October 8, 2024 • 6 mins
Hey there, friends! Welcome back to the AI Coalition Network. I'm James Henderson, and today we're going to dive into a fascinating topic that combines history, science, and a bit of finance. But don't worry—we're going to make it fun and easy to understand!
James Henderson is the founder of Misa.solutions, a veteran-owned company bringing the Socratic Method into modern education through AI-powered tutoring. With a passion for helping K–12 students, homeschoolers, and educators move beyond memorization, he focuses on building curiosity, wisdom, and critical thinking for the next generation of learners.
James Henderson is the founder of Misa.solutions, a veteran-owned company bringing the Socratic Method into modern education through AI-powered tutoring. With a passion for helping K–12 students, homeschoolers, and educators move beyond memorization, he focuses on building curiosity, wisdom, and critical thinking for the next generation of learners.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Ever, notice how like, even when you think you've got
a handle on the markets, something comes out of left
field and throws everything off.
Speaker 2 (00:06):
Yeah, it's like, just when you think you've figured it out,
everything changes.
Speaker 1 (00:09):
Exactly and it makes you wonder, you know, with all
the complex math and algorithms, why is finance so hard
to predict? Today we're diving into this really interesting idea,
what if finance isn't quite the hard science it's often portrayed,
as we've got some articles here suggesting it's not just
about the numbers, it's about us human nature.
Speaker 2 (00:31):
It's a really fascinating concept. You know, for a long
time there's been this thing in economics, this desire to
find the same kind of elegance and predictability that you
see in physics.
Speaker 1 (00:41):
Oh totally.
Speaker 2 (00:42):
Even Adam Smith, I mean we're talking about the father
of modern economics, right, even he was completely totally captivated
by Newton's laws. Oh interesting, Like he saw those as
this like ideal model for understanding how economies work.
Speaker 1 (00:56):
It makes sense in a way, right, if we can
predict where a planet's going to be years from now,
shouldn't the stock market be a walk in the park.
But these sources you send over paint a slightly more
complicated picture, shall we say one, even when as far
as comparing like the precision of physics knowing exactly where
the moon will be years from now to well, the
(01:17):
much less certain track record of financial forecasts, even from
the so called experts.
Speaker 2 (01:21):
Well, and this is actually a really really important point
because the reason for that difference is absolutely key. In physics,
you're dealing with predictable things electrons, planets, gravity, I mean,
these always behave according to very specific laws. But in finance,
in the markets, the particles are well us people. Yeah,
and people are a little more complex than say a
(01:42):
hydrogen atom.
Speaker 1 (01:43):
Right, you got that right. I haven't seen too many
oxygen molecules panic selling their bonds lately.
Speaker 2 (01:48):
Yeah.
Speaker 1 (01:48):
So what you're saying is our human behavior. It throws
a wrench into the whole finance's physics model.
Speaker 2 (01:53):
It's the biggest wrench you can imagine. See, our decisions,
whether we realize it or not, are influenced by a
million things. Emotions, hidden biases, sometimes just plain old gut feeling.
And these are things that sometimes honestly even we don't
fully understand. Imagine a physicist having to factor in whether
or not an electron is having a bad day.
Speaker 1 (02:14):
Yeah, that would make things a little tricky, exactly.
Speaker 2 (02:17):
But an economist, they're dealing with the actions and reactions,
the decisions and indecisions of millions of people all at once.
Speaker 1 (02:24):
It's interesting though, this whole idea of wanting to see
economics as this hard science. You can see it in
the way we award prestige, right, like with the Nobel
Prize in Economics, which, by the way, I was surprised
to learn wasn't even part of Alfred Nobel's original vision, right.
Speaker 2 (02:37):
It's true it wasn't until nineteen sixty eight that the
Swedish Central Bank actually established the Nobel Prize in economics.
Speaker 1 (02:43):
Wow, nineteen sixty eight, that's yeah, pretty late in the game.
And the reasoning behind it is quite interesting actually. I mean,
this wasn't just a simple academic decision, you know, it
was the middle of the Cold War. Giving economics this
like scientific legitimacy. It had implications way beyond academia.
Speaker 2 (03:01):
So it's like they were saying, look, our economic system,
it's not just some random thing. It's based on rock
solid scientific.
Speaker 1 (03:07):
Principles exactly, which then leads to this whole other question
of influence. I mean, our economists really uncovering some universal
laws of the universe like physicists, or is there always
going to be this element of like human judgment, interpretation,
maybe even a bit of ideology, you know, built into
their models. I mean, think about what Friedrich Hayek, and
(03:27):
he was a Nobel Lauriate himself, he once said, the
curious task of economics is to demonstrate to men how
little they really know about what they imagine they can design.
