Relativity In Money

[A.steve]

My OH is a retired engineer; his specialisations were thermodynamics and fluid mechanics. I have taken from him my understanding of entropy which he explains (simplistically and without the mathematics) as the tendency towards disorder within a closed system. He says that strictly entropy is a measure of disorder.

These are the dictionary definitions:

1. Symbol S For a closed thermodynamic system, a quantitative measure of the amount of thermal energy not available to do work.

2. A measure of the disorder or randomness in a closed system.

3. A measure of the loss of information in a transmitted message.

4. The tendency for all matter and energy in the universe to evolve toward a state of inert uniformity.

5. Inevitable and steady deterioration of a system or society.

I agree that we need to clarify what we each wish to communicate when we use the word "entropy".

Could we agree on a mutual understanding based on the dictionary definitions above?

We certainly do have very different starting points for our definition of entropy - and I'd like to stress that neither is wrong in an appropriate context.

I don't think your dictionary is great... but it provides a starting point. Definition 1 is the definition of use to a mechanical engineer - very helpful in the context of giving formulae to facilitate making things work - the mathematics is well understood and takes a macro perspective. This is the definition which, in the context of money, I called 'boring' - essentially because it offers few insights - the entropy tends to be thought of as 'stuff' that is not worthy of further consideration other than its quantity - which can be easily measured by appeal to conservation of energy etc.

My entropy is closest to 2 and 3 - though I consider them both desperately poor definitions - they focus on particular examples rather than the general concept. In my discipline, entropy is information. It really is that simple - unless, of course, you want me to justify why entropy is the same as the entropy used to deal with heat in engineering problems. I'm confident that they are the same concept - but an exposition is beyond a forum post... Claude Shannon is the man to cite on the subject - though I personally find his writings far from transparent. His information entropy is what I'm on about... but even Wikipedia isn't easy to follow on this. The best way I can describe it is by appeal to the difference between data and information. Say I have a secret poem, a pack of post-it notes, crayon and a tobacco tin - I'm going to write down the poem, put it in the tin (in secret) then hand the tin to you. Here the unit of exchanged information is one poem... we might disagree about the amount of information in my poetry, but we can't disagree that it is one poem. If I were to put a second identical poem into the same tin, however, the entropy does not double... there is more information (repetition might be the focus of the poem) but you discover no more from the repeated symbols⁽¹⁾. More interestingly, if I merely copy a well known poem, say that banal rubbish "I wandered lonely as a cloud" by Wordsworth - then the amount of information I pass you drops substantially - because (in all probability) you've heard it before. What's interesting here is that it isn't the poem that is important - it is the the person to whom I give it and the context of the exchange... this makes things very interesting - especially if you begin to wonder what's the relationship between communication and money.

I think definitions 4 and 5 were submitted by snake oil salesmen. I've heard them before but I believe neither in the the tendency of all material to evolve towards a state of inert uniformity (that's cobblers - obviously, I hope) and neither do I accept that either systems or society inevitably deteriorate over time... it rather depends on what sort of system (or society) you're talking about and how you want to try and measure deterioration. The both strike me as being deeply political - in an unpleasant way.

--

(1) unless we consider transmission errors - for example - or cryptographic cyphers - where the maths gets hairy - and interesting.

Edited May 25, 2009 by A.steve

[A.steve]

On the subject of swirly pancake things:

I think the technical term that you are looking for is Accretion disc.

Fantastic detail - thank you very much! It certainly sounds as if I'm talking about accretion discs - though I hadn't realised it. Is it really current 'best understanding' that there's a black-hole or similar a the centre of every universe - or just at the centre of the ones for which I've seen sufficiently detailed pictures?

With my 'Mr difficult' hat on, my problem with this is that I don't believe in black holes. For me, the evidence doesn't stack up... (Yes, I realise this might make me sound like a creationist insisting that the world is 6000 years old... but, please bear with me...) I don't see why, if black holes exist, why all the matter in the universe hasn't already been consumed... it requires quite a leap of faith for me to assume that, by fluke, everything I've ever seen happens to have escaped oblivion... I don't buy that anyone can be confident about the existence of black holes without ever having experimented with one... but, by getting close enough to one to experiment with it - I'd never get to hear about the results. I feel as if the black holes of science are the 'gods will' of the religious crowd... a bit of a sham to cover-up where we don't have suitable answers.

