample price every X minutes, X amount of volume transacted, X number of transactions, or X amount of price movement?. Getting complicated already...lol

 

[kut2k2]

Quote from MAESTRO:

Of course you do! No-nonsense, hard core practitioner who is irritated by this mambo-jumbo talk produced by the egg-head pretend scientists! I get it. As a psychologist I hear it all the time! Now tell me, how does it make you feel? Do you feel relieved now? Oh, good!

I just gave a serious answer to a serious question. Now tell me, why does that upset you so? Do you feel relieved now? Oh, good!

 

[Samsara]

Quote from kut2k2:

I call it science envy. Economists and the other soft scientists have always been envious of the major advances made by the hard sciences like physics and chemistry. Economystics (as I sometimes refer to economists) were the most envious of all, so among other things they came up with their own pseudo-Nobel prize to emulate the real ones. I wonder how many people today have been convinced that the "Nobel Prize" in economics actually was something started by Alfred Nobel.

Anyway, by cloaking their pet theories in pseudo-hard-science trappings and whatnot (which was easy given that economystics deal with numbers to a greater extent than the other soft scientists do), it was "random"-this and "distribution"-that bliss for them. I've even seen some of them delusionally boast that Louis Bachelier "explained" Brownian motion before Einstein did. No joke, I've read that! :eek:

So they hold tight to RWT in part because it's one of the building blocks of their campaign to be accepted as serious "no-nonsense scientists."

And the quant firms hire physicists in the hopes that some magical transfer of enlightenment from quantum mechanics to financial meanderings will occur. And in any event they can maintain the facade of being hard scientists by surrounding themselves with coworkers who have degrees in a hard science. It's all very amusing when you look at it in the right light.

I will admit I've had the same suspicion. A merger of highly trained individuals who simply want to make more money than in engineering or pure science, and wealthy institutions seeking a veneer of legitimacy without understanding a lick about the epistemology: what it means to know something as true. Science envy, as you put it, and dollar incentives.

Finance for a lot of people has always been a smoke and mirrors game with a lot of simple principles at its core. Everything that happened in 2008, from Iceland to AIG, points to the same old shell game since "confidence men" existed during the 20s. It just goes on because Economics is a social science, and it is the only discipline I've seen that appears insulated from a lot of the humbling explorations of our limits to merge languages of verification that both the humanities and the pure sciences have shared (e.g., Thomas Kuhn, Richard Rorty).

But at the same time, because I don't have the education to verify the theories these institutions employ, I can never know to what extent statistically significant models of behavior can be identified that are derived from particle (or quantum) physics.

Maestro here can represent some of that discipline and appears to already understand the common epistemological pitfalls (intradaybill would likely fall more into the correspondence theory camp). In two lines it appears he could be summarizing Kuhn and also indicates there may be a more plausible theory of randomness in human behavior than simply: the modeled observations are similar, which is not enough. So, it's an interesting education hearing what he understands. I personally will never fully be able to be have an informed opinion either way, and I'm open to be being completely wrong in my take.

Which is fine with me

 

[Samsara]

Quote from MAESTRO:

Precisely!

Very interesting. I will try to keep track of that line of inquiry in the future -- thank you for noting it.

 

[intradaybill]

Only people with a very superficial knowledge of quantum mechanics through popular science books think it is a theory involving randomness. Quantum Mechanics is a deterministic theory. The evolution of the wave function is precisely known given the initial conditions.

Tonight, some big fund is maybe orchestrating a huge buy or a sell. Tomorrow, not knowing their actions in advance, you will call the market movement random. But to them it was not random. Ask MAESTRO this question to yourself: how can something be random and not random? The answer is simple: knoweldge makes things deterministic and lack of it random. It is so simple. Learn it before it escapes you.