Home > Uncategorized > Teaching of economics — captured by a small and dangerous sect

Teaching of economics — captured by a small and dangerous sect

from Lars Syll

Dept_of_Econ_Fac_Pic

The fallacy of composition basically consists of the false belief that the whole is nothing but the sum of its parts.  In the society and in the economy this is arguably not the case. An adequate analysis of society and economy a fortiori can’t proceed by just adding up the acts and decisions of individuals. The whole is more than a sum of parts. 

This fact shows up when orthodox/mainstream/neoclassical economics tries to argue for the existence of The Law of Demand – when the price of a commodity falls, the demand for it will increase – on the aggregate. Although it may be said that one succeeds in establishing The Law for single individuals it soon turned out – in the Sonnenschein-Mantel-Debreu theorem firmly established already in 1976 – that it wasn’t possible to extend The Law of Demand to apply on the market level, unless one made ridiculously unrealistic assumptions such as individuals all having homothetic preferences – which actually implies that all individuals have identical preferences.

This could only be conceivable if all agents are identical (i. e. there is in essence only one actor) — the (in)famous representative actor. So, yes, it was possible to generalize The Law of Demand – as long as we assumed that on the aggregate level there was only one commodity and one actor. What generalization! Does this sound reasonable? Of course not. This is pure nonsense!

How has neoclassical economics reacted to this devastating finding​? Basically by looking the other way, ignoring it and hoping that no one sees that the emperor is naked.

Having gone through a handful of the most frequently used textbooks of economics at the undergraduate level today, I can only conclude that the models that are presented in these modern neoclassical textbooks try to describe and analyze complex and heterogeneous real economies with a single rational-expectations-robot-imitation-representative-agent.

That is, with something that has absolutely nothing to do with reality. And — worse still — something that is not even amenable to the kind of general equilibrium analysis that they are thought to give a foundation for, since Hugo Sonnenschein (1972), Rolf Mantel (1976) and Gerard Debreu (1974) unequivocally showed that there did not exist any condition by which assumptions on individuals would guarantee neither stability nor uniqueness of the equilibrium​ solution.

So what modern economics textbooks present to students are really models built on the assumption that an entire economy can be modelled​ as a representative actor and that this is a valid procedure. But it isn’t — as the Sonnenschein-Mantel-Debreu theorem irrevocably has shown.

Of course one could say that it is too difficult on undergraduate levels to show why the procedure is right and to defer it to masters and doctoral courses. It could justifiably be reasoned that way – if what you teach your students is true if The Law of Demand is generalizable to the market level and the representative actor is a valid modelling​ abstraction! But in this case, it’s demonstrably known to be false, and therefore this is nothing but a case of scandalous intellectual dishonesty. It’s like telling your students that 2 + 2 = 5 and hope that they will never run into Peano’s axioms of arithmetics.

Once the dust has settled, there is a strong case for an inquiry into whether the teaching of economics has been captured by a small but dangerous sect.

Larry Elliott

  1. December 25, 2018 at 2:36 pm

    Of course, economics has “been captured by a small AND dangerous sect,” considering that money and how it works does not even come into play in heterodox economics. How the people have been hoodwinked by a few economists and the people will pay for it in the end.

  2. December 25, 2018 at 2:39 pm

    That should be orthodox not heterodox economics. Sorry!

    • Craig
      December 25, 2018 at 7:41 pm

      Actually, the heterodox aren’t quite liberated yet either.

  3. Econoclast
    December 25, 2018 at 7:54 pm

    I agree about the dangerous sect, but it is anything but small. In my view the orthodoxy is the emperor’s clothes. The dominant institution, now all but governing us, is the predatory (now more and more financialized and global) corporation. The orthodoxy deliberately and strategically ignores this institution and has done so for a century and a half. It provides a convenient theoretical cover for doing so.

    These are two courses that directly threaten the orthodoxy and corporate rule: The History of Economic Thought (which might, heaven forbid, expose tender student minds to the penetrating thoughts of Karl Marx and Henry George and such radical ideas as jubilee and debt forgiveness) and Ecological Economics (which, among other things, presents the planet as other than an exploitable resource, and is truly pro-life). In my cursory review of the top economics departments in the USA (including the one in which I was trained, when “History” was required), none offered by name either course.