[A.steve]

I think that the excellent distinction made between "geometric values" of money versus "arithmetic values" of money can be taken further. Psychologists tell us that delay of satisfaction changes throughout the population. There are those of us who would prefer a bigger reward in the future, and those of us who would prefer a smaller reward in the present. I would suggest that one group forms the savers in society, and the other group takes on debt. It does not seem a far leap to suggest that one group understands the geometric value of money, and the other group does not.

It isn't just psychologists who talk about this - it is fundamental to our financial system. In finance the term for this is the "time value of money" - and this is presented as the unquestionable basis for bond markets and interest in general. Masters level textbooks on finance introduce the time value of money as a concept so obviously true that only a moron would challenge it... which I thought quite arrogant - even though I believe the same. The most interesting thing I read about this to take further the arithmetic/geometric theme... was in a book by Emanuel Derman. I found the book interesting, though it did not endear me to Emanuel. Essentially, he name-drops about all the cool physicists he's met at cool US universities and his cool wife and cool friends... then talks about working for Goldman Sachs and Solomon Brothers - spilling some beans about their relative corporate cultures. While at Goldman, he wrote bond pricing programs - nifty projects for sure - which, essentially, used the mathematics from particle physics and Gaussian probability distributions to establish models - which he presented to bond traders... who didn't understand them - but used them all the same... as he explains he had to prove in order to negotiate a competitive bonus. He admits to having become excited that, while he couldn't advance physics research to further mankind's knowledge, he thought - for a while - that he was well-on-his-way to establishing a grand-unifying-theory-of-interest... in collaboration with another Goldman man. What struck me about this, however, was that the basis for identifying 'fair return' was not the time-value of money (preference for immediate gratification) but rather a notion of risk... for which (moronically, IMHO) estimates were assumed to be practicable using the mathematics of inert particles... in spite of, clearly, referring to human contracts where substantial communication occurs between participants that is not reflected in the bonds themselves - or their near-term prices. Essentially, the sin Emanuel made was to assume people were inhuman - which, as mistakes go, is a biggie in my book.

Edited May 25, 2009 by A.steve

[Injin]

It isn't just psychologists who talk about this - it is fundamental to our financial system. In finance the term for this is the "time value of money" - and this is presented as the unquestionable basis for bond markets and interest in general. Masters level textbooks on finance introduce the time value of money as a concept so obviously true that only a moron would challenge it... which I thought quite arrogant - even though I believe the same. The most interesting thing I read about this to take further the arithmetic/geometric theme... was in a book by Emanuel Derman. I found the book interesting, though it did not endear me to Emanuel. Essentially, he name-drops about all the cool physicists he's met at cool US universities and his cool wife and cool friends... then talks about working for Goldman Sachs and Solomon Brothers - spilling some beans about their relative corporate cultures. While at Goldman, he wrote bond pricing programs - nifty projects for sure - which, essentially, used the mathematics from particle physics and Gaussian probability distributions to establish models - which he presented to bond traders... who didn't understand them - but used them all the same... as he explains he had to prove in order to negotiate a competitive bonus. He admits to having become excited that, while he couldn't advance physics research to further mankind's knowledge, he thought - for a while - that he was well-on-his-way to establishing a grand-unifying-theory-of-interest... in collaboration with another Goldman man. What struck me about this, however, was that the basis for identifying 'fair return' was not the time-value of money (preference for immediate gratification) but rather a notion of risk... which (moronically, IMHO) estimates were assumed to be practicable using the mathematics of inert particles... in spite of, clearly, referring to human contracts where substantial communication occurs between participants that is not reflected in the bonds themselves - or their near-term prices. Essentially, the sin Emanuel made was to assume people were inhuman - which, as mistakes go, is a biggie in my book.

The time value of anything is already built in, because of entropy.

If you lend an item and get one similar and in the same nick much later on - you have been repaid interest just by that.

Gold might have become money for precisely that reason - resistance to change.

[BubbleBlower]

What struck me about this, however, was that the basis for identifying 'fair return' was not the time-value of money (preference for immediate gratification) but rather a notion of risk... for which (moronically, IMHO) estimates were assumed to be practicable using the mathematics of inert particles... in spite of, clearly, referring to human contracts where substantial communication occurs between participants that is not reflected in the bonds themselves - or their near-term prices. Essentially, the sin Emanuel made was to assume people were inhuman - which, as mistakes go, is a biggie in my book.

