Arnold Kling brings another discussion to the table, this time on Probability. My take on Probability would state that Economists are almost always Frequentists. There is a Subjectionist belief system underlying their ideation; example, few economists even consider the hazards of Stimulus on economic performance, simply because the excess Cash makes the necessary Profit ratios indeterminate. Everyone suddenly does not know What to Buy, When to Buy, or How to Buy; and even less know how to Price their own Product. How much does Uncertainty govern Product Pricing, and what degree of Uncertainty pressures Inflation? These are all Questions which should be answered by economic policy, and is so rarely even asked; all based by assumptions which are left permanently undefined precisely.
Here is a beaut of an article on Quants (don’t you just love the way Traders give out Names?). It seems like mystic science, but it is only calculations about the mathematical concepts of Range and Run, though We are talking about minute percentage changes in the Slope of a yield curve. It is reminiscent of the systems to Win at the Blackjack tables in Vegas. You can Win if you can remember all the variable combinations, and complete the math computations within the Time Limit defined by the Market. I don’t know if I would appreciate that much Math in a common Trading Day–does Anyone want to solve 40 Word Problems per Hour every Workday? Quants tends to make a pile quickly, then move on to a less-stressful occupation.
This is a perfect example of the Subjective bias of the markets, which only reflects the bias of the economy as a Whole. The market ran wild over a Statement by the CEO of Citigroup stating they made Money in January and February. People make much of the massive rise in the price of the Citigroup stock, no mentioning how much loss had been endured over the last year–a truly Subjective example where the Statement simply assured Traders and Stockholders that the value of the current Stock might be worth the current Stock price. No one can rationally assume that Citigroup stock will be worth $40 per share anytime soon; still, it led to a expansive mode, and a heavy degree of celebration in the currently gloomy environment of the Trading floor. lgl