    We need a plain-language heterodoxy that includes the History of Economic Thought, Ecological Economics, and People Economics and we need to offer it early, at 5th-grade Civics level, high school Social Studies, and Community College/Freshman levels to help change the thinking of the future. We need to do this urgently, as it takes time to penetrate.

    • Craig
      December 25, 2018 at 8:08 pm

      Yes, in other words it is the entire web/pattern/paradigm that is the real problem. A new paradigm. like death, is “a thief in the night” for orthodoxies old and new.

    • EDWARD K ROSS
      December 26, 2018 at 9:55 pm

      while I certainly agree with the main thrust of the above blogs and posts my dream or prayer is to connect these conversations to the public and students. From my observations there are people of all ages out there looking for a more equitable economic system that addresses the needs of all people. Furthermore econoclast’s last paragraph to start with high school students in my opinion is an excellent idea that may also affect interested parents. In posting a quick answer to the above, during this year there has been several newspaper articles where a few dedicated teachers have had great success along these lines. On this basis my plea is if there is a suitably qualified and sympathetic economist reading this post please consider using there knowledge of social systems to reach and support these teachers and their students to better understand how democracy gives them the right to demand a more egalitarian just economic system. Ted

    • January 1, 2019 at 7:33 pm

      Certainly, not small.

      The neoclassical edifice has been built upon two presumptions treated as axiomatic.

      The first presumption –explicit only in the works of William Stanley Jevons and Alfred Marshall — is that the rate of change of ‘utility’ at the margin is equal to the price consumers pay.

      The second presumption is that, all of the time, ‘utility’ is a diminishing function of the amounts ‘consumed’. Given also that ‘utility’ is considered to be a benefit or a satisfaction :: thus undefined :: and that ‘benefits’ as ‘value-in-use’ may not display diminishing marginal utility, but may be constant or increasing, the former presumption that price equals the rate of change of diminishing marginal utility is obviously incorrect. (Twice a given amount of food provides twice the calories, vitamins, minerals and other nutrients as does a single unit, so it’s not the case that there is any diminishing marginal utility in benefit terms. Similarly, two units of iron allow for twice the production level of one unit of iron where iron is a necessary component of production.)

      Which is all to say that the neoclassical foundation rests upon such shoddy assumptions –not to mention the mathemagics of misused mathematical functions (descriptive of declining marginal utility), that the entirety of the neoclassical edifice falls if given any thought.

      For instance, one cannot derive a downward sloping demand curve without forever assuming diminishing marginal ‘utility’ (Nor, for that matter, for goods necessary for survival).

      For instance, it is only for functions exhibiting diminishing marginal utility that one can say that an increment to total utility is always greater than the marginal rate of utility (as the price by presumption). Thus, the theory of Consumer Surplus rests on that presumption, meaning that all monetary measures of welfare gains and losses rest upon a very shoddy foundation.

      For instance, it is essential to all neoclassical analysis that utility of money in the hands of any one consumer is constant. This is essential to all neoclassical analysis.

      For instance, the Hicksian recasting of John Maynard Keynes’ thought requires all of the above presumptions. Thus, the shoddy foundation of neoclassical ‘micro-economics’ has been recast throughout the macro-economic re-“framing” of Keynesian thought.

      For instance, consumption is the use of goods to obtain a direct or indirect benefit from that use. This means that firms are consumers, so the entirety of the neoclassical micro-economic division between ‘consumers’ and ‘firms’ –the former based upon recasting ‘consumption’ as ‘purchase’– is absurd.

      For instance, the neoclassical edifice is completely silent about how ‘consumers’ formulate their budget decision or how the budget is itself reformulated in response to price changes.

      For instance, the ‘neutrality’ of money/income is contraindicated by the presumption of a constant marginal utility of money and is especially contraindicated when the distribution of income determines both what is being produced and what is being consumed and, thus, the growth paths of economies generally.

      For instance … ah, what the heck, is anybody actually listening?

