Pacey and potentially revolutionary’ Sunday Times – ‘Iconoclastic and irreverent … an exhilarating read’ The Guardian – ‘Boldly ambitious, entertaining and thought-provoking’ Observer – ‘This is not a book. This is an intellectual feast’ Nassim Nicholas Taleb
reviews of “The Dawn of Everything- A New History of Humanity” by David Graeber and David Wengrow
bomb of a book
Prominant reviewers might say the same about David Orrell’s bomb of a book. Impressive, intelligent and imaginative. Not sure they will get to read it, though. The author of bestselling Economyths is famous enough but…
Hate Mail Attractor
Orrell’s popular bestseller was a mathematician’s post-mortem of mainstream Economics. That’s as in neo-classical, orthodox, 101 equilibrium economics taught via Mankiw-type textbooks to 90-97% of economics students all over the world.
Desperately Seeking General Euthanasia
If Economyths was a mathematically intellectual explosive thrown at The Equilibrium Academy, Orrell’s Magic Money Bomb is a missile prefigured to hover over The Academy, then suddenly explode into quantum memes to infiltrate it.
Beyond academia, the generally curious reader is in for a treat. If you appreciate David&David rewriting history, you enjoy this David rewriting not just economics. Orrell’s demystifying expositions let you catch up on quantum theory beyond yoga and cats. You don’t have to convert to quantum lingo to appreciate a thoughtful mathematician re-configuring big concepts like agency, objectivity or rationality from a new perspective. Especially if written as a galloping critique of generally accepted narratives , suppositions and theories like behavioural economics, game-theory and rational-choice-theory.
In his reckoning with rational man, Orrell excells in numerous economics episodes illustrating why some economists have been sending hate mails. The book entertains, educates and delights with crisp flashbacks to classical mythology, Greek philosophy, magic, alchemy and the Faustian bargain. He takes you on guided tours across logical history, hemispheric neurology, patriarchal archetypes and the Black–Scholes model to name just some of the interdisciplinary ingredients of this cocktail of ideas on quantum rocks, all spiced with anecdotal morsels like the one about revered math genius John von Neumann.
Apparently von Neumann‘s mathematical thunder was twice stolen! Hence the intellectual stoop into, as he figured, irrationally retarded economics etc. Turns out economists took decades to see the light of game theory. Not that von Neuman cared at the time. He got heroically busy flogging games of chicken to Sovereign Security. Mainstream economics did eventually embrace game theory, just as game theory started to discredit itself.
Game theory’s dependence on (logically) rational choice leaves it in an onto-epistemo-logical limbo-land of being neither necessarily true nor contingently relevant? True or not, limbo-land sounds just the sort of place quantum likes to start from.
quantum’s social life
Quantum theory is the theoretical basis of modern physics that explains the nature and behavior of matter and energy on the atomic and subatomic level. The nature and behavior of matter and energy at that level is sometimes referred to as quantum physics and quantum mechanics
Quantum, I now understand, is not so much about the neither-here-no-there of the cat or electron. It’s about the mode and timing of the measurement. It is not the cat, clock or electron apparently acting unpredictably like agents. Einstein famously complained about quantum endowing an electron with “free will”. Given atomic invariance relative to the human narrative, Einstein’s conceptual concern about superpositioning is expressed through what must be a rhetorical projection. If there is “free will” in Einstein’s or any human story, it would presumably have to be his free will to look and see this way or that way?
Let alone both ways, as quantum thinking does when re-framing logical contradictions into dynamic poles in search of a third force? Which turns out to be the agency of the narrator, timing and placing the observational set up?
(the experiment) …”…shows that, as Schrödinger insisted, quantum leaps are not instantaneous – they actually take about four microseconds. “In a sense the jumps aren’t jumps … you look at these finer features, you can do things that maybe you thought you couldn’t do because of these little windows of predictability.” This may eventually be useful to correct errors in quantum computing… An unexpected quantum jump could mark a mistake in calculations, and this method might allow researchers to spot the start of the jump and account for the error, or even reverse it mid-leap…”…
This is how quantum seems to not just enter the equation but becomes constitutive of it? Quantum seems to explicitly implicate the observer as the interventionist , let alone instigator of the whole set, measuring the result into existence?
