“Here’s the idea. The idea is that our random walk model your value depended on every single shock. All the way through, in a finite memory random walk, your value only depends on the previous five shocks, the previous seven shocks. Let me show you. So, the value of something at time T instead of being all of the shocks, instead of starting at zero, and adding all that up to T just includes the previous five periods. So you think of there being a window like this and that window slides along over time. As time passes, you sort of just take the last five things that have occurred.”- Transcript from Scott Page Coursera
Source:
Scott Page Model Thinking MOOC Course
