Home > Uncategorized > Taking the People Out of Economics

Taking the People Out of Economics

Jason Smith has a post in which he questions whether we really need to bother considering human thought to do economics.

I’m questioning the idea that observed macroeconomic relationships (price level and money supply, RGDP and employment) are the result of humans making decisions with money. This blog posits that macroeconomics is just about the large quantity of things (money, people in the labor force, goods and services) and human thought has a peripheral role. In that list we don’t care what goods or money think, so why are humans so special?

This started out as a comment on the post but it got so big that it needed a bit more room to spread its wings.

First, allow me to fulfill my role as internet utility policeman by pointing out that nothing depends on diminishing marginal utility! (Sorry to shout, it’s just that this hit a nerve.)

There are no economic laws that are independent of human thought. Even supply curves depend on expectations of future prices and demand curves depend on consumers’ tastes and preferences (and diminishing marginal utility).

Now, here is a little excerpt from the intro to my intro text.

Economics uses a set of principles, or propositions, to analyze human behavior.  Analyzing human behavior is what makes economics part of social science.  Social science is the study of human behavior.

So I think the reason that economists are so interested in human behavior is that they are economists and economics is the study of human behavior.  Trying to take the human out of it probably has a certain appeal to someone from outside the much maligned, “social sciences” but it is kind of like saying “I want to do physics, just without all the matter and energy.  I think those concepts just get in the way.”

Regarding the Le Pesant example, I’m not familiar with that specific case but it seems to me he was totally right about that and would not have been able to anticipate such a problem if he had not been able to infer certain things about human behavior.

Also, as far as other species go, yes I absolutely do think that many economic concepts work with many other species on earth.  If we encountered a species which “though differently” it would only mean that their preferences were unusual (compared to us).  In fact it COULD only mean that because preferences (which is what utility represents) are basically just defined as a way of identifying what someone or something would choose if faced with a given set of alternatives.  Any thing which acts deliberately can be said to have some set of preferences and given those preferences, you can apply some version of economics to determine what would happen if you put them, and potentially some other acting entities together under a certain set of circumstances.  If the preferences are unusual in some way, the results may be different but this does not mean that economics per se is somehow unique to human thought and behavior.

There are very few economic laws that are entirely independent of the characteristics of preferences but that is exactly why human thought can’t be ignored.  If the preferences didn’t matter, then you would have a nice law that would work out for any imaginable species of thinking being and the thought would be irrelevant.  But since the thinking (and therefore the preferences) are relevant, you can’t say things like “someone’s demand curve has to be downward sloping under any conceivable set of circumstances.”  You can only observe that what we observe seems to be almost always consistent with downward sloping demand curves.  And for the record, I suspect that if we find thinking, acting, life on other planets, their preferences will have the same basic properties that are usually assumed for humans.  But just imagining that they might not be doesn’t invalidate the business of looking at how the beings we actually know about make decisions.

With that in mind, I think the answer to Jason’s initial question (in response to Noah Smith)  is a simple “yes, we do know that.”  That doesn’t mean that you can’t organize information in a way that ignores that fact and still has some predictive power, but the fact remains and it is likely that you will be better able to understand the situation if you don’t choose to ignore it.

This is the important distinction between humans and goods or money.  We don’t care what goods or money think because they don’t think.  They don’t act in any kind of purposeful way.  Humans do.  Physics tries to explain the “behavior” of inanimate objects by identifying laws that govern that behavior.  This gives you a certain set of physical laws which (at least potentially) entirely describe how an inanimate object will behave in any given situation (or at least they would if we knew all of the physical laws perfectly, and maybe in some cases you need an infinite number of dimensions because the location of some particle is not deterministic or whatever but if you drop a stone off of a cliff, the laws of physics tell you exactly what it will do).

