{"id":4621,"date":"2012-06-09T14:34:00","date_gmt":"2012-06-09T20:34:00","guid":{"rendered":"http:\/\/www.zmetro.com\/?p=4621"},"modified":"2012-06-09T14:34:01","modified_gmt":"2012-06-09T20:34:01","slug":"tales-of-the-unexpected","status":"publish","type":"post","link":"http:\/\/www.zmetro.com\/?p=4621","title":{"rendered":"Tales of the Unexpected"},"content":{"rendered":"<p><a href=\"http:\/\/www.bankofengland.co.uk\/publications\/Documents\/speeches\/2012\/speech582.pdf\">Andrew Haldane (PDF):<\/a><\/p>\n<blockquote><p><i>For almost a century, the world of economics and finance has been dominated by randomness. Much of modern economic theory describes behaviour by a random walk, whether financial behaviour such as asset prices (Cochrane (2001)) or economic behaviour such as consumption (Hall (1978)). Much of modern econometric theory is likewise underpinned by the assumption of randomness in variables and estimated error terms (Hayashi (2000)).<br \/><Br><br \/>\nBut as Nassim Taleb reminded us, it is possible to be Fooled by Randomness (Taleb (2001)). For Taleb, the origin of this mistake was the ubiquity in economics and finance of a particular way of describing the distribution of possible real world outcomes. For non-nerds, this distribution is often called the bell-curve. For nerds, it is the normal distribution. For nerds who like to show-off, the distribution is Gaussian.<br \/><Br><br \/>\nThe normal distribution provides a beguilingly simple description of the world. Outcomes lie symmetrically around the mean, with a probability that steadily decays. It is well-known that repeated games of chance deliver random outcomes in line with this distribution: tosses of a fair coin, sampling of coloured balls from a jam-jar, bets on a lottery number, games of paper\/scissors\/stone. Or have you been fooled by randomness?<br \/><Br><br \/>\nIn 2005, Takashi Hashiyama faced a dilemma. As CEO of Japanese electronics corporation<br \/><Br><br \/>\nMaspro Denkoh, he was selling the company\u2019s collection of Impressionist paintings, including pieces by Ce?zanne and van Gogh. But he was undecided between the two leading houses vying to host the auction, Christie\u2019s and Sotheby\u2019s. He left the decision to chance: the two houses would engage in a winner-takes-all game of paper\/scissors\/stone.<br \/><Br><br \/>\nRecognising it as a game of chance, Sotheby\u2019s randomly played \u201cpaper\u201d. Christie\u2019s took a different tack. They employed two strategic game-theorists \u2013 the 11-year old twin daughters of their international director Nicholas Maclean. The girls played \u201cscissors\u201d. This was no random choice. Knowing \u201cstone\u201d was the most obvious move, the girls expected their opponents to play \u201cpaper\u201d. \u201cScissors\u201d earned Christie\u2019s millions of dollars in commission.<\/i><\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"<p>Andrew Haldane (PDF): For almost a century, the world of economics and finance has been dominated by randomness. Much of modern economic theory describes behaviour by a random walk, whether financial behaviour such as asset prices (Cochrane (2001)) or economic behaviour such as consumption (Hall (1978)). Much of modern econometric theory is likewise underpinned by [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[21,39,35],"tags":[],"_links":{"self":[{"href":"http:\/\/www.zmetro.com\/index.php?rest_route=\/wp\/v2\/posts\/4621"}],"collection":[{"href":"http:\/\/www.zmetro.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.zmetro.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.zmetro.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"http:\/\/www.zmetro.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=4621"}],"version-history":[{"count":1,"href":"http:\/\/www.zmetro.com\/index.php?rest_route=\/wp\/v2\/posts\/4621\/revisions"}],"predecessor-version":[{"id":4622,"href":"http:\/\/www.zmetro.com\/index.php?rest_route=\/wp\/v2\/posts\/4621\/revisions\/4622"}],"wp:attachment":[{"href":"http:\/\/www.zmetro.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=4621"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.zmetro.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=4621"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.zmetro.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=4621"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}