On 12/1/2010 10:32 AM, Charlie wrote:
Still, in a time of defensive struggle, a strategy to get there, showing
enough results to enlist the energies of thousands of activists, is absent.
So true Charlie. Do you guys ever discuss rational utility maximizer?
IMHO, it's the keystone of our present insanity. Unfortunately, it
doesn't seem like anything activists can excited about...
Below is a recent post I made to another list:
Jay
==============
Jay wrote:
*THIS IS REALLY IMPORTANT: Friedman/Allais/Savage in 1952!*
Everyone who is interested in changing our existing system must remember
this thread. It's like the thread in a knitted sweater. Pull on this
thread and economics and the economy unravels.
----
QUESTION: what if, in every economics textbook, the following changes
was made:
- Every instance of the word 'utility' was replaced with 'the behavioral
reaction summing from evolutionarily derived neurotransmitter/hormone
signals'
- Assuming the macro problems I mentioned above aside for the moment, if
'utility' were replaced that way, what problems would you still have
with it?
ANSWER: With those changes, economics would lose it's normative base. In
other words, if individual decisions do not make one "better off," then
there would be no reason to have either economic growth or the
discipline of economics.
In theory, economics ONLY has value because Milton Friedman cheated on a
test given by Maurice Allais in 1952!
Rational Man was falsified in 1952 by Allais/Savage and economists have
been lying ever since!
--
snip from <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=956887>
Back in 1948, economist Milton Friedman and mathematician Leonard Savage
adhere to two different views on how to approach rational economic
behavior under uncertainty. Friedman adheres to the received
methodological distinction in economics between positive and normative.
It is the distinction between the science of economics and the art of
economics. Savage on the other hand adheres to the a priori approach of
mathematics. An a priori theory is true because it is true by (logical)
definition, without any directly associated empirical content.
The positive-normative and the a priori approach towards a mathematical
theory on human behavior are, however, by no means incompatible. As long
as the theory is not disproved by empirical or theoretical counter
argument, it can perfectly well function as a positive theory in
economics and as an a priori theory in (applied) mathematics. This is
precisely what happened in Friedman and Savage (1948, 1952).
A test of the theory's validity was presented to Savage by Maurice
Allais over lunch, during a conference in Paris in 1952. Allais made
Savage fill out a list of questions with which he could show that Savage
violated his own theory. The history of Allais' paradox (as it became
known) is in itself intriguing. It seems that several other researchers,
amongst whom Friedman, when presented with the same questions some
months later passed the test.
Furthermore, the Allais paradox remained practically unknown until some
twenty years later. But what was decisive for subsequent developments in
economics and psychology, was that Savage took the critique of Allais
seriously whereas Friedman, as far as I can tell, put the whole subject
aside. Friedman left EUT as a basis for decision and game theory without
further comments as a positive (as-if) theory; Savage retreated into a
normative account of the theory.
Download the entire paper at:
<http://papers.ssrn.com/sol3/papers.cfm?abstract_id=956887>
---
Milton Friedman covered up the fact that his model of rational man had
been falsified in 1952! If people are not mathematically rational, the
market will not reach equilibrium! The market is not efficient!
Why did Friedman lie? Too bad we can't ask him...
=======
<http://www.egosnet.org/jart/prj3/egosnet/data/uploads/OS_2007/W-031.pdf>
Snip from a paper by Frost, May 24, 2007)
The standard economic model of homo oeconomicus is characterised by the
following assumptions (e.g. Frey 1999):
1. Action is centred in the individual (methodological individualism).
Everything that happens in institutions and society can be traced back
to the actions of individuals.
2. A strict distinction is to be drawn between preferences (i.e., values
which form the basis of motivation) and restrictions (i.e. external
stimuli and constraints on the scope for action).
3. An individual's preferences are given and inalterable (c.f. Becker
and Stigler, 1977). The individual's actions are determined entirely by
restrictions.
4. Only self-interested, not prosocial, preferences are assumed to
exist. The preferences of other people do not concur with one's own
preferences.
5. The cognitive perception of restrictions is identical in all individuals.
6. Individuals behave entirely rationally. They are able to determine
their own maximum utility according to their own preferences within
given restrictions.
It is on the basis of these assumptions that the standard economic model
is applied to all spheres of life, for instance, to the family, drug
abuse, abortion, criminality, art, sport, religion, and suicide.3 This
is tied to the withdrawal (or, better, the ejection) of psychology from
economics, which, for instance, for Schmölders (1962) was still part of
economics. Neoclassical standard economics has thus developed an
imperialistic understanding of itself as the "queen of the social
sciences" (c.f. Hirshleifer 1985; Becker 1976; Frey 1999), a view which
has provoked significant aggression and criticism among neighbouring
social sciences.
Criticism of standard economics refers chiefly to these assumptions. In
particular, this is about the assumptions regarding the cognitive and
motivational characteristics of homo oeconomicus and the assumptions
regarding the transferability of the economic model across from
anonymous market relationships to the relationships within organisations
and between individuals.
The criticism of the assumptions about the cognitive characteristics of
homo oeconomicus is the least controversial. They go back to Simon
(1955, 1956) and have led to the idea of bounded rationality as a
consequence of people's limited capacity to process information.
Individuals do not maximise their utility, but can at best achieve
satisfactory results. It is on this basis that the institutional
economic approaches have been developed (Williamson, 1990). However, the
idea of bounded rationality remains vague in institutional economics.
The research of psychological economics into decision anomalies
(Kahneman and Tversky 1986), developed over twenty years, has not been
considered. Instead "the same assumptions are still in place as the
cornerstones of economic analysis" (Kahneman 2003: 162), though the
research on decision anomalies provides precise and situation-specific
differentiations of bounded rationality.
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