People, (and dogs and cats and mosquitos and pistol shrimp and what have you) are restrained by these laws or course.  If you drop a person off of a cliff, gravity tells you pretty-much what they will do.  But they do not fully describe our behavior.  That person might flail around in any number of ways or try to streamline their body and glide slightly to the left and aim for a haystack.  Whatever, the person does, there is some process going on that determines it.  When your alarm clock goes off in the morning there are all manner of possible things which you could do between then and bedtime which would be consistent with the laws of physics but somehow, for some reason, one particular set of things happens. The goal of social science, including economics, is to create some framework of “laws” (though in economics these tend to not be very concrete) which explain the choices that people make and analyze the consequences when multiple people making choices interact with each other.

If you had no idea what an atom or a molecule was, you could still notice that when you heated water it boiled and evaporated.  But that “macro” event is, in fact, the result of something that is going on at the molecular level.  You don’t need to know what is going on at the molecular level to make tea but if you want to build a nuclear power plant, you probably do.  At any rate, once you notice that water is made up of molecules, it probably makes scientific sense to try to look at them and figure out how the “behavior” of each one affects the “behavior” of the conglomeration.

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  1. Tom Brown
    August 6, 2014 at 6:33 am

    Mike, I’m glad you wrote this post!… I’m pretty sure Jason will respond, and I’m looking forward to a good thread going here.

    Of course I’m a fan of Jason’s approach, whether it ultimately proves to be successful or not: at least he’s drawn reasonably clear lines in the sand which I think will let us judge. That’s part of his approach I really like… but also, the general concept is very intriguing to me. I didn’t realize there was a perfectly respectable scientific alternative to reductionism, that has a long successful history science which continues to this day. So even if his attempt at this particular application (macro and econ) turns out to be a failure, It’s been very educational watching him put this altogether.

    I’m going to shut up and watch on this one, but I will point out at least one other comment he made on this subject (on another blog) which might add some clarity (if you read my comments, I tend to oversimplify):

    http://pragcap.com/forums/topic/against-human-centric-macroeconomics#post-70486

    Since it’s difficult for me to actually “shut up” I will say this: social science can have a fairly broad set of scale factors it can apply to, can’t it? It seems to me that the psychology of individuals is on one extreme of that scale factor, while something like macro economics or political science is on the other extreme. Perhaps something like “family dynamics” might be in the middle? (I don’t know my social sciences very well, so please forgive my ignorance). In the world of physics and engineering scale factors can get even more extreme of course, but a simple example is human scale vs sub-atomic particles: I think it’s safe to say that absolutely zero knowledge of sub-atomic particles (gluons, quarks, etc) is required to successfully do the structural engineering on a new bridge (though it may be helpful to know something about material science, which lies somewhere in between).

    In this post, Jason briefly discusses the use of a “maximum entropy production” technique (a cousin of the ITM I think) applied to the Earth’s water cycle. Apparently this can produce accurate descriptions (and predictions?) of aspects of this cycle, without having to incorporate hardly any physics or chemistry of water into the models. This is the sense I think in which this type of approach can serve as a potential shortcut in analyzing complex problems. Any such shortcuts that prove useful should be taken in my view. As an analogy, It seems wrong to produce a high fidelity computer simulation model of say 6*10^23 molecules (perhaps including models of each of their subatomic components) bouncing about and vibrating within a human scale container, just to arrive at the same place 19th century physicists accurately did with their statistical mechanics (i.e. the ideal gas law) [1] [2]. We should try to use the most appropriate tool for the job, no? And perhaps prediction performance can help us sort out what those tools are at different scale factors? So a real-time medical imaging device used on someone’s brain can perhaps someday be a great tool for accurately reading thoughts (what could be nobler that ferreting out traitorous thought criminals and enemies of the state?… er… I mean helping quadriplegics control their exo-skeleton mobility suits?), but it may never be appropriate for macroeconomics. I tend to think of Jason’s models as being “very macro” in that perhaps more human centric macro events (like mass panics or business cycles) look like noise to it. It’s strength might instead be as a shortcut to seeing the really big picture.

    Now hopefully he’ll come over here and correct all the mischaracterizations I’ve made (i.e. lies I’ve told) about his models!