      • January 2, 2019 at 5:50 am

        Larrymotuz,
        E. Roy Weintraub in the Concise Encyclopedia Of Economics, claims these are the three basic assumptions of neoclassical economics,
        1. People have rational preferences between outcomes that can be identified and associated with values.
        2. Individuals maximize utility and firms maximize profits.
        3. People act independently based on full and relevant information.
        But Antonietta Campus describes neoclassical economics as “marginal economics” in The New Palgrave: A Dictionary of Economics (v. 3, p. 323 (1987)) using these words, “an approach to economics focusing on the determination of goods, outputs, and income distributions in markets through supply and demand. This determination is often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits by firms facing production costs and employing available information and factors of production, in accordance with rational choice theory.”

        Together these seem to capture the essence of neoclassical economics. Although there are outliers such as imperfect competition, theory of ordinal utility (order of the values of each utility is what’s important and significant, but the differences between each one is not really known or knowable), combination of neoclassical and institutional economics, especially about equilibrium (mathematical version dominant), and integrating econometrics into this synthesis to supposedly allow solid measurement of such things as prices, changes in goods and services, demand, as well as their aggregate quantities. Eventually, this created macroeconomics which influenced the neoclassical synthesis by undermining foundations of classical economic theory such as Say’s Law, and assumptions about political economy such as the necessity for a hard-money standard. Neoclassical theory includes these changes by looking for the equilibrium conditions of Pareto optimality and self-sustainability in markets.

        I can only conjecture about why neoclassical economics is such a mess in terms of foundational assumptions. But its success in terms of political power and its close alliance with the predatory rich is easier to explain. Neoclassical economics is utopian. So long as humans are rational, self-interested, and well informed, economic transactions must improve the lives of everyone. A neoclassical economy is a perfect economy. Neoliberalism, on the other hand is not an economic philosophy at all. It is a post-war political movement that grew out of the Mont Pelerin Society, a thought collective that formed a consensus not to put the market at the center of the state, but to take it over completely. Its entire objective is to co-opt economics and subvert the public interest to suit the needs of powerful capitalist institutions and the politicians, economists, financiers, philosophers, bankers, think-tanks and media organizations that support them. Unlike neoclassical economics, which is based on laissez-faire economic liberalism, neoliberalism is a fascist movement wedded to autocratic and anti-democratic economics and government. The two are often confused, sometimes deliberately, and other times by accident. Which in part explains the closeness of neoclassical economics and these same capitalist institutions and their supporters.

      • January 3, 2019 at 5:31 pm

        Hello Ken.

        I don’t know why you choose E. Roy Weintraub’s article ‘Neoclassical Economics’ to respond to my points (and my lament), but it well illustrates what I am talking about.

        If you read his article thoroughly, you’ll find it full of contradictions. For instance, take his point 1 where he says “People have rational preferences among outcomes.”

        I have no doubt that outcomes are important to all economic agents. I’ve no doubt because any sensible definition of rationality implies forethought about outcomes of decisions.

        But only a few paragraphs before making his point about rational preferences between outcomes, Weintraub had written, “The framework of neoclassical economics is easily summarized. Buyers attempt to maximize their gains from getting goods, and they do this by increasing their purchases of a good until what they gain from an extra unit is just balanced by what they have to give up to obtain it. In this way they maximize “utility”—the satisfaction associated with the consumption of goods and services.”

        So, there are problems. The first problem is that he switched horses in point 1. Whereas point 1 is all about rationally preferring outcomes, his description of the ‘framework of neoclassical economics’ is not at all about outcomes as such. Rather it’s about maximizing satisfaction in a purchase decision. Indeed, he’s clear that to ‘maximize utility’ is to maximize ‘the satisfaction associated with the consumption of goods and services. And, it’s also clear that by ‘the consumption of goods and services’ he does not mean outcomes from the use of good and services but, and rather, the satisfaction associated with the purchase decision itself.

        His point 1, in short, conforms with the rationality of Aesop’s Ant. But his preamble to point 1 conforms with the ‘rationality’ of Aesop’s Grasshopper: a degree of irrationality that leads to the Grasshopper’s death since the Grasshopper is not at all concerned about outcomes but about its satisfaction at the moment it’s doing something. [Weintraub’s Grasshopper is making a purchase and maximizing its ‘satisfaction’ at the point of purchase. It is not at all concerned with ‘preferences’ between outcomes’, for it never thinks so far ahead as to concern itself with outcomes.]

