The Statistical Physics of Stock Markets. Thought of the Day 143.0

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The externalist view argues that we can make sense of, and profit from stock markets’ behavior, or at least few crucial properties of it, by crunching numbers and looking for patterns and regularities in certain sets of data. The notion of data, hence, is a key element in such an understanding and the quantitative side of the problem is prominent even if it does not mean that a qualitative analysis is ignored. The point here that the outside view maintains that it provides a better understanding than the internalist view. To this end, it endorses a functional perspective on finance and stock markets in particular.

The basic idea of the externalist view is that there are general properties and behavior of stock markets that can be detected and studied through mathematical lens, and they do not depend so much on contextual or domain-specific factors. The point at stake here is that the financial systems can be studied and approached at different scales, and it is virtually impossible to produce all the equations describing at a micro level all the objects of the system and their relations. So, in response, this view focuses on those properties that allow us to get an understanding of the behavior of the systems at a global level without having to produce a detailed conceptual and mathematical account of the inner ‘machinery’ of the system. Hence the two roads: The first one is to embrace an emergentist view on stock market, that is a specific metaphysical, ontological, and methodological thesis, while the second one is to embrace a heuristic view, that is the idea that the choice to focus on those properties that are tractable by the mathematical models is a pure problem-solving option.

A typical view of the externalist approach is the one provided, for instance, by statistical physics. In describing collective behavior, this discipline neglects all the conceptual and mathematical intricacies deriving from a detailed account of the inner, individual, and at micro level functioning of a system. Concepts such as stochastic dynamics, self-similarity, correlations (both short- and long-range), and scaling are tools to get this aim. Econophysics is a stock example in this sense: it employs methods taken from mathematics and mathematical physics in order to detect and forecast the driving forces of stock markets and their critical events, such as bubbles, crashes and their tipping points. Under this respect, markets are not ‘dark boxes’: you can see their characteristics from the outside, or better you can see specific dynamics that shape the trends of stock markets deeply and for a long time. Moreover, these dynamics are complex in the technical sense. This means that this class of behavior is such to encompass timescales, ontology, types of agents, ecologies, regulations, laws, etc. and can be detected, even if not strictly predictable. We can focus on the stock markets as a whole, on few of their critical events, looking at the data of prices (or other indexes) and ignoring all the other details and factors since they will be absorbed in these global dynamics. So this view provides a look at stock markets such that not only they do not appear as a unintelligible casino where wild gamblers face each other, but that shows the reasons and the properties of a systems that serve mostly as a means of fluid transactions that enable and ease the functioning of free markets.

Moreover the study of complex systems theory and that of stock markets seem to offer mutual benefits. On one side, complex systems theory seems to offer a key to understand and break through some of the most salient stock markets’ properties. On the other side, stock markets seem to provide a ‘stress test’ of the complexity theory. Didier Sornette expresses the analogies between stock markets and phase transitions, statistical mechanics, nonlinear dynamics, and disordered systems mold the view from outside:

Take our personal life. We are not really interested in knowing in advance at what time we will go to a given store or drive to a highway. We are much more interested in forecasting the major bifurcations ahead of us, involving the few important things, like health, love, and work, that count for our happiness. Similarly, predicting the detailed evolution of complex systems has no real value, and the fact that we are taught that it is out of reach from a fundamental point of view does not exclude the more interesting possibility of predicting phases of evolutions of complex systems that really count, like the extreme events. It turns out that most complex systems in natural and social sciences do exhibit rare and sudden transitions that occur over time intervals that are short compared to the characteristic time scales of their posterior evolution. Such extreme events express more than anything else the underlying “forces” usually hidden by almost perfect balance and thus provide the potential for a better scientific understanding of complex systems.

Phase transitions, critical points, extreme events seem to be so pervasive in stock markets that they are the crucial concepts to explain and, in case, foresee. And complexity theory provides us a fruitful reading key to understand their dynamics, namely their generation, growth and occurrence. Such a reading key proposes a clear-cut interpretation of them, which can be explained again by means of an analogy with physics, precisely with the unstable position of an object. Complexity theory suggests that critical or extreme events occurring at large scale are the outcome of interactions occurring at smaller scales. In the case of stock markets, this means that, unlike many approaches that attempt to account for crashes by searching for ‘mechanisms’ that work at very short time scales, complexity theory indicates that crashes have causes that date back months or year before it. This reading suggests that it is the increasing, inner interaction between the agents inside the markets that builds up the unstable dynamics (typically the financial bubbles) that eventually ends up with a critical event, the crash. But here the specific, final step that triggers the critical event: the collapse of the prices is not the key for its understanding: a crash occurs because the markets are in an unstable phase and any small interference or event may trigger it. The bottom line: the trigger can be virtually any event external to the markets. The real cause of the crash is its overall unstable position, the proximate ‘cause’ is secondary and accidental. Or, in other words, a crash could be fundamentally endogenous in nature, whilst an exogenous, external, shock is simply the occasional triggering factors of it. The instability is built up by a cooperative behavior among traders, who imitate each other (in this sense is an endogenous process) and contribute to form and reinforce trends that converge up to a critical point.

The main advantage of this approach is that the system (the market) would anticipate the crash by releasing precursory fingerprints observable in the stock market prices: the market prices contain information on impending crashes and this implies that:

if the traders were to learn how to decipher and use this information, they would act on it and on the knowledge that others act on it; nevertheless, the crashes would still probably happen. Our results suggest a weaker form of the “weak efficient market hypothesis”, according to which the market prices contain, in addition to the information generally available to all, subtle information formed by the global market that most or all individual traders have not yet learned to decipher and use. Instead of the usual interpretation of the efficient market hypothesis in which traders extract and consciously incorporate (by their action) all information contained in the market prices, we propose that the market as a whole can exhibit “emergent” behavior not shared by any of its constituents.

In a nutshell, the critical events emerge in a self-organized and cooperative fashion as the macro result of the internal and micro interactions of the traders, their imitation and mirroring.

 

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Fallibilist a priori. Thought of the Day 127.0

Kant’s ‘transcendental subject’ is pragmatized in this notion in Peirce, transcending any delimitation of reason to the human mind: the ‘anybody’ is operational and refers to anything which is able to undertake reasoning’s formal procedures. In the same way, Kant’s synthetic a priori notion is pragmatized in Peirce’s account:

Kant declares that the question of his great work is ‘How are synthetical judgments a priori possible?’ By a priori he means universal; by synthetical, experiential (i.e., relating to experience, not necessarily derived wholly from experience). The true question for him should have been, ‘How are universal propositions relating to experience to be justified?’ But let me not be understood to speak with anything less than profound and almost unparalleled admiration for that wonderful achievement, that indispensable stepping-stone of philosophy. (The Essential Peirce Selected Philosophical Writings)

Synthetic a priori is interpreted as experiential and universal, or, to put it another way, observational and general – thus Peirce’s rationalism in demanding rational relations is connected to his scholastic realism posing the existence of real universals.

But we do not make a diagram simply to represent the relation of killer to killed, though it would not be impossible to represent this relation in a Graph-Instance; and the reason why we do not is that there is little or nothing in that relation that is rationally comprehensible. It is known as a fact, and that is all. I believe I may venture to affirm that an intelligible relation, that is, a relation of thought, is created only by the act of representing it. I do not mean to say that if we should some day find out the metaphysical nature of the relation of killing, that intelligible relation would thereby be created. [ ] No, for the intelligible relation has been signified, though not read by man, since the first killing was done, if not long before. (The New Elements of Mathematics)

Peirce’s pragmatizing Kant enables him to escape the threatening subjectivism: rational relations are inherent in the universe and are not our inventions, but we must know (some of) them in order to think. The relation of killer to killed, is not, however, given our present knowledge, one of those rational relations, even if we might later become able to produce a rational diagram of aspects of it. Yet, such a relation is, as Peirce says, a mere fact. On the other hand, rational relations are – even if inherent in the universe – not only facts. Their extension is rather that of mathematics as such, which can be seen from the fact that the rational relations are what make necessary reasoning possible – at the same time as Peirce subscribes to his father’s mathematics definition: Mathematics is the science that draws necessary conclusions – with Peirce’s addendum that these conclusions are always hypothetical. This conforms to Kant’s idea that the result of synthetic a priori judgments comprised mathematics as well as the sciences built on applied mathematics. Thus, in constructing diagrams, we have all the possible relations in mathematics (which is inexhaustible, following Gödel’s 1931 incompleteness theorem) at our disposal. Moreover, the idea that we might later learn about the rational relations involved in killing entails a historical, fallibilist rendering of the a priori notion. Unlike the case in Kant, the a priori is thus removed from a privileged connection to the knowing subject and its transcendental faculties. Thus, Peirce rather anticipates a fallibilist notion of the a priori.