    • Free Radical
      August 6, 2014 at 7:38 am

      Just for the record, I’m not exactly saying that what he is doing is not worth doing. It’s not the approach I would take but if he can come to some useful conclusion without taking individual decision making into account then that’s great. Just like making tea without thinking about molecules is a perfectly useful endeavor. I do think it will be difficult to do that though. I’m sort of taking it upon myself to do what I think is the necessary push-back from the stuffy old conventional econ crowd. I think philosophically he might be overreaching with some of those comments. Although, hopefully my tone doesn’t come off too confrontational, sometimes when I get ahold of something like this I just start running with it and get a little reactionary.

      Regarding “scale factors” and whatnot, I will say this: Economics typically shies away from getting too much into the psychology of individual decision making. We try to keep the assumptions about preferences as limited as possible. Here is my graduate text:

      “The assertion that consumers possess utility functions is a statement that people do in fact have preferences. How these preferences come to be, and why they might differ among people of different countries or ethnic groups, is a discipline outside of economics. These are certainly interesting questions. They are also exceedingly difficult to grapple with. The specialty of economics arose precisely because it was fruitful in many problems to ignore the origins of individuals’ tastes and explain certain events on the basis of changes in opportunities assuming that individuals’ tastes remained constant in the interim.”

      So we aren’t really trying to explain why people prefer what they prefer. For instance, we typically postulate diminishing marginal value (not utility) because that seems to generally be the case (or, you might say because it leads to conclusions which seem to generally be the case). But if you met some aliens whose utility functions didn’t exhibit this trait, you would get different outcomes. But this is not a problem for an economic theory which recognizes the role of preferences in individual decision making, you just say “oh, we found some creatures with increasing marginal value that’s weird.” Let the psychologists argue about why they are like that.

      On the other hand, if you derive a theory just from looking at inputs and outputs without bothering to think about the decisions that lead from one to the other, then you may get a conclusion which is based on observing a process characterized by diminishing marginal value and then when you observe these aliens you will get something totally different and you will have no idea why. You will just observe your law that you thought was universal unraveling before your eyes.

      This is a common problem in economics. If you try to reduce a problem to a statistical relationship between X and Y, then you are relegating the relationship between X and Y to a kind of “black box.” If something in the black box changes, you don’t realize it because you aren’t looking in the box, you are just assuming that it doesn’t change. So you might get some relationship between the money base and the price level that works with all the data but the data is based on a certain expected rate of inflation (or NGDP growth or whatever). Then one day, that expectation changes and your relationship will turn into a pumpkin and you will have no idea what happened.

    • Free Radical
      August 6, 2014 at 7:47 am

      P.S.

      It’s not as though macroeconomics never thought to separate macro outcomes from micro foundations. Macro, as a separate field, really emerged because people wanted to take a shortcut between individual decision making and macro outcomes and approach the problem from the top down instead of working all the way up from the bottom. Putting micro foundations into macro is a relatively modern approach which came about largely in response to Friedman’s (and others) critique of things like the Phillips curve which was an observed statistical relationship between inflation and unemployment (or in some cases output). Friedman pointed out, however, that if you try to exploit this relationship indefinitely, peoples’ expectations will adjust to take that into account and it will destroy the relationship, which is basically what happened. So economists started thinking maybe we better try to incorporate some kind of rational expectations in this thing.

    • Free Radical
      August 6, 2014 at 7:56 am

      P.P.S.

      http://en.wikipedia.org/wiki/Lucas_critique

      Lucas ended up getting his name on it. I guess because he made the argument very generally, but Friedman said basically the same thing in this famous paper. By the way, you will also notice most of Sumner’s stuff about “low interest rates are not loose monetary policy” and “when I buy treasuries the price goes up, when the Fed buys them, the price goes down” etc. in there. Recommended reading!

  2. August 6, 2014 at 11:34 pm

    (I did respond, but I’m not sure what happened to the comment — here’s another try)

    Hi Mike,

    Thanks for reading my piece. I should have been more careful about saying that I didn’t mean to say human behavior had no effect. What I was talking about was that in the model it appears that the price level is P = f(NGDP, MB) + ε and the interest rate is r = r(NGDP, MB) + ε, with error ε being typically a few percent, with occasional spikes ~ 10%**. It seems you can get the 90% before even considering human behavior (which is buried in the ε).