        Note that I haven’t said anything about Weintraub’s statement that ‘Buyers attempt to maximize their gains from getting goods, and they do this by increasing their purchases of a good until what they gain from an extra unit is just balanced by what they have to give up to obtain it.’

        I have two problems with it.

        First, ‘gains’ is another mealy-mouth word here. ‘Gains’ in what, I ask. And, the clear answer to that is ‘gains in satisfaction’.
        Second, ‘they do this by increasing their purchases of a good until what they gain from an extra unit is just balanced by what they have to give up to obtain it’ is incorrect as a description. In the neoclassical analysis, incremental gains in ‘utility’ are always greater than marginal gains in utility –owing to the diminishing marginal utility of increments to utility — so, as Marshall and all neoclassical economists actually assert, what the consumer ‘gives up’ is always less than what he/she (or, in my framework, ‘it’ as a ‘firm’ gives up to’ purchase/acquire a good or service.

        And, the mathematics of this are also very clear. If, for a good or service, the Total Utility function is Bx minus Ax-squared (utility being satisfaction), then the gain in acquiring a unit (the incremental gain) is always greater than B minus Ax at the point of purchase. And, since price always equals the marginal gain in ‘utility’ at the point of purchase, it’s self evident that the consumer always enjoys a surplus up to the point where Total Utility is maximized.

        So, Weintraub made a very basic error when he said that the increment in utility :: ‘what they gain from an extra unit is just balanced by what they have to give up to obtain it’.

        Now, if he’d said what they ‘just gain’ at the margin is ‘just equal’ to what they ‘give up’, then he’d simply be saying the obvious: Namely, that the presumption that the price the consumer is ‘just willing to pay’ is just equal to to what he/she or it just gains, then his statement would be correct. But, that’s just another way of saying, “We have presumed that prices equal marginal utility in a framework where all goods and services have diminishing marginal utility.”

        Now, Ken, Weintraub’s second point was that “ Individuals maximize utility and firms maximize profits.” If, in fact, agents of economic activity are concerned with outcomes, then this division into ‘individuals’ and ‘firms’ in neoclassical economics an obviously artificial division between agents. Now, Marshall needed that division in order to separate agents who used goods or services directly to obtain direct benefits from those who used goods or services directly to obtain indirect benefits from the sales of their products. [Now Marshall was wise enough to know that an economics based on measuring benefits from use would look very different from one implicitly measuring satisfaction with purchases, but, well, the latter meant that ‘consumers’ could not be firms. This meant that the outcomes for ‘consumers’ as individuals had to be their changes in satisfaction and the surplus of satisfaction that they got relative to what they had to give up to get it. (Put differently, the ‘profit’ of the ‘consumer’ was the ‘surplus of satisfaction gained relative to their cost: the satisfaction in money unit that they had to give up to get this surplus. The ‘profit’ of the ‘firm’, similarly, was the difference between what they got through their sales and what it cost to produce what they sold. (In short, these are reversed images like one sees in a mirror.)

        His third point was that people act independently on the basis of full, relevant information. Well, since that’s never the case, I need not address it.

        What I am saying here and in my earlier comments, Ken, is that the neoclassical foundations are in the miserable shape that they’re in because the ‘utilitarians’ worked with Bentham’s assumption that ‘benefits’ always correlated positively with ‘satisfaction or pleasure’ in obtaining [also Edgeworth’s continuation in his ‘Mathematical Psychics’ (not physics)]. Since, however, one can obtain measurable benefits without being ‘satisfied with how these were obtained’ (The late G.H. W. Bush hated ‘broccoli’ but his mother saw that, despite this, that he was still getting some essential nutrients from broccoli, with the result that he got the benefits without getting any ‘satisfaction … which is my point here.)

        I could get into other aspects or answer questions from others.

        Just ask.

        And thank you for your thorough comment on what I’d said, Ken.