Metaphysical Would-Be(s). Drunken Risibility.

If one were to look at Quine’s commitment to similarity, natural kinds, dispositions, causal statements, etc., it is evident, that it takes him close to Peirce’s conception of Thirdness – even if Quine in an utopian vision imagines that all such concepts in a remote future will dissolve and vanish in favor of purely microstructural descriptions.

A crucial difference remains, however, which becomes evident when one looks at Quine’s brief formula for ontological commitment, the famous idea that ‘to be is to be the value of a bound variable’. For even if this motto is stated exactly to avoid commitment to several different types of being, it immediately prompts the question: the equation, in which the variable is presumably bound, which status does it have? Governing the behavior of existing variable values, is that not in some sense being real?

This will be Peirce’s realist idea – that regularities, tendencies, dispositions, patterns, may possess real existence, independent of any observer. In Peirce, this description of Thirdness is concentrated in the expression ‘real possibility’, and even it may sound exceedingly metaphysical at a first glance, it amounts, at a closer look, to regularities charted by science that are not mere shorthands for collections of single events but do possess reality status. In Peirce, the idea of real possibilities thus springs from his philosophy of science – he observes that science, contrary to philosophy, is spontaneously realist, and is right in being so. Real possibilities are thus counterposed to mere subjective possibilities due to lack of knowledge on the part of the subject speaking: the possibility of ‘not known not to be true’.

In a famous piece of self-critique from his late, realist period, Peirce attacks his earlier arguments (from ‘How to Make Our Ideas Clear’, in the late 1890s considered by himself the birth certificate of pragmatism after James’s reference to Peirce as pragmatism’s inventor). Then, he wrote

let us ask what we mean by calling a thing hard. Evidently that it will not be scratched by many other substances. The whole conception of this quality, as of every other, lies in its conceived effects. There is absolutely no difference between a hard thing and a soft thing so long as they are not brought to the test. Suppose, then, that a diamond could be crystallized in the midst of a cushion of soft cotton, and should remain there until it was finally burned up. Would it be false to say that that diamond was soft? […] Reflection will show that the reply is this: there would be no falsity in such modes of speech.

More than twenty-five years later, however, he attacks this argument as bearing witness to the nominalism of his youth. Now instead he supports the

scholastic doctrine of realism. This is usually defined as the opinion that there are real objects that are general, among the number being the modes of determination of existent singulars, if, indeed, these be not the only such objects. But the belief in this can hardly escape being accompanied by the acknowledgment that there are, besides, real vagues, and especially real possibilities. For possibility being the denial of a necessity, which is a kind of generality, is vague like any other contradiction of a general. Indeed, it is the reality of some possibilities that pragmaticism is most concerned to insist upon. The article of January 1878 endeavored to gloze over this point as unsuited to the exoteric public addressed; or perhaps the writer wavered in his own mind. He said that if a diamond were to be formed in a bed of cotton-wool, and were to be consumed there without ever having been pressed upon by any hard edge or point, it would be merely a question of nomenclature whether that diamond should be said to have been hard or not. No doubt this is true, except for the abominable falsehood in the word MERELY, implying that symbols are unreal. Nomenclature involves classification; and classification is true or false, and the generals to which it refers are either reals in the one case, or figments in the other. For if the reader will turn to the original maxim of pragmaticism at the beginning of this article, he will see that the question is, not what did happen, but whether it would have been well to engage in any line of conduct whose successful issue depended upon whether that diamond would resist an attempt to scratch it, or whether all other logical means of determining how it ought to be classed would lead to the conclusion which, to quote the very words of that article, would be ‘the belief which alone could be the result of investigation carried sufficiently far.’ Pragmaticism makes the ultimate intellectual purport of what you please to consist in conceived conditional resolutions, or their substance; and therefore, the conditional propositions, with their hypothetical antecedents, in which such resolutions consist, being of the ultimate nature of meaning, must be capable of being true, that is, of expressing whatever there be which is such as the proposition expresses, independently of being thought to be so in any judgment, or being represented to be so in any other symbol of any man or men. But that amounts to saying that possibility is sometimes of a real kind. (The Essential Peirce Selected Philosophical Writings, Volume 2)

In the same year, he states, in a letter to the Italian pragmatist Signor Calderoni:

I myself went too far in the direction of nominalism when I said that it was a mere question of the convenience of speech whether we say that a diamond is hard when it is not pressed upon, or whether we say that it is soft until it is pressed upon. I now say that experiment will prove that the diamond is hard, as a positive fact. That is, it is a real fact that it would resist pressure, which amounts to extreme scholastic realism. I deny that pragmaticism as originally defined by me made the intellectual purport of symbols to consist in our conduct. On the contrary, I was most careful to say that it consists in our concept of what our conduct would be upon conceivable occasions. For I had long before declared that absolute individuals were entia rationis, and not realities. A concept determinate in all respects is as fictitious as a concept definite in all respects. I do not think we can ever have a logical right to infer, even as probable, the existence of anything entirely contrary in its nature to all that we can experience or imagine. 

Here lies the core of Peirce’s metaphysical insistence on the reality of ‘would-be’s. Real possibilities, or would-bes, are vague to the extent that they describe certain tendential, conditional behaviors only, while they do not prescribe any other aspect of the single objects they subsume. They are, furthermore, represented in rationally interrelated clusters of concepts: the fact that the diamond is in fact hard, no matter if it scratches anything or not, lies in the fact that the diamond’s carbon structure displays a certain spatial arrangement – so it is an aspect of the very concept of diamond. And this is why the old pragmatic maxim may not work without real possibilities: it is they that the very maxim rests upon, because it is they that provide us with the ‘conceived consequences’ of accepting a concept. The maxim remains a test to weed out empty concepts with no conceived consequences – that is, empty a priori reasoning and superfluous metaphysical assumptions. But what remains after the maxim has been put to use, is real possibilities. Real possibilities thus connect epistemology, expressed in the pragmatic maxim, to ontology: real possibilities are what science may grasp in conditional hypotheses.

The question is whether Peirce’s revision of his old ‘nominalist’ beliefs form part of a more general development in Peirce from nominalism to realism. The locus classicus of this idea is Max Fisch (Peirce, Semeiotic and Pragmatism) where Fisch outlines a development from an initial nominalism (albeit of a strange kind, refusing, as always in Peirce, the existence of individuals determinate in all respects) via a series of steps towards realism, culminating after the turn of the century. Fisch’s first step is then Peirce’s theory of the real as that which reasoning would finally have as its result; the second step his Berkeley review with its anti-nominalism and the idea that the real is what is unaffected by what we may think of it; the third step is his pragmatist idea that beliefs are conceived habits of action, even if he here clings to the idea that the conditionals in which habits are expressed are material implications only – like the definition of ‘hard’; the fourth step his reading of Abbott’s realist Scientific Theism (which later influenced his conception of scientific universals) and his introduction of the index in his theory of signs; the fifth step his acceptance of the reality of continuity; the sixth the introduction of real possibilities, accompanied by the development of existential graphs, topology and Peirce’s changing view of Hegelianism; the seventh, the identification of pragmatism with realism; the eighth ‘his last stronghold, that of Philonian or material implication’. A further realist development exchanging Peirce’s early frequentist idea of probability for a dispositional theory of probability was, according to Fisch, never finished.

