theology and probability

If you are a member of The Church of Bayes (*) I recommend you read this.

If you are a physicist considering to become a member I recommend you read that.



(*) Wikipedia: Thomas Bayes (1702-1761), British mathematician, statistician and religious leader



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I wanted to write about a nice illustrative example of Cosma's 1st exercise as the 2nd part to this post. But it has already been done before I could even begin with the typing (I was travelling) and I guess it is much better than what I would have achieved (but I would have left out the 'waterboarding', which is not that funny).

I recommend the comments to Brad DeLong's example if one is interested to see some members of the church argue (with each other). But then, perhaps you have something better to do...



The main lesson from all this is very simple. If the set of considered models does not contain the true model then Bayesian updating can go very wrong. But how does a Bayesian know that her process includes the true model without leaving the reference frame of her church?



Of course, we should not expect a true Bayesian to agree that there is a problem (e.g. in the comments to DeLong's post) - after all we know (now) that their procedure does not always converge on the truth...

Ikea chairs

In a review article about agent-based models Dietrich Stauffer once wrote

"Physicists not only know everything, they also know everything better."

In the spirit of "this indisputable dogma" Lee Smolin recently published his thoughts
about "time and symmetry in models of economic markets", advocating to formulate "economics in the language of a gauge theory".

If I would be in a generous mood, I would perhaps only point out that worse stuff has been published on the arxiv and in particular its econophysics section. But I am not and thus I will actually quote some of the deep insights of the author:

"..publishers have a simple motivation to cut costs by only printing the books that will sell,
but it seems very difficult to predict accurately which books will sell and which won’t.
One rule of thumb-to which there are exceptions-is that books that are not in book stores don’t
sell."

" Combining space, time and uncertainty, there is then a vast explosion in the number
of goods. Rather than having a particular model of Ikea made chair, we have a vast set of
chairs..."

"Consider the adage, well known to sailors, ”The two happiest days in
the life of a boat owner are the day they buy their boat and the day they sell it.”
Imagine coding this in a utility function." (*)



If one is interested in similar deep insight then this paper offers plenty of it.

If one is actually interested in the application of gauge theory in finance I would recommend
the book of Ilinski and this review.

But if one wants to read a well written critique of econophysics, I would recommend this essay instead.



(*) Actually, I can confirm the adage from personal experience as an obvious truth.