^TagJohn Maynard Keynes

Set of red glass dice isolated on black background. 3d rendering - illustration.

^{Type
post

Author
Gary Smith
Date
September 5, 2022

Categorized
Business and Finance, Economics, Mathematics

Tagged
Economics and human motivation, Economics and math predictions, Featured, Great Depression economic policies, James Tobin, John Maynard Keynes, Paul Samuelson, Samuelson simulations, Stock market bubbles vs. dice rolls, Zvi Bodie}

Don’t Worship Math: Numbers Don’t Equal Insight

_{The unwarranted assumption that investing in stocks is like rolling dice has led to some erroneous conclusions and extraordinarily conservative advice} _{Gary Smith

September 5, 2022

7

Business and Finance, Economics, Mathematics}

My mentor, James Tobin, considered studying mathematics or law as a Harvard undergraduate but later explained that I studied economics and made it my career for two reasons. The subject was and is intellectually fascinating and challenging, particularly to someone with taste and talent for theoretical reasoning and quantitative analysis. At the same time it offered the hope, as it still does, that improved understanding could better the lot of mankind. I was an undergraduate math major (at Harvey Mudd, not Harvard) and chose economics for the much the same reasons. Mathematical theories and empirical data can be used to help us understand and improve the world. For example, during the Great Depression in the 1930s, governments everywhere had so Read More ›

Decreasing and increasing graph on chalkboard

^{Type
post

Author
Gary Smith
Date
December 21, 2021

Categorized
Economics

Tagged
Ananya Sen, Claire Van Note, Deirdre McCloskey, John Maynard Keynes, practical importance, Statistical significance, Statistics}

The Cult of Statistical Significance — and the Neglect of Oomph

_{Statistical significance has little meaning when separated from practical importance} _{Gary Smith

December 21, 2021

6

Economics}

A central part of John Maynard Keynes’ explanation of the Great Depression was his assertion that household income affects household spending. When people lose their jobs and income, they cut back on their spending, which causes other people to lose their jobs and their income — propelling the economy downhill. Keynes’ theory was based on logic and common sense. It was later tested empirically with household survey data and with national income data compiled by the National Bureau of Economic Research. Figure 1 shows U.S. after-tax personal income and consumer spending for the years 1929 through 1940. Since income and spending both tend to grow over time along with the population, the data were converted to annual percentage changes. The observed statistical Read More ›

^{Type
post

Author
Gary Smith
Date
July 13, 2021

Categorized
Business and Finance, Economics

Tagged
Benford's Law, bitcoin, cryptocurrency, Frank Benford, John Maynard Keynes, Simon Newcomb, stock market}

Using Benford’s Law to Detect Bitcoin Manipulation

_{Market prices are not invariably equal to intrinsic values} _{Gary Smith

July 13, 2021

12

Business and Finance, Economics}

For a while, there was a popular belief among finance professors that the stock market is “efficient” in the sense that stock prices are always correct — the prices that an all-knowing God would set. Thus, investors can buy any stock, even a randomly selected stock, and be confident that they are paying a fair price. This belief was based on seemingly overwhelming evidence that changes in stock prices are difficult to predict. Efficient market enthusiasts argued that if stock prices are always correct, taking into account all currently available information, then any changes in stock prices must be due to new information which, by definition, is impossible to predict. Therefore, the evidence that changes in stock prices are hard to Read More ›

Space and Galaxy light speed travel. Elements of this image furnished by NASA.

^{Type
post

Author
Robert J. Marks
Date
June 29, 2021

Categorized
Mathematics, Science

Tagged
A Treatise on Probability (book), Big Bang, Conservation of Information (COI), Introduction to Evolutionary Informatics (book), Jacob Bernoulli, John Maynard Keynes, No Free Lunch theorems, Principle of Insufficient Reason (PrOIR)}

No Free Lunches: Bernoulli is Right, Keynes is Wrong

_{What the Big Bang teaches us about nothing} _{Robert J. Marks

June 29, 2021

5

Mathematics, Science}

Jacob Bernoulli made a now obvious observation about probability over three-and-a-half centuries ago: If nothing is known about the outcome of a random event, all outcomes can be assumed to be equally probable. Bernoulli’s Principle of Insufficient Reason (PrOIR) is commonly used. Throw a fair die. There are six outcomes, one for each face of the cube. The chance of getting five pips showing on the roll of a die is therefore one sixth. If a million lottery tickets are sold and you buy one ticket, the chances of winning are one in a million. This reasoning is intuitively obvious. The assumption about the die is wrong if the die is loaded. But you don’t know that. You know nothing. So Bernoulli’s PrIOR Read More ›

^{Type
post

Author
Gary Smith
Date
August 3, 2020

Categorized
Business and Finance, Science

Tagged
2001 Recession, COVID-19 Recession, data, employment, Featured, General Theory (book), Great Depression, Great Recession (2007-2009), John Maynard Keynes, Macroeconomics, New Classical Economists, Theory, Unemployment}

Beware of Geeks Bearing Formulas—It’s Often Pseudoscience

_{Pseudoscience based on data without theory and theory without data undermine the credibility of real science, which is the key to human progress} _{Gary Smith

August 3, 2020

6

Business and Finance, Science}

Elsewhere I have warned of the perils of making decisions based on data without theory. For example, the patterns discovered by data-mining computer algorithms are often nothing more than meaningless coincidences. It is also perilous to go to the opposite extreme—to make decisions based on theory without data. Once upon a time, for example, economists were fond of sketching labor demand and supply curves and assuming that the economy was at their intersection. That is, labor demand is equal to supply, so that everyone who wants to work is working. The unemployed have chosen to be unemployed because they value leisure more than income. True believers were fond of this theory and little troubled by reality. Between 1929 and 1933, Read More ›