The issue of implication concerns the old discussion quoted by Cicero between the Hellenistic logicians Philo and Diodorus. The former formulated what we know today as material implication, while the latter objected on common-sense ground that material implication does not capture implication in everyday language and thought and another implication type should be sought. As is well known, material implication says that p ⇒ q is equivalent to the claim that either p is false or q is true – so that p ⇒ q is false only when p is true and q is false. The problems arise when p is false, for any false p makes the implication true, and this leads to strange possibilities of true inferences. The two parts of the implication have no connection with each other at all, such as would be the spontaneous idea in everyday thought. It is true that Peirce as a logician generally supports material (‘Philonian’) implication – but it is also true that he does express some second thoughts at around the same time as the afterthoughts on the diamond example.

Peirce is a forerunner of the attempts to construct alternatives such as strict implication, and the reason why is, of course, that real possibilities are not adequately depicted by material implication. Peirce is in need of an implication which may somehow picture the causal dependency of q on p. The basic reason for the mature Peirce’s problems with the representation of real possibilities is not primarily logical, however. It is scientific. Peirce realizes that the scientific charting of anything but singular, actual events necessitates the real existence of tendencies and relations connecting singular events. Now, what kinds are those tendencies and relations? The hard diamond example seems to emphasize causality, but this probably depends on the point of view chosen. The ‘conceived consequences’ of the pragmatic maxim may be causal indeed: if we accept gravity as a real concept, then masses will attract one another – but they may all the same be structural: if we accept horse riders as a real concept, then we should expect horses, persons, the taming of horses, etc. to exist, or they may be teleological. In any case, the interpretation of the pragmatic maxim in terms of real possibilities paves the way for a distinction between empty a priori suppositions and real a priori structures.

Knowledge Limited for Dummies….Didactics.

Bertrand Russell with Alfred North Whitehead, in the Principia Mathematica aimed to demonstrate that “all pure mathematics follows from purely logical premises and uses only concepts defined in logical terms.” Its goal was to provide a formalized logic for all mathematics, to develop the full structure of mathematics where every premise could be proved from a clear set of initial axioms.

Russell observed of the dense and demanding work, “I used to know of only six people who had read the later parts of the book. Three of those were Poles, subsequently (I believe) liquidated by Hitler. The other three were Texans, subsequently successfully assimilated.” The complex mathematical symbols of the manuscript required it to be written by hand, and its sheer size – when it was finally ready for the publisher, Russell had to hire a panel truck to send it off – made it impossible to copy. Russell recounted that “every time that I went out for a walk I used to be afraid that the house would catch fire and the manuscript get burnt up.”

Momentous though it was, the greatest achievement of Principia Mathematica was realized two decades after its completion when it provided the fodder for the metamathematical enterprises of an Austrian, Kurt Gödel. Although Gödel did face the risk of being liquidated by Hitler (therefore fleeing to the Institute of Advanced Studies at Princeton), he was neither a Pole nor a Texan. In 1931, he wrote a treatise entitled On Formally Undecidable Propositions of Principia Mathematica and Related Systems, which demonstrated that the goal Russell and Whitehead had so single-mindedly pursued was unattainable.

The flavor of Gödel’s basic argument can be captured in the contradictions contained in a schoolboy’s brainteaser. A sheet of paper has the words “The statement on the other side of this paper is true” written on one side and “The statement on the other side of this paper is false” on the reverse. The conflict isn’t resolvable. Or, even more trivially, a statement like; “This statement is unprovable.” You cannot prove the statement is true, because doing so would contradict it. If you prove the statement is false, then that means its converse is true – it is provable – which again is a contradiction.

The key point of contradiction for these two examples is that they are self-referential. This same sort of self-referentiality is the keystone of Gödel’s proof, where he uses statements that imbed other statements within them. This problem did not totally escape Russell and Whitehead. By the end of 1901, Russell had completed the first round of writing Principia Mathematica and thought he was in the homestretch, but was increasingly beset by these sorts of apparently simple-minded contradictions falling in the path of his goal. He wrote that “it seemed unworthy of a grown man to spend his time on such trivialities, but . . . trivial or not, the matter was a challenge.” Attempts to address the challenge extended the development of Principia Mathematica by nearly a decade.

Yet Russell and Whitehead had, after all that effort, missed the central point. Like granite outcroppings piercing through a bed of moss, these apparently trivial contradictions were rooted in the core of mathematics and logic, and were only the most readily manifest examples of a limit to our ability to structure formal mathematical systems. Just four years before Gödel had defined the limits of our ability to conquer the intellectual world of mathematics and logic with the publication of his Undecidability Theorem, the German physicist Werner Heisenberg’s celebrated Uncertainty Principle had delineated the limits of inquiry into the physical world, thereby undoing the efforts of another celebrated intellect, the great mathematician Pierre-Simon Laplace. In the early 1800s Laplace had worked extensively to demonstrate the purely mechanical and predictable nature of planetary motion. He later extended this theory to the interaction of molecules. In the Laplacean view, molecules are just as subject to the laws of physical mechanics as the planets are. In theory, if we knew the position and velocity of each molecule, we could trace its path as it interacted with other molecules, and trace the course of the physical universe at the most fundamental level. Laplace envisioned a world of ever more precise prediction, where the laws of physical mechanics would be able to forecast nature in increasing detail and ever further into the future, a world where “the phenomena of nature can be reduced in the last analysis to actions at a distance between molecule and molecule.”

What Gödel did to the work of Russell and Whitehead, Heisenberg did to Laplace’s concept of causality. The Uncertainty Principle, though broadly applied and draped in metaphysical context, is a well-defined and elegantly simple statement of physical reality – namely, the combined accuracy of a measurement of an electron’s location and its momentum cannot vary far from a fixed value. The reason for this, viewed from the standpoint of classical physics, is that accurately measuring the position of an electron requires illuminating the electron with light of a very short wavelength. But the shorter the wavelength the greater the amount of energy that hits the electron, and the greater the energy hitting the electron the greater the impact on its velocity.

What is true in the subatomic sphere ends up being true – though with rapidly diminishing significance – for the macroscopic. Nothing can be measured with complete precision as to both location and velocity because the act of measuring alters the physical properties. The idea that if we know the present we can calculate the future was proven invalid – not because of a shortcoming in our knowledge of mechanics, but because the premise that we can perfectly know the present was proven wrong. These limits to measurement imply limits to prediction. After all, if we cannot know even the present with complete certainty, we cannot unfailingly predict the future. It was with this in mind that Heisenberg, ecstatic about his yet-to-be-published paper, exclaimed, “I think I have refuted the law of causality.”

The epistemological extrapolation of Heisenberg’s work was that the root of the problem was man – or, more precisely, man’s examination of nature, which inevitably impacts the natural phenomena under examination so that the phenomena cannot be objectively understood. Heisenberg’s principle was not something that was inherent in nature; it came from man’s examination of nature, from man becoming part of the experiment. (So in a way the Uncertainty Principle, like Gödel’s Undecidability Proposition, rested on self-referentiality.) While it did not directly refute Einstein’s assertion against the statistical nature of the predictions of quantum mechanics that “God does not play dice with the universe,” it did show that if there were a law of causality in nature, no one but God would ever be able to apply it. The implications of Heisenberg’s Uncertainty Principle were recognized immediately, and it became a simple metaphor reaching beyond quantum mechanics to the broader world.

This metaphor extends neatly into the world of financial markets. In the purely mechanistic universe of classical physics, we could apply Newtonian laws to project the future course of nature, if only we knew the location and velocity of every particle. In the world of finance, the elementary particles are the financial assets. In a purely mechanistic financial world, if we knew the position each investor has in each asset and the ability and willingness of liquidity providers to take on those assets in the event of a forced liquidation, we would be able to understand the market’s vulnerability. We would have an early-warning system for crises. We would know which firms are subject to a liquidity cycle, and which events might trigger that cycle. We would know which markets are being overrun by speculative traders, and thereby anticipate tactical correlations and shifts in the financial habitat. The randomness of nature and economic cycles might remain beyond our grasp, but the primary cause of market crisis, and the part of market crisis that is of our own making, would be firmly in hand.

