Posted on 12/21/2008 10:09:48 AM PST by HawaiianGecko
As the economy sinks and investors buckle over, the behavior buffs are rising up. From the lesser-appointed corners of academia, psychologists, sociologists and a youthful breed of economists scoff at the revered mathematical models that have driven economic thought and snared Nobel Prizes. These preachers of “behavioral economics,” including some on President-elect Barack Obama’s economic team, argue that humans cannot be relied upon to obey the efficient, orderly tenets espoused by free-market thinkers.
(Excerpt) Read more at kansascity.com ...
“math is hard”
Some traditional economists might ask, “And how do you intend to calculate the effects of herd mentality, blind faith or self-destructive foolishness when dealing with a mortgage broker?”
well, we’ll just check the ‘aura’ to see if the behavioral theory has good ‘karma.’
I’m not aware of most economists insisting that every human being acts rationally with money, only that they will act in a way that they perceive to be the optimal set of choices in pursuit of their self-interest (even if that means they like to live their life sacrificing for others to some degree) and values.
But to some degree, it would seem the Austrians were right, not just about credit expansion and bust cycles and the role governments play in that, but also that economics should not be about mathematical models. (which is why some economists scorn them.)
I think the Skinner box is stored up in the rafters in the garage.
There's the problem.
If you neighbor voted for 0be, he'll be wanting more of your pie. Some folks are more rational than others. 'Rats are emotional.
We need two separate economies. May the better side win and be able to retire early. The other folks can carry 0be and Mugabe around in their sedan chairs.
“including some on President-elect Barack Obama’s economic team, argue that humans cannot be relied upon to obey the efficient, orderly tenets espoused by free-market thinkers.”
The brainiacs of the beltway need to realize one thing. Most of us out here in the backwoods know one simple fact that they don’t get.....You spend more than you bring in you are in DEBT!
Good think that politicians are not humans, we are saved! Heil Ooooobama!
The new fad is “libertarian paternalism.” Obama’s friend Cass Sunstein is a big promoter of this. The argument is people make errors in making decisions and sometimes go against their own self-interest; therefore, the government should exploit people’s inherent biases to help them make the ‘right’ decisions.
“We need two separate economies. May the better side win and be able to retire early. The other folks can carry 0be and Mugabe around in their sedan chairs. “
I like it.
Isn't this a pathetic, false argument? We don't assume that people act rationally with THEIR OWN money at all! Of course, government planners will action rationally with OUR money, right? The fact is, if it's your money, you get to spend it, save it, waste it, donate it... whatever. This is a trick to justify taking more from the "stupid boobs" who actually get paid for something, and spread it around. Sickening.
This is a receipe for increased authoritarian rule.
I’ll follow Hayek and Friedman.
Two interesting quotations.
“When directing people to certain decisions without forcing anything on them, it’s unwise to promote too many choices or we will freeze and do nothing, say Thaler and Sunstein.”
We’re going to get a lot of this from the new administration. They will talk of giving freedom to choose but they will only offer the choices they agree with.
Now, here’s the most important point from the article: “If people mess up all the time, who’s to say the policymakers won’t get it wrong?”
Yes, policymakers are people and subject to the same kinds of mistakes and errors. Too bad the policymakers don’t see themselves as less than superhuman.
This statement is both wrong and simplistic.
Traditional economic theory doesn't state that rational actors “always” act rationally. It states that enough of us act rationally, often enough, that predictions can be made.
The implicit equivalence of “informed self-interest” to greed is simplistic. Traditional economic theory actually holds that people will tend to want to maximize their “utility”. For instance, people value long-term relationships, and will forgo money to preserve them. They are also altruistic — e.g. giving money to a charity often provides more “utility” than squandering it on luxuries. Our self-interest also includes the well-being of our families and friends — we'll sacrifice a lot for them.
There seems to be a lot of interesting things happening in “behavioural economics” — but, writers in the mass media display little to no understanding of what comprises traditional economics. Mathematical modeling has played too prominent a role in economics of late. Too many math geeks playing with their models have removed a lot of the relevance from modern economics. A large number of the quants have no real understanding of economics. They're very much like climate modelers, who forget that the model is not the world.
Behavioral Economics is not new. Dr Daniel Kahneman won the Nobel Prize for Economics with his theories in 2002, even though he had been studying this since the early 1970’s.
Moshe Milevski is another Behavioral Economist.
John Huggard is a law professor that also covers this.
It has nothing to do with politics, but it does have a lot to do with tax policy.
“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity — myself, especially — are in a state of shocked disbelief,” the former Federal Reserve chairman conceded.
does NOT refute the basic underpinnings of free market economics. What this says is that self interest did rule at the expense of shareholder interests. While Washington might use this for an argument in greater regulation, trying to say it throws out rational economic behavior smacks of politicians trying to find yet another way to get deeper into your pockets.
The second economy already exists. Right now it’s mostly drug dealers and Mexican laborers, but the rest of us will be down there soon enough as the governments (at all levels) continue to strangle the official economy.
Move fast, pay in cash and never give your real name.
Agreed. That second economy has helped bring down this one as well.
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