Perfect is the enemy of good – Voltaire Suppose you have the task that fell to Cristina (C): Find the Demand Frontier slope for flat-screen TVs. Her sister, Sheila, charged with estimating their value, had it easier, as she found the features and prices for these devices on many sites (see the post three months ago). In a perfect world, Cristina would have receipts for all models sold, forming a complete database. But no one has that. How can she discover a work-around? She gets an idea. She finds a nearly perfect world for stocks. In studying the S&P 500, she sees all outstanding shares and prices (A, less Amazon and Google). When she charts their Demand Frontier in blue, she finds their slope is -0.413, a statistically significant result with a P-value of 7.9E-06. She hypothesizes that the Demand Frontier slope of the market’s daily volume will mimic all shares. She plots volume against price and finds its slope of -0.398 (P-Value 8.16E-04), which varies less than 4% from the total. Excited, she maps the number of ratings for TVs against their prices and finds that they too form a viable Demand Frontier (B) at their limit (P-Value 1.99E-05). It’s not perfect. But it’s good. #hypernomics #innovation #markets #marketanalysis
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