The first step toward the Laplacean goal of complete knowledge is the advocacy by certain financial market regulators to increase the transparency of positions. Politically, that would be a difficult sell – as would any kind of increase in regulatory control. Practically, it wouldn’t work. Just as the atomic world turned out to be more complex than Laplace conceived, the financial world may be similarly complex and not reducible to a simple causality. The problems with position disclosure are many. Some financial instruments are complex and difficult to price, so it is impossible to measure precisely the risk exposure. Similarly, in hedge positions a slight error in the transmission of one part, or asynchronous pricing of the various legs of the strategy, will grossly misstate the total exposure. Indeed, the problems and inaccuracies in using position information to assess risk are exemplified by the fact that major investment banking firms choose to use summary statistics rather than position-by-position analysis for their firmwide risk management despite having enormous resources and computational power at their disposal.

Perhaps more importantly, position transparency also has implications for the efficient functioning of the financial markets beyond the practical problems involved in its implementation. The problems in the examination of elementary particles in the financial world are the same as in the physical world: Beyond the inherent randomness and complexity of the systems, there are simply limits to what we can know. To say that we do not know something is as much a challenge as it is a statement of the state of our knowledge. If we do not know something, that presumes that either it is not worth knowing or it is something that will be studied and eventually revealed. It is the hubris of man that all things are discoverable. But for all the progress that has been made, perhaps even more exciting than the rolling back of the boundaries of our knowledge is the identification of realms that can never be explored. A sign in Einstein’s Princeton office read, “Not everything that counts can be counted, and not everything that can be counted counts.”

The behavioral analogue to the Uncertainty Principle is obvious. There are many psychological inhibitions that lead people to behave differently when they are observed than when they are not. For traders it is a simple matter of dollars and cents that will lead them to behave differently when their trades are open to scrutiny. Beneficial though it may be for the liquidity demander and the investor, for the liquidity supplier trans- parency is bad. The liquidity supplier does not intend to hold the position for a long time, like the typical liquidity demander might. Like a market maker, the liquidity supplier will come back to the market to sell off the position – ideally when there is another investor who needs liquidity on the other side of the market. If other traders know the liquidity supplier’s positions, they will logically infer that there is a good likelihood these positions shortly will be put into the market. The other traders will be loath to be the first ones on the other side of these trades, or will demand more of a price concession if they do trade, knowing the overhang that remains in the market.

This means that increased transparency will reduce the amount of liquidity provided for any given change in prices. This is by no means a hypothetical argument. Frequently, even in the most liquid markets, broker-dealer market makers (liquidity providers) use brokers to enter their market bids rather than entering the market directly in order to preserve their anonymity.

The more information we extract to divine the behavior of traders and the resulting implications for the markets, the more the traders will alter their behavior. The paradox is that to understand and anticipate market crises, we must know positions, but knowing and acting on positions will itself generate a feedback into the market. This feedback often will reduce liquidity, making our observations less valuable and possibly contributing to a market crisis. Or, in rare instances, the observer/feedback loop could be manipulated to amass fortunes.

One might argue that the physical limits of knowledge asserted by Heisenberg’s Uncertainty Principle are critical for subatomic physics, but perhaps they are really just a curiosity for those dwelling in the macroscopic realm of the financial markets. We cannot measure an electron precisely, but certainly we still can “kind of know” the present, and if so, then we should be able to “pretty much” predict the future. Causality might be approximate, but if we can get it right to within a few wavelengths of light, that still ought to do the trick. The mathematical system may be demonstrably incomplete, and the world might not be pinned down on the fringes, but for all practical purposes the world can be known.

Unfortunately, while “almost” might work for horseshoes and hand grenades, 30 years after Gödel and Heisenberg yet a third limitation of our knowledge was in the wings, a limitation that would close the door on any attempt to block out the implications of microscopic uncertainty on predictability in our macroscopic world. Based on observations made by Edward Lorenz in the early 1960s and popularized by the so-called butterfly effect – the fanciful notion that the beating wings of a butterfly could change the predictions of an otherwise perfect weather forecasting system – this limitation arises because in some important cases immeasurably small errors can compound over time to limit prediction in the larger scale. Half a century after the limits of measurement and thus of physical knowledge were demonstrated by Heisenberg in the world of quantum mechanics, Lorenz piled on a result that showed how microscopic errors could propagate to have a stultifying impact in nonlinear dynamic systems. This limitation could come into the forefront only with the dawning of the computer age, because it is manifested in the subtle errors of computational accuracy.

The essence of the butterfly effect is that small perturbations can have large repercussions in massive, random forces such as weather. Edward Lorenz was testing and tweaking a model of weather dynamics on a rudimentary vacuum-tube computer. The program was based on a small system of simultaneous equations, but seemed to provide an inkling into the variability of weather patterns. At one point in his work, Lorenz decided to examine in more detail one of the solutions he had generated. To save time, rather than starting the run over from the beginning, he picked some intermediate conditions that had been printed out by the computer and used those as the new starting point. The values he typed in were the same as the values held in the original simulation at that point, so the results the simulation generated from that point forward should have been the same as in the original; after all, the computer was doing exactly the same operations. What he found was that as the simulated weather pattern progressed, the results of the new run diverged, first very slightly and then more and more markedly, from those of the first run. After a point, the new path followed a course that appeared totally unrelated to the original one, even though they had started at the same place.

Lorenz at first thought there was a computer glitch, but as he investigated further, he discovered the basis of a limit to knowledge that rivaled that of Heisenberg and Gödel. The problem was that the numbers he had used to restart the simulation had been reentered based on his printout from the earlier run, and the printout rounded the values to three decimal places while the computer carried the values to six decimal places. This rounding, clearly insignificant at first, promulgated a slight error in the next-round results, and this error grew with each new iteration of the program as it moved the simulation of the weather forward in time. The error doubled every four simulated days, so that after a few months the solutions were going their own separate ways. The slightest of changes in the initial conditions had traced out a wholly different pattern of weather.

Intrigued by his chance observation, Lorenz wrote an article entitled “Deterministic Nonperiodic Flow,” which stated that “nonperiodic solutions are ordinarily unstable with respect to small modifications, so that slightly differing initial states can evolve into considerably different states.” Translation: Long-range weather forecasting is worthless. For his application in the narrow scientific discipline of weather prediction, this meant that no matter how precise the starting measurements of weather conditions, there was a limit after which the residual imprecision would lead to unpredictable results, so that “long-range forecasting of specific weather conditions would be impossible.” And since this occurred in a very simple laboratory model of weather dynamics, it could only be worse in the more complex equations that would be needed to properly reflect the weather. Lorenz discovered the principle that would emerge over time into the field of chaos theory, where a deterministic system generated with simple nonlinear dynamics unravels into an unrepeated and apparently random path.

The simplicity of the dynamic system Lorenz had used suggests a far-reaching result: Because we cannot measure without some error (harking back to Heisenberg), for many dynamic systems our forecast errors will grow to the point that even an approximation will be out of our hands. We can run a purely mechanistic system that is designed with well-defined and apparently well-behaved equations, and it will move over time in ways that cannot be predicted and, indeed, that appear to be random. This gets us to Santa Fe.

The principal conceptual thread running through the Santa Fe research asks how apparently simple systems, like that discovered by Lorenz, can produce rich and complex results. Its method of analysis in some respects runs in the opposite direction of the usual path of scientific inquiry. Rather than taking the complexity of the world and distilling simplifying truths from it, the Santa Fe Institute builds a virtual world governed by simple equations that when unleashed explode into results that generate unexpected levels of complexity.

In economics and finance, institute’s agenda was to create artificial markets with traders and investors who followed simple and reasonable rules of behavior and to see what would happen. Some of the traders built into the model were trend followers, others bought or sold based on the difference between the market price and perceived value, and yet others traded at random times in response to liquidity needs. The simulations then printed out the paths of prices for the various market instruments. Qualitatively, these paths displayed all the richness and variation we observe in actual markets, replete with occasional bubbles and crashes. The exercises did not produce positive results for predicting or explaining market behavior, but they did illustrate that it is not hard to create a market that looks on the surface an awful lot like a real one, and to do so with actors who are following very simple rules. The mantra is that simple systems can give rise to complex, even unpredictable dynamics, an interesting converse to the point that much of the complexity of our world can – with suitable assumptions – be made to appear simple, summarized with concise physical laws and equations.