That's an interesting approach. It sounds quite standard for an academic science, but truly bizarre for a real application such as being a quant. So it sounds as if he has replaced a system too complex for him to model with a model of an abstract system that he has made up. These things do provide some insight on the original application, but in this case your synopsis seems quite accurate - that we learn that real people are more human than the abstractions in the model.

It would appear to me that a model based entirely on risk cannot account for lending. Even if we pretend that I could model risk perfectly (and your comments about the non-independence of people are particularly applicable here) then such a model doesn't answer the basic question why would I loan my money out? Injin's original question seems to be a good fit here. If we understand the possibility of gaining a return on an investment, then what is the motivation to try and gain that return?

I would claim that any realistic model of lending would need to incorporate both aspects - the desire for a return, and the probability of gaining that return. Unfortunately I would say that as a species we understand our own psychology too poorly to really explain the motivation, and we don't have the mathematics to calculate the risk that arises from groups of poorly understood entities. In the absence of good global models of what is happening, we are forced to try simple local models that we can understand. Peer-competition is one such simple model - if I'm doing as well as the Jones' then I must be succeeding. One problem with this simple model is that it breaks down if you can see how the whole world is doing, rather than just your neighbours. Not everyone can be at the top of the pile, and the more of the pile we can see the more unhappy we must be if we try and compete.

Another simple model that we can apply locally is am I doing better than I was last year? Unfortunately inflation tends to screw up this model as most people think nominally. So any populist government will have to support moderate inflation, if a lot of people model the world this way.

[A.steve]

The time value of anything is already built in, because of entropy.

If you lend an item and get one similar and in the same nick much later on - you have been repaid interest just by that.

Gold might have become money for precisely that reason - resistance to change.

I consider you wrong on many levels...

First, I object to the abuse of entropy in the context you use it - see my reply above about its definition....

Second, I reject entirely that all items returned are worth less later. Counter examples might include antiques or, maybe, for example, a possession I can't take with me on a journey - so leave with a friend for safe keeping. When I return and am given back my treasured possession, if anything, it is more valuable because care has been extended to preserve it.

What about the old Socrates story? The one where the villagers mocked him for being poor while he thought he was so clever... so, he bought all the olive presses out of the olive picking season... (allegedly having forecast a bumper crop) and - come harvest he insisted "sorry - I've all the olive presses - I want substantial payment if you want to use them." He became overnight rich - exactly because, later, the value of olive presses had increased. This business acumen, however, makes it all the funnier that he was executed for refusing to pay a fine.

The idea that all things degrade over time is an insidious political ploy - I reject it.

[Injin]

I consider you wrong on many levels...

First, I object to the abuse of entropy in the context you use it - see my reply above about its definition....

Second, I reject entirely that all items returned are worth less later. Counter examples might include antiques or, maybe, for example, a possession I can't take with me on a journey - so leave with a friend for safe keeping. When I return and am given back my treasured possession, if anything, it is more valuable because care has been extended to preserve it.

What about the old Socrates story? The one where the villagers mocked him for being poor while he thought he was so clever... so, he bought all the olive presses out of the olive picking season... (allegedly having forecast a bumper crop) and - come harvest he insisted "sorry - I've all the olive presses - I want substantial payment if you want to use them." He became overnight rich - exactly because, later, the value of olive presses had increased. This business acumen, however, makes it all the funnier that he was executed for refusing to pay a fine.

The idea that all things degrade over time is an insidious political ploy - I reject it.

I didn't say that they would be worth less.

The whole point of the thread is that we don't know how values are found, what things are worth.

But my point about being repaid the time value of an item if someone else effectively replaces it for you at a later date is rock solid. You might argue that it is not enough, but I don't think you can credibly argue that it isn't there.

How much you are repaid depends on what the item is of course.

[roman holiday]

I consider you wrong on many levels...

First, I object to the abuse of entropy in the context you use it - see my reply above about its definition....

Second, I reject entirely that all items returned are worth less later. Counter examples might include antiques or, maybe, for example, a possession I can't take with me on a journey - so leave with a friend for safe keeping. When I return and am given back my treasured possession, if anything, it is more valuable because care has been extended to preserve it.

