Every force in Nature (including the invisible hand of the market)
91 plus ones
Shared publicly•View activity
View 20 previous comments
- Too cool! My friends and i enjoy the puzzled moment of us after watching your videos and finally understand them!!:)
16 year old boy from MALAYSIAMay 23, 2012
- This analogy of physics to economics is very flawed. One can't simply unwind a transaction. If I buy a sheep from someone for $2, I can't simply sell the sheep back to them for $2. That person entered into the transaction because they valued the sheep more than the $2 and I valued the $2 more than the sheep. Note that because we both gained value in the transaction, wealth creation is not a zero-sum game. If this isn't very obvious to someone, playing Settlers of Catan makes it more obvious.
Also, the exchange rate chain analogy lacks friction (eg in the form of commissions, etc). If the person wanted USD in the end, there's also risk in that the entire chain might not go through (ie the chain isn't an atomic transaction). Note also that trending towards free markets increases efficiency and decreases friction, but this doesn't mean that the person will wind up with more money in the end since as efficiencies increase, arbitrage scenarios close.
There might be a good physics-economics analogy, but this video isn't it.May 23, 2012
- Noel, in physics we like to play with idealized scenarios before we go to the real world: we talk about free fall without wind resistance, ideal springs, perfect fluids, frictionless surfaces, and so on, to try to figure out how they work before introducing complicating elements.
The same is also true in economics (we assume people are perfectly rational thinkers and actors, that they have perfect access to information, etc), but even though these assumptions aren't valid in the real world, these ideal scenarios can often give you a rough idea of the picture before you take the non-ideal parts into account.May 23, 2012
- , I agree that both physics and economics play with idealized models before introducing more reality. But you're comparing idealized physics with non-idealized markets. In an idealized market, there wouldn't be any arbitrage situations since the flow of information would be infinitely fast.
Also, in both idealized and non-idealized markets, what I said about unwinding a trade still holds -- the trade happens because both parties value the other item more than what they have. Have you ever played Settlers of Catan and tried to back out of a trade?May 23, 2012
- I agree that there's normally a good reason people engage in a trade (and is why I said "ignoring the fact that maybe I like sheep more than money, which is why we'd trade in the first place" as a precursor to the whole economic analogy).
However, there is a difference between an ideal system and an equilibrium system. Just because a ball can roll around in a bowl without friction doesn't mean it has to be at the bottom of the bowl - and economic markets are similar: even in an idealized model with perfect information and rational actors, there is a time lapse required to perform analyses, make transactions, move goods, etc. and we know that such a market is often not at an equilibrium state. In fact, the big point of Lee Smolin's paper (http://arxiv.org/pdf/0902.4274v1.pdf) is that the standard, rigorous mathematical theory of economic markets (the Arrow-Debreu model) is in fact ONLY a model of economic equilibrium. What's more, due to the way it is constructed, the Arrow-Debreu model is entirely unable to provide any rigorous analysis of non-equilibrium economic systems, while that is precisely what gauge theories (a mathematical tool often used at the foundations of physics) are suited to do.May 23, 2012
- Great and simple explanation of physics and forces. I have always loved physics. I took it in high school and college, and am still interested in it even though I don't work in a Physics field.Jun 7, 2012