>Disorder is not a mistake; it is the default. Order is always artificial and temporary. >[*Farnam Street*](https://fs.blog/entropy/) Disorder while the default is not natural and not how God created the world to be. However, in this postlapsarian world disorder has become the default and the very nature of time is defined by the gradual increase in disorder. Entropy is a measure of disorder in a closed or isolated system that will always increase with [[Time]]. >The increase of disorder or entropy is what distinguishes the past from the future, giving a direction to time. >Stephen Hawking, *A Brief History of Time* Time is the confounding variable in life and the markets. Entropy is the process by which time confounds our efforts to control the world around us. We do work to bring a system into a desired state, but the energy from our work dissipates into the world around us creating inefficiency and unintended consequences. As time elapses disorder in the system naturally increases working against our efforts. ![[Risk#^ffc8e1]] ## Asset Duration Charles McGarraugh has developed a theory he calls [asset duration](https://www.flirtingwithmodels.com/2023/12/05/s7e1-change-in-the-market-is-acceleratings7e1/) which asserts feedback is more powerful the less it is exposed to realization of information. In other words, market opinion depends on the tenor of the story you are telling. When interest rates are zero, money in 10 years is worth more than it is today. So the stories you tell are more valuable and you have fewer realization data points to judge them against. The weighing machine function of the market operates at different wavelengths. Feedback processes works at different wavelengths. Where storage is not available supply and demand true up instantly. When storage costs are low, like with the price of gold, it can take any amount of time for supply and demand to true up because there are so many different opinions on value. There is an interplay between the cost of capital and the wavelengths of fundamental realization and expectations feedback. ![[Pasted image 20240304133043.png]] ## Reflexivity Entropy is derived from the actors in the system, and the markets are an emergent system which means that characteristics and features of the system can be artifacts of the past. We have already demonstrated how the cost of capital is influenced by the duration of subjective and objective reality feedback which ties into Soros' Theory of [[Reflexivity]]: ![[Pasted image 20240110083012.png]] ## A Framework for Price and Value By connecting time, price, and value we can derive a framework which incorporates both the quantitative and qualitative processes of price setting and value discovery. ![[Pasted image 20240304135621.png]] This framework allows us to find regularity in the natural disorder of life and the markets. **Case Studies** - [[CHG Issue 173 Entropy of AI Agents]] - [[CHG Issue 143 Finding Order in Disorder]] Explore Further: [[Auction Process]] | [[Price versus Value]] | [Why Investing Feels Like Astrology](https://moontowermeta.com/why-investing-feels-like-astrology/) Tags: #buddings Your support for Cedars Hill Group is greatly appreciated <form action="https://www.paypal.com/donate" method="post" target="_top"> <input type="hidden" name="hosted_button_id" value="74PGN8ZXHQVHS" /> <input type="image" src="https://www.paypalobjects.com/en_US/i/btn/btn_donate_LG.gif" border="0" name="submit" title="PayPal - The safer, easier way to pay online!" alt="Donate with PayPal button" /> <img alt="" border="0" src="https://www.paypal.com/en_US/i/scr/pixel.gif" width="1" height="1" /> </form>