Big Players and the Economic Theory of Expectations
PART I: INTRODUCTION An Overview of the Book PART II: METHODOLOGY Mises Schutz Hayek PART III: THEORY Language Games and Economic Theory Expectations Big Players PART IV: APPLICATIONS Ruble Angular Distribution Money Demand Coda Appendices Index
Big Players in Slovenia
The subjectivism of Austrian economics helps to explain the statistical fact of long memory in asset prices. The theory of Big Players is an Austrian approach to understanding the effects of discretionary policymaking in markets. It leads to implications that can be tested with statistics. In particular, Big Players induce herding and, thereby, an increase of persistence in asset prices. A recent episode in Slovenian monetary theory provides a case study. This case study adds to a set of similar studies, all tending to support the theory of Big Players.
It is high time we take our ignorance more seriously
Abstract The use of “fully articulate” models in finance is not always a logical possibility. A simple “counting argument” shows that the agents of our models must be less complex than the whole model and less complex than ourselves. Some markets are influenced by “Big Players,” individuals with discretionary power to influence market results. A fully articulate model of such a market would require a fully articulate model of the Big Player. This is not possible. Thus, there are limits to knowledge in finance. Sometimes finance researchers must settle for mere “explanation of the principle.” Because there are limits to knowledge in finance, we should take another look at some techniques of analysis other than fully articulate models. Perhaps it is only natural that in the exuberance generated by the successful advances of science the circumstances which limit our factual knowledge, and the consequent boundaries imposed upon the applicability of theoretical knowledge, have been rather disregarded. It is high time, however, that we take our ignorance more seriously.