      • James Beckman
        January 4, 2019 at 9:18 am

        Larry, very clear comments with which I mostly agree. As a business economist I note that every decision is constrained by its current setting: I love ice cream but on a very hot day I can’s eat more than two scoops before it melts. In market research we long have looked at options, which somehow measure that elusive utility, to see how in a particular situation the choice is made, including to buy no more for the moment because not buying somehow provides more satisfaction, like being able to pay my rent rather than take that expensive trip.

      • January 5, 2019 at 7:04 am

        Larrymotuz,
        My choice of Weintraub was more about anthropology than economics, per se. One of my areas is “economic anthropology.” I usually begin projects with relevant dictionaries and encyclopedias, since these should congeal the approach economists take to specific questions. I’ve used Weintraub before, so he was handy. I agree his article is filled with contradictions. But that’s not unusual for people in any situation. The CIA operative who overthrows democratically chosen governments to save democracy. The “I hate women” politician who is wholly subservient to his wife. The soldier who kills to stop war. The examples you provide are generally standard contradictions made by many economists. More important for me is another distinction Weintraub shares with other economists. He omits things he doesn’t want to discuss. Mostly, discussion of the consequences of his economic “findings.” Firms get to maximize profit, but consumers only get to maximize utility. This is a game the consumer cannot win or even tie. Unless there are diligent and tough referees to ensure fairness. That forces us to define fairness. Which of course is not the same in each situation. Continuing, Weintraub and most economists adopt the absurd notion that it isn’t goods and services for which consumers enter economic transactions, but rather the “fun” of making purchases. But I must admit here that capitalist propagandists have been remarkably successful at “selling” this proposition to many consumers, and many politicians. Add to this the equally absurd notions that consumers can know with precision when their needs and what they purchase are perfectly (or very near) in balance. Even if consumers have the data, which they generally do not, the math involved would stop the efforts of most consumers. Most consumers are stuck with “I feel like I have enough.” This translates to a society and culture where literally anything the consumer needs to feel satisfied is for sale. But moral codes and their formal collation as laws often control and channel all this. This alternative is a society where consumers with enough money can literally purchase anything that makes them feel better or excited. And this leads to my major point. What is exactly the relationship between buying, selling, satisfaction, and utility, and the good life? Economics does not even consider this question. But for humans attempting to construct functional cultures and societies it is the central question. Economics turns out to be a fine entertainment for a rainy afternoon, but it provides no guidance for humans in their quest to construct useful, satisfying, and durable ways of life. And, of course all the other terms and expectations economists throw around must be defined, as well as how they are computed for their networks to be intelligible and useful. Terms such utility, marginal utility, rational, etc. The subjects of economists’ study, firms and consumers have for better or worse defined all these terms. Too bad economists aren’t even interested in seeing let alone investigating these definitions. Economists are unable to define anything, and simultaneously dismiss all definitions created by non-economists.

  4. Craig
    December 25, 2018 at 7:57 pm

    This is also why the heterodox must abandon the effort to convert orthodox academics, integrate with the new paradigm and take their message directly to the individual. Politics is simultaneously the strongest and weakest link in finance capitalism’s mental and structural armor.

    “You never change things by fighting the existing reality.
    To change something, build a new model that makes the existing model obsolete.”

    R. Buckminster Fuller

    • Frank Salter
      December 27, 2018 at 10:40 am

      ‘“You never change things by fighting the existing reality.
      To change something, build a new model that makes the existing model obsolete.”

      R. Buckminster Fuller’

      True BUT that requires “Economists” to be sufficiently open-minded and capable of understanding what they are presented with. My analysis, “Transient Development”, completely meets what is implied by Buckminster Fuller statement. Yet few of the correspondents on this blog appear to have accepted that the analysis is theoretically justifiable and provides a precise description of manufacturing reality. WHY? Possibly, the explanation is that, the myths they have been taught act as some form of religious belief which can NOT be questioned. If that is true then it answers the question posed by the blog itself.

      • Craig
        December 27, 2018 at 7:22 pm

        In plain language please explain what transient development is.

        My contention is that we are basically hypnotized by the long standing monopolistic monetary and financial paradigm of Debt/Cost/Burden which enforces systemic austerity and individual monetary scarcity. We also suffer from the fallacious belief that money is the primary factor in “monetary” inflation when it is actually caused by commercial agents not having a better alternative to raising their prices in an austere system when they see more money coming into the system.

