Thursday, August 09, 2012

Quantitative postmodernism: A Jurisdynamics Network conversation

Postmodernism

The Jurisdynamics Network is now six years old. In that timespan, the online world has added a fantastic new weapon: social media. Combining social media and e-mail with conventional blogging has given me a way to exchange thoughts with very smart people in faraway places. Inspired by last month's discussion of prospect theory with Jeff Harrison and Daniel Kahneman, I will now post an exchange with Patrick S. O'Donnell of Ratio Juris.

In anticipation of work I expect to post soon on MoneyLaw, I have drunk deeply at the well of postmodern portfolio theory (PMPT). Only yesterday, it seems, I had been focusing on the older and more widely accepted principles of modern portfolio theory, which inspired Modern Disaster Theory: Evaluating Disaster Law as a Portfolio of Legal Rules, 25 Emory Int'l L. Rev. 1121 (2011). I have learned, among other things, about the omega measure in PMPT. Through a favorable book review, I learned about Greg B. Davies & Arnaud de Servigny, Behavioral Investment Management: An Efficient Alternative to Modern Portfolio Theory (2012). I posted the following item about Davies and Servigny's book on my Facebook page:

These days I am thinking very hard about proper measurements of performance in all sorts of domains (finance, education, ecology, etc.) and looking for ways to quantify things heretofore characterized, perhaps even dismissed, as "behavioral" and therefore not worthy of or susceptible to mathematical analysis. I thought I'd see what Davis & de Servigny have to offer.

Thereupon Patrick posted a very thoughtful, comprehensive response. In the hope of reaching an audience deeper than his Facebook page and mine, I've taken the liberty of publishing his thoughts at Ratio Juris. I hope that Patrick and our readers at both blogs will engage this discussion. And by and by, I most certainly will post a more comprehensive set of thoughts inspired by my tour of alpha and omega in quantitative finance, both modern and postmodern.

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