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Blake
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Brainfallocatione
Oct 2000
time: 17:37
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Um errr not enough information. Altough I guess you're not risk averse.
edit: Ah actually you're risk seeking. Given the choice of gambling on the coin toss, or not gambling, you chose to gamble. If you said "I'd prefer to not to play that game" you'd be risk averse, if you said "I'm indifferent", THEN you'd be risk neutral.
Last edited by Blake on 20-09-2005 at 14:41
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Adam Smith
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Maryland, USA
Jan 1970
time: 00:37
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quote:
Originally posted by Agathon
No. I just think it is a pseudo subject as it is conducted at present. A decent economics would look at what people actually do, rather than making ridiculous assumptions about rational action.
Some do the former, but not nearly enough. |
A theory that says that anybody can do anything at any time for any reason is not a useful theory because it imposes no restrictions and therefore yields no testable hypotheses. You have to posit some kind of restrictions. The economic assumptions about rationality are as follows:
1. Completeness: for any two goods X and Y, either X => Y (X is preferred to Y) or Y => X
(edit: or both, which implies that the consumer is indifferent between X and Y)
2. Transitivity: if X => Y and Y => Z, then X => Z
3. Non-satiation: if X and Y are goods, then more X is better than less X, and more Y is better than less Y.
(Source: Hal Varian, Microeconomic Analysis, 1978, p. 80-84. This is Varian’s graduate text, not the undergraduate.)
Anything ridiculous here?
People like Vernon Smith (Nobel Prize 2002) ran some experiments to see if these assumptions hold up. In a couple of famous papers he found that even pigeons and drunks follow these basic axioms of behavior. People like Mark Machina (UCSB) have found that you can even weaken these assumptions somewhat (e.g., people are not quite sure which of two goods are better) and still get the basic results to follow.
You seem to say that people are irrational, but people actually seem to be able to buy a can of beans in the grocery store without having a nervous breakdown. This suggests to me that there is some kind of underlying decision process that can be modeled and tested. That is what empirical economic work is all about : looking at what people and firms actually do. There are plenty of economists out there doing good empirical work, providing useful information for consumers, producers, and policy makers. Good empirical work consists of getting good data, holding other factors constant (see, e.g., your claims that prices rose after NZ deregulated electricity), checking to see if the underlying assumptions are borne out. If not, you need to take another look at the theory. You might complain that economists make “ridiculous assumptions about rational actions”, but in fact, the testable hypotheses which flow from the basic assumptions are almost always confirmed. (e.g., the forty studies I once cited for you indicating that government enterprises are less efficient than private enterprises.)
One does not learn about these underpinnings of economics in a basic class, and certainly not in the popular press. Writing about economics does not make somebody an economist any more than writing about health makes somebody a physician. I will grant you that much of economics today has become theoretical, overly mathematical, and inaccessible to most people. This is probably because good empirical work won’t get you tenure. (This is my main criticism of economics today.) But unless you can tell me what is ridiculous about these basic assumptions, then I would have to say your criticism is uninformed.
Last edited by Adam Smith on 21-09-2005 at 21:09
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20-09-2005 14:21
All your countries are belong to me.
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