Speaker 2 (03:36):
Wow, that's I mean, that's kind of humbling, isn't it.
Speaker 1 (03:39):
It is, especially coming from a mind like his. It's
a good reminder that even the most brilliant people among
us can get things wrong, which actually reminds me of
another brilliant mind that kept popping up in these articles,
Isaac Newton. Everyone knows him as the genius who figured
out gravity, but did you know he was also a
pretty serious investor. Oh yeah, yeah.
Speaker 2 (04:00):
Newton's story his experience with the south Sea Company, is well,
it's a cautionary tale, to say the least, and one
that's still relevant centuries later.
Speaker 1 (04:09):
So for those of us who don't know the story.
Speaker 2 (04:11):
Basically Newton invested heavily in the south Sea Company, which
was all the rage back then, and well, he ended
up losing a fortune.
Speaker 1 (04:18):
A fortune, how much are we talking.
Speaker 2 (04:20):
It's estimated he lost something like twenty thousand pounds.
Speaker 1 (04:22):
Twenty thousand pounds wow. Back then that must have been.
Speaker 2 (04:26):
Oh, an astronomical sum. In today's money it would be
millions easy.
Speaker 1 (04:30):
Wow. It's just you know, you think of someone like Newton.
He was the master of the Royal Mint, for goodness sake,
if anyone could crack the code of the markets.
Speaker 2 (04:38):
Right, you would think. But even Newton, even with his
incredible intellect, even he couldn't predict the kind of the
madness of crowds, the mass psychology that fueled something like
the south Sea bubble. And that's the thing. Markets are
driven by so much more than just numbers.
Speaker 1 (04:55):
So for those of us listening, who, let's face it,
aren't Isaac Newton in or just trying toavigate our own finances,
what's the takeaway here? What should we be keeping in mind,
especially in a world that's obsessed with data and algorithms.
Speaker 2 (05:08):
You know, I think the most important thing to remember
is this finance. It tries really hard to be physics,
but at its core it's really about human behavior. It's
about psychology just as much as it is about economics.
Speaker 1 (05:19):
That a really good point.
Speaker 2 (05:20):
So next time you hear some kind of big, confident
market prediction, and you know those get thrown around all
the time, don't just take the numbers at face value.
Stop and ask yourself, what are the human factors at
play here? What are people afraid of? What are they
excited about? What are their motivations? What about their biases?
Because those things, as irrational as they may seem, those
(05:40):
often drive markets in ways we can't even imagine.
Speaker 1 (05:43):
It's like they're saying past performance is not indicative of
future results. That's true everywhere, but especially when you're dealing
with people. Absolutely, so much for those predictable algorithms. Right well,
on that note will leave you to ponder the mysteries
of human behavior and the market.
Speaker 2 (06:00):
Kets until next time.
Speaker 1 (06:01):
See yea
Ever, notice how like, even when you think you've got
a handle on the markets, something comes out of left
field and throws everything off.
Speaker 2 (00:06):
Yeah, it's like, just when you think you've figured it out,
everything changes.
Speaker 1 (00:09):
Exactly and it makes you wonder, you know, with all
the complex math and algorithms, why is finance so hard
to predict? Today we're diving into this really interesting idea,
what if finance isn't quite the hard science it's often portrayed,
as we've got some articles here suggesting it's not just
about the numbers, it's about us human nature.
Speaker 2 (00:31):
It's a really fascinating concept. You know, for a long
time there's been this thing in economics, this desire to
find the same kind of elegance and predictability that you
see in physics.
Speaker 1 (00:41):
Oh totally.
Speaker 2 (00:42):
Even Adam Smith, I mean we're talking about the father
of modern economics, right, even he was completely totally captivated
by Newton's laws. Oh interesting, Like he saw those as
this like ideal model for understanding how economies work.
Speaker 1 (00:56):
It makes sense in a way, right, if we can
predict where a planet's going to be years from now,
shouldn't the stock market be a walk in the park.
But these sources you send over paint a slightly more
complicated picture, shall we say one, even when as far
as comparing like the precision of physics knowing exactly where
the moon will be years from now to well, the
(01:17):
much less certain track record of financial forecasts, even from
the so called experts.
Speaker 2 (01:21):
Well, and this is actually a really really important point
because the reason for that difference is absolutely key. In physics,
you're dealing with predictable things electrons, planets, gravity, I mean,
these always behave according to very specific laws. But in finance,
in the markets, the particles are well us people. Yeah,
and people are a little more complex than say a
(01:42):
hydrogen atom.
Speaker 1 (01:43):
Right, you got that right. I haven't seen too many
oxygen molecules panic selling their bonds lately.
Speaker 2 (01:48):
Yeah.
Speaker 1 (01:48):
So what you're saying is our human behavior. It throws
a wrench into the whole finance's physics model.