The systems explored by Lorenz were deterministic. They were governed definitively and exclusively by a set of equations where the value in every period could be unambiguously and precisely determined based on the values of the previous period. And the systems were not very complex. By contrast, whatever the set of equations are that might be divined to govern the financial world, they are not simple and, furthermore, they are not deterministic. There are random shocks from political and economic events and from the shifting preferences and attitudes of the actors. If we cannot hope to know the course of the deterministic systems like fluid mechanics, then no level of detail will allow us to forecast the long-term course of the financial world, buffeted as it is by the vagaries of the economy and the whims of psychology.

Individuation. Thought of the Day 91.0

The first distinction is between two senses of the word “individuation” – one semantic, the other metaphysical. In the semantic sense of the word, to individuate an object is to single it out for reference in language or in thought. By contrast, in the metaphysical sense of the word, the individuation of objects has to do with “what grounds their identity and distinctness.” Sets are often used to illustrate the intended notion of “grounding.” The identity or distinctness of sets is said to be “grounded” in accordance with the principle of extensionality, which says that two sets are identical iff they have precisely the same elements:

SET(x) ∧ SET(y) → [x = y ↔ ∀u(u ∈ x ↔ u ∈ y)]

The metaphysical and semantic senses of individuation are quite different notions, neither of which appears to be reducible to or fully explicable in terms of the other. Since sufficient sense cannot be made of the notion of “grounding of identity” on which the metaphysical notion of individuation is based, focusing on the semantic notion of individuation is an easy way out. This choice of focus means that our investigation is a broadly empirical one drawn on empirical linguistics and psychology.

What is the relation between the semantic notion of individuation and the notion of a criterion of identity? It is by means of criteria of identity that semantic individuation is effected. Singling out an object for reference involves being able to distinguish this object from other possible referents with which one is directly presented. The final distinction is between two types of criteria of identity. A one-level criterion of identity says that two objects of some sort F are identical iff they stand in some relation RF:

Fx ∧ Fy → [x = y ↔ R_F(x,y)]

Criteria of this form operate at just one level in the sense that the condition for two objects to be identical is given by a relation on these objects themselves. An example is the set-theoretic principle of extensionality.

A two-level criterion of identity relates the identity of objects of one sort to some condition on entities of another sort. The former sort of objects are typically given as functions of items of the latter sort, in which case the criterion takes the following form:

f(α) = f(β) ↔ α ≈ β

where the variables α and β range over the latter sort of item and ≈ is an equivalence relation on such items. An example is Frege’s famous criterion of identity for directions:

d(l₁) = d(l₂) ↔ l₁ || l₂

where the variables l₁ and l₂ range over lines or other directed items. An analogous two-level criterion relates the identity of geometrical shapes to the congruence of things or figures having the shapes in question. The decision to focus on the semantic notion of individuation makes it natural to focus on two-level criteria. For two-level criteria of identity are much more useful than one-level criteria when we are studying how objects are singled out for reference. A one-level criterion provides little assistance in the task of singling out objects for reference. In order to apply a one-level criterion, one must already be capable of referring to objects of the sort in question. By contrast, a two-level criterion promises a way of singling out an object of one sort in terms of an item of another and less problematic sort. For instance, when Frege investigated how directions and other abstract objects “are given to us”, although “we cannot have any ideas or intuitions of them”, he proposed that we relate the identity of two directions to the parallelism of the two lines in terms of which these directions are presented. This would be explanatory progress since reference to lines is less puzzling than reference to directions.

Something Out of Almost Nothing. Drunken Risibility.

Kant’s first antinomy makes the error of the excluded third option, i.e. it is not impossible that the universe could have both a beginning and an eternal past. If some kind of metaphysical realism is true, including an observer-independent and relational time, then a solution of the antinomy is conceivable. It is based on the distinction between a microscopic and a macroscopic time scale. Only the latter is characterized by an asymmetry of nature under a reversal of time, i.e. the property of having a global (coarse-grained) evolution – an arrow of time – or many arrows, if they are independent from each other. Thus, the macroscopic scale is by definition temporally directed – otherwise it would not exist.

On the microscopic scale, however, only local, statistically distributed events without dynamical trends, i.e. a global time-evolution or an increase of entropy density, exist. This is the case if one or both of the following conditions are satisfied: First, if the system is in thermodynamic equilibrium (e.g. there is degeneracy). And/or second, if the system is in an extremely simple ground state or meta-stable state. (Meta-stable states have a local, but not a global minimum in their potential landscape and, hence, they can decay; ground states might also change due to quantum uncertainty, i.e. due to local tunneling events.) Some still speculative theories of quantum gravity permit the assumption of such a global, macroscopically time-less ground state (e.g. quantum or string vacuum, spin networks, twistors). Due to accidental fluctuations, which exceed a certain threshold value, universes can emerge out of that state. Due to some also speculative physical mechanism (like cosmic inflation) they acquire – and, thus, are characterized by – directed non-equilibrium dynamics, specific initial conditions, and, hence, an arrow of time.

It is a matter of debate whether such an arrow of time is

1) irreducible, i.e. an essential property of time,

2) governed by some unknown fundamental and not only phenomenological law,

3) the effect of specific initial conditions or

4) of consciousness (if time is in some sense subjective), or

5) even an illusion.

Many physicists favour special initial conditions, though there is no consensus about their nature and form. But in the context at issue it is sufficient to note that such a macroscopic global time-direction is the main ingredient of Kant’s first antinomy, for the question is whether this arrow has a beginning or not.

Time’s arrow is inevitably subjective, ontologically irreducible, fundamental and not only a kind of illusion, thus if some form of metaphysical idealism for instance is true, then physical cosmology about a time before time is mistaken or quite irrelevant. However, if we do not want to neglect an observer-independent physical reality and adopt solipsism or other forms of idealism – and there are strong arguments in favor of some form of metaphysical realism -, Kant’s rejection seems hasty. Furthermore, if a Kantian is not willing to give up some kind of metaphysical realism, namely the belief in a “Ding an sich“, a thing in itself – and some philosophers actually insisted that this is superfluous: the German idealists, for instance -, he has to admit that time is a subjective illusion or that there is a dualism between an objective timeless world and a subjective arrow of time. Contrary to Kant’s thoughts: There are reasons to believe that it is possible, at least conceptually, that time has both a beginning – in the macroscopic sense with an arrow – and is eternal – in the microscopic notion of a steady state with statistical fluctuations.

Is there also some physical support for this proposal?

Surprisingly, quantum cosmology offers a possibility that the arrow has a beginning and that it nevertheless emerged out of an eternal state without any macroscopic time-direction. (Note that there are some parallels to a theistic conception of the creation of the world here, e.g. in the Augustinian tradition which claims that time together with the universe emerged out of a time-less God; but such a cosmological argument is quite controversial, especially in a modern form.) So this possible overcoming of the first antinomy is not only a philosophical conceivability but is already motivated by modern physics. At least some scenarios of quantum cosmology, quantum geometry/loop quantum gravity, and string cosmology can be interpreted as examples for such a local beginning of our macroscopic time out of a state with microscopic time, but with an eternal, global macroscopic timelessness.

To put it in a more general, but abstract framework and get a sketchy illustration, consider the figure.

Physical dynamics can be described using “potential landscapes” of fields. For simplicity, here only the variable potential (or energy density) of a single field is shown. To illustrate the dynamics, one can imagine a ball moving along the potential landscape. Depressions stand for states which are stable, at least temporarily. Due to quantum effects, the ball can “jump over” or “tunnel through” the hills. The deepest depression represents the ground state.

In the common theories the state of the universe – the product of all its matter and energy fields, roughly speaking – evolves out of a metastable “false vacuum” into a “true vacuum” which has a state of lower energy (potential). There might exist many (perhaps even infinitely many) true vacua which would correspond to universes with different constants or laws of nature. It is more plausible to start with a ground state which is the minimum of what physically can exist. According to this view an absolute nothingness is impossible. There is something rather than nothing because something cannot come out of absolutely nothing, and something does obviously exist. Thus, something can only change, and this change might be described with physical laws. Hence, the ground state is almost “nothing”, but can become thoroughly “something”. Possibly, our universe – and, independent from this, many others, probably most of them having different physical properties – arose from such a phase transition out of a quasi atemporal quantum vacuum (and, perhaps, got disconnected completely). Tunneling back might be prevented by the exponential expansion of this brand new space. Because of this cosmic inflation the universe not only became gigantic but simultaneously the potential hill broadened enormously and got (almost) impassable. This preserves the universe from relapsing into its non-existence. On the other hand, if there is no physical mechanism to prevent the tunneling-back or makes it at least very improbable, respectively, there is still another option: If infinitely many universes originated, some of them could be long-lived only for statistical reasons. But this possibility is less predictive and therefore an inferior kind of explanation for not tunneling back.