What about the old Socrates story? The one where the villagers mocked him for being poor while he thought he was so clever... so, he bought all the olive presses out of the olive picking season... (allegedly having forecast a bumper crop) and - come harvest he insisted "sorry - I've all the olive presses - I want substantial payment if you want to use them." He became overnight rich - exactly because, later, the value of olive presses had increased. This business acumen, however, makes it all the funnier that he was executed for refusing to pay a fine.

The idea that all things degrade over time is an insidious political ploy - I reject it.

I believe it was a story about Thales as told by Aristotle.

Edited May 25, 2009 by roman holiday

[A.steve]

That's an interesting approach. It sounds quite standard for an academic science, but truly bizarre for a real application such as being a quant. So it sounds as if he has replaced a system too complex for him to model with a model of an abstract system that he has made up. These things do provide some insight on the original application, but in this case your synopsis seems quite accurate - that we learn that real people are more human than the abstractions in the model.

As I understand it, that was exactly the basis for quantitative finance... a bunch of unemployed physicists who'd rather have been working on a space project applying their maths to financial problems. In the physicist's defence, they'd probably have been far, far more cautious in using their models as - on the whole - they knew their manifold weaknesses... but, here, vested interest took hold - quantitative finance allowed elaborate hard-to-refute arguments to be made about balance sheet risk and the pricing of illiquid assets - this allowed financially astute companies to expand their balance sheets without worrying about profit... while paying directors handsome bonuses and shareholders pleasing dividends while stock prices rose. It was in no-one's interest anywhere in the system to point out that... these clothes the emperor is wearing - they don't cover pudenda.

It would appear to me that a model based entirely on risk cannot account for lending. Even if we pretend that I could model risk perfectly (and your comments about the non-independence of people are particularly applicable here) then such a model doesn't answer the basic question why would I loan my money out? Injin's original question seems to be a good fit here. If we understand the possibility of gaining a return on an investment, then what is the motivation to try and gain that return?

You're effectively coerced to lend your money out... because bank balances are where money resides - and that's a loan to a bank by a depositor. Where these commercial banks are also investment banks, the choice the investor has to make is between risking his money by lending it actively - or allowing the bank to lend it on his behalf - while keeping any excess profit from risk in the short term - and burdening the same depositor with the unwanted risks when the bank is eventually insolvent and forced into nationalisation.

The notion that investment is about chance is, in my opinion, one of the most widely accepted fallacies. There are investment risks - but risks are not random. Anyone who suggests that risks are random (including all the money managers who tell you that you want a balanced portfolio) are charlatans - they offer no service. Interestingly, this is where the law impinges. Back around 2000 I wondered about stock market investments - ISAs were all the rage - as were technology stocks... and I felt I had a good grasp of both business and technology that should better equip me to make investment decisions than the average punter. My background did - I failed to find any viable tech investment - and the market crashed months later. When doing my research, however, I found myself asking one important question: "what is insider trading?" Obviously, I could find examples that were and were not - but they were both extreme cases. Picking stocks at random using a blindfold, pin and FT page would not be insider trading... bribing a director to tell me about imminent press releases would be. Fair enough - but what is the limit - how far can I go to understand my investment without crossing the line? Could I be considered an insider investing in a technology company purely because I have the technical nous to build the same company from scratch? What happens if I've chatted with people who've been to the company's HQ - doing car-washing, say - or selling sandwiches? What if my friend was an employee (who could plausibly tell me about a 'really cool' technology they're working on)? Would it make a difference if my friend was a manager? Would it matter if I became better informed about an industry by talking to potential customers of a company? How far could I safely take that research without breaking the ethical barrier? No, I don't want an estimation of what I'd likely be caught doing and prosecuted - I'd like to know what the rules say. Guess what? I'm none the wiser now.

I would claim that any realistic model of lending would need to incorporate both aspects - the desire for a return, and the probability of gaining that return. Unfortunately I would say that as a species we understand our own psychology too poorly to really explain the motivation, and we don't have the mathematics to calculate the risk that arises from groups of poorly understood entities. In the absence of good global models of what is happening, we are forced to try simple local models that we can understand. Peer-competition is one such simple model - if I'm doing as well as the Jones' then I must be succeeding. One problem with this simple model is that it breaks down if you can see how the whole world is doing, rather than just your neighbours. Not everyone can be at the top of the pile, and the more of the pile we can see the more unhappy we must be if we try and compete.