Speaker 2 (01:53):
It's the biggest wrench you can imagine. See, our decisions,
whether we realize it or not, are influenced by a
million things. Emotions, hidden biases, sometimes just plain old gut feeling.
And these are things that sometimes honestly even we don't
fully understand. Imagine a physicist having to factor in whether
or not an electron is having a bad day.
Speaker 1 (02:14):
Yeah, that would make things a little tricky, exactly.
Speaker 2 (02:17):
But an economist, they're dealing with the actions and reactions,
the decisions and indecisions of millions of people all at once.
Speaker 1 (02:24):
It's interesting though, this whole idea of wanting to see
economics as this hard science. You can see it in
the way we award prestige, right, like with the Nobel
Prize in Economics, which, by the way, I was surprised
to learn wasn't even part of Alfred Nobel's original vision, right.
Speaker 2 (02:37):
It's true it wasn't until nineteen sixty eight that the
Swedish Central Bank actually established the Nobel Prize in economics.
Speaker 1 (02:43):
Wow, nineteen sixty eight, that's yeah, pretty late in the game.
And the reasoning behind it is quite interesting actually. I mean,
this wasn't just a simple academic decision, you know, it
was the middle of the Cold War. Giving economics this
like scientific legitimacy. It had implications way beyond academia.
Speaker 2 (03:01):
So it's like they were saying, look, our economic system,
it's not just some random thing. It's based on rock
solid scientific.
Speaker 1 (03:07):
Principles exactly, which then leads to this whole other question
of influence. I mean, our economists really uncovering some universal
laws of the universe like physicists, or is there always
going to be this element of like human judgment, interpretation,
maybe even a bit of ideology, you know, built into
their models. I mean, think about what Friedrich Hayek, and
(03:27):
he was a Nobel Lauriate himself, he once said, the
curious task of economics is to demonstrate to men how
little they really know about what they imagine they can design.
Speaker 2 (03:36):
Wow, that's I mean, that's kind of humbling, isn't it.
Speaker 1 (03:39):
It is, especially coming from a mind like his. It's
a good reminder that even the most brilliant people among
us can get things wrong, which actually reminds me of
another brilliant mind that kept popping up in these articles,
Isaac Newton. Everyone knows him as the genius who figured
out gravity, but did you know he was also a
pretty serious investor. Oh yeah, yeah.
Speaker 2 (04:00):
Newton's story his experience with the south Sea Company, is well,
it's a cautionary tale, to say the least, and one
that's still relevant centuries later.
Speaker 1 (04:09):
So for those of us who don't know the story.
Speaker 2 (04:11):
Basically Newton invested heavily in the south Sea Company, which
was all the rage back then, and well, he ended
up losing a fortune.
Speaker 1 (04:18):
A fortune, how much are we talking.
Speaker 2 (04:20):
It's estimated he lost something like twenty thousand pounds.
Speaker 1 (04:22):
Twenty thousand pounds wow. Back then that must have been.
Speaker 2 (04:26):
Oh, an astronomical sum. In today's money it would be
millions easy.
Speaker 1 (04:30):
Wow. It's just you know, you think of someone like Newton.
He was the master of the Royal Mint, for goodness sake,
if anyone could crack the code of the markets.
Speaker 2 (04:38):
Right, you would think. But even Newton, even with his
incredible intellect, even he couldn't predict the kind of the
madness of crowds, the mass psychology that fueled something like
the south Sea bubble. And that's the thing. Markets are
driven by so much more than just numbers.
Speaker 1 (04:55):
So for those of us listening, who, let's face it,
aren't Isaac Newton in or just trying toavigate our own finances,
what's the takeaway here? What should we be keeping in mind,
especially in a world that's obsessed with data and algorithms.
Speaker 2 (05:08):
You know, I think the most important thing to remember
is this finance. It tries really hard to be physics,
but at its core it's really about human behavior. It's
about psychology just as much as it is about economics.
Speaker 1 (05:19):
That a really good point.
Speaker 2 (05:20):
So next time you hear some kind of big, confident
market prediction, and you know those get thrown around all
the time, don't just take the numbers at face value.
Stop and ask yourself, what are the human factors at
play here? What are people afraid of? What are they
excited about? What are their motivations? What about their biases?
Because those things, as irrational as they may seem, those
(05:40):
often drive markets in ways we can't even imagine.
Speaker 1 (05:43):
It's like they're saying past performance is not indicative of
future results. That's true everywhere, but especially when you're dealing
with people. Absolutely, so much for those predictable algorithms. Right well,
on that note will leave you to ponder the mysteries
of human behavior and the market.
Speaker 2 (06:00):
Kets until next time.
Speaker 1 (06:01):
See yea
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