    Now in economics, people are much more interested in that 10%, and that’s totally cool (in physics, only a few percent of the universe is matter, but its way more interesting to many people). NGDP fell like 5% in the great recession, and it was a huge deal. But that also means NGDP fell from 100% to 95%. (Another example I like to use is that idealized markets predict an unemployment rate of 0%, but the real rate is like 5%, occasionally rising higher. Still, that’s pretty close — 95% employment vs 100% employment?).

    The gist was that we should understand that 90% before moving on to adding human behavior … because we really don’t know what we’re adding human behavior to.

    You also said: “But that “macro” event is, in fact, the result of something that is going on at the molecular level.”

    That is not necessarily true — entropic forces have no analog at the micro level.

    http://en.wikipedia.org/wiki/Entropic_force

    The information transfer model that forms the basis of my “critique” is like an entropic force — the concept of supply and demand doesn’t exist at the micro level, it only arises from looking at a large amount of information.

    Additionally, boiling as a physical process has little to do with the details at the micro level (that’s why thermodynamics is so successful). All of the many properties of a polar water molecule consisting of two H’s and an O with 10 electrons get subsumed into two numbers: a heat of vaporization and a boiling point (that also happen for other molecules, just with different numbers).

    When I fit the parameters of the model, they come out different for Switzerland and the US, potentially due to cultural differences, different institutions, and other human things. But 90% of the end result gets subsumed into two numbers: a “monetary exchange scale” and a “unit of account scale”.

    Your example using gravity is actually very apt — most (the 90% above) of what happens when someone goes over a cliff has nothing to do with human behavior. You can affect your terminal velocity a bit by spreading out your arms and legs, though.

    What I see in a lot of economics is that the models say the opposite: it’s 90% the human deciding to spread their arms, and only 10% gravity. That’s what I meant by “human-centric”.

    ** These are vague percentages, meant more for discussion than accuracy.

    PS Regarding the diminishing marginal utility, I was trying to say that the traditional explanation of demand curves invokes diminishing marginal utility.

    • Free Radical
      August 7, 2014 at 12:05 am

      Jason,

      Sorry, you got caught in my spam filter. I have two main issues with this. In increasing order of importance.

      1. I’m not really qualified to get into a debate about physics with a physicist so I will try to avoid it. I’m not exactly sure what you mean by “analog.” Maybe a single molecule can’t “evaporate” but there is still something happening on the molecular level regarding the behavior of molecules relative to each other or something like that which you wouldn’t notice if you had no concept of a molecule to work with. Whatever the implications for our understanding regarding the evaporation of water, there are at least some cases in which noticing the molecules doing stuff is beneficial. I don’t think you would argue with that? My point is that there are some cases where you don’t need to look that close to get what you need to know but there are some where you do. In order to know which is which you have to recognize that there is something there which is at least potentially worth looking at. Then if you look at it and you don’t gain anything by it, you can declare it irrelevant in that case but you can’t declare it irrelevant without looking at it.

      2. The guy going over a cliff was meant to be an example at one extreme where most of what happens is explained by physical laws and a little slice is determined by human decision making. The example of what a person does between waking up in the morning and going to bed at night is the opposite where there is a very wide latitude left available by physical laws and decision making is very important to what happens. Most of economics deals with cases where decision making is relatively important (there are not many economic models of people falling off of cliffs).

      3. Most importantly, I think you are mistaken when you say that all of human behavior fits into the error in your equation. It is human decision making which determines the function f(NGDP,MB). This is the “black box” I was talking about. This equation may be stable in the data that you are looking at but if you ignore the structure of human decision making on which it is based, then some element of that structure may change and the relationship (the function f()) may change. The only way to be able to predict such things is to try to identify that structure which is based on human decision making.