Another crucial question remains even if universes could come into being out of fluctuations of (or in) a primitive substrate, i.e. some patterns of superposition of fields with local overdensities of energy: Is spacetime part of this primordial stuff or is it also a product of it? Or, more specifically: Does such a primordial quantum vacuum have a semi-classical spacetime structure or is it made up of more fundamental entities? Unique-universe accounts, especially the modified Eddington models – the soft bang/emergent universe – presuppose some kind of semi-classical spacetime. The same is true for some multiverse accounts describing our universe, where Minkowski space, a tiny closed, finite space or the infinite de Sitter space is assumed. The same goes for string theory inspired models like the pre-big bang account, because string and M- theory is still formulated in a background-dependent way, i.e. requires the existence of a semi-classical spacetime. A different approach is the assumption of “building-blocks” of spacetime, a kind of pregeometry also the twistor approach of Roger Penrose, and the cellular automata approach of Stephen Wolfram. The most elaborated accounts in this line of reasoning are quantum geometry (loop quantum gravity). Here, “atoms of space and time” are underlying everything.

Though the question whether semiclassical spacetime is fundamental or not is crucial, an answer might be nevertheless neutral with respect of the micro-/macrotime distinction. In both kinds of quantum vacuum accounts the macroscopic time scale is not present. And the microscopic time scale in some respect has to be there, because fluctuations represent change (or are manifestations of change). This change, reversible and relationally conceived, does not occur “within” microtime but constitutes it. Out of a total stasis nothing new and different can emerge, because an uncertainty principle – fundamental for all quantum fluctuations – would not be realized. In an almost, but not completely static quantum vacuum however, macroscopically nothing changes either, but there are microscopic fluctuations.

The pseudo-beginning of our universe (and probably infinitely many others) is a viable alternative both to initial and past-eternal cosmologies and philosophically very significant. Note that this kind of solution bears some resemblance to a possibility of avoiding the spatial part of Kant’s first antinomy, i.e. his claimed proof of both an infinite space without limits and a finite, limited space: The theory of general relativity describes what was considered logically inconceivable before, namely that there could be universes with finite, but unlimited space, i.e. this part of the antinomy also makes the error of the excluded third option. This offers a middle course between the Scylla of a mysterious, secularized creatio ex nihilo, and the Charybdis of an equally inexplicable eternity of the world.

In this context it is also possible to defuse some explanatory problems of the origin of “something” (or “everything”) out of “nothing” as well as a – merely assumable, but never provable – eternal cosmos or even an infinitely often recurring universe. But that does not offer a final explanation or a sufficient reason, and it cannot eliminate the ultimate contingency of the world.

The Mystery of Modality. Thought of the Day 78.0

The ‘metaphysical’ notion of what would have been no matter what (the necessary) was conflated with the epistemological notion of what independently of sense-experience can be known to be (the a priori), which in turn was identified with the semantical notion of what is true by virtue of meaning (the analytic), which in turn was reduced to a mere product of human convention. And what motivated these reductions?

The mystery of modality, for early modern philosophers, was how we can have any knowledge of it. Here is how the question arises. We think that when things are some way, in some cases they could have been otherwise, and in other cases they couldn’t. That is the modal distinction between the contingent and the necessary.

How do we know that the examples are examples of that of which they are supposed to be examples? And why should this question be considered a difficult problem, a kind of mystery? Well, that is because, on the one hand, when we ask about most other items of purported knowledge how it is we can know them, sense-experience seems to be the source, or anyhow the chief source of our knowledge, but, on the other hand, sense-experience seems able only to provide knowledge about what is or isn’t, not what could have been or couldn’t have been. How do we bridge the gap between ‘is’ and ‘could’? The classic statement of the problem was given by Immanuel Kant, in the introduction to the second or B edition of his first critique, The Critique of Pure Reason: ‘Experience teaches us that a thing is so, but not that it cannot be otherwise.’

Note that this formulation allows that experience can teach us that a necessary truth is true; what it is not supposed to be able to teach is that it is necessary. The problem becomes more vivid if one adopts the language that was once used by Leibniz, and much later re-popularized by Saul Kripke in his famous work on model theory for formal modal systems, the usage according to which the necessary is that which is ‘true in all possible worlds’. In these terms the problem is that the senses only show us this world, the world we live in, the actual world as it is called, whereas when we claim to know about what could or couldn’t have been, we are claiming knowledge of what is going on in some or all other worlds. For that kind of knowledge, it seems, we would need a kind of sixth sense, or extrasensory perception, or nonperceptual mode of apprehension, to see beyond the world in which we live to these various other worlds.

Kant concludes, that our knowledge of necessity must be what he calls a priori knowledge or knowledge that is ‘prior to’ or before or independent of experience, rather than what he calls a posteriori knowledge or knowledge that is ‘posterior to’ or after or dependant on experience. And so the problem of the origin of our knowledge of necessity becomes for Kant the problem of the origin of our a priori knowledge.

Well, that is not quite the right way to describe Kant’s position, since there is one special class of cases where Kant thinks it isn’t really so hard to understand how we can have a priori knowledge. He doesn’t think all of our a priori knowledge is mysterious, but only most of it. He distinguishes what he calls analytic from what he calls synthetic judgments, and holds that a priori knowledge of the former is unproblematic, since it is not really knowledge of external objects, but only knowledge of the content of our own concepts, a form of self-knowledge.

We can generate any number of examples of analytic truths by the following three-step process. First, take a simple logical truth of the form ‘Anything that is both an A and a B is a B’, for instance, ‘Anyone who is both a man and unmarried is unmarried’. Second, find a synonym C for the phrase ‘thing that is both an A and a B’, for instance, ‘bachelor’ for ‘one who is both a man and unmarried’. Third, substitute the shorter synonym for the longer phrase in the original logical truth to get the truth ‘Any C is a B’, or in our example, the truth ‘Any bachelor is unmarried’. Our knowledge of such a truth seems unproblematic because it seems to reduce to our knowledge of the meanings of our own words.

So the problem for Kant is not exactly how knowledge a priori is possible, but more precisely how synthetic knowledge a priori is possible. Kant thought we do have examples of such knowledge. Arithmetic, according to Kant, was supposed to be synthetic a priori, and geometry, too – all of pure mathematics. In his Prolegomena to Any Future Metaphysics, Kant listed ‘How is pure mathematics possible?’ as the first question for metaphysics, for the branch of philosophy concerned with space, time, substance, cause, and other grand general concepts – including modality.

Kant offered an elaborate explanation of how synthetic a priori knowledge is supposed to be possible, an explanation reducing it to a form of self-knowledge, but later philosophers questioned whether there really were any examples of the synthetic a priori. Geometry, so far as it is about the physical space in which we live and move – and that was the original conception, and the one still prevailing in Kant’s day – came to be seen as, not synthetic a priori, but rather a posteriori. The mathematician Carl Friedrich Gauß had already come to suspect that geometry is a posteriori, like the rest of physics. Since the time of Einstein in the early twentieth century the a posteriori character of physical geometry has been the received view (whence the need for border-crossing from mathematics into physics if one is to pursue the original aim of geometry).

As for arithmetic, the logician Gottlob Frege in the late nineteenth century claimed that it was not synthetic a priori, but analytic – of the same status as ‘Any bachelor is unmarried’, except that to obtain something like ‘29 is a prime number’ one needs to substitute synonyms in a logical truth of a form much more complicated than ‘Anything that is both an A and a B is a B’. This view was subsequently adopted by many philosophers in the analytic tradition of which Frege was a forerunner, whether or not they immersed themselves in the details of Frege’s program for the reduction of arithmetic to logic.

