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Comment by jcdavis | Hacker News Reader

> The actual nerdy economics joke there is in the second paragraph, which takes the form: Two economists are walking down the street. One of them sees a $20 bill on the ground. As she bends to pick it up, her colleague says “don’t bother, if that was a real $20 bill someone would have picked it up by now.” She replies, “no see this was left here by a consumer tech startup trying to maximize user growth; their Monthly Active Picker-Upper numbers are doubling every two months.” She picks up the $20 bill and the startup raises money at a $2 billion valuation.

Matt Levine truly is a poet

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Intended or not I like the line about "if that was a real $20" as sort of a subtext of how sometimes in economics you see predictions or explanations assuming people or businesses are somehow assumed to be logical.

The $20 just couldn't be real because who would do that?

But of course they do that and the expectation that being logical pays off or how we expect the market to work is all out the window.

Economics is a post hoc explanation for how the market works. It's not like somebody came up with the theory of how a market should work and then built one, like you would a computer. Rather, markets existed back in the middle ages before economists did, increased the wealth of its participants, and economists later appeared to explain why that was the case. Nowhere is the prerequisite that this system is the result of logical design.

<Theory X> is a post hoc explanation for how <Subject Y> works. It's not like somebody came up with the theory of how <Subject Y> should work and then built one, like you would a computer.

General relativity is a post hoc explanation for how large-scale spacetime works. It's not like somebody came up with the theory of how the universe should work and then built one, like you would a computer.

Darwinian evolution is a post hoc explanation for how life forms change over time. It's not like somebody came up with the theory of how life on earth should work and then built one, like you would a computer.

Those are good analogies (if more precise and more easily testable than is typical in the social sciences), but the framing suggests you don't believe they are.

I read as OP believes examples are common enough, that saying it, is the same as not saying anything at all.

The difference being that we've already gotten past the point of thinking that Darwinian theory should dictate human lifes. A lot of political energy is invested in keepingn them the way particular theories say it ought to be based on certain economic theoretical criteria.

You wouldn't kill the baby of a Tiger/Lion simply because your textbooks say it's not genetically feasible (glossing over the fact that it's simply not been observed before).

You're not wrong, but I don't think the person you're replying to is suggesting otherwise, they're just commenting on the assumption in many economic models that participants are rational actors that make logical decisions.

This is one of those points that gets misrepresented and then straw manned way more often than not... like fiduciary duty to shareholders.

Economists don't think people are always rational or logical.

Utility maximizing decisions. The efficient markets 'hypothesis'

Economics, especially Behavioral economics, is Descriptive, not prescriptive.

Classically (read: what I was taught in AP Econ 15 years ago), "normative economics", which is prescriptive and meant to inform policy, is divided from from "positive economics", which attempts to describe and rationalize economic activity.

https://en.wikipedia.org/wiki/Normative_economics

Someone should tell the MMT people that

There were economists in the middle ages. Ibn Khaldun, Maimonides.... Even before then. I believe Rome hanged (or crucified maybe) a whole generation of them during the crisis of the third century.

You can go back to Hesiod's Works and Days around 700 BC for economic analyses.

The bit about not picking up a $20 note because "somebody would have picked it up already" is a relatively common (half-joke) refutation of the efficient market hypothesis.

I don't think this it's a refutation of all.

The efficient market hypothesis doesn't assume that the market is _perfect_ -- just that it has priced in all available information.

When an arbitrage opportunity is noticed (i.e. the $20 bill on the ground) it will disappear quickly and ultimately be priced in the market. That's the efficient market hypothesis. That's what happens in the joke.

Because of how quickly these are captured and priced in, the sentiment is that true arbitrage opportunities rare exist and aren't worth looking for. The joke is taking that to the logical extreme, but it doesn't make the general sentiment wrong.

> Because of how quickly these are captured and priced in, the sentiment is that true arbitrage opportunities rare exist and aren't worth looking for. The joke is taking that to the logical extreme, but it doesn't make the general sentiment wrong.

Yes, it does.

The EMH suggests that markets move extremely quickly to capture and price based on all available information, and that market disruptions and failures are temporary and mostly inconsequential.

The real world suggests otherwise. As it turns out the concept of "perfect information" is literally ridiculous, because the concepts of all available information and rationality can't even really be defined in the context of a complex adaptive system, and when you look around the world you see examples of inefficient markets, unexploited arbitrage, sheer randomness, misplaced risk, and chaotic behavior or complex emergent properties all around you.

The EMH proponent says oh that's not actually happening because it can't be happening because my theory says it can't, so there. Just like the person in the joke.

Of course there’s no “perfect information” (why quote something I didn’t say?), just available information.

The sentiment is that arbitrage opportunities are rare and typically disappear before they can be exploited. Again, no one would claim that they don’t exist period — that’s the whole reason the joke is funny.

Honestly, if you look around and see “unexploited arbitrage” then you should be wealthy. I don’t personally see many $100 bills as I walk around, to use the metaphor from the joke.

I'm not sure if it contributes very much to discussion to say "markets are efficient!" or "no they aren't!". I often see interesting things that make me think simplistic ideas of market efficiency are wrong. But on the other hand, I never have seen a $20 bill on the ground that I can recall. Might be interesting to poll people and find out how many have.

I've never seen a $20 bill on the ground in my life, so this actually seems like very strong evidence in support of the EMH, not a refutation of it.

Nor I, but on the other hand, paper money tends to blow away, regardless of market dynamics.

I do see coins on the ground occasionally.

If people only used, say, gold coins, I wonder if seeing a $20 coin would be more common.

You find a lot of pennies on the ground, because people don't believe it's worth their time to pick them up.

I think I found a $10 bill on the ground once, but it was long enough ago that it would be worth $20 now.

Which is appropriate because the efficient market hypothesis is half-refuted.

Ah, I kinda assumed it might be but I wasn't familiar with it.

Thanks.

I keep wishing he would do a podcast, even if it only released every two weeks.

The Odd Lots podcast is very similar and Tracy and Joe are also very funny. Matt actually appears in a couple episodes (he has a really deep voice I didn't expect)

On a funny note, I fed myself for 6 months with VC money iFood took.

Are you aware it is a variant on a very old joke on Economics?

Yeah, that's what makes it funny!

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