February 4, 2012

There are certain numbers/functions like, say, standard deviation that are quite complex but used very frequently. Because we need to use it so often that we can’t be bothered with writing down the entire formula every time we use it. So, we substitute it with “S”, for instance. Eventually we get used to the convenience of this and end up with another complex formula, like Black-Scholes formula for pricing options that use standard deviation. We then start to use this formula frequently, and start to price very complex options, so we create a symbol for Black-Scholes, say BS(). And, so on... A lot of students these days may simply use a spreadsheet program to get the answer to these functions and may not even know exactly how these numbers are calculated internally. When complexity keeps compounding in this fashion, it’s not possible for everyone to understand everything. Very few people understand, for instance, how every tiny component of a cell phone works. Someone may be able to explain the antenna component, but he probably has no idea how the camera component or the screen component works. It’s just not humanly possible to understand everything because of the compounded complexity. That’s how our world is today. How signification works in our modern world is too complex for any one person to comprehend.