A Challenge to Michael Emmet Brady


Who is Michael Emmet Brady? Well, he appears to be a man with a PhD in economics who claims to have unearthed what he considers to be the “true” interpretation of the work of John Maynard Keynes — one which, he claims, has been missed by almost everyone else who claims to follow in the tradition of Keynes.  He publicises his views in a few academic papers but most people come across him through his reviews of Post-Keynesian books on Amazon.

The Radical Subjectivist did a nice post on Brady that seems to me generally correct. Basically Brady appears to be making the claim that buried within Keynes’ Treatise on Probability is some sort of theory of microeconomic behavior. This has always seemed to me a bizarre assertion.

Surely for someone to make decisions in line with Keynes’ work on probability they would have to have first read and understood this work. Given that such an argument is coming from a scholar that complains that not enough people read the Treatise the irony is, of course, enormous. Indeed, in many ways Brady’s argument is structured in the same way as a rational expectations argument in that the economist assumes that people act in line with his model of them — so, it implicitly assumes that such a model exists “in their heads”, which seems unlikely unless they have deeply studied and adopted said model.

I’ve had debates with Brady’s followers before — yes, he has some rather vocal followers. My experience has been that they focus on minutiae and cannot really answer more fundamental criticisms like the one above. I have also pointed out where he was factually wrong in one of his reviews and never got a reply. All that considered, here I am going to take a different tack.

Okay, Brady is claiming that he has a mathematical model to get a grip on uncertainty. Fantastic. Then I think that it is time to apply it and display the results. He can do this in the financial markets. These markets, as Keynes and the Post-Keynesians know well, are characterised by substantial degrees of uncertainty (and no, that does not mean that you cannot make educated guesses to try to predict the movements of these markets as Brady seems to think). So, what Brady should do is apply his mathematical understanding of uncertainty to these markets to make predictions.

And that is where my challenge comes in. I follow the markets regularly. I think I know them pretty well at this stage. I also find them to be characterised by enormous amounts of uncertainty. So, if Brady takes up my challenge, I will continue to watch these markets and any time I come across what I consider to be a completely uncertain forecast — and there are many of these every week — I will lay out both the data and why I find it uncertain on this blog. Brady can then apply his technique and we can see if it works. If it does, we can then talk to some of the people I know in the hedge fund industry and we can set up a fund the money from which we can use to spread Brady’s ideas.

If Brady does not want to take up this challenge or his technique fails — let’s say that it gets things wrong more than 80% of the time — then we will know that he has not made the discovery he claims to have made. If he does take up this challenge and his technique succeeds, then we should all prepare for the coming revolution in not just finance and economics, but in science generally.


About pilkingtonphil

Philip Pilkington is a London-based economist and member of the Political Economy Research Group (PERG) at Kingston University. You can follow him on Twitter at @pilkingtonphil.
This entry was posted in Economic Theory, Market Analysis, Philosophy. Bookmark the permalink.

44 Responses to A Challenge to Michael Emmet Brady

  1. And who is his follower, Blue Aurora, who not only vehemently defends him but does so by referring to him in deference always and everywhere as “Dr. Michael Emmett Brady” in the post s(he) writes. This is a greater mystery than the Poincare Conjecture. 😛

    • It wasn’t Blue Aurora. I don’t really want to say who is is because I used to be quite friendly with them. But yes, I definitely get a cult-like/deferential vibe from the people who champion MEB’s work.

      Of course, if he can do what he claims to be able to do then we should all be deferential. Hell, if this guy can largely eliminate uncertainty then sign me up!

  2. Lord Keynes says:

    I think Brady’s major complaints against Post Keynesianism are:

    (1) Post Keynesians have not understood Keynes’s Treatise on Probability properly, and in particular his idea that of relegating frequency interpretation of probability to a highly limited domain and that non-objective probabilities (in the sense of non a priori probabilities or non relative frequency probabilities) can nevertheless be mathematically represented with imprecise interval estimates (apparently called “approximation” by Keynes). This leads into a Keynesian decision making theory with some mathematics behind it superior to the Ramsey/Savage/neoclassical EUT and consistent with Daniel Ellsberg’s decision making theory.

    (2) he says Paul Davidson’s interpretation and version of Keynes’s D-Z model is wrong, and that Post Keynesians have not properly understood Chapters
    20 and 21 of the General Theory and that Keynes had a sophisticated mathematical model in those chapters.