Working round rather than resolving uncertainty, Quantum’s reversible gates reflect the narrative’s infinite reversibility. Far from mystifyingly complex, quantum can sound like the sort of common sense narrative that reminds us there are always at least two sides to a story.
Quantum’s sub-atomic duality of the wave/particle representation can be transcribed into that of real and virtual, object and number, commodity and symbol, yin and yang, soft and hard, female and male or any two sides of a social construct. Never mind how deeply the narrative is institutionally inscribed into a state of naturalness. Duality tends to reveal the scriptedness of the object as in the famous two sides of a coin: Name and number. Power denominated.
The duality of money is one of Orrell’s launching pads to analyse money’s social life from diverse and, like gender, traditionally neglected perspectives. Such well-researched social circumspection soon gets you entangled in the powers that be.
Nonetheless, I did not expect the narrative power of human agency to take center stage of quantum analysis and get to the gist of the money story in one leaping swoop: Read money’s duality as real versus virtual and you get the debtor who holds the real money, whilst the creditor gets the virtual slip. Which is why s/he needs a massive big whip. Nomos&Nexus.The rest is history.
“Measuring the result into existence” barely needs transcribing into valuing the “loans” of credit money into existence, not just spectacularly so as in the “ex valorem” creation of credit money “ex nihilo” but more generally by measuring and calculating future value along the lines of CasP’s iconic formula, its power-crunched numbers contingent upon continuous re-evaluation and prone to sudden preference reversals.
Dancing to the narrative complexity of relative positioning, credit&debt have done their routine for literally ever. Beyond whence one may wonder if it was precisely when numbers start counting relative values that the “evil” Mephistophelesian magic of money was unbottled? Commodifying collective abundance into privatised scarcity, unbounded singular appropriation atomises, abstracts and decontextualises the real into its virtual representation which being quantified is ready to outgrow anything real any time, any place. Especially in the narrative human eco-sphere where historically the ancient money-duo’s whirling dance has been in the habit of whipping up accumulating credits into suddenly collapsing piles of exhausted debt.
As Orrell keeps remininding us: Numbers matter, not least because they know no bounds and have bent our deep minds into categorical cognitive conceptualities some researchers have read to suggest that writing&money are not the offspring of reasoning at all. Rather it’s exactly the other way round.
Time=Money always sounded true enough. Money=Power has been waiting in the wings all along, perhaps, and seems to be coming out lately. To me, anyway. First Capital as Power seems to resolve centuries of re-conceptualising capital composition into the relevant singularity of relative capitalisation. Then I found The Lost Science of Money, Stephen Zarlenga’s neglected masterpiece suggesting in its subtitle why that might be: The Mythology of Money – The Story of Power.
All over social science researchers seem to be sifting through the ashes of dusty and discredited dominant narratives like there is a tomorrow beyond humans as repressed beasts run by a self-maximising calculus. A tomorrow of rediscovering human agency beyond the prescriptions of the Western Narrative and The Market’s conscription into atomised consumer preferences.
Based on his survey of revised social research, Rutger Bregman’s “Humankind” was perhaps the first bestseller to sketch this emerging new portrait of “human nature”. In that Orrell is doing his quantum bit to refresh our ideas about human possibility, he is on the same canvas as Graeber&Wengrow’s “Dawn of History” and countless more or less heterodox researchers all over the planet. Orrell’s Magic Money Bomb is a highly recommended read for all connoisseurs of curiosity and hope.
And an absolute must-read for would-be economists.
Want to study economics? First read this book!
Before you invest years of your time and 1000s of your dollars to practice Mankiw, take time to read this book. Don’t pay big bucks before you’ve read this quantum leap of a mind-bender destroying incumbent thought like there is a tomorrow. It’ll reach parts of your brain you could never code into clockwork DSGE. Read this book to reconsider the relevant marginal utilites. Especially if you are a bit of a quant, a bit nerdy or a bit curious.
Which takes me back to the “But…” of my opening remarks. The author of bestselling Economyths is famous enough but he is also a double outsider. No title, no tenure. A non academic and non economist. For the double outsider to not just critique de facto economics but seriously propose no less than an alternative paradigm is like: Who? What? Such impertinent posturing is destined to be inappropriate, infuriating and downright insulting to all sorts of faithful incumbents. Realistically, even the most dazzlingly quantumized message is unlikely to elicit more than the odd ad hominem response from official representatives of The Academy.