      • Frank Salter
        December 28, 2018 at 12:05 pm

        Transient Development is the title of my paper in RWER-81. Development relates to the development of manufacturing by the introduction of tools to increase productivity and thereby increasing output from the application of the same amount of effort. Transient relates how the productivity increases over time.

        With increasing productivity prices can be reduced. For example, this can be seen in the pricing of computers, TV sets etc. I would attribute inflation to prices being unnecessarily increased.

  5. Prof Dr James Beckman, Germany
    December 26, 2018 at 2:49 pm

    I prefer distinguishing between a BIOLOGICAL system (each human) & a SOCIAL system (from the nuclear family in any direction you wish to take it including governments & religious organizations). My students & business clients have no problem at all comprehending this. Just avoid the unnecessary math, they say. For many math kills intuition & visualization.

    • Frank Salter
      December 27, 2018 at 10:42 am

      Appropriate mathematics and the visualisation should correspond with reality. The problem is when they do NOT.

  6. December 26, 2018 at 9:55 pm

    The “Law of Demand” cannot be established if the ‘consumer’, in response to a price change, reformulates his, her, or its budget decision, and especially so with respect to ‘necessities’ or necessary inputs into production. Further, it rests not on any empirical evidence, but on the presumed existence of ‘the diminishing marginal utility of goods’ and on the axiom that prices are identical to the rate of change in diminishing marginal utility.

    Neither Marshall nor later proponents of ‘indifference analysis’ can escape the reality that budget formation decisions are subject to change if prices change. [Firms do not continue on with the same budget in the face of price changes for inputs, so why should individual consumers? No do firms operate with the presumed constraint of diminishing marginal utility.]

    The subjective casting of ‘utility’ makes it impossible to view firms as consumers which use goods to obtain direct and indirect benefits from their use of goods. Drop that assumption and a new theoretical framework will appear.

  7. Yok
    December 30, 2018 at 4:29 pm

    Compromising the intellect for personal gain. Nothing new about that. All experience in the material world will show you that you advance and gain by promoting and advancing the interests of the people you serve – the wealthy and the powerful. The greater your service – the greater your reward. The cost is critical judgement and truth. Look at the Maestro. Critical thought looking up is expunged. The problem with truth and the greater good is there is no one to reward you. That’s why Gods’ judgement is imposed. And why people like Christ are murdered. When the truth runs against the interests of the wealthy and the powerful, the wealthy and the powerful step on the truth.

  8. December 31, 2018 at 1:33 pm

    What you criticize mainstream economics for is normal operating procedure for physical science. Physicists have assumed for years that physical laws used by physicists on or near Earth are the same everywhere in the universe. A few years ago, the physicists got some confirmation of their assumption. Research conducted by an international team of astronomers shows that one of the most important numbers in physics theory, the proton-electron mass ratio, is almost the same in a galaxy 6 billion light-years away as it is in Earth’s laboratories, approximately 1836.15. Now this is speculative, at best. Measurement error for 6 billion light-years is unknown, and it is just one physical relationship. Plus, we don’t know if ours is the only universe. So, the assumption is a long way from confirmation, or even wide support, empirically. But physicists still use the assumption. Their work would be pointless if they did not. I believe economists are doing the same. However, I’ve seen no evidence of economists attempting to confirm their assumption empirically. They can, of course continue to use the assumption. But it should be marked with an asterisk and message to note there is so far no empirical confirmation for it.

  9. December 31, 2018 at 1:35 pm

    Forgot to check the boxes.

    • January 3, 2019 at 6:44 pm

      In my earlier answer to you today, I wrote “owing to the diminishing marginal utility of increments to utility”. This should have read ‘owing to the diminishing marginal utility associated with each incremental unit of good or service.” (Haste makes waste!)

      Sorry about that.

