Workbook for Volume 1 - Part IV: Section #19: Foundational Papers from the 20th Century, Post-World War II (2 of 15) – Samuelson
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For returning readers and subscribers: This post introduces a Revised Version for Volume 1 - Part IV: Section #19: Foundational Papers from the 20th Century, Post-World War II (2 of 15) – Samuelson
Summary:
Volume 1 - Part IV: Section #19: Foundational Papers from the 20th Century, Post-World War II (2 of 15) – Samuelson - Chapter 12 of George M. Frankfurter & Elton G. McGoun’s 2002 book “From Individualism to the Individual, Ideology and Inquiry in Financial Economics” opens with this quote: “Mathematics, like Medieval Latin, is a medium of disputation in economics in which those skillful in its use can subdue those who are not, independent of any substantive economic meaning.” The pernicious development of mathematical “Reputational Hierarchies” in Financial Economics started to dominate the field with Paul Samuelson. Even though Samuelson belongs in the “Expected Value Optimization” column in the chart shown on the left page, his use of the “Ergodic Axiom” earns him a place in the “Growth Optimal Solution” column. Mark Kirstein’s 2019 Ph.D. thesis, “The Ergodicity Problem in Economics, The Advent of Ergodicity Economics” presents the historical development of an arbitrary, and then forgotten, embedding of the “Ergodic Axiom” in Financial Economics. The story starts in 1947 with Paul Samuelson’s book “Foundations of Economic Analysis”, and its front-page quote from J. Willard Gibbs: “Mathematics is a language”, seeking to find a general theory, a core mathematical foundation, based on “Utility” maximization by “Rational” decision-makers”, and in the context of equilibrium stability for the matching economic “Task Environments”. Our understanding of the latest economic theories, financial models, and business Press headlines benefits from a return to the foundational papers, their critical assumptions, and lasting consequences. While the default assumption of the “Ergodic Axiom” in Financial Economics enabled the performance of mathematical feats as a means to arbitrate competing academic claims & privileges - among many examples, McGoun recalls a quote from Samuelson about a fellow “literary” economist: “This is not to say that a practical budgeter like Novick need disturb his busy brain with this abstract matter”. Touché! However, how can an individual make good investment decisions with abstractions based on the ensemble view, and the rose-colored glasses of “Expected Value”? “Practical Budgeters”, “Ecological Rationality”, and “Constructive Sekpticism” may look like turtles when compared to the “Small Worlds” theoretical hares, but end-up winning the races of the “Large World”.
Developing…
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