Friday, April 20, 2007

Other Perspectives On Ergoditicy

I've recently noted that the Post Keynesian economist Paul Davidson thinks economic theory should not impose a priori the special case assumption of ergodicity.

Brian Arthur and Paul David also have argued that economics should have room for non ergodic processes. They discuss such processes under the rubric of "path dependence". "Path Dependence - A Foundational Concept for Historical Social Science" is an example of a 2006 statement of Paul David's.

One can see that others thought neoclassicalism contained an assumption of ergodicity:
"Finally, there was an even more interesting third assumption implicit and explicit in the classical mind. It was a belief in unique long-run equilibrium independent of initial conditions. I shall call it the 'ergodic hypothesis' by analogy to the use of this term in statistical mechanics. Remember that the classical economists were fatalists (a synonym for 'believers in equilibrium'!). Harriet Martineau, who made fairy tales out of economics (unlike modern economists who make economics out of fairy tales), believed that if the state redivided income each morning, by night the rich would again be sleeping in their comfortable beds and the poor under the bridges. (I think she thought this a cogent argument against equilitarian taxes.)

Now, Paul Samuelson, aged 20 a hundred years later, was not Harriet Martineau or even David Ricardo; but as an equilibrium theorist he naturally tended to think of models in which things settle down to a unique position independently of initial conditions. Technically speaking, we theorists hoped not to introduce hystersis phenomena into our model, as the Bible does when it says, 'We pass this way only once' and, in so saying, takes the subject out of the realm of science into the realm of genuine history." -- Paul A. Samuelson, "What Classical and Neo-Classical Monetary Theory Really Was," Canadian Journal of Economics, V 1., # 1, pp. 1-15, 1968. (Reprinted in Monetary Theory: Selected Readings, edited by Robert W. Clower, Penguin, 1969.)


Dave Iverson said...

Since discovering Brian Arthur's work a decado ago, and even before I have been puzzled that the idea of "path dependency" has not gained more traction in economics chatter (blogs, journals, etc.)

I guess Kuhn was right: It takes a die off -- a generation -- to change paradigms, even when sufficient practitioners take a particular "path".

I wonder whether or not Davidson's use of the term "non ergodic" for "path dependent" made the journey harder due to obtuse or archane terminology.

In any case I warm up more easily to "path dependency" or "bandwagon effects" etc. than to "non ergodic" -- which I always have to look up to remember when to (and not to) use the modifer "non".

Anonymous said...

I have following analogy which might or might not be useful in describing workings of economy:

First you have a cocktail which you stir with the proper tool. It causes ripples which eventually dampen and disappear.

And it would also be useful to question validity of Kuhn's thesis about scientific revolutions. Perhaps changes of objectives of economic research would have something to do with the elements of objective truth..

Ups, that would undermine also our Austrian economics programme.

Robert Vienneau said...

Dave, I think a concept has to be technical to be likely to be taken up by mainstream economists these days. So "nonergodicity" is better than Joan Robinson's "history versus equilibrium". But the technical notion is a challenge to discussions among the laity. On the other hand, one of the government lawyers in the Microsoft antitrust trial said he drew on Brian Arthur in seeing the need for the case.

I'm not sure I take your point adi. I think that, unlike the universe studied by physics, the laws governing economies can change. That is, a theory that was true once, at some level of abstraction, may become no longer true.