1. A friend of mine who worked several years as quantitative analyst explained that all this stochastic analysis junk is unjustified and basically made up in order to fill books. He showed me a recent book where page after page was filled with mathematical equations where each step in the calculation was written out in full detail, so that the calculation appeared to be extremely long. So I think it's true that the mathematical tools of stochastic analysis that is nowadays used in economics are largely unnecessary and can be replaced by much simpler tools (that were used previously) without any loss of real value.
2. I would agree that some economists work for corporations in order to maximize their profits. Moreover, an economic theory has a backreaction effect onto the market. My friend explained it to me like this. Some economist invents a new financial instrument, based one some "fancy-shmancy" mathematics. The bank where this economist works will market this financial instrument as the latest word of economic science. Other banks will then hire other analysts to create similar financial instruments. The more intricate the mathematics, the more perceived value the new financial instrument gets. So if everybody believes that this new financial instrument is valuable, its price goes up. The first bank makes money on this. End of cycle.
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2. I would agree that some economists work for corporations in order to maximize their profits. Moreover, an economic theory has a backreaction effect onto the market. My friend explained it to me like this. Some economist invents a new financial instrument, based one some "fancy-shmancy" mathematics. The bank where this economist works will market this financial instrument as the latest word of economic science. Other banks will then hire other analysts to create similar financial instruments. The more intricate the mathematics, the more perceived value the new financial instrument gets. So if everybody believes that this new financial instrument is valuable, its price goes up. The first bank makes money on this. End of cycle.
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