Sunday, August 26, 2007

New Blog

May I commend to readers a new blog run by a mob of economists. Of neither the left nor the right, so it seems, they offer an interesting insight into the thought processes of those trained in economics. You will have seen one of two comments here at No Minster from one Matt Nolan, a contributing author.

Adolf has always had a fascination for economics, having engaged in some foundational university study of the subject, albeit limited and a very long time ago. (Many of the technicalities are over my head but I have never let a deficiency in understanding of the finer points inhibit the outpouring of opinion on any subject.)

The pinnacle of my career in the discipline was a remark made to Rodney Hide at a pre-election function. I opined that economists were invented to make weather forecasters look good. Someone took me aside and let me know he is a trained economist. We both seem to have survived the incident.

And hey, I went out and bought Rodney's book today on the strength of Cactus Kate's review. I hope it will keep me going for at least half the journey to Europe next week.


Matt Nolan said...

Thanks for the kind comments.

I didn't realise that economists thought processes were seen as unusual ;)

Cathi said...

Oh wow, a chance for me to tell my economists' joke

There were 3 guys on a desert island, a chemist, an engineer, and an economist. They were stranded with a crate of tins of baked beans, but no opener.

The engineer constructed different ways of smashing open the tins, all of which munged the beans and rendered them inedible, mixed with bits of old tin, mud, rock etc.

The chemist heated the tins in the hopes of forcing them open, he was successful in that they exploded sending the beans all over everywhere and making them inedible.

The economist said "Let us assume we have a tin opener"

Falafulu Fisi said...

Economics was a subject that I was scared of at high school. Reason, too much written English. A few girls at high school back in the Island were very good at English, so the Economics class were full of girls and hardly any boys. Boys including myself, tended to favor science subjects (Physics, Maths, Chemistry), since all you need to know (mostly) are formulas or equations, and that's it. No written essays, (since writing essays required a very thorough knowledge of good English) don't have to worry about grammar or anything like (since equations don't require their use),etc, when you do those science subjects.

I became interested in Economics about 3 years ago purely by accident when I stumbled across the well-known Black–Scholes (BS) model used in derivative option pricing. BS is quite popular today in its use by financial analysts to price derivatives in the financial markets and also risk of those calculated prices. Prof. Merton and Prof. Scholes won the Economics Nobel Prize in 1997 for developing the BS model.

When I first saw the BS on Wikipedia, I had no clue to what it was because I barely knew a single concept in Economics except of the commonly quoted phrase of Supply-and-Demand. I quickly scrolled down the page (didn't read though) and when I reached halfway down in under the subsection heading , Formula derivation, I saw the Wave Equation, in which Heat Equation is a type of wave-equation. I thought, WTF , what on earth is Wave/Heat Equation got to do with Economics? I was surprised, since I did my training in Physics, but I saw on this page, some Physics equations describing some Economics concepts since I already knew Heat Equation really well of how to solve it (algorithmic-wise). I decided to go back upto the top of the page to read about Black-Scholes and find out what actually this model and why a concept in Physics such as Wave/Heat Equation involve in Economics? I read & re-read the Wikipedia page on BS to follow their derivation and after about an hour , I finally started to see how Wave/Heat Equation comes into play. The BS developers didn't realise that their model is a Wave/Heat Equation problem, when they first formulated it, until when they reach the final stage of trying to solve it for a solution, then they saw that the problem could only be solved by the Heat Equation. BS is a type of Equilibrium for financial derivatives exactly as what Matt Nolan is talking about in his weblog (although his example is general - but the same thing as derivatives), but Economists (Merton-Black-Scholes) had formalize the derivation of this type of economic equilibriums.

Since, the day I came across BS, I am now interested in computational Economics, since I have gone on to develop a number of economic models for a commercial software application that I am currently developing targeting the analysis of financial markets. Most of the stuff I develop are largely found in Economic/Finance literatures where most papers are available for free download from Research Papers in Economics website.

From what I have seen so far in publications in Economics/Finance, some advance Economics concepts have been derived using other Physics principles, and there are lots of those. I still learn Economics back to front. I look at the Equations and then try to make sense of what they mean literary. I will never be an economist, however I am just interested in implementing economics algorithms for software application.

Matt Nolan said...

Cathi, your joke does have a point, but not all economists are like that all the time ;)

falafulu, good call about the economics. Most academic economists think economics is just physics, with a slightly different focus, so there is lots of mathematics. My problem is that i'm not very good at maths or writing, so I end up trying to find some sort of uncomfortable balance ;)