    • January 6, 2019 at 5:15 pm

      Hi Ken,

      I am fighting strong bronchitis and unable to respond your additional comment cogently. As soon as I’m over this, I shall address yours and some of the points made by others. Suffice it for now to say to you and others that even at a micro level, uncertainty rules the day. At best ‘rationality’ (in terms of avoiding ‘bad’ outcomes like disease, or death, or bankruptcy) eliminates some ‘decisions’ (i.e., some ranges for purchase and use), leaving a large set of feasible choices for individuals/firms. ‘Rationality’ is, in short, non-deterministic in and of itself. It sets boundary conditions for ‘rational’ decisions, with all choices within those
      boundaries being ‘rational’ because of ‘suitable’ outcomes. In terms of aggregate effects, I would agree with Dave Taylor (as I understand him) that the use of information theory is more likely to provide a better guide to likely economic ‘events’ (very broadly defined and following from choices about suitable outcomes) than any deterministic models now used in economics.

      • January 8, 2019 at 10:36 am

        I agree with your comments, Larry. But I need to point out two cautions. First, rationality is one of those groups of data that need to be explained. You have provided a definition. Now the question is what are the definitions used by those involved in the situations the social scientist wants to explain? Second, you define rationality as chaotic, or complex. That certainly leads to considering rationality indeterminate as you propose. How would that change for observed actors using it as linear and simple? Also, how does historicity affect the notion of rationality?

      • James Beckman
        January 9, 2019 at 6:21 am

        I jump in here to note that German culture allows for such “simple” application of rules, although if you are a Kurfürst a lot of Germans will let you follow your own rules, including lower courts. You know, rank has its privileges.

      • January 9, 2019 at 10:13 am

        Thanks, James. Excellent example of what seems familiar sometimes isn’t. Also, should prompt every economist to question every assumption made about a situation or actor being observed by the economist.

      • James Beckman
        January 9, 2019 at 6:02 am

        Larry, I agree with everything you have said. I am particularly impressed by your awareness that people’s economic circumstance strongly affect their willingness to find/accept job & purchase offers. (“satisficing”, if you will). I am not as close to these folks in the US, but here in Europe we are surrounded by refugees.as you know.

      • January 9, 2019 at 10:09 am

        From an evolutionary perspective Sapiens evolved to grasp the thoughts and feelings of others Sapiens’ member from such things as eye contact, bodily gestures, and simple non-word expressions like grunts, facial configurations, screams, etc. Today we call this empathy. Humans who lack it are not only physically malformed, but often suffer from loss of full contact with other humans.

      • January 11, 2019 at 12:58 am

        Thanks. I’m still down with this bronchitis, but as is said, “If you treat it properly, eat properly, and sleep properly, you’ll get over it in a week and a half. If not, it takes about 10 days.”

        I’m now on my eighth day.

  10. James Beckman
    January 5, 2019 at 8:30 am

    For whatever it is worth, computer scientists at the University of Manchester are building an Artificial Intelligence capacity based on human neural networks, meaning “fuzzy logic” inputs but concrete decisions. In other words, the Spinnaker computer acts like us, meaning definitions are context dependent, as I have suggested before.

    • January 6, 2019 at 4:43 am

      James, AI is a topic those of us who work in the social studies of knowledge talk about endlessly. The scenario you describe draws a lot of interest from SSK. One of the puzzles about the scenario is this question: When it comes to choosing among alternative explanations for empirical data, how do AI researchers create AI (fuzzy imagination, etc.) that makes such choices, since humans don’t really understand how they themselves perform that task? Trial and error is the most common answer. But that’s not adequate because there’s no way to tie it back to what we know of how humans do it. If you have anything to add, we welcome it.

      • James Beckman
        January 6, 2019 at 2:39 pm

        Ken, of course you are correct. But for those of us who teach business to those with tech training, it seems to be a combination of empiricism & what passes for a notion of causality. We always go to data, correlating this or that variable, to first see how the resultant prediction fits the actual occurrence of the independent variable (so defined). Close correspondence matters, but so too the second step of seeing if there is any sense there: if my right big toe aches the night before a local earthquake, that is incidental. If it occurs three or four times in a few months, as for those who live in California, we might investigate the biochemistry. Etc.
        We always have data, but as you know data is very messy.