      • Free Radical
        August 11, 2014 at 11:01 pm

        haha, see he’s definitely better at math than I am (I meant to go back and change that “two” into a “three” but I forgot)

  3. Tom Brown
    August 9, 2014 at 6:56 pm

    Mike, great comments (I just read the ones you wrote in response to me… I’ll take a look at your exchange with Jason next). A few follow up comments:

    You write:

    “But if you met some aliens whose utility functions didn’t exhibit this trait, you would get different outcomes.”

    Jason writes:

    “Recessions might not happen among Klingons and the Ferengi Phillips curve might be perfectly stable. It would be an act of hubris to think an alien civilization thinks the same way we do … e.g. would risk premia be the same?”

    You write:

    “This is a common problem in economics. If you try to reduce a problem to a statistical relationship between X and Y, then you are relegating the relationship between X and Y to a kind of “black box.””

    That’s not Jason’s approach: he has a set of hypotheses (just two “hard core” ones) that results in the functional form used in his models. He uses data to determine some of the parameters for each economy, but the functional form does not come from the data, it came first. Thus I don’t view it as a “black box” like you mention above.

    You write:

    “It’s not as though macroeconomics never thought to separate macro outcomes from micro foundations.”

    Check out Jason’s comment here about his surprise to find a lot of overlap between his approach and that of Irving Fisher ~100 years ago or so:

    http://informationtransfereconomics.blogspot.com/2014/08/against-human-centric-macroeconomics.html?showComment=1407205276573#c8491270991092982313

    One of Fisher’s formulas there is very similar to one of Jason’s two “hard core” hypotheses. Maybe that was more of a surprise for me actually.

    I wonder if Jason would describe his theory as looking at macro as a weakly emergent phenomena, rather than a strongly emergent one?:

    http://en.wikipedia.org/wiki/Emergence

    Of course that’s pure speculation on my part! … but as an analogy, I think the gas law is useful again: it’s not like the law is completely independent of the particular gas molecules in question, it’s just that that sum total contribution of “the kind of molecule” boils down to a count of it’s degrees of freedom of movement: molecules consisting of a single atom have a smaller degree of freedom count that molecules consisting of say a pair of atoms (H2?), which can move wrt one another inside the molecule. The 19th century physicists understood this, and ascribed a larger degree of freedom count to gasses with molecules consisting of more than one atom. This suggests (to me anyway!) that molecules and atoms could have very different micro-physical properties than they do now, but if they retained this “degree of freedom” count, then the gas law *might* still apply! Knowing ahead of time which properties of individual molecules survive aggregation in some form is the trick!

    Jason put it like this once:

    “…there are only limited properties of that microstate that survive to the macrostate.”

    Actually, he says something similar a lot. He quotes a commenter here:

    “If [microfoundations survive aggregation to into a macroeconomic model as anything other than a coefficient], the resulting model is likely intractable.”

    I take the idea to be one of his hypotheses, not necessarily a statement of absolute fact.

    As to your point about rational expectations, here’s Jason:

    “Rational expectations are perfectly fine: you have an underlying model and the economic agents expect e.g. the level of inflation predicted by the model. In some sense, rational expectations make the economic agents superfluous. If the agents are just going to parrot back the expected values of model random variables, why not just say they aren’t there. A better word for “rational” expectations would be model-dependent expectations, which I contrast with model-independent (MI) expectations above. These MI expectations are those typically invoked by e.g. Scott Sumner and Nick Rowe.”

    I think it’s fair to say that Jason is critical of the misuse or overuse of “model-independent” expectations. See Nick Rowe’s comments to the above post.

    Mike, overall I’m not disputing any of your points so far: I’m basically just trying to clear up any misperceptons of Jason’s stance, if possible. Much thanks for your thoughtful replies… now I’ll re-read the rest of the comments between you and Jason.

    • Free Radical
      August 11, 2014 at 10:31 pm

      Tom,

      I will try to take on these points in order without restating them all.

