[rdlowrey]

As a programmer with an economics degree, I'm thrilled to see articles like these on HN ... popular media outlets do a terrible job of explaining how these systems work and usually devolve into generalizations like "HFT is evil and you should hate it" because they don't understand basic economic principles.

[MarkPNeyer]

maybe they think basic economic principles such as "everyone is an equally informed sociopath acting at all times to consume as much as possible without regard to relationships" are absurd.

economics is a bullshit field.

[rdlowrey]

But math isn't. Everyone is entitled to their own opinion; mine just happened to result from the mathematical proofs I was forced to study and write for the postulations of that "bullshit field." I would also submit that your argument ignores the law of leaky abstractions (http://www.joelonsoftware.com/articles/LeakyAbstractions.htm...) ... All non-trivial abstractions, to some degree, are leaky. Finally, economics doesn't assume people "[act] at all times to consume as much as possible without regard to relationships." It assumes that individual actors make decisions that maximize their utility. Utility can result from completely selfless acts -- it's whatever makes you happy. "Selfishness" does not rule out actions that benefit others or society at large. This argument exemplifies the misunderstanding of "basic economic principles" referenced in my original comment.

[nasmorn]

That is funny because the proofs had the opposite effect on me. It dawned on me that the math of e.g walrasian price setting is surely correct but the story that this is supposedly how our economy works was much less believable after each supposedly logical assumption (free disposal, no money pump) could be traced back not to psychology or physical realities but conditions for the equations to remain solve able.

Looks to me like a cryptologist predicting what passwords people would choose based on the needed computing power to crack them. I wonder if 'password' made the list.

[rdlowrey]

I tend to agree with your position. The fundamentals of individual microeconomic decision-making are much more sound IMHO than their extrapolation to large-scale macroeconomic systems. At the macro scale I believe the system is far more complex than we can correctly model with anything but rough approximation. Otherwise, we'd already know exactly when/why/how future recessions and booms would occur. The High Frequency Trading question, though, exists entirely within the micro sphere where the math is rock-solid. As such, I've yet to encounter a logical refutation for its use.

[nasmorn]

This is one of my favorite papers explaining possible problems with arbitrage. http://www.math.mcmaster.ca/~grasselli/ShleiferVishny97.pdf It is not directly applicable to HFT though.

[Symmetry]

It would be more fair to say that economics assumes that people try to achieve their goals in rational ways. Which is actually a fairly good assumption in most cases when people can work in large groups, face the same challenges again and again, and can watch each other succeed or fail. There's really no assumption that people are equally informed, because when I read economists talking about things they always seem to spend at least a quarter of their time talking about signalling.

Sometimes the assumption that people are rational breaks down, like with sticky prices caused by what psychologists would call "loss aversion". In that case economists make the changes they need to to their models to account for how people differ from the simplest model. This is basically how you get the entire field of Macroeconomics.

[rdlowrey]

I agree, though as far as HFT is concerned (staying on topic), I'll reference this other comment below: http://news.ycombinator.com/item?id=3895308