    (3) he says that all Post Keynesians misunderstand Keynes’s conception of uncertainty and none recognise degrees of uncertainty.

    I suspect charge (1) is partly true, but exaggerated.

    But I think it is clear that charge (3) is false. I can cite Post Keynesians who do recognise degrees of uncertainty. E.g., Sheila C. Dow has done so in print:

    Dow, Sheila C. 1994. “Uncertainty,” in Philip Arestis and Malcolm Sawyer (eds.), The Elgar Companion to Radical Political Economy. Edward Elgar, Aldershot. 434–438.

    Dow, Sheila C. 1995. “Uncertainty about Uncertainty,” in S. C. Dow and J. Hillard (eds.). Keynes, Knowledge and Uncertainty. Edward Elgar, Aldershot. 117–127.

    And Lars Syll told me the other day on his blog that he does too.

    But I would like to see someone respond to charge (2).

    • It’s number (1) that I’m interested in. Because, as you probably know LK, I don’t believe in mathematical decision-making theories, not matter what type of probability theory they’re based on.

      A useful decision-making theory has to say something about the real world. Since the most relevant place where such a theory can be applied is the financial markets then this, for me, is the ultimate test of any theory. Indeed, this is what the Efficient Market Hypothesis does; it posits a theory of decision-making and then makes actual market predictions (no one can beat the market etc.). This is also what certain strands of behavioral finance theories do. I think that all of them are false. If Brady has a viable theory of decision-making it must be applicable in reality otherwise it is useless.

      Keynes, in the General Theory has no such theory. He views financial markets as highly irrational. In line with his “beauty contest” dynamic he essentially views them as a hall of mirrors. I suspect that he did not think this in the 1920s when he appears to have thought you could use theory to make gains in the market. See here:


      “[Keynes’] performance lagged the market in the 1920s, when he used an elaborate economic model to time the market. It did not work, and he failed to spot the Great Crash coming.”

      This suggests to me that the Keynes of the Treatise still believed in some sort of theory that could make calls about human decisions. But by the time of the General Theory — when Keynes was picking stocks — I do not think that this was the case. However, in this case “what Keynes said” does not matter all that much. The question is whether Brady has come up with a useful theory or if he’s just cooked up some useless but potentially pretty mathematics. We can prove or disprove whether this is the case.

      • Lord Keynes says:

        “This is also what certain strands of behavioral finance theories do. I think that all of them are false. If Brady has a viable theory of decision-making it must be applicable in reality otherwise it is useless.”

        But I do not think he ever claims that his Keynes-based decision-making model will have any value in predicting values of stocks, shares or financial assets:

        “Mandelbrot serves up overwhelming empirical, statistical, and historical evidence that financial decision makers are dead wrong in assuming, contrary to the available evidence, that a normal probability distribution describes the outcomes accurately in financial markets. In fact, the Cauchy distribution is substantially more relevant than the normal distribution.Mandelbrot’s work simply means that the standard theoretical models taught in all colleges and universities,the CAPITAL ASSET PRICING MODEL (CAPM) and the BLACK-SCHOLES equation, give correct answers if and only if the relevant probability distributions about the movement of prices in financial markets over time are all normal. However, the evidence shows that they are NOT normal. Mandelbrot confirms, by massive data analysis, Keynes’s original 1921 objections to the misuse in application of (by merely assuming the applicability of such a distribution without examining the actual data)the normal probability distribution made in chapters 29 and 30 of the A Treatise on Probability (1921)”

        At most, all he is saying is: you can predict that a bubble will collapse:

        “Keynes recognized that financial markets ,for the last 400-500 years since the introduction of modern,fractional reserve banking,exhibited the same speculative pattern over and over and over and over again. ….

        THe pattern is already at work right now.Obama,Bernanke,and Geithner have bailed out the Wall Street speculator crowd again, just as they were bailed out in the early to late 1980’s by Paul Volcker and late 1990’s-early 2000’s by Alan Greenspan .The result is that another bubble in the stock markets is being created.These financiual bubbles are ergodic because the same pattern repeats again and again.

