Markets are giant calculators outputting the price of risk. Those outputs are fed back into our choices ultimately determining where resources flow. I call this appreciative knowledge because it supports one’s understanding of how the system works. I differentiate it from instrumental knowledge because it is not prescriptive. It’s more like the grout in your understanding. It holds the tiles of logic together and it’s aesthetically satisfying
By the end of this little journey, the role of “complete” markets will make more sense at the system level.
<aside> 📱 Financial innovation and “complete markets”
Voting and markets are both mechanisms for coordinating human behavior and expressing their preferences. Let’s just jump in:
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<aside> 💡 A thought: Finance As A Necessary Abstraction
Finance, like code, is an abstraction. It's a symbol manipulation field. While the output of code is easy to see in the wild, it's harder to draw a line from progress in the real world back to financial innovation.
Of course, finance has its share of bad actors, but when those grievances spill over to honest practitioners it can make them feel alienated from their own work.
I'm not going to go all Blankfein on you and invoke “God's Work” but when you see someone toiling in operations (my mother worked in a bank back office most of her career) there's no justification for suffering the indignity of “you contribute nothing to society”.
While traders and bankers seem overly adept at justifying their chosen profession, I still meet many introspective types in those roles who feel conflicted about their jobs, especially since many of them had the ability to answer “more respectable” callings.
I’ve covered this before in Finance Guilt but don’t worry you aren’t evil or…special. You’re just a plain ol’ worker bee in the hive of human advancement.
[For the paradox-sniffers: it's true your individual job doesn't matter but collectively all the people doing your job matter. It's similar to the paradox of one vote having a 0% probability of mattering but voting still matters or the famous paradox of thrift that acknowledges that while it’s wise for individuals to save, if we all try to increase our savings simultaneously it would tank the economy]
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