Re: Paul D. on this year's Nobel

[paul davidson <pdavidson@xxxxxxx>]

At 11:18 AM 10/10/02 , you wrote:
> >
> >all of the above analysis, James, still requires the ERGODIC AXIOM (or the
> >ordering axiom) and hence are logically incompatible with the concept of
> >fundamental uncertainty.
>
> My impression of this work -- and I'm sure no expert on it -- is that it is
> concerned with how real-world human beings make choices in real-world
> situations. In this respect it strikes me as interesting and useful. In some
> respects it is subversive of neoclassical orthodoxy, since it calls into
> question the axioms of choice upon which conventional demand functions rest.
>
> I'm not sure how wedded these insights are to what Paul calls the "ergodic
> axiom". The work suggests that the economist's conception of "rationality"
> doesn't reflect how human beings actually make decisions.


What these Nobel prize winners are claiming is that for all sorts of
psychological or other reasons, in the short run, some economic agents may
not make rational decisions--- although the information for rational
decision exists and is often given by the investigator (even i it is in an
obtuse form) to the students (laboratory rats) being observed.  [If the
rational choice was not knowable to the investigator -- and hence
potentially available to the students -- how would the investigator "know"
the students that the choice made by the students was not the rational choice?

And if rational choice is possible, then there are five dollar bills lying
in the street, and those who make these choice -- even if they do not  know
the choice was rational --but merely act a"as if" they knew -- will collect
all those five dollar bills!



And if the system was not ergodic, then there can not exist any possible
choice (that required the outcome to be at a future moment of time then the
point where the decision is made) to be described as rational.  In that
case, then all the investigators must argue is they do not know what a
rational choice decision is, under the [nonergodic] circumstances.


> This in itself
> hasn't got anything to do with ergodicity, as far as I can see.


I hope you now can see.  But I am reminded of a proverb my grandmother
said:  "No one is as blind as those who will not see!"

>   To the extent
> that behavioral economists share an essentially neoclssical understanding of
> market processes, their work no doubt contains trace elements of the kind of
> reasoning to which Paul objects.  But those elements seem to me to be
> incidental to, and distinct from, the behavioral insights, which stand alone
> (and which may or may not be sound in themselves).

God help us from this type of reasoning-- all it does is perpetuate the
basic Arrow-Debreu general equilibrium model -- and then permit "special
cases" by adding ad hoc assumptions. It never will get us to the General
Theory discovered by Keynes -- where money contracts for organizing
production and liquidity is the essence of the entrepreneurial system.

Do you not notice that in all the Kahenmann and Vernon Smith experiments
about markets -- there are no costs of production (as Mat Forstater pointed
out) and there is never a liquidity problem in their simulation of
financial markets!!!

And this is suppose to help us understand behavior in real world markets --
where either there are costs of production or there are financial markets
that, of necessity create and destroy liquidity.

Paul