/sci/ - Science & Math

[Anonymous No.11180622]

I have started engaging with Economic Theory. My first impression speaks of a general cluelessless of everybody on how economy functions exactly. We dont even have come close (from what i've read so far) to a consistent theory on how prices emerge.

Do i have just to get deeper to meet clarity, or will it remain as chaotic as it is? (The latter wouldn't stop me from engaging, i'm just curious whether this journey takes me)

[Anonymous No.11180629]

I'm no expert, but I know someone that worked within several trading companies that makes billions, and he will tell without hesitation that everybody is fucking clueless.

[Anonymous No.11180644]

Anon, economics is called the dysmal science for a reason.

[Anonymous No.11180666]

>>11180622
If you're hoping for a universally valid theory on
>how economy functions exactly
then prepare to be disappointed: prices and economies are unironically a social construct, so each market will operate by its own kind of mechanism. This is why there are so many subfields of economics.

That said, the standard curriculum for each subfield will give you at least
>a consistent theory on how prices emerge
to a level of detail depending on your mathematical maturity. Off the top of my head, the [math]basic[/math] price models for each of the subfields are:
Arrow-Debreu-Mackenzie (microeconomics), Dynamic stochastic general equilibrium (DSGE) (macroeconomics),
Bayesian-Nash equilibrium (game theory),
Ordinary least squares (OLS) and autoregressive (AR) models (econometrics),
Capital Asset Pricing Model (CAPM) and Black-Scholes (finance)

Though if your curriculum is half-decent, it'll quickly set up the model at the beginning and spend most of its time analyzing "advanced" variations of these models that remove some of their simplifying assumptions.

There's probably some original research being conducted in trying to improve or even unify these models, but I'm not in that line of work so I don't know too much about those.

[Anonymous No.11180694]

>>11180666
I just pointed that out, as the book that i'm reading confronts me with ever changing price models that emerged in history. I haven't even understood yet what the purpose is of being able to determine how prices are shaped.

[Anonymous No.11180707]

>>11180694
>I haven't even understood yet what the purpose is of being able to determine how prices are shaped
Econ is an applied subject, you'll have to provide your own motivation for studying prices, which will differ between subfields more often than not.
For example, in finance you may want to model prices in order to manage your portfolio and/or advise your trading strategy. In macro you may want to model prices in order to forecast inflationary trends for an asset (say, property) and regulate your property purchases accordingly.

If your book isn't specifically about one of these subfields, or isn't emphasizing the differences between these subfields, it's doing you a disservice in trying to present economic theory as more unified than it actually is.

[Anonymous No.11180736]

>>11180707
How would you classify Adam Smith's wealth of nations?

[Anonymous No.11180744]

>>11180622
>general cluelessless of everybody on how economy functions
>We dont even have come close (from what i've read so far) to a consistent theory on how prices emerge.

You've answered your own question.
Stuff is "worth" what people are willing/able to pay.
People don't have a fucking clue.

...but you still want it to make sense, lol.

[Anonymous No.11180749]

>>11180622
economy is an apriori solved field

[Anonymous No.11180777]

>>11180736
>wealth of nations
Not science or math, and hence irrelevant to this discussion here on /sci/.

Though you could, if you're being charitable, argue that mainstream economics is about rigorously formalizing Smith's ideas in WoN into quantifiable and hence falsifiable predictions, analogous to what mainstream physics did for the ideas set out in Galileo's work (specifically "Dialogue Concerning Two New Sciences").

That said, I've only given WoN a cursory read, so there may be insights in there that I might have overlooked.

[Anonymous No.11180793]

>>11180777
How is that not science? It is a clear attempt to structure and theorize the machinations of economics.

[Anonymous No.11180833]

>>11180793
>It is a clear attempt to structure and theorize the machinations of economics
So is philosophy and politics, but that doesn't make them science, at least not enough to warrant discussing Smith on /sci/ rather than /his/.

This entire thread has been framed in the context of >>11180622's question on whether modern economic theory can bring "clarity" to the fundamental questions. Historicist economics is a separate topic altogether, and it's about as relevant to modern economics as the foundations of mathematics are to modern math.
(Which is to say, not completely irrelevant, but nowhere near influential enough to be considered as a subfield on its own.)

[Anonymous No.11180843]

>>11180744
If you take a simple micro model and apply it to anyone's small business, you can increase their profits by half or more. Nobody who actually does real work has any idea how to price things of how many of them to make. They just float on the wind.

I really like that, actually. It allows for leeway and human whims, preferences and needs to take precedence over perfect economic efficiency. If you could take all possible factors into account, the latter would be better, but nobody does. The natural states of people are those which have, in their crude way, taken all factors into account. Additional mathematical wrangling serves to tighten wallets and sphincters.

[Anonymous No.11180849]

>>11180793
On second thought, I suppose you could consider international economics as a subfield in which you could slot Smith in.

I.e. to add to >>11180666:
Heckscher-Ohlin model (international economics)
Solow-Swan/Ramsey growth model (development economics)

I'd personally consider these two as applied micro and macro theory, rather than distinct subfields on their own, but that's not a hill that I'll be dying on.

[Anonymous No.11180854]

>>11180622
Social choice theory and game theory are cooler and more accurate that macroeconomics.

[Anonymous No.11180921]

Sounds more like finance than econ. Read about the emh and nap, and then move onto the capm, 3 factor model and then 4 factor model and add in black scholes

[Anonymous No.11180933]

>>11180843
>Nobody who actually does real work has any idea how to price things of how many of them to make.
Here's a true story:

In high school my friend Brian and I bought a pound of weed and broke it up into "dime" (1/4 oz, 7 gram) and "nickel" (1/8 oz, 3.5 gram) bags.
Since it was shitty weed, we decided to under-price the competition by selling it for a dollar a gram.
So the dime bags, traditionally priced at $10, we sold for $7, while the nickel bags, traditionally $5, went for $3.50.
A few days later, I found out he was charging his customers $3, not $3.50 for the smaller bags, because "I'm not taking or returning coins, paper money only, coins are un-cool".
And not only was the absurdity of this lost on him, nobody he sold to clicked on the idea that two 3.5 gram bags were a dollar cheaper than a 7 gram bag.

...and they wonder why i day-drink at work.

[Anonymous No.11180940]

>>11180933
Oh, btw: this was the late 70's/early 80's.

[Anonymous No.11181266]

>>11180622
Do you know everyone else’s level of rationality, their preferences, and everything about their financial situation? What about every trend in the natural world that may affect the situation? And finally, can you predict these in the future? Obviously no one can, and that’s why markets are so efficient, because they aggregate all of this information

[Anonymous No.11181290]

>>11181266
but they dont? They are driven by this factors but they, just like me can not read them

[Anonymous No.11181302]

>>11181266
>that’s why markets are so efficient, because they aggregate all of this information
The markets _are_ that information.
That's like saying waves are good at "solving" complex fluid dynamics in real time.