[PEN-L:31498] Re: To Christian/ Keen on road to debt deflation/ Irrationality and all that

[Sabri Oncu <soncu@xxxxxxxxxxx>]

> 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

Difficult questions Christian.

You know that I am not against the use of mathematical models.
How can I be? I love that thing called mathematics. As you may
remember, I even invited these Marxian fellows to incorporate
mathematical modelling in their analysis. Without such models,
how are we going to make predictions of most kinds?

Recent academic developments in the area of economics point
toward behavioral and experimental studies. Who knows, maybe from
these studies some new approach, that incorporates not only
mathematical models but also other techniques, will emerge. I am
not even questioning the ideology of those who are working on
this. But they are discovering what we leftists have been arguing
all along: That standard assumptions underlying economic models
are often violated and, more importantly, these violations lead
to behavior that seriously diverge from conventional economic
predictions. That individuals often don't behave as fully
"rational" and self-interested agents. That majority of
indiviuals, that is, humans, are loving, caring creatures who
worry about fairness. That their expectations about others'
behaviour seriously differ from the presumed conjectures that
lead us to the paranoid-schizophrenic Nash equilibrium, etc.

The focus of these studies is still just the individual but that
is fine. I don't expect a radical ideological change at the
mainstream US universities overnight.

The first challenge of the recent times to the conventional
economics was the information economics that questioned its
informational assumptions. The current challenge is about the
assumptions of "rationality", which is the root of this bloody
"thing". Who knows maybe from these a more serios challenge will
emerge.

I welcome these challenges.

Best,
Sabri