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The reason people build those models with those assumptions isn't some great conspiracy, it's merely because under those assumptions it's actually feasible to b

by al452 9y ago

The reason people build those models with those assumptions isn't some great conspiracy, it's merely because under those assumptions it's actually feasible to build models. Building working mathematical models with imperfect information and imperfect competition and so on is a hell of a lot harder, mostly we don't know how to do it. Conspiracy theory is intellectually lazy.

sideshowb 9y ago
Not necessarily hard. For example, perfect monopoly is as simple a model as perfect competition. Often it is closer to the truth. So why is it not used more?
- icebraining 9y ago
  I took a basic Econ 101 class and they did model monopolies. Where are they not used?
  - sideshowb 9y ago
    Every time somebody claims that raising minimum wage inevitably raises unemployment. Sure it does under assumptions of perfect competition but most labour markets are closer to monopsomy in this respect and the evidence is very mixed.
crdoconnor 9y ago
It's not exactly a conspiracy, stuff like this happens in the open: https://www.theguardian.com/world/2014/sep/12/koch-brothers-sought-say-academic-hiring-university-donation https://www.theguardian.com/world/2014/sep/12/koch-brothers-... I'd characterize this behavior as "rational actors (economists) in a dysfunctional environment responding rationally to incentives, matching demand with a supply of politically useful economic models for wealthy special interests..." The ultimate outcome of this is Greenspan telling us "nobody saw the financial crisis coming" because economists in policymaking circles drank their own koolaid and almost entirely assumed away the existence of private debt in their models.
- mentallimits 9y ago
  you have one example of wealthy donors trying to influence hiring at a university. this does not support the rather crazy theory that the overall direction of research is driven by special interests...
  - crdoconnor 9y ago
    ...and they did the same thing at the University of Utah and Arizona State. Then there's the matter of where the better paid economist jobs are (think tanks like CATO, AEI, ALEC, Heritage, etc. tasked with formulating pro-corporate policy). Is your argument that economists do not respond to incentives or that these incentives do not exist?
    - notahacker 9y ago
      The Koch brothers haven't exactly hidden their agenda and willingness to promote it, but it's also pretty obvious that (i) most of the most-criticised standard economic axioms existed long before the Koch brothers started spending (ii) mainstream academic economics (even right-wing mainstream economics) is openly and increasingly disdainful of concepts like gold standards the Kochs have thrown a lot of money at promoting and (iii) there are a lot of other research funding sources from tenured professorships allowing people to write what they want to every right-winger's favourite bogeyman Soros throwing an awful lot of money at heterodox centre-left economics Probably also (iv) if you're an economist sufficiently motivated by financial incentives to change your entire worldview to suit, you go and work for a bank which pays a lot more than a state university or Koch-bros funded think tank. So I'd struggle to see incentives being the main story behind popular economic theories
      - crdoconnor 9y ago