I say faithful incumbents because among my local sample of academics I have yet to meet an economist who doesn’t turn out to be rather doubtful, if not downright dismissive of DSGEism. That includes quite a few teaching it every day. Lingering is a dismal lack of conviction in the relevance of “all that micro stuff”, let alone non existing macro. Which just goes to show how thanks to the contradictory potentials of the human narrative one’s positioning does not determine one’s identity more than one lets it.
A professional mainstream economist, for instance, may or may not believe, more or less, in equilibrium economics. So you never know, some DSGE practicing quants bored with dis-aggregating aggregates or curating paedagogical micro-curves may be more than ready to embrace this more complex math-modeling paradigm to regain some scientific credibility? It may take some imagination and effort to embrace quantum as the “4th Synthesis”. But why not? This is not quantum yoga. This conceptual methodolgy comes with a lot of math for quants. Who might prefer to go straight to Orrell’s other more technical books and articles.
So you never know. History typically leaves it to outsiders to refresh the stagnant narratives of conceptual silos. And if David Orrell is in with a chance it is because he is a mathematician. As such he represents what incumbent DSGE economists fear most: Someone who practices more complex math than they do. And predict a crash with it. Like hetero Post-Keynesian Steve Keen.
Math or no math, ortho-economists tend not to engage with hetero economists, let alone non-economists. It was a rare event when, prompted not by Keen’s publications or the 2008 crash but presumably the BoE’s didactic intervention in 2014, eccentrically heroic Paul Krugman generously felt obliged to temporarily argue with Steve Keen about “Savings&Loans”. We know how that ended.
An outlier not to be repeated. Too embarrassing. But note that beyond all his 15 pages of equations, the “Krugman is Wrong – Keen is Right” economist Edmont Kakarot-Handtke agrees with Krugman that the argument is ultimately about “how should one do economics”. Exactly. Even more than most hetero-economists, Kakarot-Handke appears angrily exhausted from the idiotic obstinacy of orthodox irrelevance. But would he be impressed by how Quantum figures profit?
So what are these quantum ideas that I will be proposing? Here is a sample:
David Orrell – 2022 – Magic Money, Magic and How to Dismantle a Financial Bomb
- Money has the properties of both a virtual number and a real, owned thing
- Money jumps, instead of moving in a continuous flow
- People don’t obey classical logic, or even adjusted versions of classical logic of the sort used in behavioural economics
- The financial system entangles people in a web of debt
- Economic behaviour is affected by things like subjective feelings and altruism
- The economy is a dynamical system, i.e. it moves around
- Transactions are inherently probabilistic, rather than deterministic
- Money creation out of the void is one of the most important phenomena in economics, but also one of the least understood
- Eternal growth cannot be supported
- Ethics are important.
David Orrell – 2022 – Magic Money, Magic and How to Dismantle a Financial Bomb
Incumbent ortho-economists would struggle. You can read Orrell’s list as a menu of slaughtered holy cows hard to swallow if one identifies with the textbook scriptures. Nor are many heteros, including Austrians and Marxists, likely to be overly impressed: “It’s what we have been saying all along. Why formalize the obvious into some chimerical quantum of authority?” Prepare for erudite versions of the ortho snub about MMT : “Original and correct. But when correct it’s not original, and when original it’s not correct.”
If these proposals all seem painfully obvious and pedestrian compared to the stories peddled by mainstream economists, such as the marvellous Invisible Hand … or the equally amazing Efficient Market Hypothesis … then don’t worry – that is the point. As we will see, they are all incompatible with some of the basic tenets of mainstream economics (and for that matter a lot of non-mainstream economics), at least in the absence of epicycles. And together, they point the way to a new economics, which has no need for such ungainly appendages, and which has room for the truly magical and creative properties of money
David Orrell – 2022 – Magic Money, Magic and How to Dismantle a Financial Bomb
The relevance of quantum to the money markets meant Orrell managed to sneak through TheEconomist’s Buttonhole as a “leading proponent” and landscape surveyor of “…a niche area of research known as quantum finance. …Mr Orrell argues that modelling markets with the mathematical toolbox of quantum mechanics could lead to a better understanding of them.” In his circumspect column, Buttonwood seems to agree, not least because “…quantum computers, which replace the usual zeros and ones with superpositions of the two, are nearing commercial viability and promise faster calculations.”… read article below
Like CasP, or Steve Keen, quantum economics will get credit from finance professionals for superior modelling of markets. Thanks to quantum computing, quantum is bound to be branded on to financial advice?
