[PEN-L:31482] Re: To Christian/ Keen on road to debt deflation/ Irrationality and all that

["Christian Gregory"<christian11@xxxxxxxxxxxxxx>]

Thanks, Sabri. I thought of our discussion when I read Keen's piece. I also
like the Economist's criticism of Friedman, which resemble's Keen's. He says
that as long as the world described by the domain assumptions of the theory
doesn't exist, then the theory is invalid. Even if people act _as if_ the
theory were right, then it's still a bad theory if it isn't realistic, b/c it
doesn't say _why_ or under what conditions the theory appears to be right. My
theory of the solar system is that the sun is drawn by an invisible chariot
across the sky roughly every 24 hours: the sun acts _as if_ I was right, but
that doesn't make it a good theory.

But this does leave those interested in economic modelling--which is
indespensible, in one way or another--with a kind of quandry. How do you
account for both uncertainty and for the collective effects of uncertainty on
behavior in a model? Does it leave you with no predictive/ modelling power?

Christian

>
Yet the biggest flaw in market economics is
probably not that it exaggerates people's rationality, but that it has always
had an
extraordinary bias towards individualism. Most
economists tend to assume not just that we make decisions in isolation but
that we nearly always should do so.