The most interesting scientific projects are those that surprise, when the mathematics, or the code, tells us something we didn’t expect. In our study of US wealth dynamics that’s what happened. We wrote it up in a paper, but that’s only the end product not the curious route by which we got there. Hence this post.
This is a bit of LML jargon that we felt is worth promoting, even though it’s terribly unfair to a great mathematician. So please, you admirers of Laplace, don’t take offense. What’s the story?
In 1738 Daniel Bernoulli wrote his famous paper that introduces expected utility theory and thereby defines the basis of neoclassical economics — macro and micro. Since you ask: this paper is famous for its treatment of the St. Petersburg paradox. The “paradox” goes like this:
Scientific theorizing is indeed about finding something reliable in the world — if we’re lucky something reliable enough to be called a law. Why do we want something that doesn’t change? Deep question. Here’s a practical reason: we aim to capture it with something that doesn’t change, namely with ink on paper. Stability, stationarity, ergodicity… are the holy grail of science.
The article summarizes reports of an increasing concentration of economic power (market capitalization, profits etc) in ever smaller numbers of American companies, so-called super-star companies in their respective sectors. Well-known examples are Google (or Alphabet) and Apple. But the trend, Zweig says, is broader, also occurring in supermarkets and real estate services.
This post is about mindset, culture, implicit assumptions. The big assumption in neoclassical economics is ergodicity, or equilibrium, or stationarity, or stability — basically the idea that nothing ever changes fundamentally. Things may fluctuate but they always return to some state of normality. Naively, that doesn’t fit with the idea of a growing economy, innovation, and change. So something’s up. I’ll explore what that is by replacing the mental image of stability with something that doesn’t return to normality: a nuclear explosion.
The term “weak ergodicity breaking” helps categorize things by their ergodic properties:
- strongly non-ergodic
- weakly non-ergodic
This list is chronological, in that there used to be an implicit belief that everything was ergodic (from 1654), then the realization that some things are strongly non-ergodic (1850s — 1870s), and then the discovery that things can be a lot more subtle (with Jean-Philippe Bouchaud coining the term “weak ergodicity breaking” in 1992).