The relevance of quantum to social science goes beyond its deconstructions of economic orthodoxy and a-historically atomistic rationality, just like homo economicus has escaped from The Academy and infiltrated real life with decontextualised efficiency calculations and counterproductive target driven efficiency metrics.
As to the epistemological status of the relevant ontology, or vice versa, there are delightful debates to be had across the duality of metaphor or model. Orrell makes a point of declaring the quantum model not just a metaphor. But then he’d better in a context where chimeras of quantitative authority are all the rage and there is near zero awareness of how operational definitions inscribe themselves from virtual into real without a second thought. Like with IQ or GdP, intelligence or progress become what is being measured. Mountains of manufactured data obscure the original intent, interest, voice or power.
Quantum looks as if it does not let you hide behind big data, claiming you can measure without a theory. Quantum reads like self-reflexivity operationalised, ie social rather than natural science. Especially when the narrative comes numbered. For superior quantitative social analysis and a future science of monetarisation, a leap into quantum looks like one of the best bets yet.
Just follow the money…
- website-futureofeverything – bio, books, articles
- quantum economics and finance – video series
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David Orrell articles
futureofeverything-D.Orell-blog 12-2021 Quantum economics – the story so far – This piece gives a brief summary of my work to date in quantum economics
“The idea that the financial system could best be represented as a quantum system came to me (dawned on me? evolved?) while working on The Evolution of Money (Columbia University Press, 2016). “Money objects bind the virtual to the real, and abstract number to the fuzzy idea of value, in a way similar to the particle/wave duality in quantum physics,” I offered. “Money serves as a means to quantify value, in the sense of reducing it to a mathematical quantity – but as in quantum measurement, the process is approximate.” Price is best seen as an emergent feature of the financial system. I summarised this theory in two papers for the journal Economic Thought: “A Quantum Theory of Money and Value” and “A Quantum Theory of Money and Value, Part 2: The Uncertainty Principle“. While I had some background in quantum physics …”… read article at source
futureofeverything-D.Orell-blog 11-2021 Ten reasons to (not) be quantum
“While the use of quantum models is becoming more popular in the social sciences including economics, it is still the case that when many people, especially those with a training in physics, hear the expressions “quantum economics” or “quantum finance” they immediately reach for some off-the-shelf arguments about why it must be nonsense (or some smelling salts). Here is a compilation of the usual ones, along with responses.
Quantum mechanics was developed for subatomic particles, so it should not be applied to human systems. As one website claimed, “It’s only when you look at the tiniest quantum particles – atoms, electrons, photons and the like – that you see intriguing things like superposition and entanglement.
Response: Bohr’s idea of superposition and complementarity was borrowed from psychology, as when we hold conflicting ideas in our heads at the same time, and the concepts of mental interference or entanglement are not so obscure. Also, many ideas from quantum mechanics such as the Hilbert space were invented independently by mathematicians. And calculus was developed for tracking the motion of celestial bodies but we don’t ban its application to other things. …”… read article at source
- Quantum propensity in economics (with Monireh Houshmand), Frontiers in Artificial Intelligence, 2021.
- A quantum walk model of financial options, Wilmott Magazine, March 2021.
- The Color of Money: Threshold Effects in Quantum Economics, Quantum Reports 3(2), 325-332, 2021.
- Quantum-tative Finance, Wilmott Magazine, March 2020.
- The value of value: a quantum approach to economics, security and international relations, Security Dialogue, 51(5), 482-498, 2020.
- A Quantum Model of Supply and Demand, Physica A: Statistical Mechanics and its Applications 539C: 122928, 2020, preprint at SSRN,
- Quantum Economics, Economic Thought, 7 (2), 63-81, 2018
- A Quantum Theory of Money and Value, Part 2: The Uncertainty Principle, Economic Thought, 6 (2), 14-26, 2017
- A Quantum Theory of Money and Value, Economic Thought, 5 (2), 19-28, 2016
- Quantum financial entanglement: The case of strategic default, SSRN Discussion Paper, May 2019
- A quantum oscillator model of stock markets, SSRN Discussion Paper, Oct 2021
- BBEДEHИE B MATEMATИКУ КBAHTOBOЙ ЭКOHOMИКИ (Russian translation of mathematics primer)
- more at quantumresources
articles, presentations, reviews
nextbigideaclub.com 8-2022 David Orrell shares 5 key insights from his new book,Money, Magic, and How to Dismantle a Financial Bomb: Quantum Economics for the Real World
- What does “quantum” even mean?
