Uncertainty principle for economics,
or
How to tell the start of a big wave from the start of a small one

Y. B. Karasik,
Thoughts Guiding Systems Corp.,
Ottawa, Canada.
e-mail:karasik@sympatico.ca

When I moved to Israel in 1990 my first job there was a software engineer at Mennen Medical. I was tasked with developing a heuristic algorithm to recognize the start and the end of a heart beat in ECG signal. During certain surgeries there is a need in continuous monitoring of the amount of blood that heart pumps. The formula for calculating this amount takes into account the duration of the heart contraction during a beat. The duration is naturally obtained by subtracting the start time from the end time. That is why recognizing the start and the end of every beat in ECG signal is vital to the calculations and to the success of those surgeries.

For a healthy man the start of a beat is easy to recognize as it coincides with a steep rise in ECG signal. But for a sick man the rise is not so steep and high. Besides there are smaller and shorter spikes in ECG signal of a sick man not associated with a beat. This makes discerning starts of beats from starts of these spikes difficult.

The spikes are short and small waves, whereas heart beats are long and high waves (although for a sick man they are not as high and long).

Ten years later it crossed my mind that the problem of recognizing the start of a big long wave from the start of s small short one is also important in economics. Economic indicators fluctuates. These are small short waves. But there are also big long waves.

There were times when I thought that big but short-lived upswings in economic indicators are also possible. This prevented me from investing when markets started rapidly growing as I was afraid that it would soon start rapidly falling. But then I understood that one has to discern a fluctuation from growth (or plunge) in earnest. The first ones are never really big, whereas the second are never short-lived.

For example, if housing market starts falling in earnest it falls big and for long time. Similarly, if it starts growing in earnest, it also grows big and for long time. The sames goes for any other market.

There are no really big drops that are short-lived (i.e. recover quickly). Recall stock market crashes of 2000 and 2008. The stocks have not reached the levels of 1999 to this day. The same goes for housing. Similarly, if there is a big growth it is usually prolonged. We can summarize this important observation as follows:

There are no big short or small long cycles in variation of economic indicators.

Mathematically it can be expressed as follows:

A x F ≥ C,

where A is the amplitude of a wave, F is its frequency, and C is some big constant.

This inequality is of the same type as time-frequency uncertainty principle:

ΔT x ΔF ≥ C,

differing only in that that Δ is omitted. That is why all such inequalities can be called uncertainty principles. The former one, therefore, can be called the uncertainty principle of economics.

When I understood that I became a successful investor. The main thing is to recognize the start of a big and prolonged growth or plunge from a fluctuation. I don't invest when market suddenly starts rapidly growing. I only get in when an idicator shows that it is the beginning of a big and long wave.

Work on ECG recognition helped me to come up with such an indicator. But I doubt that somebody would be able to find it by TRIZ despite the problem has both technical and physical contradiction.