1. lecture to students october 3 2015 robindcmatthews
robindcmatthews.com
Lecture delivered at
RANEPA (Moscow)
October 2015
(revised January 2017)
lecture to students october robindcmatthews

2. lecture to students october 3 2015 robindcmatthews
Globalisation and extreme events updated to Brexit: No need to apologize Mr Haldane
Here is very brief explanation of the slides in case you didn't attend the lecture. There are 3 overt ideas in the lecture about theory and prediction in economics and business. And an underlying theme. The slides move on to a picture of the normal distribution (4), comparison (5) between normal, heavy tailed (the Pareto distribution) in (5) being one example. In (6) there are examples of fractals; (5) and (6) describing the same thing, scale freeness. (7) distinguishes types of change and hints that evolution and change are distinct but related. (8) relates some scenarios for what used to be called the Eastern Block as of (9) indicates that there are many apparent realities and looking beyond the disco ball none. I linked the ideas to events in global business in the lecture.
An unstated assumption is that events are normally distributed and hence we can ignore extreme events. On the contrary I maintain in the lecture that the events that really trouble managers, forecasters and legislators are black swan events . Events that are black swan (or heavy tailed) are distributed in such a way that extreme events are unlikely but nevertheless can be relied on to occur. And, since there are so many classes of events (economic, political, diplomatic, technological and subsets of them) they can be relied on to occur more frequently than normal distribution thinking implies.
Explanations, predictions and causal interpretations are probability statements; probability statements, not only because of imperfect information but fundamentally because all scientific statements about the world are probability statements. Nature is probabilistic. The climbdown by Andrew Haldane recently about the Brexit disaster which seems not to have happened (yet) was unnecessary. The predicted outcomes were probability statements.
The third idea is self ordered criticality (SOC). Systems tend to organize themselves into a critical state in which extreme events are very likely to happen. In other words, systems self organize into black swan situations; Trump, Corbin, Brexit, financial crises and who knows what? Also black swan distributions are said to be scale free; like fractals that look identical where they are looked at with the naked eye, or a magnifying glass or a microscope.
The underlying idea of the lecture was that seeing connections between things that are normally thought of as unconnected is creative. Hence the connections in the slides. Globalisation makes it apparent that the world and all its activities, events and beings are interdependent. Finally there are many more realities than the faces of the disco ball. The search for a single reality or meaning is fruitless but necessary.
lecture to students october robindcmatthews

3. lecture to students october 3 2015 robindcmatthews
NOTE
I am indebted to countless sources, amongst which I cite the following:
Managing global finance as a system: speech given by Andrew G Haldane, Chief Economist, Bank of England, at the Maxwell Fry Annual Global Finance Lecture, Birmingham University 29 October 2014
Stuck: Speech given by Andrew G Haldane, Chief Economist, Bank of England, Open University, Milton Keynes, 30 June 2015
Rethinking the financial network: Andrew G Haldane, Executive Director, Financial Stability Bank of England Speech delivered at the Financial Student Association, Amsterdam April 2009.
Climate change: The world is warming: heat map 14:31 by The Economist online Nov 29th 2010.
RGE Monitor; MonthlyChartbook: Pauline Argudin and the Roubini research team September 2015.
Mandelbrot, Taleb of course.
ANDRIANI, P. and MCKELVEY, B., From Gaussian to Paretian Thinking: Causes and Implications of Power Laws in Organizations. Organization Science, 20(6), pp
And various images taken from the internet.
lecture to students october robindcmatthews

4. lecture to students october 3 2015 robindcmatthews

5. lecture to students october 3 2015 robindcmatthews

6. lecture to students october 3 2015 robindcmatthews

7. lecture to students october 3 2015 robindcmatthews
Evolution and change
distinction
Random
no pattern
Normal distribution
Bell shaped or approximately so
Fat tailed distributions
change on all scales possible; Black Swans
Deterministic
predictable if and only if information is perfect
Chaotic
Deterministic but SDIC
Catastrophic
Singularity, great extinctions and sometimes just swans.
Self ordered criticality
Attraction to tipping points; major (phase) transitions.
change
Evolution
lecture to students october robindcmatthews

8. lecture to students october 3 2015 robindcmatthews

9. lecture to students october 3 2015 robindcmatthews