Re: Piorot on Madrick - Winslow's blast

[Paul Davidson <pdavidson@xxxxxxx>]

At 01:09 PM 9/16/2002 +1000, you wrote:
> 1.  Because "the universe
> is its own best predictor" the only way to learn
> the winning lottery numbers is to wait until they are drawn.  God,
> or an
> economically rational man, knowing how the balls were stacked in the
> barrel
> and the exact operation of the selector lever, could predict the
> numbers
> before the draw and be able to buy the winning numbers, guaranteeing a
> win.
> Real people, lacking perfect knowledge and infinite computing
> ability,
> cannot perform this feat and so cannot predict the result of a
> properly
> managed lottery.
>
>     Ted appears to be saying that something happens inside
> the barrel that
> causes the uncertainty, that the balls don't bounce off each other
> exactly
> in accordance with the laws of conservation of energy and momentum and
> the
> law of gravitation (as modified by Einstein) can't completely explain
> the
> way balls fall into the scoop. I am perfectly happy with the laws of
> nature
> as currently stated, and explain the difficulty of predicting the outcome
> of
> the lottery as reflecting limitations of my data collection ability and
> my
> computing resources.


All of this implies both Ted and John are talking about ergodic
stochastic processes where even the probability of changes in the
universe barrel are already predetermined .

both appear to be talking about epistimological uncertainty-- the kind of
uncertainty that the Austrians talk about-- and thus believe that the
market place can predict the outcome, where the limitations of each
human's "data collection ability and ...computing
resources" [to use John's phrase] are limited. [Thr kind of
uncertainty that  Knight , Simon or Sargent talks about.]

When one speaks of  fundamental uncertainty (or nonergodic
uncertainty) one is talking about ontological uncertainty where the
future is not predetermined (or preprogrammed) by that great computer
programmer in the sky named God.


> 2.  The word
> "rational" clearly arouses powerful, not to say irrational
> :)
> emotions.  If God was kind enough to tell me what the winning
> lottery
> numbers were going to be tomorrow, and I did not buy a ticket, THAT would
> be
> irrational.  On the premises that most of us adopt, a person who
> bought
> lottery tickets because they believed that God had revealed the numbers
> to
> him would be acting irrationally.
>
>     In general we can only determine what would have been
> the rational
> action ex poste, when it is too late to choose it: "the moving
> finger
> writes..."  People, IMHO, make the best choices that they can,
> and if they
> are influenced by voices in the air those of us who can't hear the
> voices
> might call their action irrational, but the person so influenced will
> claim
> to be acting perfectly rationally.


So are people in an insane asylum  rational by your
definition?




>    
> Every so often someone chooses lottery numbers on the basis of a
> dream
> or some other "irrational" mechanism, and then wins.  Ex
> ante they were
> irrational, and might well have agreed with that description (I know
> its
> silly, but...")  Ex poste what do you call it? 
> Statistically we know that
> most people who choose their lottery numbers don't win, but statistics
> can't
> be used to prove that those who choose and win are being
> irrational.


This is the theory of revealed preference. If people do what they do, it
is they prefer to do what they do then all other possible choices-- that
is rational in a very strange sense.  Orthodox theories have defined
rational expectations about the future as where the subjective
probability distribution equals the objective probability distribution
that governs future events -- and it assumes that the current objective
probability distribution in the future exists today.

OR,  at least in the latest specification by Sargent, where today
there exists an  objective probability distribution that the future
objective probability distribution changes at a specific date in the
future (a regime change) and in a specific way -

- and that rational expectations means the person has a subjective
probability distribution of the likelihood of the future change in the
objective probability distribution equals  today's objective
probability distribution of a future change in the objective probability
distribution

>    
> Keynes cheerfully described people whose actions were not in
> accordance
> with his view of the world as acting irrationally, but that is what comes
> of
> having an Eton education.


No it comes of having a clear logical mind -- and trying to draw a
taxonomic distinction against the orthodox notion of rationality in his
time-- where rationality meant knowing the frequency distribution of
possible future events.

>    
> Complexity theory suggests that while there are many choices which
> may
> be ruled out ex ante by someone as inconsistent with their objectives
> there
> remain many choices which can't be.  People will do the best that
> they can,
> but "what happens is what no man wills" (Hear the Word of the
> Lord.) 



That's the trouble with complexity theory -- it assumes that the external
(objective) world is predetermined or preprogrammed), i.e., natural laws
exist and these cannot be changed by human behavior [ anymore than an act
of Congress can overthrow the natural law of gravity].  The common
sense of complexity theorists indicates that is predetermination is
involved then, in the long run,  the Austrian market place (the huge
computer) will win out if there are flexible prices, etc and a unique
equilibrium.  So these practical minded  savants -- who know
that they want "Keynesian-type policies" introduce "ad
hoc" constraints by insisting that there are all sorts of kinks and
quirks in the behavioral equational system, so that almost any out come
is possible -- at least in the short run-- given people play on the
particular quirks of the equational system.

the trouble with such complexity theory is that it is an easy target for
the Reagan rhetoric "Why should some bureaucrats in Washington know
better how to spend your income than you do [especially if the system is
so complex that no human can understand it]?"


Paul

Paul Davidson

Editor, Journal of Post Keynesian Economics

503 SMC

University of Tennessee

Knoxville, Tn 379996-0550

phone Number: (865) 974-4221

fax number: (865) 974-1686

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