Monday, November 6, 2017

What economists have had wrong since 1934

In 1934, Carl Menger made a simple mathematical error that no one caught. His (incorrect) 1934 paper has been celebrated by Nobel laureates ever since. The result of this error has been to obscure from economists certain objective facts of risk management and wealth distributions, forcing them to rely on subjective mechanisms like utility functions and risk aversion instead.

The physicist Ole Peters has found the mistake. Now all we need to do is to, somehow, get economists to listen. Ole Peters apparently got Ken Arrow to change his tune, but unfortunately Ken Arrow is no longer with us to help champion the message.

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