      • January 8, 2019 at 10:34 am

        James, I like your comment. Shows some understanding of what people must cope with in concrete situations. This is how I see making the choice among possible explanations for data groups. There are several decisions involved. First, we must reach consensus on data groups, then on what the groups signify, and finally consensus of how to explain each group. It all revolves around storytelling. Someone tells a story to explain the data. Others hear the story and react to it based on their experiences. Over time a consensus emerges if support for the first or a subsequent story is created, or new data supports one explanation over another. Otherwise, no explanation is accepted, at this time. As other stories are told over time, a consensus may be created. Or, maybe not. It’s a reversible process, including moving backwards. Of course, it is assumed to have a physical base. But any such base can never alone explain any decision.

      • James Beckman
        January 9, 2019 at 6:16 am

        Ken, marketers love the term “storytelling”, as you are aware. It is clever of you to use the term in this context, as indeed it seems to me we develop explanations which are acceptable to us & at least some of our scientific colleagues. A famous example is the Einstein-Planck discussion of the quantum effect: multiple simultaneous locations for a particle as fact/probability or just plain “spooky” (magic thinking?) as Einstein declared. IBM may be introducing such a “spooky” computer now at the Las Vegas’ Consumer Electronics Show.

      • January 9, 2019 at 10:12 am

        James, much of what humans perform under the rubric of creativity is imagination in the implicit life we seldom experience explicitly. Entire worlds are created sort of “behind the scenes” and then explode outward with little explicit knowledge of the history behind them. Anything they can’t control or have someone else control frightens economists. That explains their lack of empathy.

  11. January 8, 2019 at 11:41 pm

    Hi Ken,

    Am still felled by bronchitis here so I can’t ‘explain’ much. ‘Rationality’ is complex but not chaotic. Life forms are always concerned about outcomes, but outcomes are multiplex dimensionally, with some being more primary/important-to-realize than others. Aesop’s Ants expect to realize ‘survival’ through foreseeable ‘hard times’ –in the tale, the coming winter. The expect this because they plan to have sufficient stores of food to get by.

    They are not ‘maximizing’. Being ‘rational’ does not imply ‘maximizing’ behavior. It implies behavior which leads to a ‘realistic’ expectation of avoiding the worst possible outcomes in the worst imaginable scenarios (based on prior experience) while also based on what can be harvested given how beneficent this year’s harvest has been. [Which, only in part, depends on prior ‘rational’ decisions about possible outcomes.]

    Now, moving away from the ant colony to people as individuals (or families), what’s a ‘good enough’ outcome will vary not only because of their circumstances but also because of their ‘preferences’ (where their circumstances permit them to choose in some accord with their preferences), not to mention their talents as managers and a host of other factors. Aggregating amongst these, the set of ‘good enoughs’ cannot plausibly bring us to a fully determined, unique OUTCOME like that of ‘orthodox’ macro economic models.

    And, when we introduce money as the medium of exchange, with prices as exchange-values, we are introducing yet another level of complexity into our decision-making. I’ll get into how that complexity changes in my next comment. Suffice it to say, for now, that both nominal income and nominal prices seriously impact upon choices because they affect the choice framework for decision-making.

    (Too tired to continue right now due to illness.)

    • January 9, 2019 at 9:57 am

      Larry, thanks for the reply. I think I understand what you believe rationality to be. My point is that rationality is not a thing, or a definition, it is a process. The process varies from culture to culture, and over time. So, of course rationality varies from culture to culture and time to time. It’s important that economists and other social scientists understand rationality in this way. Otherwise, they might make the error of explaining actions of “rationality” in a culture and/or time with the rationality of a different culture/time. Economists make this error frequently as actions of any actor or situation are explained according to the rationality of marginal economics, macro or micro.

  12. Mike Ryan
    January 11, 2019 at 3:40 pm

    HI Lars… Read my book. The Truth About Economics, Critical Thinking Guide for Students, Parents, Teachers and Citizens. The ebook is availalbe for $1.00. Neoclassical Econ is total garbage followed with religious zeal by Econs who were swept into the cult for their ability to suspend all rational thought and “think like an economist.” Enjoy the read.. Spread the word. https://www.amazon.com/Truth-about-Economics-critical-thinking/dp/1619848333/ref=sr_1_1?ie=UTF8&qid=1547221098&sr=8-1&keywords=the+truth+about+economics

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