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I don't know what the point of the diary should be. You see a tremendous but trite point in it. Technopolitical earlier thought the point was something excellent and fresh which I am not sure is what I intended. I suppose I just wanted to wrap up all my earlier comments on free trade into one diary.

To address the points you make in your comment, I have to start by disagreeing that macroeconomics cannot is not a science. I think it is the only part of social sciences which has any hope of calling itself a science. The fact that it has been hijacked by ideologues is unfortunate, but tangential.

Microeconomics is almost a branch of psychology, because it is fundamentally about behaviour. Consumer choice, (un)bounded rationality, (im)perfect information, game theory... A friend of mine was  writing her Economics dissertation on keeping up with the Joneses!

Macroeconomics, on the other hand, is like thermodynamics. It deals with economic systems so large that the specific details of the economic behaviour of individuals are irrelevant. Macroeconomics shares a lot with non-equilibrium thermodynamics and population ecology. So, it really should be possible to elucidate a few simple but general laws of macroeconomics.  

I have many problems with mathematical economics, but the main one is the concept of the utility function. Pareto demolished utility, but people keep reviving it because they can't get their head around multiple, competing criteria of goodness. The only people who seem to be able to live with Pareto are decision-theoretic statisticians.

Regarding your comparison of economic models to Ptolemaic astronomy, the great Richard Feynman (again) wrote that the difference between fundamental laws and effective laws is that the more you study fundamental laws the simpler they get (simplicity does not exclude mathematical sophistication), but the more you study effective laws the more complex they get. Economic laws are not fundamental laws, so the more you study them the more complex they should get. There's nothing wrong with that.

But I am beginning to ramble, so I'd better stop.

guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper

by Migeru (migeru at eurotrib dot com) on Mon Nov 14th, 2005 at 05:03:42 PM EST
[ Parent ]
I think your two observations:

Microeconomics is almost a branch of psychology, because it is fundamentally about behaviour

and:

Macroeconomics, on the other hand, is like thermodynamics. It deals with economic systems so large that the specific details of the economic behaviour of individuals are irrelevant

Are pertinent.  I think your observation that microeconomics is almost a psychology is exactly right.  However, I strongly disagree with your conclusion about macroeconomics, even though I believe your supporting statements about individual behavior being irrelevant, etc., to be correct.

I think with macroeconomics, what we're witnessing is group psychology and behavior.  In these fields, individual behavior and predictions are next to impossible while large groups tend to act predictably.  Thus, it is tempting to think of it as a science which can be mathematically explained.

But that's very wrong.  The seeming stability of macroeconomics is explained by group behavior and things like disbursal of responsibility which make larger groups more stable than smaller ones.

The key difference is that the laws of thermodynamics will still exist even if everyone in the world stops believing in them.  The same cannot be said of the economy.  You're correct that individual behavior has little effect, but group behavior does.

Maybe we can eventually make language a complete impediment to understanding. -Hobbes

by Izzy (izzy at eurotrib dot com) on Mon Nov 14th, 2005 at 06:38:02 PM EST
[ Parent ]
Hmmm, psychohistory all over again.

guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper
by Migeru (migeru at eurotrib dot com) on Mon Nov 14th, 2005 at 06:43:34 PM EST
[ Parent ]
Exactly!  ;-)

Maybe we can eventually make language a complete impediment to understanding. -Hobbes
by Izzy (izzy at eurotrib dot com) on Mon Nov 14th, 2005 at 06:50:28 PM EST
[ Parent ]
Intelligible does not mean predictable. I think I may eventually have to write a diary about this, but in the meantime I'll just drop a name, Stuart Kauffman, and suggest the last few chapters of his book At Home In the Universe.

guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper
by Migeru (migeru at eurotrib dot com) on Mon Nov 14th, 2005 at 07:09:51 PM EST
[ Parent ]
Regarding utility, psychology and experimental economics do indeed show that human behavior is incompatible with models that assume utility maximization. If an individual's preferences were fully ordered, however, then there would exist one or more utility functions that yield that same order, hence those preferences could be described by a utility function. (And full ordering is compatible with multiple, competing criteria of goodness.)

There is an evolutionary reason to expect that behavior will, at least, not reflect cyclic preferences. If preferences run A > B > C > A, then no utility function can be found -- but a game player with these cyclic preferences can be exploited: trade B for C plus a side-payment, then A for B, then C for A. Repeat, and extract value from the cyclic player for free. The exploitability of cyclic preferences drives evolution (genetic and cultural) toward eliminating them.

(On the other hand, transaction costs and refusal to play certain games should be enough to protect some cyclic preferences from exploitation, which reduces the consequence of this result.)

The above description of classes of preference structures will, however, seem to be more-or-less complete only if one falls into the fallacy of treating "fully ordered" and "unordered" as the only sorts of order. This of course neglects partial orders: for example, models based on Pareto optimality. The preference aspect of partially ordered preferences can be described by many utility functions, but their indifferences (or non-preferences) cannot be so described. Because partial orders lack cycles, they are immune to exploitation of the sort described above, yet they are not strong enough to support some arguments that go through in the case of full orders. Utility functions are just too strong.

Utility functions for groups are of course quite problematic and strongly motivate the use of Pareto orderings. Schelling argues that an "individual" mind is in fact divided in ways that make it more like a group, which motivates his application of game theory to purely personal choices and may explain some of the deviation of human behavior from utility-based models.

Saunders Mac Lane observes (and I agree) that neglect of the concept of partial orders is a major source of erroreous thinking in the social sciences, even beyond mathematical economics.

Words and ideas I offer here may be used freely and without attribution.

by technopolitical on Mon Nov 14th, 2005 at 06:50:11 PM EST
[ Parent ]
The Saunders Mac Lane?

guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper
by Migeru (migeru at eurotrib dot com) on Mon Nov 14th, 2005 at 07:01:13 PM EST
[ Parent ]
Is there another? I count him as my favorite mathematician (and his writings gave me a much better appreciation of synthetic geometry).

I never met him, though I did have an opportunity to converse with Feynman about some matters regarding physics, future technology, and policy.

Words and ideas I offer here may be used freely and without attribution.

by technopolitical on Tue Nov 15th, 2005 at 02:06:20 AM EST
[ Parent ]
You could tell us what Feynman said, you lucky dog.

guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper
by Migeru (migeru at eurotrib dot com) on Thu Nov 17th, 2005 at 02:40:02 PM EST
[ Parent ]

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