No statistical technique can prove causation without a controlled experiment, which is not possible with the markets.

Stefan Jovanovich recounts:

David HumeMy dear wife and I once spent the better part of an hour searching the graveyard in Edinburgh for David Hume's final resting place. Finally, Susan found it. Over his agnostic bones his sister-in-law had erected a truly monstrous white marble statue of an angel. I doubt Hume would have minded. However, I think he would have objected to the notion that "controlled experiments" prove causation. This is a crude paraphrase, but Hume was rather insistent that our capacity to associate differing perceptions and to define those associations symbolically does not "prove" anything. All it grants us is the capacity to formulate hypotheses and to observe which hypotheses seem more useful than others. As Hume put it, "… that the sun rose today does not assure us that it will rise again tomorrow." Even the most common sense hypotheses can -logically - be treated only as conjectures, not certainties.

Tyler Mcclellan writes:

Causation is ironically exactly equal in logical form to the foundational principles of mathematics. They are both a priori, synthetic formulations that are both deniable and non definitional.

Ironically, Hume failed to understand that arithmetic and causation belong in the same category of thought, but Kant's brilliant insight into Non-Euclidean geometry and Gödel's work in arithmetic theory advanced that thinking to its current general acceptance. One believes Hume would likely have accepted causation if he knew he would be forced to reject along the same lines the foundation of his empiricism.

I believe the above has relevant corollary to the market because the now accepted method of scientific inquiry is that which is also repeatedly offered by Vic and Laurel as the foundation for sound investing: falsification. And why I believe The Logic of Scientific Discovery is the single most important book for applied scientists/thinkers in the modern time.

Stefan Jovanovich replies:

Immanuel KantI think Hume would have applauded Tyler's description of causation as an "a priori, synthetic formulation that (is) both deniable and non definitional." I am not certain that I fully agree that Hume would have been comfortable being described as an "empiricist." He seems to me someone who thought that the human understanding of the universe would, with luck, grow and flourish; but it would not — contrary to Kant — ever become more than our own speculations about what might or might not be. Thought, whether pure or unpure, would not let us see G-d. Like many genial people who are deep skeptics, Hume was comfortable with the notion that human thought itself was a form of revelation. (I think that is the main reason he was an irksome outlier to all celebrants of the Enlightenment - both past and present.) He would certainly have agreed that falsification was a better working hypothesis for handling money and stuff than any other, and he would undoubtedly have wanted Vic and Laurel to handle his money; but I suspect he would have sided more with Wittgenstein than the non-Euclidean positivists who are the wizards of the markets. My hypothesis is that his answer to Tyler would have been this: Even when humans discover where the square root of an imaginary number lives, a full understanding of what that mathematical tiger of the universe is saying will still elude us.


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