How Efficient Is The Financial System?
Background
In 1948 Claude Shannon wrote a paper entitled ‘The Mathematical Theory of Communication,’ later expanding this into a book by the same name. Shannon’s work was the foundation to the stunning achievements of information theory. In many respects, Shannon’s work deserves recognition as the foundation of complexity theory as well.
The path to complexity theory was lead (in part) by a scientist named Warren Weaver, who had an early grasp on Shannon’s ideas. With the power of Shannon’s concepts, Weaver was able to divide the last few centuries of scientific inquiry into three broad groups: First, the study of simple, one or two variable problems. Second, problems of “disorganized complexity” which involve billions of variables that can only be approached with statistical and probabilistic tools. These tools apply to a wide array of artificial and natural phenomena such as: the behavior of molecules in gas, gene pool patterns, population growth rates, and even the actuarial sciences which help life insurance companies (or credit card companies) profit despite their limited knowledge of a persons condition. There was a third group that began to emerge and is still a study in its infancy: “organized complexity.” It is the group of problems that lie in the middle region between simple (static) problems, and billion variable problems (noise) of disorganized complexity. These problems still involve a large number of variables, but the size of the system is in fact a secondary characteristic, as Weaver describes:
Much more important than the mere number of variables, is the fact that these variables are all interrelated….These problems, as contrasted with the disorganized situations with which statistics can cope, show the essential feature of organization. We will therefore refer to this group of problems as those of organized complexity. [Johnston 2002] Read more »
[Lynosaurous - Attack of the Fruiter]