        These kinds of events are stationary because they keep repeating over and over again.Their ultimate collapse can be predicted with a probabiity approaching 1. However,they are not Normally distributed. One can’t use the Normal distribution to describe the time series data in financial markets .The underlying processes are given by the Cauchy distribution.Davidson vaguely realizes that they are not normally distributed,but fails egregiously to recognize that they are Cauchy.Davidson has failed to take into account the vast,overwhelming empirical evidence that has accumulated over the last 50 years establishing the correctness of Mandelbrot’s pathbreaking work on financial markets.


      • Two points.

        (1) I suspected that this might be the case. But I wanted Brady or his followers to admit it. Because it means that he’s full of hot air. What he is then claiming to have is a theory of decision-making that effectively does nothing. Such a theory is completely and utterly useless.

        (2) He’s wrong that financial speculation must by necessity collapse. There is strong evidence, which I’ve laid out on this blog before, that speculators are driving oil prices. But it is not clear to me that the oil market must at some point collapse.

        I think the trick here is in the definition. A bubble, by definition, is something that at some stage pops. But then to say that a bubble will pop with a probability approaching 1 is pretty meaningless as it is contained in the word “bubble” itself. This ties into point (1): I don’t think that Brady’s theories can actually say anything at all. I think what he’s doing in practical terms is trying to derive a language out of Keynes’ probability theory. But such a language cannot say anything original or novel. It just coaches what are ultimately banalities in different ways.

        This is precisely the impression I got from arguing with Brady’s followers.

  3. Hari says:

    The idea of a challenge is actually pretty good, but the way Philip conceives it is not entirely fair: there is a prize and a penalty for Dr. MEB; but, at least potentially, Philip has plenty to win (“WE can then talk to some of the people I know in the hedge fund industry and WE can set up a fund the money from which WE can use to spread Brady’s ideas”), but nothing to lose.

    Maybe if Philip were willing to risk a little penalty of his own (say, some money) and reveal some more details of the people he knows, Dr. MEB could find the deal more enticing. It’s not like there is the slightest chance Dr. MEB is right, after all.

    And noblesse oblige. 🙂

    • I don’t see what Brady has to lose at all. If he believes that his theory is useful and accurate then he has everything to gain — money, fame etc. If he is unsure whether his theory is useful and accurate then he should test it and if it doesn’t work he can scrap it and stop criticising the rest of the Post-Keynesian community.

  4. Hari says:

    The point is not what he has to win or lose, but that you want to win either way, risking nothing:

    If Dr. MEB fails, then he fails; you lose nothing and you get to gloat.

    If he succeeds, then you come with the “WE can talk”, “WE can setup…”, “WE can…”. If he accepts, then you hit the jackpot.

    If he doesn’t and says: “Sorry, mate, there’s no WE here” you’re none the worse.

    So, where’s your risk? Nowhere.

    Risk something, put something on the line, and perhaps you could tempt him. Unless, of course, you think the risk of losing is unacceptably large.

    • I don’t hit the jackpot. I said that all the money goes to spreading MEB’s ideas.

      I would have to put substantial effort into hooking him up with hedge fund managers with no return. Why would I do such a thing? Simple: because I don’t believe MEB can actually deliver. So, in my estimation there is no risk for me here.

  5. Paulo Pereira says:

    I can take challenge on behalf of MEB.

    I read most of his works, I read most of MMT and PK Blogs, and I think he is on something .

    I am and entrepreneur and investor on the stock market, and I have found people that beat the market 70% of the times.

    I beat the market 60% of the times now, but I’m improving every year.

    I believe I can go to the 70% level in a year or two.

    • First of all, what do you mean by “beating the market 60% of the time”? Do you mean that you are making 60% more than the market. Or do you mean that you are making x% more than the market in 60% of your investments? The former would be very impressive; the latter might not be if that x% is very low like say 0.1% in which case you need to be more specific.

      Are you currently working in the investment business? If so, what are you doing? (Hedge fund etc.)

  6. Paulo Pereira says:

    Sorry I was not clear.

    I mean that in 10 years I can beat the S&P500 6 years , and in a 10 years period beating the S&P500 by at least 1% per year.

    I know people that can do that 7 years in 10 years.

    People that know that the market has a kind of ergodic behavior.

    I am a private investor and family office manager, and also a “serial” entrepreneur.

    Regarding MEB and Keynes, I agree with him, and Keynes, that only long term fixed capital investment is totally uncertain in a capitalist economy system.

    But that is enough to make impossible a single equilibrium of the system.