Once Kant’s synthetic a priori has been rejected, the question of how we have knowledge of necessity reduces to the question of how we have knowledge of analyticity, which in turn resolves into a pair of questions: On the one hand, how do we have knowledge of synonymy, which is to say, how do we have knowledge of meaning? On the other hand how do we have knowledge of logical truths? As to the first question, presumably we acquire knowledge, explicit or implicit, conscious or unconscious, of meaning as we learn to speak, by the time we are able to ask the question whether this is a synonym of that, we have the answer. But what about knowledge of logic? That question didn’t loom large in Kant’s day, when only a very rudimentary logic existed, but after Frege vastly expanded the realm of logic – only by doing so could he find any prospect of reducing arithmetic to logic – the question loomed larger.

Many philosophers, however, convinced themselves that knowledge of logic also reduces to knowledge of meaning, namely, of the meanings of logical particles, words like ‘not’ and ‘and’ and ‘or’ and ‘all’ and ‘some’. To be sure, there are infinitely many logical truths, in Frege’s expanded logic. But they all follow from or are generated by a finite list of logical rules, and philosophers were tempted to identify knowledge of the meanings of logical particles with knowledge of rules for using them: Knowing the meaning of ‘or’, for instance, would be knowing that ‘A or B’ follows from A and follows from B, and that anything that follows both from A and from B follows from ‘A or B’. So in the end, knowledge of necessity reduces to conscious or unconscious knowledge of explicit or implicit semantical rules or linguistics conventions or whatever.

Such is the sort of picture that had become the received wisdom in philosophy departments in the English speaking world by the middle decades of the last century. For instance, A. J. Ayer, the notorious logical positivist, and P. F. Strawson, the notorious ordinary-language philosopher, disagreed with each other across a whole range of issues, and for many mid-century analytic philosophers such disagreements were considered the main issues in philosophy (though some observers would speak of the ‘narcissism of small differences’ here). And people like Ayer and Strawson in the 1920s through 1960s would sometimes go on to speak as if linguistic convention were the source not only of our knowledge of modality, but of modality itself, and go on further to speak of the source of language lying in ourselves. Individually, as children growing up in a linguistic community, or foreigners seeking to enter one, we must consciously or unconsciously learn the explicit or implicit rules of the communal language as something with a source outside us to which we must conform. But by contrast, collectively, as a speech community, we do not so much learn as create the language with its rules. And so if the origin of modality, of necessity and its distinction from contingency, lies in language, it therefore lies in a creation of ours, and so in us. ‘We, the makers and users of language’ are the ground and source and origin of necessity. Well, this is not a literal quotation from any one philosophical writer of the last century, but a pastiche of paraphrases of several.

|, ||, |||, ||||| . The Non-Metaphysics of Unprediction. Thought of the day 67.1

The cornerstone of Hilbert’s philosophy of mathematics was the so-called finitary standpoint. This methodological standpoint consists in a restriction of mathematical thought to objects which are “intuitively present as immediate experience prior to all thought,” and to those operations on and methods of reasoning about such objects which do not require the introduction of abstract concepts, in particular, require no appeal to completed infinite totalities.

Hilbert characterized the domain of finitary reasoning in a well-known paragraph:

[A]s a condition for the use of logical inferences and the performance of logical operations, something must already be given to our faculty of representation, certain extra-logical concrete objects that are intuitively present as immediate experience prior to all thought. If logical inference is to be reliable, it must be possible to survey these objects completely in all their parts, and the fact that they occur, that they differ from one another, and that they follow each other, or are concatenated, is immediately given intuitively, together with the objects, as something that can neither be reduced to anything else nor requires reduction. This is the basic philosophical position that I consider requisite for mathematics and, in general, for all scientific thinking, understanding, and communication. [Hilbert in German + DJVU link here in English]

These objects are, for Hilbert, the signs. For the domain of contentual number theory, the signs in question are sequences of strokes (“numerals”) such as

|, ||, |||, ||||| .

The question of how exactly Hilbert understood the numerals is difficult to answer. What is clear in any case is that they are logically primitive, i.e., they are neither concepts (as Frege’s numbers are) nor sets. For Hilbert, the important issue is not primarily their metaphysical status (abstract versus concrete in the current sense of these terms), but that they do not enter into logical relations, e.g., they cannot be predicated of anything.

Sometimes Hilbert’s view is presented as if Hilbert claimed that the numbers are signs on paper. It is important to stress that this is a misrepresentation, that the numerals are not physical objects in the sense that truths of elementary number theory are dependent only on external physical facts or even physical possibilities. Hilbert made too much of the fact that for all we know, neither the infinitely small nor the infinitely large are actualized in physical space and time, yet he certainly held that the number of strokes in a numeral is at least potentially infinite. It is also essential to the conception that the numerals are sequences of one kind of sign, and that they are somehow dependent on being grasped as such a sequence, that they do not exist independently of our intuition of them. Only our seeing or using “||||” as a sequence of 4 strokes as opposed to a sequence of 2 symbols of the form “||” makes “||||” into the numeral that it is. This raises the question of individuation of stroke symbols. An alternative account would have numerals be mental constructions. According to Hilber, the numerals are given in our representation, but they are not merely subjective “mental cartoons”.

One version of this view would be to hold that the numerals are types of stroke-symbols as represented in intuition. At first glance, this seems to be a viable reading of Hilbert. It takes care of the difficulties that the reading of numerals-as-tokens (both physical and mental) faces, and it gives an account of how numerals can be dependent on their intuitive construction while at the same time not being created by thought.

Types are ordinarily considered to be abstract objects and not located in space or time. Taking the numerals as intuitive representations of sign types might commit us to taking these abstract objects as existing independently of their intuitive representation. That numerals are “space- and timeless” is a consequence that already thought could be drawn from Hilbert’s statements. The reason is that a view on which numerals are space- and timeless objects existing independently of us would be committed to them existing simultaneously as a completed totality, and this is exactly what Hilbert is objecting to.

It is by no means compatible, however, with Hilbert’s basic thoughts to introduce the numbers as ideal objects “with quite different determinations from those of sensible objects,” “which exist entirely independent of us.” By this we would go beyond the domain of the immediately certain. In particular, this would be evident in the fact that we would consequently have to assume the numbers as all existing simultaneously. But this would mean to assume at the outset that which Hilbert considers to be problematic.  Another open question in this regard is exactly what Hilbert meant by “concrete.” He very likely did not use it in the same sense as it is used today, i.e., as characteristic of spatio-temporal physical objects in contrast to “abstract” objects. However, sign types certainly are different from full-fledged abstracta like pure sets in that all their tokens are concrete.

Now what is the epistemological status of the finitary objects? In order to carry out the task of providing a secure foundation for infinitary mathematics, access to finitary objects must be immediate and certain. Hilbert’s philosophical background was broadly Kantian. Hilbert’s characterization of finitism often refers to Kantian intuition, and the objects of finitism as objects given intuitively. Indeed, in Kant’s epistemology, immediacy is a defining characteristic of intuitive knowledge. The question is, what kind of intuition is at play? Whereas the intuition involved in Hilbert’s early papers was a kind of perceptual intuition, in later writings it is identified as a form of pure intuition in the Kantian sense. Hilbert later sees the finite mode of thought as a separate source of a priori knowledge in addition to pure intuition (e.g., of space) and reason, claiming that he has “recognized and characterized the third source of knowledge that accompanies experience and logic.” Hilbert justifies finitary knowledge in broadly Kantian terms (without however going so far as to provide a transcendental deduction), characterizing finitary reasoning as the kind of reasoning that underlies all mathematical, and indeed, scientific, thinking, and without which such thought would be impossible.

