Re: Piorot on Madrick - Winslow's blast

["John M. Legge" <jlegge@xxxxxxxxxxxxxx>]

There is a simple polemical issue in asserting that people act
"irrationally".  This can only mean that they carefully work out what they
really want to do and then do something else.

"Rational economic man" in the orthodox economic view either directly, or
stochastically (rational expectations), can choose actions that maximise its
future "utility" or profits depending on the agent's current role.  To
criticise the conclusions of neoliberal economics then becomes equated with
the assertion that people, having accurately determined which actions are in
their own best interest as they personally define it, irrationally select
other actions.  Australia's neoliberals called themselves "economic
rationalists" in order to wrap themselves in this argument.  Where this is
accepted the heterodox banner reads: "You are stupid".

What Arthur and the complexity theorists have demonstrated is that the
selection of actions in the true best interests of the selector requires
infinite information collection ability supported by infinite computing
ability, neither of which are possessed by finite mortals, or indeed,
anything smaller than the universe itself.  The obvious and frequent failure
of events to follow neoliberal predictions need not be due to people acting
irrationally, since such variant outcomes can arise when people act
perfectly rationally within the limitations imposed by their finite
information gathering and computing capability.

As far as I am concerned, adding some additional cause of "fundamental
uncertainty" beyond the simple impenetrability of the future as demonstrated
by complexity theory can be shaved away with Occam's razor.

As a practical matter, complexity theory suggests that projecting the past
into the future is in general the "best" estimate of what is likely to
happen, because while we do not know whether the future will go up or down
or left or right we know that it starts with the present and that
discontinuities are relatively unusual.  We also know, thanks to Lyapunov,
that the uncertainty surrounding our projections rises exponentially with
time until all possible outcomes approach equal probability at a finite time
into the future.

I don't expect the Dow to exceed 18,000 or fall below 4,000 tomorrow; but as
historical experience has shown, moves of this order can occur within a ten
year period.

My biggest problem is in trying to see why this is contentious,

JML

> -----Original Message-----
> From: pkt-owner@xxxxxxxxxxxxxxxx [mailto:pkt-owner@xxxxxxxxxxxxxxxx]On
> Behalf Of Ted Winslow
> Sent: Saturday, 14 September 2002 1:51 AM
> To: John M. Legge
> Cc: pkt@xxxxxxxxxxxxxxxx
> Subject: Re: Piorot on Madrick - Winslow's blast
>
>
> John M. Legge wrote:
>
> > Since I didn't use the term "rational maximisation" I feel
> no need to
> > defend
> > it.
>
>  From what you go on to say, I take it the problem is with the word
> "maximization."     The complex system aspect makes it
> inappropriate to
> describe rational choices as maximizing choices.
>
> I take it, however, that you are defending the hypothesis of
> "rationality" elaborated in terms of complexity theory.  It's
> this that
> I was questioning.
>
>