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Thursday, July 7, 2011

Chaos, Probability, and the Economy

A couple-year-old essay from plus.maths.org that remains relevant today:

http://plus.maths.org/content/chaos-chance-and-money

It ends as follows: 
"I hope I've managed to convince you that seemingly predictable, regular behaviour does not necessarily have a deterministic cause — it's perfectly possible for it to arise from chance events. Conversely, seemingly wild, erratic and downright chaotic behaviour can emerge from a system as simple as the interacting gravity of the Earth, the Moon, and a spaceship. The stock market displays both types of behaviour. The bad news for the government is that in some systems, like our table of coffee cups, almost all actions lead to the same result. The good news is that in chaotic systems, a very small action can change a huge and complex set of interacting behaviours. Fingers crossed that it works!"

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