[_delirium]

This is a good overview, though as one minor quibble, the critique of "rational agents" is separate from the critique of equilibrium models: even if all economic actors are rational agents, that doesn't imply that everything converges instantly to nice equilibria with an absence of feedback loops, attractors, and the other typical nonlinear-dynamical-system pathologies. In fact most agent simulations in AI that use rational agent models still find all sorts of that weirdness going on.

[dreamdu5t]

"Rational agents" in the context of economics does not mean people make the best choices for maximizing capital preservation. It means that human behavior is inherently rational because only an individual knows if his choices were in his best interest.

[balinvadasz]

I disagree completely. What about all inherent biases which make humans do things not in their best interest (they just think it is in their best interest, but many times they don't think, they panic) ?

See: - Loss aversion http://en.wikipedia.org/wiki/Loss_aversion - Sunk cost effects: http://en.wikipedia.org/wiki/Sunk_cost - Status quo bias: http://en.wikipedia.org/wiki/Status_quo_bias

[nasmorn]

As a trained economist I can attest to the fact that most micro economist view these issues you raised as basically irrelevant. I understand that it is basically damning experimental evidence but it is completely disregarded.

[_delirium]

I'm not very up on microeconomics, but isn't behavioral economics a hot field currently? Or are they still seen as outside the mainstream?

[dreamdu5t]

The problem is those bias' can only be revealed through action.

No matter what you assert somebody's preference is, the preference is only revealed through action.

You can say me going to football games is not in my best interest, but the fact that I act by going to a football game demonstrates that it is.

[_delirium]

This requires asserting as an axiom that people never make mistakes or get tricked, though, are always aware of all relevant information, and are in possession of an accurate mental model of how their actions are likely to affect themselves and the world. I mean, you can't really infer that someone's preference was to fall off a cliff by the mere fact that they did fall off it; they might not have realized that the cliff was there, among other possibilities.

[dreamdu5t]

> This requires asserting as an axiom that people never make mistakes or get tricked

Not having all the information doesn't negate that I'm the one making the choice. I think you're still referring to "rationality" in the logical sense of 2+2=4 being rational, not in the context of economics.

> I mean, you can't really infer that someone's preference was to fall off a cliff by the mere fact that they did fall off it; they might not have realized that the cliff was there, among other possibilities.

I didn't say all preference is revealed through a single action. I was trying to illustrate that action is the only way to determine preference.

For example, if I have a choice of going to McDonald's or Wendy's, you can't know which one I actually prefer unless I act and choose one over the other (thus preference is ordinal, not cardinal).

If I go to Wendy's, it would be absurd to say that I preferred McDonald's, since I chose to go to Wendy's. Thus, only through action is preference revealed. In the same way, it's absurd to say that someone else made a mistake when they bought an Apple product, because you're speaking of your preferences, since you can't actually know what's going on the head of the other person.

What "rational agent" means in the economic context is, that if Person A goes to Wendy's that says nothing about Person B's preference for Wendy's, since both have free will unlike inanimate objects.

[tbrownaw]

So it's basically meaningless?

[dreamdu5t]

The way it's typically used today is meaningless.

It came from economists asserting the difference between modeling human behavior vs. the behavior of physical objects. In that sense it is not meaningless. It's an important distinction that in order to model human behavior, we have to accept that people's goals are myriad and constantly shifting, and that we can only come to know their goals or preferences by them being revealed in action.

[pixcavator]

>"economists asserting the difference between modeling human behavior vs. the behavior of physical objects"

Is it really that different? Try to attach an object to several springs and see if it behaves "rationally".

[dreamdu5t]

It is very different.

Physical objects do not have free will. They don't act towards goals. They conform to unchanging mathematical patterns.

Humans do not. What I do today cannot be accurately used to determine what I will do tomorrow.

[_delirium]

Ah, but that's assuming something very much in debate. Humans are actually quite predictable in many ways, though not as well as springs (currently). Aggregate behavior can often be predicted to reasonable accuracy, at least as well as with other complex, non-human systems like the weather. And even individual behavior can be predicted with enough information (and neuroscientists can even predict some specific decisions seconds in advance, given the right instrumentation). Just knowing some demographic and contextual information about a person hugely reduces your error on predicting what their "choices" will be.

[leot]

Capitalism forces people to try to be rational.

To claim that humans are inherently rational is to deny the widespread existence of psychological pathologies.

[saraid216]

Like the hyperrationality of sociopaths?

[leot]

or depression