Models and sense-making
A friend said this in a forum we both post to:
>The stock market is behaving unusually for the current economic climate in the US / the world. Why is it going up - while businesses and the economy looks to be degrading. This doesn't make much sense.
To say that market is not "behaving unusually" means that you don't have the right model and you using the model, not reality, as the standard.
If you had a more accurate model, you'd see that it was "behaving correctly."
To say, "This does not make much sense" means that reality does not conform to your model. If you had a useful model, what was happening would make senes.
Responding with "my model is wrong" starts the search for a correct model. Any other choice defends the current model.
Lots of people are saying the same kinds of things because they have the same sorts of model. This is confirmation bias for their models. A better strategy is acknowledging that the mode is wrong, not reality, and finding a model that makes reality comprehensible.
What's a better model? I don't know. I have some clues. But that's a different discussion.
This is about what I think is the right move when "things don't make sense" or "seem unusual" or "seem crazy."
You take that as evidence that your model is wrong, and--if you have the time and interest and maybe skill--you look for a better model.
## Does a better model exist?
Either (a) there can be a model that explains the current behavior of the market based on a set of measurable parameters, or (b) no such model can exist.
To choose (b) is equivalent to saying, "there is no causal basis for what now exists." I think that's wrong.
It could be that the causal structure is so complicated that modeling is theoretically possible, but pragmatically impossible.
That might be true.
My belief without foundation is that things that happen have causes, and you can build a model that abstracts at least some of that information and provides insight--even if you can't make an exact prediction, you can still make a model.
So I will assert that a model can exist.
But that's just my belief about the orderly nature of the universe.
I don't know the model. Maybe nobody knows it, but I would not be surprised to learn that some people have figured out some parts of it and are making money. I would also expect that other people have made lucky guesses and are making money, too, but that will come to an end when their luck runs out.
Or maybe not.
I am trying to argue that when tempted to say things, as in the Vox article "the market makes zero sense" and "nobody knows what's going on" that the better answer is "I don't understand the market because I don't have a model" or "the people I know don't have good models."
I don't claim I know the right model. But I have collected some ideas from other people and written about them, and using those models, my view is closer to "I see some reasons that this might be happening" rather than "this makes no sense."
In any case, my point here, to reiterate: when something seems crazy, it's your model that's wrong. Not reality.