  7. Paulo Pereira says:

    Well, if you agree that the EMH is false and that only in fixed long term capex there is absolute uncertainty, then you could try to explore the financial markets partial ergodicity.

    After studding for 4 years the MMT and PK theories , and reading Keynes, I started to look at people that claimed that could beat the stock market over a long time period, repeatedly~.

    And I have found some people that do that, on the stock market.

    I don’t know about other type of trading like currencies or commodities.

    I just invest , speculate, in US stocks, manly the SP500 index.

    • Paulo,

      Okay, we need to sort things out here.

      (1) Saying that the EMH is not true, which I agree with, is a negative judgement. It does not tell us how to trade. If MEB’s theories are useful they should be applicable to actual, concrete, empirical decision-making in the markets. I mean that we should be able to take a potential trade, crunch it through MEB’s new “correct” probability theory and an answer about what to do should come out the other side. A good deal of these answers would then have to be correct.

      (2) I agree that you can beat the market. I fiddle around with the markets and I beat it fairly substantially over the past eight months. I got about a 31% return. This was pretty much exclusively trading currencies. Looking at the following, I think that beats the market average by a fair amount (I recall an FT article saying that the market average was about 24% about a month ago):


      I’d imagine I could do a lot better than this if I put the effort in. I barely pay attention anymore and just poured everything into a short position on gold recently because I have other things to do this summer. So, yes, I think you can definitely beat the market.

      (3) So, really we need an actual system derived from MEB’s theories if they are to be validated. Just like the EMH gives you very specific advice and so do “trend trading” theories, MEB needs to do the same. If we cannot devise a system and are just kind-of, sort-of using the insight that there are trends in the market that hold over time, then we are not saying anything new. I know this already, as do many others, and I do not understand MEB’s theories in depth.

  8. Paulo Pereira says:

    Yes, those people that I am referring they have a system to beat the stock market over 10 years and more, but they don’t know about the MEB theories, they just know that the stock market is not totally uncertain.

    MEB just tries to prove that only in long term fixed capital investment there is absolute uncertainty, because in the other economic parameters there is partial uncertainty or almost none uncertainty.

    So the first part is to prove that the stock market is not totally uncertain, then the second part is to find systems that capture the partial uncertainty.

    Also, if you accept that it is the Fixed Capital Investment the main parameter of instability in the capitalist system, the other being the Minsky Debt Theory, you follow them very closely and incorporate that in the system.

    To me was reading the MEB texts that made the final push to accept the partial ergodicity of the stock market.

    I do stock trading since 1988.

    • “MEB just tries to prove that only in long term fixed capital investment there is absolute uncertainty, because in the other economic parameters there is partial uncertainty or almost none uncertainty.”

      If this is the case then his work is not original. It even exists in Shackle and Davidson (MEB’s arch-nemeses), albeit under a different name:


      MEB is then making grandiose claims. And if his mathematics cannot crunch out real results then it is just window-dressing. This is what I long suspected.

  9. Paulo Pereira says:

    Just to be praticall we can start today with 100.000 USD

    1- buy now 300 spy 168.53 -0.58 (-0.34%)
    Real-time: 1:07PM EDT

    • I’m sorry. This is too arbitrary. We are then just relying on your judgement, not on MEB’s mathematical theories.

    • Paulo Pereira says:

      I think that is original to state that only fixed capital long term investment is complete uncertain and that the stock market is partial ergodic.

      • The term “partially ergodic” is highly misleading.

        Anyway, even assuming that other Post-Keynesians don’t recognise some regularities in the stock market (highly unlikely), if that is the extent of his contribution then it is far less than his adherents give him credit for.

  10. Paulo Pereira says:

    Do do Post-Keynesians state that “It is only investors in long lived physical ,durable ,fixed capital goods who face total uncertain ” ?

    • I don’t know. I’ve never seen if any authors have said this specifically. It’s a VERY specific statement (and I suspect probably false). But I think the Post-Keynesian understanding of uncertainty is that the further you go forward in time and the more complex and numerous the quantities and qualities being considered the greater the level of uncertainty.

  11. Paulo Pereira says:

    Please see this graph, but select Percentage Change in units


  12. Paulo Pereira says:

    It can be used to help predict the economy.

    • Yes… investment can be used to predict the future path of the economy to some extent. I think anyone who has worked with the NIPA knows that. I don’t see your point.