I assure you - if you've a clearly defined problem, I've the maths to resolve it. (OK, OK, yes - I know - open problems in maths... frankly, most are paradoxes... they merely illustrate that even mathematical statements don't necessarily clearly define a problem.)

I don't really believe in this "probability of getting a return" - probabilities are simply not 'like that'. Probabilities are, by definition about the unknown - because the probability of all historic events is 1 - i.e. they happened. For future events, probability makes sense if the problem is random - i.e. if it can be proven that there is no participant with any information to allow prediction of the outcome. This is obvious baloney in the context of investment - if investment was about chance, we could all ignore hard work of identifying viable businesses and opportunities - and go to the casino to get rich. Few people believe this is a viable strategy - but remarkably many think they'll be the lucky ones who can deceive other market players. I think this amusing/odd/funny/interesting - because it is remarkably similar to the popular view about houses - i.e. that everyone in every town and every village or city - irrespective - believed that their area would out-perform the market. I've lost count of the number of people who said to me something like: "House prices might fall elsewhere - but not in Basslethistlewaite Village. Here they're only going up - and faster than everywhere else, too." It didn't matter where - everywhere you went - everyone seemed to think that they held the winning cards... not only did they think they'd win over people who'd delayed buying (which, IMHO, would have been a reasonable belief) but consensus in every location was that their homes would out perform every other location. The irrationality of their collective beliefs did not seem apparent to them... they were not intentionally deceiving - I don't think - but they seemed incapable of taking a wider perspective and realising that either they or their twin-town must be wrong - from first principles - whatever happens to house prices. I think a similar blindness has affected every investment market.

Another simple model that we can apply locally is am I doing better than I was last year? Unfortunately inflation tends to screw up this model as most people think nominally. So any populist government will have to support moderate inflation, if a lot of people model the world this way.

Better than last year is hard. I asked if I was doing better than my parents or my grandparents at my age. I asked if I thought I'd put in more or less effort - and if I'd seen more or less benefit. It was when I did this that I knew that something was desperately wrong with the financial/political system.

Edited May 25, 2009 by A.steve

[Stars]

How is an object dropped from 2 meters high any different to an object dropping towards earth from 20000 metres high?

-because thats all that a satellite is doing - its falling to earth but has forward motion that means the curvature of the earth is falling away at the same rate

Objects at different distances from the centre of the earth and with different motions around the earth will experience different net forces pulling them towards the centre of the earth - this isn't because gravity is actualy weaker in that direction, but because the object has a different relationship with the centre of the earth

Objects that form part of the surface of the earth known as the equator fall towards the centre of the earth more slowly than objects at the poles, not because gravity acts at different strengths in different directions, but because -

A These objects are further way from the centre of the earth than objects at the pole

B they are moving in a grand circle around the centre of the earth which means that a centrifugal force offsets gravity for them. (You could say they already slightly 'in orbit')

This doesn't mean that earth's gravity is itself weaker in the direction of the equator, but rather that the objects that form the part of the earth's surface we call the equator have a different relationship to the centre of the earth than objects at the poles (a different motion and distance) and so experience a different net motion towards the centre.

If you take an aircraft (or helicopter) flying / hovering directly over the the north pole and another flying at the same distance from the center of the earth, over the equator, but flying in the opposite direction to the motion of the surface of the earth so that it is no longer spinning around the earth, then the acceleration towards the centre of the earth for both aircraft will be the same.

http://en.wikipedia.org/wiki/Gravitational_acceleration

The centre of gravity (as opposed to the geometric centre of the earth) is at a different distance when looking from the equatorial plane than when looking from the polar axis - due to the bulging. Gravitational acceleration will be affected accordingly. The articles all clearly state this.

9.78 and 9.82 m/s²

This is because the objects actualy on the equator (part of the surface) are a different distance from the centre of the earth and are spinning around it; this is stated in the article. This only makes any odds if you are one of the objects that form part of the equator and so have the equator's motion, the fact makes no odds to something in another orbit.

Edited May 25, 2009 by Stars

[A.steve]

I believe it was a story about Thales as told by Aristotle.

I think you're right - I've no idea why I thought it was Socrates... Damnit, unless I can get to grips with my classics Inspector Morse will only ever laugh at me.

[Stars]

The time value of anything is already built in, because of entropy.

If you lend an item and get one similar and in the same nick much later on - you have been repaid interest just by that.

