QuoteOriginally posted by: CuchulainnQuoteOriginally posted by: And2This is fascinating conversation, but I think it went on tangent to the original question... Pretty much everybody here says that overreaching concept of "risk" is not conserved/conservable (because it is not definable, quantifiable?), but the (idealized) finance is all about conservation of price-risk relationship.I agree. Risk on its own means nothing.What is a concrete example of this "conservation of price-risk relationship". I think that's a good term you use.What about conservation of price-risk of a house (as asset etc.) How can it be modeled. It is a living things while physics only works with dead things like quarks. Math Biology is better as Paul is suggesting? Why not, the previous model was not a runaway success.But what do mathematical biologists spend most of their time doing? Predator/prey style systems of ODEs? Markov models? Difference equations a la Fisher-Haldane-Wright?I often thought the kind of models Sornette used to promote, along the lines of considering agent based models but using the machinery of statistical mechanics (for dissipative systems, no appeals to conservationprinciples) had more to offer. Has all the funky nonlinearities and phase transition behaviour but still has GBM/Black-Scholes as a special case when agents' behaviour correlates in a particularly simple way. But maybe that just as philosophical prejudice (or a narrative bias?) for analogical or representational models and a disdain for the purely phenomenological....

QuoteOriginally posted by: outrunEconomy is an aspect of our global biological ecosystems. The biggest disruptions will be global disasters, increased power imbalance, and lack of resilience due to increased global coupling driven by optimisation.I agree 95% with you (on global biological ecosystems, global disasters, lack of resilience, and global coupling driven by optimization.)The power imbalance may be a good thing. From what I've seen, larger companies are a lot more resilient than small ones by virtue of their larger portfolios of resources and more mature (if bureaucratic) processes. Yes, large companies are more coupled (and create more coupling) but they know it. Small companies also create coupling but they aren't as aware of the dependencies they have or have created.As bad as the 2008 financial crisis was, it's instructive that it was not worse.

QuoteOriginally posted by: tw But what do mathematical biologists spend most of their time doing? Predator/prey style systems of ODEs? Markov models? Difference equations a la Fisher-Haldane-Wright?I often thought the kind of models Sornette used to promote, along the lines of considering agent based models but using the machinery of statistical mechanics (for dissipative systems, no appeals to conservationprinciples) had more to offer. Has all the funky nonlinearities and phase transition behaviour but still has GBM/Black-Scholes as a special case when agents' behaviour correlates in a particularly simple way. But maybe that just as philosophical prejudice (or a narrative bias?) for analogical or representational models and a disdain for the purely phenomenological....Math biologists do everything: predator-prey; epidemics; tiger stripes; blood flow; stats; diffusion; odes;... The list is endless, and they are allowed to do whatever maths they want. Unlike we quants.It's a shame about Sornette's personality though.P

QuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: outrunAs bad as the 2008 financial crisis was, it's instructive that it was not worse.No one died?In your opinion, of course. I think we should separate personal feelings from the discussion. Unless you can elaborate.

Did your credit card work? Could you get cash out of the ATM machine? Yes, to both.Did you have to barter your skills for a chicken? No, me neither.Shame because it sounds like fun to me!P

Chicken is out; it's pigeon these days, at least in Soho.

QuoteOriginally posted by: CuchulainnChicken is out; it's pigeon these days, at least in Soho.

QuoteOriginally posted by: daveangelQuoteOriginally posted by: CuchulainnChicken is out; it's pigeon these days, at least in Soho.Do you have the completed answer?

QuoteOriginally posted by: CuchulainnQuoteOriginally posted by: Traden4AlphaAs bad as the 2008 financial crisis was, it's instructive that it was not worse.No one died?In your opinion, of course. I think we should separate personal feelings from the discussion. Unless you can elaborate.Of course people died, but many more could have died.As Paul noted, the wheels stayed on the bus even if (by some estimates) the math describing those wheels said they were gone.Coupling in the global economy is a double-edged sword. At one level it does make cascading failures much more likely. At another level, it makes cascading failures much easier to combat.There's a big difference between the properties of variations in physical systems versus those in economic systems. In physical systems, variations and coupled co-variations stand immutable under unchanging physical law -- push on a mass and it pushes back. But the variations and coupled covariations in economic systems can be capriciously, maliciously, or even delightfully manipulated by actors in the system - push on a mass and who knows what it might do because the creators/managers/politicians associated with that mass may craft a most interesting reaction.Even money itself is not conserved -- it can be created or destroyed on the whims of innovators, leaders, or mobs.

QuoteOriginally posted by: CuchulainnQuoteOriginally posted by: daveangelQuoteOriginally posted by: CuchulainnChicken is out; it's pigeon these days, at least in Soho.Do you have the completed answer?

QuoteOriginally posted by: outrunValue and associated risk are subjective. What's good for the Japanse economy might be bad from a whale perspective, and in any economical theory we can swap (subsets of) humans and whales.Indeed! And given that whales are indirect competitors of humans, what's bad for the whales might be good for humans.But you are entirely right about one of the fundamental flaws of economics (and in signal processing). The assumption of linearity that lets one swap humans and whales is deeply wrong.

The examples of creation or destruction of risk here seems to be examples of choosing or constructing a less or more stable system (portfolio, financial system, economy..)May be we should distinguish between "uncertainty" and "instability". With uncertainty like in the chance of being hit by a meteor, and stability like in your choice to play poker, or enacting laws that make economy (or financial system, in the latest iteration) more stable.Uncertainty is given and unchanged, but the risk can be mitigated. Example of the price-risk relationship with respect to uncertainty would be something like giving money to space agency (to develop tracking telescopes, killer satellites, etc), to reduce the risk.Instability is constructed (by design or unknowingly, but can be figured out and/or fixed), it is a product of device that amplifies (or mitigates) uncertainty.The price-risk relationship here is a classical one - between two... "devices" giving the same benefit, you pay more for the less risky one.

QuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: CuchulainnQuoteOriginally posted by: daveangelQuoteOriginally posted by: CuchulainnChicken is out; it's pigeon these days, at least in Soho.Do you have the completed answer?All your putting all your eggs in one basket?