        >it's also pretty obvious that (i) most of the most-criticised standard economic axioms existed long before the Koch brothers started spending Except this isn't about who invented the false premises modern economic thought is based upon, it's about who perpetuates them and why. >mainstream academic economics (even right-wing mainstream economics) is openly and increasingly disdainful of concepts like gold standards I wasn't even aware the Koch brothers were pro-gold standard. It isn't mentioned here: https://en.wikipedia.org/wiki/Political_activities_of_the_Koch_brothers https://en.wikipedia.org/wiki/Political_activities_of_the_Ko... A central part of their agenda it is not. >every right-winger's favourite bogeyman Soros throwing an awful lot of money at heterodox centre-left economics Yes, he set up a think tank with noted "leftists" like Paul Volcker and David Rockefeller. The front page on their website right now is an article downplaying inequality. Karl Marx would be so proud. >Probably also (iv) if you're an economist sufficiently motivated by financial incentives to change your entire worldview to suit I doubt there are many of those. If your worldview is so divergent from the standard corporatist neoliberal worldview that pervades the profession you probably won't even go into it in the first place. I have a couple of friends who bailed for this reason at postgrad level. Nonetheless Upton Sinclair's adage that it is difficult to get a man to understand something, when his salary depends on his not understanding it is pretty relevant... Note that one of the most cited & praised economists in this thread (keen) for his (actually) heterodox approach was actually made redundant from his university not that long ago. >you go and work for a bank which pays a lot more Obviously. It's a simple jump from state university professor to a trader raking in $1 mil bonuses.
js8 9y ago
> merely because under those assumptions it's actually feasible to build models I think it's a really bad excuse in age of computer modelling and when we have mathematical tools to deal with dynamical systems.
- notahacker 9y ago
  Not really. Computers have been used in economics for decades and tradeoffs between number of assumptions made and the tractability of their effects still exists if you have a machine doing the grunt work. I mean, "rational expectations" is nothing to do with the relative simplicity of the mathematics (the models it largely replaced were worked out with pen and paper) and everything to do with the argument that economic models shouldn't rely on people making a particular type of systematic error to show a desired outcome (e.g. if policy changes required economic actors to ignore the implications of the policy change to work, they probably wouldn't actually work that well). Essentially it's the absence of an assumption about human behaviour, and there's entire classes of economic models devoted to saying "even if people on average anticipate the future and economies function perfectly smoothly, simply introducing X into the model means that you still get recessions and still get a benefit from a policy response to it", which is a more powerful argument than "if I've calibrated all these parameters and specified all these functions about all these hundreds of different types of agents' planning correctly, this policy will work", especially if you're trying to disprove arguments that the economy will sort itself out eventually. That doesn't mean there isn't a place for complex computational models and even throwing data at ML algorithms to see what sticks, or that a general equilibrium model to predict actual changes in an economy isn't fairly unlikely yield accurate results over the long term, but they're performing an entirely different function from reasoning that X will [not] affect Y even if or only if all else is held constant or assumed to respond logically.
  - js8 9y ago
    I disagree - by coincidence, the Blatt's book I mentioned elsewhere has a nice model of decision-making under uncertainty that is different from rational expectations. It's not more complicated. Same goes for Keen's models, they are dynamic and pretty simple. He even writes in his books, to paraphrase, "equilibrium is feasible" was a good excuse at the beginning of 20th century, when Marshall came up with supply/demand model, but it's not today, when we can actually analyze dynamical systems mathematically.