I disagree

If you want jam, there is an extra amount you will pay for jam NOW, rather than jam sometime in the future. It's the same jam, but you have paid a premium for it to be there for you now, not after you have made it yourself (for instance) Similarly, if you are denied your jam now to be returned in the future, then you will demand the same difference between your valuation of [jam now] and [jam tommorow].

Edited May 25, 2009 by Stars

[A.steve]

If you want jam, there is an extra amount you will pay for jam NOW, rather than jam sometime in the future. It's the same jam, but you have paid a premium for it to be there for you now, not after you have made it yourself (for instance) Similarly, if you are denied your jam now to be returned in the future, then you will demand the same difference between your valuation of [jam now] and [jam tommorow].

That's very materialist of you... not everyone thinks exactly like that.

On that note, I'm off to Asda to buy myself some jam.

[Injin]

I disagree

If you want jam, there is an extra amount you will pay for jam NOW, rather than jam sometime in the future. It's the same jam, but you have paid a premium for it to be there for you now, not after you have made it yourself (for instance) Similarly, if you are denied your jam now to be returned in the future, then you will demand the same difference between your valuation of [jam now] and [jam tommorow].

And equally, if you are giving away jam now then jam tomorrow is more valuable to you.

It balances, assuming freedom for both parties.

[Stars]

And equally, if you are giving away jam now then jam tomorrow is more valuable to you.

But he retains the option of jam tomorrow simply by not lending the jam

It balances, assuming freedom for both parties.

If you have freedom for both parties then the jam lender will be paid for his jamless days because he already has his preference (jam tommorow) by doing nothing.

[A.steve]

And equally, if you are giving away jam now then jam tomorrow is more valuable to you.

It balances, assuming freedom for both parties.

Only if both parties value jam equally. Right now I'll be valuing jam more highly if Asda also has some nice fresh bread...

[Injin]

But he retains the option of jam tomorrow simply by not lending the jam

Right. but if he freely chooses to, then he's just expresseing his values.

If you have freedom for both parties then the jam lender will be paid for his jamless days because he already has his preference (jam tommorow) by doing nothing.

Sure, but he has to store the jam, insure the jam be geographically limited by the jam etc etc

Lending is also divesting yourself of certain responsibilities. That also has value.

[Injin]

Only if both parties value jam equally. Right now I'll be valuing jam more highly if Asda also has some nice fresh bread...

If they trade they have to value jam differently, by definition.

All voluntary trades are win/win.

[BubbleBlower]

The notion that investment is about chance is, in my opinion, one of the most widely accepted fallacies. There are investment risks - but risks are not random. Anyone who suggests that risks are random (including all the money managers who tell you that you want a balanced portfolio) are charlatans - they offer no service.

...

I assure you - if you've a clearly defined problem, I've the maths to resolve it. (OK, OK, yes - I know - open problems in maths... frankly, most are paradoxes... they merely illustrate that even mathematical statements don't necessarily clearly define a problem.)

...

I don't really believe in this "probability of getting a return" - probabilities are simply not 'like that'. Probabilities are, by definition about the unknown - because the probability of all historic events is 1 - i.e. they happened. For future events, probability makes sense if the problem is random - i.e. if it can be proven that there is no participant with any information to allow prediction of the outcome.

An interesting chain of points, which I believe are about the same central issue. There are two views on what a probability is: a way to model a random variable, or a way to model the unknown. I think that these correspond roughly to the Bayesian or Frequentist approaches, although my maths background isn't up to saying that for definite. So under the Bayesian approach we have a view that the underlying phenomena is actually random, and that some distribution is a good model of the outcome of that phenomena. As I understand it the Frequentist approach doesn't make that assumption, but instead asks how likely it is that observed outcomes are due to a randomness.

So when you say that any "clearly defined" problem has the maths to resolve it then I would agree - for some value of clearly defined. But when we start talking about the behaviour of groups of people and expectations of their aggregate behaviour I don't think that the problem is clearly defined. One lack of definition is the question of individual motives and desires. Even if we accept a coarse approximation of that issue, and try to establish what effects groups of individuals will produce then we run into problems straight away. One straight-forward approach is to treat each individual as an actor in a game, use a simple definition of utility to justify their actions and try and compute some equilibrium to the game. But this approach runs into problems straight away - what is a rational actor? How much does each actor know about the game, the structure of the game, and the desires and motives of the other players? Is everybody in the game really the same type of actor? Is self-interest a good model for the whole population, or only for part of it?