      • Paulo Pereira says:

        Ok, so if you adhere to the MEP theory then you can just try to model a numerical system where the single totally free variable is the fixed capital investment, and see how it works with past values.

      • Well, that’s just flat wrong. What you’re referring to is the accelerator effect which is one of the things taught in most graduate level macro classes:


        As is well-known that accelerator cannot account for downward fluctuations in investment which are generally caused by exogenous — and, I would say: non-ergodic — shocks.

  13. Paulo Pereira says:

    I am saying the same as you: You run a system with the fixed investment as the free variable in order to see if it’s variations explain most of the private economy variations.

    If this is true, them maybe MEB is right.

  14. Paulo Pereira says:

    Most of the macro text books don´t say that the Fixed Investment is subject to total uncertainty in the decision process of the companies.

    • The one I used did. It had the animal spirits argument in it (which is what you’re talking about).

      Anyway, every Post-Keynesian knows this. MEB is not saying anything remotely new. Sorry. If his maths can’t be used to make decisions, then I don’t think he’s saying anything new at all.

  15. Paulo Pereira says:

    Just to follow the challenge : Buy more 300 SPY now at
    168.98 +0.45 (0.27%)
    Real-time: 9:40AM EDT

  16. Paulo Pereira says:

    Sell 300 SPY now at
    170.55 -0.10 (-0.06%)
    Real-time: 1:52PM EDT

  17. Paulo Pereira says:

    Buy 300 SPY now at

    170.03 -0.77 (-0.45%)
    Real-time: 10:09AM EDT

  18. Dan says:

    This person Michael Emmett Brady represents one of the less productive aspects of the Internet. I had the misfortune of falling into a ‘debate’ with him after he suggested that Bertrand Russell was somehow not a rationalist, despite Russell writing a book titled ‘why I am a rationalist’. Stung by his obvious ignorance, Brady resorted to shouty confrontationalism, trying to pretend that he was referring to some sub-category of rationalist of which I, in my stupidity, was unaware. All needlessly bad-tempered and unilluminating.

    There’s something very weird about Blue Aurora, too, in their constant advertising of the few papers that Brady seems to have authored. It’s as if they are trying to make out that Brady is some sort of academic genius, when really he’s just an intemperate Internet person with a few controversial ideas. In essence it’s all very unscholarly. I now tend to ignore most of this sort of stuff.

    • What bugs me about MEB is that his rhetoric rings hollow. He makes claims that seem to suggest that he has found The Truth but he never really reveals it. And then when you ask him or his followers for illumination they direct you to these obscure papers that read like crap. That’s why I thought the best way to approach this was to say “put your money where your mouth is”.

      Also, as you suggest, MEB’s Amazon reviews are peppered with misreadings and misunderstandings that, when cleared up, leave his main points of argument moot. Example (see my response):


  19. Peter L says:

    Hi Phil, I’ve stumbled across your page by a quick google of MEB after reading a pretty odd Amazon review by him. Anyway can I ask for a clarification of something in your piece?

    You say: “Surely for someone to make decisions in line with Keynes’ work on probability they would have to have first read and understood this work.”

    I may have misunderstood you, but is that not akin to saying: “for someone to make military decisions in line with (say) Clausewitz work on strategy, they would have to have first read and understood this work.”

    The implication being that before Clausewitz’s work no army fought along the lines he described…which of course would have rendered his work without value.

    I use Clausewitz deliberately because of the importance of decision making in his work. But of course one could extend the analogy to Newton’s work. No one would claim that for celestial bodies to act in accordance with the Principia, they would first have to read and understand that work!

    • Hey Peter, Yes there was some confusion around that statement. I now regret making it without elaborating on it. It has to do with the nature of the theory that Brady is claiming to have. Here is a response to another blogger on that topic (note you could substitute “Freud” for “Clausewitz” in this example pretty easily):


      You might also note the following comment I made to the author in the comments section:

      Let me be clear about this: Brady claims that his decision theory is the basis of a microeconomics. This means that people act in line with his views on probability. But how would they do this without understanding the probability framework? Is Brady assuming that his probability is hard-wired into humans at birth? Is this something like Mises’ praxeology?

      It seems to me highly unlikely that people come “inbuilt” with Brady’s probability theory at birth. So, in order for them to act in line with it, they would presumably have to have read it and understood it.

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