On Wed, Nov 06, 2002 at 11:02:59AM -0800, Carl Close wrote:
> <http://ei.oupjournals.org/cgi/content/abstract/40/4/664>
> Is this an example of the Broken Window Fallacy?
>
It looks like so to me. The point missed is: "hindsight is 20/20".
Since a disaster can never be accurately foreseen (or else, it wouldn't
be a disaster - duh!), people overvalue their capital before the disaster,
and distribution of value after the disaster is more correct than it was
before. People reallocate resources after the disaster to things that
are known to be more valuable afterwards.
Does it mean that the disaster created value? No.
If the disaster didn't take place, then the invested capital would indeed
be worth more than it is considering the disaster - in other words,
if the disaster didn't happen, then the knowledge of the disaster would be
wrong - and the false information contained in it would be not useful
but harmful (doh!).
The resource allocation based on a priori knowledge can only
be optimal based on the a priori knowledge. Criticising past
decisions based on a posteriori knowledge is all too easy.
If mister "I know better" can accurately see into the future
what other people can't - then he can do better than other people indeed
- but then, by being active in society, he buts increases the
a priori knowledge used by society, and reduces the gap between
a priori and a posteriori knowledge.
Maybe it's time to re-read some Hayek on the use of information in Society?
As for the statistics used by the authors - it's worth exactly what every
statistics is worth - zilch. Statistics can give correlation, but never
causation. They have no scientific value. They can be tools for
entrepreneurs to make responsible bets, and more probably tricks
for politicians to fool people into irresponsible collective choices.
News! Wearing socks increases productivity!
A study among the population in the world showed
that people who wore socks were more productive
than people who were barefooted by two standard deviations.
-- #f �
