Finance and systems of thinking
In this page lies probably the most iconoclastic topic. I could subtitle it "usefulness and
noxiousness of math's and philosophy, in finance, sciences, and life".
Math's are dominant in economy and finance. They bring rationality. But even Einstein
deemed them inappropriate to represent reality faithfully.
Above all, in their applications, they can be used to dress into a misleading apparent
rigor some arbitrary and elusive hypotheses.
In the facts, the scientific method is "under influence". Observation, reason and creativity
must be central to every theoretical and practical approach.
But those approaches are hostages of:
the mind habits of each player or thinker .
and the collective thinking patterns in force at a given moment.
This intrusion of philosophies in science is the best and worse of things. In life also (so
many ideologies and dogmas have poisoned our planet life). But it cannot be avoided, chiefly in
"soft" sciences" such as economy and finance. All the more as the collectivity "makes" the market.
Otium brings us his owns reflections on the role of math's and of thinking systems in, among
Communication from Otium,
email@example.com, 15 July 2000
(translated from French by P. Greenfinch)
(translated from French by P. Greenfinch)
I advise not to neglect Soros. He is not a systematitian providing THE recipe wrapped off
from a to z. He brings a living testimony tuned to reality, questionings, thoughts meandering,
reflections, doubts, mistakes...
However, the whole thing makes appear its leading thread, through the very personal expression
of his fundamental hypotheses on nature and on market behaviors.
The most important thing to draw from it is that there are no universal recipes, no ax+b=y like
in most of the others. Rather, there is a personal system of thinking, a general metaphor, a
This shows also the intensity and deepness of work needed to derive an operating method
from a conception. A thing nobody can escape from.
Another thing we discover is that the market activity cannot be separated from the person, from
the biography and psychology of each player. A subtle difference between technical method
and artistic practice (without being carried away about this artistic side, please).
Besides, in my opinion, it is a true in every field. Math's are a quite comparable subject.
We don't have any more automatic machines and methods to demonstrate the Fermat theorem
than those who would demonstrate the market equation have.
And the way and skills with which humans progress in those math's looks much like the work
of a Soros. They are quite personal, intimate. It is the biographical and philosophical expressions
To go the Soros way, is to change level radically. We are no more in arithmetic's, either
differential calculus, what remains of calculation. But in the building process of human concepts
of an infinite and metaphorical world.
The question is pending whether math's could have an existence independent of man, if
there might be some universal "physics" of mathematics. Or if it were only an outgrowth of the
conformation of our thinking, thus of our brain. We know how numbering originated from the
human body (the ten digits of the hand); Has not the whole construction the same nature?
It is obvious that economics are only a pseudo-science, behavioral or sociological. And
Finance alike, for sure. Everything that happens on the markets derives and depends from that.
All things considered, there are no financial markets' mathematics. There are only behaviors,
a mass psychologyb built on individual psychologies. From it, what remains are long series of
numbers, that we may raise to a kind of human laws statute.
But, until when, until where ? (we can refer to the historical return on capital for mankind's few
thousand years, that converges towards 5 %).
Moreover, deciphering of local occurrences comes as well from the decipherer mind than from
the observed phenomena.
Thus, what determined entirely my whole personal method of analysis, the patterns founds, the
profit methods, the risk management, the choice to work rather than to make profit while
sleeping, and so on..., is:
* my personal conception of the world (it is Marxist, and mainly orientated to long term history -
my first field of competence, deeply anchored),
* itself linked to my markets' attack angle (built on the panicky fear of my youth in response to
that of my parents, etc...).
Even the theory of Portfolio Management is simply a social expression. In no way a science or a
method. And certainly not an exact one. Even as an heuristic, it is not worth much.
More recently, the fact that financial research took the path of, for example, the chaos theory, after
it explored statistics and probabilities, is just a sociological fact. A vision of the world, belonging to
the world, transmitted to finance as a part of the world. The vision humans have of the financial
world is a transposition of their general vision of the world.
The History of Probabilities, that I know well because I reached it, is exciting. I discovered that it
was quite synchronized with the history of related financial management methods. We know the
bases well, with Bachelier, Borel etc... In fact, it can be refined, it always fits. Now, we got
Mandelbrot, fractals, deterministic chaos, etc... and it will go on.
We can also read the financial markets in another way, and Soros is rather original, more
political, quite philosophical, anchored in a social theory of mankind. I like it much.
As I like the cycles that were underlined by Russian economists carried by the pervading
Marxist atmosphere of economic thinking. Those are entertaining financial readings.