by al452 9y ago

sideshowb 9y ago

Not necessarily hard. For example, perfect monopoly is as simple a model as perfect competition. Often it is closer to the truth. So why is it not used more?

icebraining 9y ago
I took a basic Econ 101 class and they did model monopolies. Where are they not used?
- sideshowb 9y ago
  Every time somebody claims that raising minimum wage inevitably raises unemployment. Sure it does under assumptions of perfect competition but most labour markets are closer to monopsomy in this respect and the evidence is very mixed.

crdoconnor 9y ago

It's not exactly a conspiracy, stuff like this happens in the open: https://www.theguardian.com/world/2014/sep/12/koch-brothers-sought-say-academic-hiring-university-donation https://www.theguardian.com/world/2014/sep/12/koch-brothers-... I'd characterize this behavior as "rational actors (economists) in a dysfunctional environment responding rationally to incentives, matching demand with a supply of politically useful economic models for wealthy special interests..." The ultimate outcome of this is Greenspan telling us "nobody saw the financial crisis coming" because economists in policymaking circles drank their own koolaid and almost entirely assumed away the existence of private debt in their models.

mentallimits 9y ago
you have one example of wealthy donors trying to influence hiring at a university. this does not support the rather crazy theory that the overall direction of research is driven by special interests...
- crdoconnor 9y ago
  ...and they did the same thing at the University of Utah and Arizona State. Then there's the matter of where the better paid economist jobs are (think tanks like CATO, AEI, ALEC, Heritage, etc. tasked with formulating pro-corporate policy). Is your argument that economists do not respond to incentives or that these incentives do not exist?
  - notahacker 9y ago
    The Koch brothers haven't exactly hidden their agenda and willingness to promote it, but it's also pretty obvious that (i) most of the most-criticised standard economic axioms existed long before the Koch brothers started spending (ii) mainstream academic economics (even right-wing mainstream economics) is openly and increasingly disdainful of concepts like gold standards the Kochs have thrown a lot of money at promoting and (iii) there are a lot of other research funding sources from tenured professorships allowing people to write what they want to every right-winger's favourite bogeyman Soros throwing an awful lot of money at heterodox centre-left economics Probably also (iv) if you're an economist sufficiently motivated by financial incentives to change your entire worldview to suit, you go and work for a bank which pays a lot more than a state university or Koch-bros funded think tank. So I'd struggle to see incentives being the main story behind popular economic theories
    - crdoconnor 9y ago
      >it's also pretty obvious that (i) most of the most-criticised standard economic axioms existed long before the Koch brothers started spending Except this isn't about who invented the false premises modern economic thought is based upon, it's about who perpetuates them and why. >mainstream academic economics (even right-wing mainstream economics) is openly and increasingly disdainful of concepts like gold standards I wasn't even aware the Koch brothers were pro-gold standard. It isn't mentioned here: https://en.wikipedia.org/wiki/Political_activities_of_the_Koch_brothers https://en.wikipedia.org/wiki/Political_activities_of_the_Ko... A central part of their agenda it is not. >every right-winger's favourite bogeyman Soros throwing an awful lot of money at heterodox centre-left economics Yes, he set up a think tank with noted "leftists" like Paul Volcker and David Rockefeller. The front page on their website right now is an article downplaying inequality. Karl Marx would be so proud. >Probably also (iv) if you're an economist sufficiently motivated by financial incentives to change your entire worldview to suit I doubt there are many of those. If your worldview is so divergent from the standard corporatist neoliberal worldview that pervades the profession you probably won't even go into it in the first place. I have a couple of friends who bailed for this reason at postgrad level. Nonetheless Upton Sinclair's adage that it is difficult to get a man to understand something, when his salary depends on his not understanding it is pretty relevant... Note that one of the most cited & praised economists in this thread (keen) for his (actually) heterodox approach was actually made redundant from his university not that long ago. >you go and work for a bank which pays a lot more Obviously. It's a simple jump from state university professor to a trader raking in $1 mil bonuses.

js8 9y ago

> merely because under those assumptions it's actually feasible to build models I think it's a really bad excuse in age of computer modelling and when we have mathematical tools to deal with dynamical systems.

notahacker 9y ago
Not really. Computers have been used in economics for decades and tradeoffs between number of assumptions made and the tractability of their effects still exists if you have a machine doing the grunt work. I mean, "rational expectations" is nothing to do with the relative simplicity of the mathematics (the models it largely replaced were worked out with pen and paper) and everything to do with the argument that economic models shouldn't rely on people making a particular type of systematic error to show a desired outcome (e.g. if policy changes required economic actors to ignore the implications of the policy change to work, they probably wouldn't actually work that well). Essentially it's the absence of an assumption about human behaviour, and there's entire classes of economic models devoted to saying "even if people on average anticipate the future and economies function perfectly smoothly, simply introducing X into the model means that you still get recessions and still get a benefit from a policy response to it", which is a more powerful argument than "if I've calibrated all these parameters and specified all these functions about all these hundreds of different types of agents' planning correctly, this policy will work", especially if you're trying to disprove arguments that the economy will sort itself out eventually. That doesn't mean there isn't a place for complex computational models and even throwing data at ML algorithms to see what sticks, or that a general equilibrium model to predict actual changes in an economy isn't fairly unlikely yield accurate results over the long term, but they're performing an entirely different function from reasoning that X will [not] affect Y even if or only if all else is held constant or assumed to respond logically.
- js8 9y ago
  I disagree - by coincidence, the Blatt's book I mentioned elsewhere has a nice model of decision-making under uncertainty that is different from rational expectations. It's not more complicated. Same goes for Keen's models, they are dynamic and pretty simple. He even writes in his books, to paraphrase, "equilibrium is feasible" was a good excuse at the beginning of 20th century, when Marshall came up with supply/demand model, but it's not today, when we can actually analyze dynamical systems mathematically.