      1. It’s possible that aliens might not behave the way humans do but this is not an important point (by the way I was responding to his line about aliens in the first place). The point of economics is to understand human behavior. If we meet aliens and want to model their behavior, we may need to adjust the assumptions of our models but at this point, that is only a hypothetical concern. I can imagine another universe with different laws of nature too but that exercise is neither here nor there if you are trying to send a spaceship to land on the moon, since the moon and the spaceship exist in this universe. More importantly, any supposed universal law that your, Jason or anyone else might come up with regarding human behavior is subject to the same criticism and only more so if it involves no attempt to logically model the decision-making process involved in the behavior.

      2. Those assumptions are a black box. In some sense, every model involves some set of “black boxes” it’s just a matter of what is inside them and what is outside. The point is that if you are not dealing with decision making in any way explicitly, it must be inside such a box somewhere. That might work fine or it might not but if there exists some set of unobserved circumstances under which it won’t work, you won’t be able to predict it because you won’t be looking at the relevant relationship, you will be taking it for granted.

      If his functional form doesn’t come from the data, I can’t tell where it comes from since, seemingly by his own description, it doesn’t come from some kind of logical analysis of human decision making. Maybe it comes from some other physical relationship and he is just hypothesizing that the same functional form will hold for markets and prices or economies but that is still an attempt to describe human behavior without any reference to human decision making so it still has all the same potential blind spots as if it came purely from the data.

      For the record, I can’t make any sense of his assumptions. If an undergrad wrote “dD/dS” on an exam in nearly any context, they would probably be looking at an automatic zero. Since Jason is a physicist, I assume that he is better at math than I am and so he probably has something in mind that makes sense from some point of view but I have a strong suspicion that what he means by “supply” and “demand” is not quite the same as what an econ textbook means by those terms. Of course, that shouldn’t be surprising since what an econ textbook means by them is defined entirely in terms of individuals’ willingness to do one thing or another….

      3. I’m not exactly sure what is going on with that Fisher business. It looks a lot like a first order condition from a consumer maximization problem but I can’t tell what dA/dB actually means. However, as internet utility policeman, this line bothers me.

      ” if you just take utility to be another quantity of some good or service,”

      Again, I think there is some confusion there. Of course, there is some confusion on the part of Fisher about utility. His first point about going no further than is serviceable in explaining economic facts is quite right. That is what we have done with utility. The problem with learning utility from hundred-year-old texts (or internet Austrians) is that they frequently conflate utility with value. There is probably some of this underlying Jason’s comment (value is measured in other goods).

      4. This stuff about gas laws is a bit (only a bit in this case but still a bit) over my head but I don’t think you are saying anything I disagree with. There is still something going on at the molecular level that may or may not be important depending on what you want to predict.

      5. Regarding taking the agents out, parroting back expectations is not what the agents are in there for. They are doing other things (consuming, investing, saving, etc.) in light of those expectations. The point of “rational expectations” is basically to rule out certain situations that don’t make sense. For instance inflation runs at 5% forever but people continue to expect it to run at 1%. This is precisely that kind of thing is easy to overlook if you aren’t paying any attention to what makes sense for people to do and that’s what happened with early versions of the Phillips curve and that is why we now have rational expectations.

  4. Tom Brown
    August 9, 2014 at 8:52 pm

    Mike, I just re-read your exchange w/ Jason. Again, some great comments there. Two things you wrote there I’ll touch on:

    “My point is that there are some cases where you don’t need to look that close to get what you need to know but there are some where you do.”

    OK, sounds reasonable. You continue:

    “In order to know which is which you have to recognize that there is something there which is at least potentially worth looking at. Then if you look at it and you don’t gain anything by it, you can declare it irrelevant in that case but you can’t declare it irrelevant without looking at it.”

