It has often been said that economists became envious of physics. Unfortunately, this did not motivate them to study physics. Rather, it seems to have led to cargo-cult behaviour where economists used the mathematical tools of physics, but with no care as to whether those tools were fit for the purpose. The results, as we see, are horrible and obvious.
Here is one case study of a blunder from 1738 by a Bernoulli, corrected by Laplace in 1814, yet perpetuated as received wisdom in 1934 by an economist. And as far as economics is concerned,it remains received wisdom to this day.
I have previously posted about a 2016 paper by Peters and Gell-Mann:
https://forum.arctic-sea-ice.net/index.php/topic,1308.msg69591.html#msg69591[1] Evaluating gambles using dynamics, Chaos 26, 023103 (2016)
doi: 1054-1500/2016/26(2)/023103/9
that exposes the blunder. I see now that Peters has had no mercy, and with others has published several more papers on the subject since then.
Dynamics of inequality, Adanou et al. 2016
doi:10.1111/j.1740-9713.2016.00918.x
https://rss.onlinelibrary.wiley.com/doi/pdf/10.1111/j.1740-9713.2016.00918.xAn evolutionary advantage of cooperation, Peters et al., 2018
https://arxiv.org/pdf/1506.03414.pdfThe time interpretation of expected utility theory, Peters et al. 2018,
https://arxiv.org/abs/1801.03680Most recently:
doi: 10.1038/s41567-019-0732-0
The ergodicity problem in economics, Nature Physics volume 15, pages1216–1221(2019)
in which they actually do an experiment to show that real people behave completely differently than economists would have us believe
and
Wealth Inequality and the Ergodic Hypothesis: Evidence from theUnited States Berman et al.
https://ssrn.com/abstract=2794830Peters and cohorts use the Piketty, Saez, Zucman data among other data sets to show that the appropriate model is geometric Brownian motion and the consequences thereof, including the growth of wealth inequality, reallocation rates set by governments from the rich to the poor, cooperation as a way of spreading risk, which are very interesting in and of themselves. But there is a larger point that i see.
The ergodic hypothesis, brutally put, states that the time average is equal to the ensemble average. This is, as Peters exhaustively shows, not the case in many economic settings. But more important, why would economists fall into such error ?
The error expresses as the belief that people maximize the _expectation value_ of future utility, as though they were competing against a version of themselves across a multiverse of outcomes on the same gamble and maximizing the expectation across the multiverse. This is sorta as though on every gamble, you could go back and roll the dice again across every possible outcome, and then choose the strategy that best maximized the expectation across all those outcomes.
What people really (and more sensibly) do is look at the time average of their future trajectory instead across repeated gambles. And these are not at all the same.
In short, economists imagine that we compete with putative versions of ourselves ... based on an error corrected two centuries ago ...
Perhaps economists believe this because they know that exposing the causes and remedies of extortionate inequality might endanger their income ... as in the documentary "Inside Job" ? O wait, that actually happened.
sidd