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Extra resources for Uneconomic Economics and the Crisis of the Model World

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In Li’s case it is the demand-and-supply Vision of orthodox economics opinion that is placed on such a pedestal. There is nothing in the exposure to an exemplar to say that it captures actual patterns of socialisation to be discovered in real-world environments, only what is to be gained for the uniformity of scientific practice in accommodating oneself to the exemplar’s view of the world. What Kuhn suggested and the industry standard status of Li’s model seems to confirm, then, is the existence of a distinct division between an ‘external world’ of nature and the ‘phenomenal world’ that scientific practice constructs (see Sharrock and Read 2002: 178).

The former is consistent with a focus on demand and supply alone, but the latter makes it necessary to also take into account a whole host of social indicators of housing market ‘success’. When reconfiguring the housing market conceptually as a superportfolio of serially correlated house prices, the chances of individual homeowners defaulting on their mortgages must in turn be serially correlated to a potentially enormous degree. This possibility, unfortunately, is fundamentally unseeable from the perspective of Li’s Gaussian copula formula.

In other words, a ‘replication-and-arbitrage recipe’ existed, involving further economic activity in real-world markets, to enforce the ‘market’ mechanism implied by the Black–Scholes–Merton equation (Dunbar 2011: 93). The same is not true with Li’s Gaussian copula formula. There is a pricing rule here but not an associated trading rule. The hypothetical price that the formula produces has no anchor in other real-world prices and therefore nothing of known dimensions against which it can be compared.

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