Fisher Investments Press: 20/20 Money: Why You Can't Quantify Everything

Fisher Investments Press author Michael Hanson believes equations and models can predict how a machine will work, but living things have properties that cannot be quantified.

Math describes much of the physical world quite easily—objects (usually inanimate) that are governed solely by physical laws. If you throw a football, all you have to know is a few variables like velocity and acceleration and gravity and you can pretty easily figure out where the ball will land. You can do the whole thing by using an equation and plugging in a few variables. Like a miracle, it will work every single time! Totally universal.

Another familiar mathematical dictum: If you solve each step, or part of the larger problem, eventually all those small solutions add up to the bigger solution. Think about a car as an example. A car is a big machine made up of a bunch of smaller systems—engine, air conditioner, power steering, and so on. When you put all the little systems together, you get a car. Same with the human body: Scientists commonly understand our bodies by reducing the problem to the smaller parts—systems like circulatory, nervous, skeletal, and so on. Or we can go even further and think about individual cells. If we can understand first how our cells work, then we can simply put all the cells together and then get to a solution about how the body works.

But Fisher Investments Press author Michael Hanson believes complex systems like stock markets, which involve humans, don't behave like physical systems. Intentionality isn’t the territory of physics. Minds, feelings, urges, thoughts—there is no set of mathematical rules (we know of) to explain them. But Fisher Investments Press author Michael Hanson believes that doesn't stop folks from perpetually trying to impose the logic of physical systems on complex systems like stock markets.