The simplest finitary propositions are those about equality and inequality of numerals. The finite standpoint moreover allows operations on finitary objects. Here the most basic is that of concatenation. The concatenation of the numerals || and ||| is communicated as “2 + 3,” and the statement that || concatenated with ||| results in the same numeral as ||| concatenated with || by “2 + 3 = 3 + 2.” In actual proof-theoretic practice, as well as explicitly, these basic operations are generalized to operations defined by recursion, paradigmatically, primitive recursion, e.g., multiplication and exponentiation. Roughly, a primitive recursive definition of a numerical operation is one in which the function to be defined, f , is given by two equations

f(0, m) = g(m)

f(n′, m) = h(n, m, f(n, m)),

where g and h are functions already defined, and n′ is the successor numeral to n. For instance, if we accept the function g(m) = m (the constant function) and h(n, m, k) = m + k as finitary, then the equations above define a finitary function, in this case, multiplication f (n, m) = n × m. Similarly, finitary judgments may involve not just equality or inequality but also basic decidable properties, such as “is a prime.” This is finitarily acceptable as long as the characteristic function of such a property is itself finitary: For instance, the operation which transforms a numeral to | if it is prime and to || otherwise can be defined by primitive recursion and is hence finitary. Such finitary propositions may be combined by the usual logical operations of conjunction, disjunction, negation, but also bounded quantification. The problematic finitary propositions are those that express general facts about numerals such as that 1 + n = n + 1 for any given numeral n. It is problematic because, for Hilbert it is from the finitist point of view incapable of being negated. By this he means that the contradictory proposition that there is a numeral n for which 1 + n ≠ n + 1 is not finitarily meaningful. A finitary general proposition is not to be understood as an infinite conjunction but only as a hypothetical judgment that comes to assert something when a numeral is given. Even though they are problematic in this sense, general finitary statements are of particular importance to Hilbert’s proof theory, since the statement of consistency of a formal system T is of such a general form: for any given sequence p of formulas, p is not a derivation of a contradiction in T. Even though in general existential statements are not finitarily meaningful, they may be given finitary meaning if the witness is given by a finitary function. For instance, the finitary content of Euclid’s theorem that for every prime p there is a prime > p, is that given a specific prime p one can produce, by a finitary operation, another prime > p (viz., by testing all numbers between p and p! + 1.).

Gothic: Once Again Atheistic Materialism and Hedonistic Flirtations. Drunken Risibility.

 

The machinery of the Gothic, traditionally relegated to both a formulaic and a sensational aesthetic, gradually evolved into a recyclable set of images, motifs and narrative devices that surpass temporal, spatial and generic categories. From the moment of its appearance the Gothic has been obsessed with presenting itself as an imitation.

Recent literary theory has extensively probed into the power of the Gothic to evade temporal and generic limits and into the aesthetic, narratological and ideological implications this involves. Officially granting the Gothic the elasticity it has always entailed has resulted in a reconfiguration of its spectrum both synchronically – by acknowledging its influence on numerous postmodern fictions – and diachronically – by rescripting, in hindsight, the history of its canon so as to allow space for ambiguous presences.

Both transgressive and hybrid in form and content, the Gothic has been accepted as a malleable genre, flexible enough to create more freely, in Borgesian fashion, its own precursors. The genre flouted what are considered the basic principles of good prose writing: adherence to verisimilitude and avoidance of both narrative diversions and moralising – all of which are, of course, made to be deliberately upset. Many merely cite the epigrammatic power of the essay’s most renowned phrase, that the rise of the Gothic “was the inevitable result of the revolutionary shocks which all of Europe has suffered”.

The eighteenth-century French materialist philosophy purported the displacement of metaphysical investigations into the meaning of life by materialist explorations. Julien Offray de La Mettrie, a French physician and philosopher, the earliest of materialist writers of the Enlightenment, published the materialist manifesto L’ Homme machine (Man a Machine), that did away with the transcendentalism of the soul, banished all supernatural agencies by claiming that mind is as mechanical as matter and equated humans with machines. In his words: “The human body is a machine that winds up its own springs: it is a living image of the perpetual motion”. French materialist thought resulted in the publication of the great 28-volume Encyclopédie, ou Dictionnaire raisonné des sciences, des arts et des méttrie par une société de gens de lettres by Denis Diderot and Jean Le Rond d’ Alembert, and which was grounded on purely materialist principles, against all kinds of metaphysical thinking. Diderot’s atheist materialism set the tone of the Encyclopédie, which, for both editors, was the ideal vehicle […] for reshaping French high culture and attitudes, as well as the perfect instrument with which to insinuate their radical Weltanschauung surreptitiously, using devious procedures, into the main arteries of French Society, embedding their revolutionary philosophic manifesto in a vast compilation ostensibly designed to provide plain information and basic orientation but in fact subtly challenging and transforming attitudes in every respect. While materialist thinkers ultimately disowned La Mettrie because he ran counter to their systematic moral, political and social naturalism, someone like Sade remained deeply influenced and inspired for his indebtedness to La Mettrie’s atheism and hedonism, particularly to the perception of virtue and vice as relative notions − the result of socialisation and at odds with nature.

 

Agamben and the Biopolitical – Nihilistic and Thanatopolitical Expressions. Thought of the Day 56.0

Agamben’s logic of biopolitics as the logic of the symmetry between sovereign power and the sacredness of bare life should be understood in terms of its historico-ontological destiny. Although this theme is only hinted at in Homo Sacer and the volumes that follow it, Agamben resolutely maintains that biopolitics is inherently metaphysical. If on the one hand ‘the inclusion of bare life in the political realm constitutes the original […] nucleus of sovereign power’ and ‘biopolitics is at least as old as the sovereign exception’, on the other hand, this political nexus cannot be dissociated from the epochal situation of metaphysics. Here Agamben openly displays his Heideggerian legacy; bare life, that which in history is increasingly isolated by biopolitics as Western politics, must be strictly related to ‘pure being’, that which in history is increasingly isolated by Western metaphysics:

Politics [as biopolitics] appears as the truly fundamental structure of Western metaphysics insofar as it occupies the threshold on which the relation between the living being and the logos is realized. In the ‘politicization’ of bare life – the metaphysical task par excellence – the humanity of living man is decided.

Commentators have not as yet sufficiently emphasized how biopolitics is consequently nothing else than Agamben’s name for metaphysics as nihilism. More specifically, while bare life remains for him the ‘empty and indeterminate’ concept of Western politics – which is thus as such originally nihilistic – its forgetting goes together with the progressive coming to light of what it conceals. From this perspective, nihilism will therefore correspond to the modern and especially post-modern generalisation of the state of exception: ‘the nihilism in which we are living is […] nothing other than the coming to light of […] the sovereign relation as such’. In other words, nihilism reveals the paradox of the inclusive exclusion of bare life, homo sacer, qua foundation of sovereign power, as well as the fact that sovereign power cannot recognize itself for what it is. Beyond Foucault’s biopolitical thesis according to which modernity is increasingly characterized by the way in which power directly captures life as such as its object, what interests Agamben the most is:

the decisive fact that, together with the process by which exception everywhere becomes the rule, the realm of bare life – which is originally situated at the margins of the political order – gradually begins to coincide with the political realm.

The political is thus reduced to the biopolitical: the original repression of the sovereign relation on which Western politics has always relied is now inextricably bound up with its return in the guise of a radical biopoliticisation of the political. Like nihilism, such a generalisation of the state of exception – the fact that, today, we are all virtually homines sacri – is itself a profoundly ambiguous biopolitical phenomenon. Today’s state of exception both radicalizes – qualitatively and quantitatively – the thanatopolitical expressions of sovereignty (epitomized by the nazis’ extermination of the Jews for a mere ‘capacity to be killed’ inherent in their condition as such) and finally unmasks its hidden logic.

Agamben explicitly relates to the possibility of a ‘new politics’. Conversely, a new politics is unthinkable without an in-depth engagement with the historico-ontological dimension of sacratio and the structural political ambiguity of the state of exception. Although such new politics ‘remains largely to be invented’, very early on in Homo Sacer, Agamben unhesitatingly defines it as ‘a politics no longer founded on the exceptio of bare life’. beyond the exceptionalist logic – by now self-imploded – that unites sovereignty to bare life, Agamben seems to envisage a relaional politics that would succeed in ‘constructing the link between zoe and bios’. This link between the bare life of man and his political existence would ‘heal’ the original ‘fracture’ which is at the same time precisely what causes their progressive indistinction in the generalized state of exception. Having said this, Agamben also conceives of such new politics as a non-relational relation that ‘will […] have to put the very form of relation into question, and to ask if the political fact is not perhaps thinkable beyond relation and, thus, no longer in the form of a connection’.