    I’m not convinced that’s always true. Sometimes you can’t look any closer (take those 19th century physicists again, thinking about gas molecules) because you just don’t know any more. The ultimate test is whether or not nature agrees with you. And perhaps starting off looking closer can fool us and is thus not always the best approach even if much more information is available. The 19th century physicists were forced (due to lack of information and computing power) into developing statistical mechanics, but perhaps what we can learn from their (lucky) experience is that we don’t always have to start off looking at ALL the information. If we’re wrong about what we include and leave out, nature will let us know. The interesting thing to me in the case of the 19th century physicists, is that their approach (beyond being a mere necessary short cut due to a lack of information), ultimately made a direct contribution to Max Planck’s hypothesis in 1900 that energy is quantized… which gave birth to the field of quantum mechanics. Maybe we should *voluntarily* take many similar short cuts… who knows what we’ll find. (Most of the time we’ll probably find that we were wrong, but once in a great while we’ll hit a home run!).

    “This equation may be stable in the data that you are looking at but if you ignore the structure of human decision making on which it is based, then some element of that structure may change and the relationship (the function f()) may change. The only way to be able to predict such things is to try to identify that structure which is based on human decision making.”

    I like that you used the word “predict” there… but I don’t see that at odds with what Jason is attempting. He’s making testable predictions based on hypotheses. To do what you describe in this paragraph, ideally the predictions you speak of would also be testable.

    So again, no real complaints with your comments, but I just wonder if it might be possible that we fool ourselves about what human behavior tells us by relying too much on our intuition about what that is. Think of all the great science that’s been done in which the results were completely counter-intuitive.

    In any case, I think you made a fine defense here of traditional approaches!

    • Free Radical
      August 11, 2014 at 10:46 pm

      “Sometimes you can’t look any closer.”

      Fine, but when it comes to human decision making we can. We know that individuals exist and that they do things deliberately as the result of some decision-making process and that macro outcomes are the result of a lot of these individuals interacting, so it makes sense to look at that decision-making process. Of course, we never have all the information so we always take shortcuts. If you can find a useful shortcut that’s great I’m not saying you shouldn’t try. But I think when you start asking questions like “do we really know that macro outcomes are the result of individual decision-making?” you are overextending yourself philosophically in your justification for such shortcuts.

      I’m not sure, in a broad sense, that what I am saying is “at odds” with what Jason is attempting. I’m basically just pushing back on the sentiment I mentioned above. My point basically boils down to: if you have one model with a lot of “shortcuts” built mainly on statistical observations and relationships with no logical justification related to individual decision making which yields a certain prediction and you have another model which does base its relationships on some attempt to model human decision making, it is possible for the latter model to predict a flaw in the formal model in a reliable way. So I can look at the latter model and say “ahh, this is why the former model predicts X and why it is likely to be wrong under these circumstances.” Or, in short, the second model is likely to be better. Of course, if the second model is inconsistent with observed data, it is still junk, but an ideal model has both.

      I think it is worthwhile to notice that in physics and other “hard” sciences there isn’t really a “both” though. There is no logical reason why it makes sense for gravity to exist. It just does. It can only be identified through observation. I think this is a very important difference in approach that is at the heart of this debate.

    • Free Radical
      August 11, 2014 at 10:51 pm

      Oh one more thing! I can’t remember who (you or Jason) said it or where and I think I already said this once before but demand does exist at the individual level.

    • Free Radical
      August 11, 2014 at 10:59 pm

      P.S.

      I notice that some guy named Thomas Corning says basically what I was trying say about the laws of physics and their relation to human behavior in the page on emergence you linked to.

      “Even in a chess game, you cannot use the rules to predict “history” — i.e., the course of any given game. Indeed, you cannot even reliably predict the next move in a chess game. Why? Because the “system” involves more than the rules of the game. It also includes the players and their unfolding, moment-by-moment decisions among a very large number of available options at each choice point. The game of chess is inescapably historical, even though it is also constrained and shaped by a set of rules, not to mention the laws of physics. Moreover, and this is a key point, the game of chess is also shaped by teleonomic, cybernetic, feedback-driven influences. It is not simply a self-ordered process; it involves an organized, “purposeful” activity.”

  5. August 13, 2014 at 12:11 am

    Hi Mike, Tom,

    I started writing a comment responding to the comments above and it got a bit out of hand, so I turned it into a post of its own:

    http://informationtransfereconomics.blogspot.com/2014/08/on-taking-people-out-of-economics.html

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