another view of Enron

Long, but worth the time to read.


http://www.financialsense.com/editorials/partnoy.htm

There should be nothing "shocking" about what has happened at Enron. Marker evolution is inevitable in all physical systems, and the simple cure for it is to periodically change the markers.


Marker evolution is a simple byproduct of evolution under imperfect information conditions. Suppose the survival of an entity is contingent on a decision based on a certain piece of information, which is expensive to get.


Suppose there is another piece of indirect information which is cheaper to get, but is correlated to the "direct" data. There will be a higher rate of survival among entities which evolve to use the cheaper "marker" - which is an adequate window into the hidden, underlying condition.


Next, in a sexual sense, the entity being judged will survive not based on the actual condition of the direct data, but based on the appearance of the marker. So, the once-correlated marker will evolve to be further and further away from the condition it is supposed to be a window into, it will become free-floating like a peacpock's tail.


So what you end up with is businesses, or creatures which evolve elaborate markers - pretty faces, or names like wirelessgenomics.com - at the expense of evolution of actual desirable characteristics, which are more expensive to evolve than markers anyway.


I even saw a male fish on TV once that could make itself look like a female on one side, and insert itself between a male and female having sex. Or, you have, like blue-footed boobies, and so forth. Naturally, natural selection would eventually produce a "darling of Wall St." that was a darling nowhere but on the paper Wall St. had grown to rely upon for selection.


So suppose a girl's face is a good window into the condition of her ovaries, her stride, her ability to carry and care for children. A few thousand years later, you're left with a population of pleasant-faced girls with curved spines, knocked knees, and mean dispositions.


All you gotta do is now and then say "Hey, for the next five years, I'm gonna chase girls with nice asses, or pretty hands, or something - ignore the face!"


Over a period which is too short for it to evolve, a cheap marker is a better window into an underlying condition than an expensive firtshand examination. But then, discovering and changing markes is expensive too, so the only way to choose survivors is but an occasional culling, meaning individuals bloodlines cannot evolve to anticpate and fend off their own demise, rather they are killed off at random.


No matter how much you know about the laws of natural selection, it is difficult to improve your own lot.


eLROY

I stated the main reason marker evolution is inevitable is because of the very high cost of firsthand information or direct examination.


But of course, this cost is asymmetric - insiders have no need to use markers. So prices should be set by those with the lowest information-acquisiton cost.


Then, the cheapest marker of all - THE PRICE - will be accurate!


(This is much less expensive than arbitrarily discarding cheap markers - at the same time as they are still enhancing survival patterns among your competitors - as any alternative "marker" is, by its very untested nature, similarly dubious.)


leroy

You seem to know a lot about the theory of market behavior. What books and other materials do you suggest for learning about the subject?

When I was a wide-eyed youngster, I went to libraries far and wide looking for such books, and never found them. All I could find was a lot of academic/econometric type stuff, which used two pages of equations to tell you how to compute the "equilibrium price."


What they never mention is that the inputs into this equation are never known in their entirety - if they were the answer would be obvious - and the entire game is discovering what information will be included, what information will be left out, and at what costs and texture, as a product of various systems, which convey various incentives, and confer various constraints, upon participants under asymmetric geographic friction conditions!


Some of the books which did the most to speed my thinking along include:


"Knowledge and Decisions" by Thomas Sowell

"The Fatal Conceit" by Friedrich Hayek

"The Theory of Poker" by David Sklansky

"The MPEG Video Compression Standard" by Chad Fogg, et al

"Beebop to the Boolean Boogie" by Clive Maxfield

"Migrations and Cultures" by Thomas Sowell


Hmmmm, I can't think of any others just now. Though it does help to study a little particle phsyics and relativity-type stuff.


Oh, and there is no "equilibrium" price, only a resultant price at a certain moment in "space and time," where spatial coordinates are defined by the intersection of two counterparties (entropically different regions maintained by geographic friction), so that there may be many "resultant" prices produced at different points in the system at the "same time" for the same thing.


(Though what, exactly, "the same thing" means, when we're talking about entirely different utilites for entirely different transactions - and entirely different information about the transactions in the hands of entirely different people - is silly to go into.)


Oh, and there is no "space and time," only a discrete network of sub-microscopic wormholes which resolve themselves into what appear to be "three dimensions" to the human brain as a result of Orderly Feedback Theory - which "Theory" is at the core of my entire marketplace model. But, to reiterate, you won't find OFT, or any other of my wild-eyed assertions, in any book.


There are some basic concepts which can be used to derive most anything, I suspect:


1) The entropy of an object will become equal to the entropy of all objects it is adjacent to, on all sub-spheres and super-spheres,


2) From the point of view of an electron, the entire rest of the universe looks like an anti-electron - almost exactly - but not quite.


3) hmmmmmm......


Either you can picture it or you can't:)


Anyway, I'm working on a more complete set of rules, and a better way to explain them. Just not working too hard;)


Good luck, maybe somebody else here can point you in the right direction!


eLROY