We usually associate “quantum” with weird and spooky phenomena, like an electron jumping from one place to another in a single leap, or a photon being mysteriously entangled with a twin on the other side of the universe. Or even with a cat being alive and dead at the same, as in the notorious thought experiment known as “Schrödinger’s cat” after the physicist who invented it.
However, the word “quantum” is from the Latin for “how much.” And in my book, I argue that it applies as well to the human world of the economy as it does to subatomic particles. After all, you don’t need a particle accelerator to know that money can jump from one spot to another in a single leap—it happens every time you tap your card at a store. Or to know that a loan contract can entangle you with your bank. While the economy isn’t alive and dead at the same time, we all know how it feels to hold conflicting ideas in our head at the same time. The same sense of intrinsic uncertainty applies quite visibly to the financial markets.
For example, a key idea in quantum physics is that the state of a particle is described by a so-called “quantum wave function,” which only specifies the probability that a particle will be observed at a particular location. The exact answer is only known after being observed through a measurement procedure. This sounds very strange and abstract when you’re talking about subatomic particles—but in the economy, it makes perfect sense.
If, say, you have your house up for sale, you might have a fuzzy idea of the value of your house, but it is better described in terms of probabilities; it will probably be worth about so much, plus or minus so much. The actual price is only discovered after a transaction, which plays the role of the measurement procedure. So money is a way of putting a hard number on the fuzzy notion of value. And that makes money not an inert medium of exchange—as it is portrayed in economics textbooks—but a remarkably complex substance whose behavior is often surprising and hard to predict.
- Money is a kind of magic.
Money has long been associated with sorcery, and finance with alchemy. After all, how can something like a piece of paper with numbers on it be treated as if it were made of gold?
Money also has other apparently magical properties. It can be created out of the void—and vanish without so much as a puff of smoke. It can flash through space. It can grow without limit. And it can blow up without warning.
“Money can be created out of the void—and vanish without so much as a puff of smoke. It can flash through space. It can grow without limit. And it can blow up without warning.”
In fact, key features of our money system were invented by a group of 17th-century alchemists. They failed in their efforts to turn lead into gold, but they did find a way to turn paper into gold. Today, it is known as “fiat currency.”
But while money has apparently magical properties, this is a quantum form of magic. The science fiction writer Arthur C. Clarke wrote that a sufficiently advanced technology is indistinguishable from magic, and money is an advanced quantum technology.
Now, given that money was first invented nearly five thousand years ago in ancient Mesopotamia, it might seem strange to compare it with an advanced technology, let alone a quantum one. But money’s main trick is to put numbers on things, which is remarkable because numbers and things are very different. For example, physical things get old and decay, but numbers are forever. Your house might spring a leak in the roof, but the debt remains.
Money combines abstract numbers and human value into a single dualistic package. Just as a photon of light, according to quantum physics, is both a wave and a particle at the same time, so something like a coin or a banknote combines the property of a real, owned thing and an abstract number. And these dualistic properties feed up to affect the economy as a whole.
- Mainstream economics—the kind that is taught in universities and shapes economic decision-making—is divorced from the real world, which is why we need a quantum alternative.
Mainstream economics views the economy as a rational machine, and downplays or ignores the role of money. Consider, for example, supply and demand, which are the bread and butter of economics. Any textbook includes an illustration of the famous X-shaped diagram, which shows a supply line that increases with price, and a demand line which decreases with price, intersecting at a single point that represents Adam Smith’s perfect equilibrium between supply and demand. These figures grace every textbook but appear also, in equation form, in the mathematical models used by economists to simulate the economy and inform policy decisions.
There is only one problem: if you look in these textbooks, you will never see an actual, empirical supply or demand line. And the reason is that they don’t exist. These are hypothetical quantities, which can never be independently determined, because all we can measure is actual transactions. And anyone who thinks that prices are drawn to a stable and optimal equilibrium hasn’t been watching markets very closely.
