Do you recall assertions in the late 1970's that there was no such thing as a computer generated random number. Does anyone still hold this view?
Sincerely, Tom L.
Rosser Jr, John Barkley wrote:
> This is being sent to three lists, although it is an
> immediate followup to a thread on pkt (longish).
> Dave Colander asked if institutions can limit the
> instabilities associated with chaos and complexity
> (chaoplexity), a la the famous "corridor of stability" idea
> of Axel Leijonhufvud. I said maybe, but then said that
> they may also lead to greater instability. I wish to
> follow up:
> 1) The corridor of stability has inherent in it the
> possibility that by widening the corridor a bit, thus
> allowing more local volatility, one may gain more
> boundedness or global stability of the system. This has a
> counterpart in ecological theory in the alleged tradeoff
> between "stability" and "resilience" enunciated by C.S.
> Holling. A simple example is the oak tree (stable but not
> resilient in a hurricane) versus the palm tree (unstable
> but resilient in a hurricane) or elephant populations
> (stable but unresilient) versus sheep blowfly populations
> (potentially chaotic but resilient). There are many chaotic
> systems that are actually very resilient, if locally
> unstable, including our brains (when we aren't bonkers).
> 2) An example of an institution trying to increase
> stability but reducing resilience might be the the
> government bank insurers, or in Japan and "non-opaque"
> banking systems the central authorities more generally. In
> the US this was posed as the "moral hazard" problem of
> FSLIC in that when banks or lenders or borrowers or all of
> them felt safe because of the government agency covering
> for them they engaged in reckless behavior that eventually
> brought the system to a much greater degree of crisis,
> especially as we are now seeing in East Asia where lots of
> lenders and borrowers counted on their governments to
> maintain pegs to the US dollar. Similar such complacency
> is what we see at the late stages of speculative asset
> bubbles a la the Ponzi analysis of Minsky.
> 2) Nevertheless the fear of actual financial market
> chaos is currently playing a role in some major institution
> changing going on right now, in particular European
> monetary unification. One of the most prominent advocates
> for the EMU all along has been Paul de Grauwe of the
> University of Leuven in Belgium. I gave a talk there in
> 1990 on chaos theory right after he and Kris Vansanten at
> CEPR in London had published a paper showing how chaotic
> dynamics could easily arise in forex markets. This was
> followed up by a book by de Grauwe, Embrechts, and Wachter
> in 1993 on Chaotic Dynamics in Foreign Exchange Markets
> that developed the argument much further and has been much
> cited. I personally am convinced that de Grauwe sees the
> EMU as the way to KILL THE CHAOS in the European forex
> markets.
> 4) Finally I note that in the kinds of models of
> financial markets where there is a struggle between
> "fundamentalists" and "chartists" or something like that
> (which is what is going on the de Grauwe et al models) much
> more complex dynamics are possible than mere chaos, e.g.
> fractal basin boundaries (eeeeek!) and some other pretty
> hairy stuff. A paper giving the full array of this stuff is
> William A. Brock and Cars H. Hommes, "A Rational Route to
> Randomness," _Econometrica_, 1997, vol. 65, pp. 1059-1095.
> Barkley Rosser
> Professor of Economics
> James Madison University
> Harrisonburg, VA 22807 USA
>
> --
> Rosser Jr, John Barkley
> rosserjb at jmu.edu