me: >> Yes, _in practice_ people (including Keynes) assume ergodicity as part >> of a convention. But when Keynes was doing serious theoretical >> thinking (when he was examining the world as an economist rather than >> participating in the world as a speculator), he did not make that >> assumption (at least according to Davidson et al.)
Julio writes: > How can *anybody* lead a life without the ergodic assumption, > including Keynes and his followers? You're saying that people need to make a "leap of faith" to get out of bed in the morning? I agreed with that. Just because some risks are _uninsureable_ does not mean that we don't take them. One reason we do so is Keynes' "animal spirits" (optimism not based on certain truth). People, like other mammals, seem to an inherent drive to live, to try to cope with the shit-storm. It can be counteracted by other drives, but even suicide-prone people have a hard time pulling it off. Another is that in real life, we have few choices but to take uninsureable risks. There's a possibility that next time I cross the street a car will hit and kill me, but I'm not refusing to cross streets. (I wish I had remembered this earlier: the existence of uninsureable risk is one way of defining Keynesian uncertainty or non-ergodicity.) > *Therefore*, how can any macroeconomic theory dispense with the > ergodic assumption altogether? Maybe macro theory should assume that people usually act _as if_ they were following the ergodic assumption. That's very different from assuming that the assumption is _true_. If I wanted to understand the behavior of a monotheistic congregation, I'd assume that they acted on the basis of faith in the Almighty of their choosing. That's _very different_ from assuming that they're right about the existence of that deity. There's a big difference between an assumption which may or may not be useful for understanding human behavior and a Truth. An epistemological tool (a model, an assumption, etc.) is different from an ontological assertion. > What would you put in the place of the ergodic assumption instead? Why don't you look at the work of Paul Davidson to find out? (See his MONEY AND THE REAL WORLD.) For example, Davidson argues that the non-ergodicity of the empirical world is an important reason why people value money as a store of value rather than simply a means of payment (as in neoclassical theory). Holding money is a convention that people have hit upon in order to minimize the impact of fundamental uncertainty. But it doesn't abolish that non-ergodicity. By the way, this kind of question implies that people like Knight, Keynes, and Davidson are simply stupid or insane. You seem to be asking: "why would any sentient creature disagree with my chosen assumption?" Is that what you are trying to say? > What else is there to form one's expectations but experience, history > -- interpreted one way or another? According to the followers of Muth, each person has a model of how the world works, so that we all develop expectations based on that model. History doesn't matter at all in this view. I disagree with that "rational" expectations theory. Most people are reduced to extrapolation (roughly, adaptive expectations), Crucially, people do this partly _because_ of non-ergodicity: the actual world is too uncertain to develop a model of it that's reliable. The real world involves not only Mandelbrot's "mild risk" (that of Euler's flipping coins or rolling dice) but also his "wild risk" (that of Cauchi's blindfolded archer shooting arrows). -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