“Anyone who thinks that prices are drawn to a stable and optimal equilibrium hasn’t been watching markets very closely.”
In the quantum model, what counts is not supply or demand in isolation, but rather the propensity for buyers and sellers to transact at a particular price. This means that transactions are uncertain and are subject to dynamical forces, so the system is never at rest.
The quantum approach offers a more realistic picture of how transactions actually work, which is why quantum methods are catching on in the area of quantitative finance for things like the pricing of sophisticated financial derivatives. As The Economist magazine noted, the quantum model “better explains how investors think.” And they add that, “Such ideas may still sound abstract. But they will soon be physically embodied on trading floors.” By “physically embodied,” they of course mean quantum computers.
- Just as the tools we use change the problems we set for ourselves, so the computers we use to model the economy change the way we think about the economy.
In the future, computers will increasingly be quantum, along with our mental models. Concepts such as superposition or entanglement seem obscure and magical when applied to subatomic particles, but quantum computers work by exploiting these properties to perform computations. Classical computers are based on bits, which can take on two values: 0 or 1. The quantum version of a bit is a qubit, and it can take on a continuous range of values. As one scientist put it, classical is like computing in black and white. Quantum is like computing in color—which makes a quantum computer potentially far more powerful than any classical device.
While quantum computing is still in an early stage of development, governments and industries are already starting to prepare for the quantum future, with finance and banking at the forefront. Most major banks now have a dedicated group working in the area of quantum computing, in part as an insurance policy against the possibility that someone else gets there before they do.
Now, mainstream or neoclassical economics got started in the late 19th century around the same time that the first computer was being designed, and it blossomed in the post-war period with the development of fast computers. The mechanistic way in which we think about the economy actually has more to do with the binary logic of computer bits than it does with the real world. Quantum economics is what happens when you apply quantum logic—in other words, the logic of quantum computing—to the economy.
For example, a basic lesson from quantum probability is that context matters, so we value things differently depending on the circumstances, or on how they are presented. This is responsible for things like the “endowment effect,” where we value what we own more highly than we otherwise would. In one famous experiment, subjects were given a mug, and then offered the chance to sell or exchange it. The researchers found that people demanded a median selling price of $7.12 in exchange for the mug, but only went for a median buying price of $2.87 to purchase the mug themselves. The change in context—in this case, from owning to not-owning—is enough to change the person’s mind about the object’s worth, in this case by a factor of about 2.5.
“Classical is like computing in black and white. Quantum is like computing in color.”
Such effects can be addressed to a degree by tweaking classical models, but make much more sense in the quantum approach, where context is a feature rather than a bug. And we are not talking about small or subtle adjustments to mainstream theory. In fact, a rule of thumb is that subjective context typically holds around an equal weight as objective calculations. If you find that careful exposition of the facts does not help in an argument with a friend or family member over one of their closely held beliefs, it may be that they are deploying quantum logic to support their opinion. Like the coffee mug, it’s their idea, and they don’t want to let it go.
The conflict between subjective desires and objective calculations comes to a head with the topic of money, which combines these two things in a single package. Unfortunately, we typically pay little attention to the dynamic and unstable nature of money, which is one reason we have trouble controlling or even understanding its behavior—as shown by the surprise among most economists at the recent surge in inflation.
- Our economies are sitting on what amounts to a huge financial bomb.
Quantum mechanics found its first big real-world application during World War II, when it was used to harness the power of the atom in nuclear devices. The financial analogue of a nuclear device is runaway money creation in the economy.
Just as particles are created out of the void in physics, so money creation can be viewed as a quantum process. Take the example of real estate: private banks create new funds every time they issue a mortgage to buy a house. This newly created money adds to the amount of money in circulation, but most of it ends up in real estate, where it drives up the price of houses. The economy, therefore, experiences asset price inflation, in a financial version of what magicians call a levitation trick, when they make a person or object magically float in the air. We can thank those 17th-century alchemists for coming up with the idea.
In the economy, though, this price levitation has real consequences. It contributes to inequality, because rich people tend to own more and larger homes. It also leads to financial instability, as a number of places, including Canada, are now discovering.
futureofeverything. 11-2021 David Orrell update: “My work in economics has seen me called a number of things including a conspiracy theorist, and the intellectual equivalent of a climate-change denier. More recently an academic physicist read this piece and wrote, in a now-deleted tweet, that I was a charlatan who was ducking and weaving in order to avoid any criticism. I replied that he may have read the post, but he hadn’t understood it. He said “I judge you are not a crank. I judge you are a charlatan.” Then he thought about it (references to names redacted):
Any physicist worth their salt should agree with him that the only test is whether quantum math proves useful in modelling and prediction.”
economist.com 11-2021 Buttonwood – A quantum walk down Wall Street – Lessons for finance from 20th-century physics
…on a closer look finance bears a striking resemblance to the quantum world. A beam of light might seem continuous, but is in fact a stream of discrete packets of energy called photons. Cash flows come in similarly distinct chunks. Like the position of a particle, the true price of an asset is unknowable without making a measurement—a transaction—that in turn changes it. In both fields uncertainty, or risk, is best understood not as a peripheral source of error, but as the fundamental feature of the system.
Such similarities have spawned a niche area of research known as quantum finance. In a forthcoming book, “Money, Magic, and How to Dismantle a Financial Bomb”, David Orrell, one of its leading proponents, surveys the landscape. Mr Orrell argues that modelling markets with the mathematical toolbox of quantum mechanics could lead to a better understanding of them.
Classical financial models are rooted in the mathematical idea of the random walk. They start by dividing time into a series of steps, then imagine that at each step the value of a risky asset like a stock can go up or down by a small amount. Each jump is assigned a probability. After many steps, the probability distribution for the asset’s price looks like a bell curve centred on a point determined by the cumulative relative probabilities of the moves up and the moves down.
A quantum walk works differently. Rather than going up or down at each step, the asset’s price evolves as a “superposition” of the two possibilities, never nailed down unless measured in a transaction. At each step, the various possible paths interfere like waves, sometimes amplifying each other and sometimes cancelling out. This interference creates a very different probability distribution for the asset’s final price to that generated by the classical model. The bell curve is replaced by a series of peaks and troughs.
Broadly speaking, the classical random walk is a better description of how asset prices move. But the quantum walk better explains how investors think about their movements when buying call options, which confer the right to buy an asset at a given “strike” price on a future date. A call option is generally much cheaper than its underlying asset, but gives a big pay-off if the asset’s price jumps. The scenarios foremost in the buyer’s mind are not a gentle drift in the price but a large move up (from which they want to benefit) or a big drop (to which they want to limit their exposure).
The potential return is particularly juicy for options with strikes much higher than the prevailing price. Yet investors are much more likely to buy those with strikes close to the asset’s market price. The prices of such options closely match those predicted by an algorithm based on the classical random walk (in part because that is the model most traders accept). But a quantum walk, by assigning such options a higher value than the classical model, explains buyers’ preference for them.
Such ideas may still sound abstract. But they will soon be physically embodied on trading floors, whether the theory is adopted or not. Quantum computers, which replace the usual zeros and ones with superpositions of the two, are nearing commercial viability and promise faster calculations. Any bank wishing to retain its edge will need to embrace them. Their hardware, meanwhile, makes running quantum-walk models easier than classical ones. One way or another, finance will catch up.
toptraderunplugged 26-1-2022 Volatility Series: The Magical Properties of Money – David Orrell
Hari Krishnan is joined today by David Orrell, to discuss the problems with using physics analogies on financial markets, the cause and effects of price impacts, David’s new book: ‘Money, Magic, and How to Dismantle a Financial Bomb’, the magical properties of money, how sentiment drives price although it is so unpredictable in nature, the similarities between weather forecasting and economics, the sustainability of money creation by central banks, and some thoughts on cognitive interference.
goodreads.com/review Darya 2-2022 If I were to pick up my top quote from this book, it would be “Money is a powerful social technology”.
irishtechnews.com 10-2-2022 David Orrell – MONEY, MAGIC AND HOW TO DISMANTLE A FINANCIAL BOMB – BOOK REVIEW by SIMON COCKING – We look at this provocative book by David Orrell, which aims to cross quantum concepts with finance and money matters.
mindmatters.com 17-2-2022 WHAT IF QUANTUM PHYSICS WERE APPLIED TO ECONOMICS? – A mathematician argues that ideas that seemed bizarre in classical physics makes perfect sense in economics