The more coarse our model becomes, and the more that we admit that we don't know how some of the basic parts work, then the more useful probability becomes. But when we are looking a complex deterministic system, modelling it as having random behaviour does indeed produce its own difficulties. There is a strange boundary between "can't know" ie the outcome of a coin-flip, and "don't know" as it what will Bill Jones do in this particular condition. One argument that can be used here is once we have extracted all of the information that we can find from the problem (and this goes into the entropy debate from earlier in the thread), then whatever is left must look random. But of course if we are wrong, say we haven't extracted all of the non-random information from a system, then attempting to model it as random variables will fail. In particular if there are correlations between variables that we have assumed are random (and hence independent) then we will get garbage come out of the model in certain places.

[Mr Nice]

I think definitions 4 and 5 were submitted by snake oil salesmen. I've heard them before but I believe neither in the the tendency of all material to evolve towards a state of inert uniformity (that's cobblers - obviously, I hope) and neither do I accept that either systems or society inevitably deteriorate over time... it rather depends on what sort of system (or society) you're talking about and how you want to try and measure deterioration. The both strike me as being deeply political - in an unpleasant way.

--

(1) unless we consider transmission errors - for example - or cryptographic cyphers - where the maths gets hairy - and interesting.

you'd do yourself a pretty big disservice to arbitrarily choose to not believe in some fairly fundamental aspects of the universe.

[Stars]

Right. but if he freely chooses to, then he's just expresseing his values.

Yes..both participants wil be expressing their values

The buyer will have to pay back more than the jam to make a deal advantageous for the seller because the seller already has the jam; he has no need of the buyer to get him the jam.

Sure, but he has to store the jam, insure the jam be geographically limited by the jam etc etc

Lending is also divesting yourself of certain responsibilities. That also has value.

All this can be true, but you have to separate out one payment from another

I can be paid to store jam and the same time pay to hold jam, and the net benefit to the various parties will be reflected in the deals done, But, that doesn't get around the fact that a payment for borrowing something, above and beyond the return of the thing itself, is a natural product of human nature.

Edited May 25, 2009 by Stars

[Injin]

Yes..both participants wil be expressing their values

The buyer will have to pay back more than the jam to make a deal advantageous for the seller because the seller already has the jam; he has no need of the buyer to get him the jam.

Th\at'a true of all things, one would expect however for market forces to wipe that out in no time.

All this can be true, but you have to separate out one payment from another

I can be paid to store jam and the same time pay to hold jam, and the net benefit to the various parties will be reflected in the deals done, But, that doesn't get around the fact that a payment for borrowing something, above and beyond the return of the thing itself, is a natural product of human nature.

I highly doubt that, actually given that it's a relatively new invention and requires a strong state stopping the bulk of the population getting their own jam.

To make it clear, when discussing markets, I assume freedom.

[Methinkshe]

Th\at'a true of all things, one would expect however for market forces to wipe that out in no time.

I highly doubt that, actually given that it's a relatively new invention and requires a strong state stopping the bulk of the population getting their own jam.

To make it clear, when discussing markets, I assume freedom.

It's not about a strong state stopping the bulk of the population getting their own jam; it's about buying the time required to get (make, purchase, trade, whatever) that jam for oneself ahead of time or out of time, if you see what I mean!

[Injin]

It's not about a strong state stopping the bulk of the population getting their own jam; it's about buying the time required to get (make, purchase, trade, whatever) that jam for oneself ahead of time or out of time, if you see what I mean!

And it's also about getting rid of this pesky jam you don't want right now.

If we assume supply demand mechanics then quickly jam production is going to inrease to try and get some of this unearned income, up to the point where there is no interest charged.

How could it possibly be any other way?

What would happen is lending for tiny fees (at most) in short order.

[Stars]

Th\at'a true of all things, one would expect however for market forces to wipe that out in no time.

Barring some kind of star trek replicator thingy making all goods available everywhere and everywhen for free, i can not see how that could happen - even then, people would pay to borrow the replicators.

I highly doubt that, actually given that it's a relatively new invention and requires a strong state stopping the bulk of the population getting their own jam.

It's not a new invention - people have been making deals of this nature since Grog had spears and Ug didn't

You have to pay the loaner or the loaner has no interest in the deal

Edited May 25, 2009 by Stars