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I don't understand statements like this: > But it treats perfectly competitive markets as special cases rather than the norm In the context of this article's

I don't understand statements like this: > But it treats perfectly competitive markets as special cases rather than the norm In the context of this article's verbiage, I learned Economics the "old way" and at no point was I under any illusion that Perfect Competition was "the norm" or even common. I seem to recall phrases akin to, "There is no such thing as a Perfectly Competitive market," oft-repeated.

jjoonathan 9y ago
Sure, but if your econ class was like mine, highly competitive markets received the most examination, discussion, and general attention, while low-competition markets were relegated to a paragraph or perhaps even a footnote. The relative prevalence of the two in the real world suggests a different allocation of attention.
- jstrom 9y ago
  Isn't that the logical approach to teaching it though? Start with the base case, analyze how it functions, then start looking it how it changes when you remove an assumption. Similar to how physics starts with perfectly elastic point-masses in vacuum on a friction-less plane.
  - tw1010 9y ago
    Sorry to go off topic, but isn't this a case where "reasonable" would be a better choice of word than "logical". There's nothing particularly logical about teaching a thing one way over another.
  - jerf 9y ago
    I used to think of the world of Physics 101 as PhysicsLand. It is a horrible place. There is no air. There are a huge number of infinitely sharp, yet infinitely rigid objects lie in wait to slice you to bits; even cubes can't be trusted with their infinitely sharp edges. Feathers and bowling balls are constantly falling on you from above, and there's no terminal velocity to slow them down. You can't even stand up to escape, unless you've been there long enough that friction has finally gotten installed. But beware, because shortly after that, the infinitely sharp, infinitely rigid things start whirling around. It's a horrible place... and as far as most people make it in physics. Econ 101 may only be able to teach very simple models before most people also wander away to learn something else, but they are still useful models, and I still think people come away from discussions of how irrational humans are and how simplified economic models are and all these other things and think that the basics of Supply and Demand have therefore been disproved and I can go off and socially engineer without having to worry about them... but they haven't. The edges of the Law of Supply and Demand may fractal off into ever-more complicated corner cases as you approach their edges, most of which happen in the real world, but the core idea is still valid and you're still naked in the face of the real world's complexity if you think they aren't relevant, just as, for all the immense simplification, Physics 101 is still relevant to the real world even if it's the only physics you ever take.
  - JamesBarney 9y ago
    It is if you plan on eventually teaching the exceptions. But if 95% of the students aren't going to study long enough to make it to the exceptions, and 95% of the real world are "exceptional" markets than maybe we should rethink how we teach it.
  - dragonwriter 9y ago
    > Isn't that the logical approach to teaching it though? If you assume what used to be called “the standard social science model” centered on rational choice theory is, if not a actually right, a reasonable approximation for common conditions akin to Newtonian mechanics, sure. OTOH, if, as seems to be increasingly common (across the social sciences), you see it more akin to Aristotelean mechanics that coincidentally looks like some real phenomenon but gets the mechanism wrong for the general outline of how things behave, then, no.
  - scythe 9y ago
    If you assume competitive markets are "simpler" than uncompetitive markets this is certainly true. However it is questionable to me that this would actually be the case. Rather the advantage of the traditional approach to economics isn't that competitive markets are simpler but that the axiomatic framework which is built on them can be generalized in a mathematically rigorous way to describe most kinds of uncompetitive markets. In order to provide real intellectual (rather than political) competition a different way of teaching economics would need to start with axioms of uncompetitive markets and deform them to also describe competitive markets. That doesn't seem to be happening in this book, however.
    - icebraining 9y ago
      If you assume competitive markets are "simpler" than uncompetitive markets this is certainly true. However it is questionable to me that this would actually be the case. I think it's true by the Anna Karenina principle; there are many ways for a market to be uncompetitive.
  - quadrangle 9y ago
    This is a broader question of pedagogy. There's first-principles approaches to teaching and then there's example-based, case-study and other approaches. I happen to have sympathies with first-principles, but I've learned over time as a teacher that it can be quite flawed. I've grown to embrace statistical learning: show lots of complex real-world cases until the aggregate makes the statistically-significant patterns common to all the cases clear to the students. That's often actually superior to the abstract fiction of first-principles.
  - js8 9y ago
    The problem is Physics 101 is a good approximation to reality, and you know where. The free markets are not a good approximation of normal markets, because the strategies of the actors are completely different. The problem is with game theory - the limit of optimal strategies for some games is not always the same as the optimal strategy for the limit game. This breaks the ability to approximate. So, for example, you cannot make conclusion from a game with infinite number of actors ("free market") to a game with finite number of actors.
    - JumpCrisscross 9y ago
      > The free markets are not a good approximation of normal markets, because the strategies of the actors are completely different You can use freshman economics to predict the average oil price in a given year, from tables of quantities supplied and demanded. Where one finds deviation, e.g. when OPEC was founded, meaningful new information arrived. Most markets don't follow freshman economics which is why there is lots of interest in developing better models. But we don't start physics with CFD.
      - js8 9y ago
        > You can use freshman economics to predict the average oil price in a given year, from tables of quantities supplied and demanded. Not sure if I completely understand what you want to do, but if I do, this is not drawing supply/demand curves, this is just predicting the prices based on history of supply and demand. The supply/demand curves (that is, the model) is what I am criticizing.
        icebraining 9y ago
        You can't predict based on history without having a model that tells you how to extrapolate that history.
        js8 9y ago
        You could have a statistical model. You record supply, demand and price over time period and then you can predict price by matching it to supply and demand. No knowledge of supply/demand curves is needed. But I am not clear if this is what parent wants to do.
  - arethuza 9y ago
    "physics starts with perfectly elastic point-masses in vacuum on a friction-less plane" It's been a while but I'm pretty sure our high school physics classes started with weights accelerating (or not) down an inclined plane - i.e. we actually started with actual trolleys pulling paper tape through ticker timers...
- saosebastiao 9y ago
  Highly competitive markets are the most well understood and predictable. It's the same reason we focus on and talk about the scientific outcomes where p < 0.05.
- deleted 9y ago
  [deleted]
- moduspol 9y ago
  You do the same thing in physics when your calculations assume no friction or wind resistance. It's not because friction or wind resistance aren't commonly present in real life. Of course they are. It's because they're tougher to calculate and often require estimation. You'd be missing the point if you assumed these calculations are meaningless because you're not including those factors. They're just ways the answer could change in real life applications that need to be kept in mind. And just like they don't footnote every physics example with "[1] In the real world, friction and wind resistance exist and will affect the end result," they don't do it in economics, either. This is kind of an understanding of the basics of the concepts.
  - falsedan 9y ago
    > You'd be missing the point if you assumed these calculations are meaningless because you're not including those factors. We don't think they're meaningless, just that the calculated results won't 100% predict the actual movement of physical bodies in the real world. Friction and wind resistance are well-understood, and a reasonable model can have its predictions altered to suit the local conditions. The perfectly competitive market doesn't have these well-understood complications. If you have a prediction of a block sliding down a ramp, you could easily give a range for expected error due to the effects of friction and wind resistance (using known, measured values taken of commonly-seen materials & conditions). You could even take the modelled prediction, go out in the field, plug in the local conditions, and get an accurate result!
    - moduspol 9y ago
      > We don't think they're meaningless, just that the calculated results won't 100% predict the actual movement of physical bodies in the real world. Right, and the same applies with economics. I'm not claiming human behavior (relative to economics) is comparable scientifically to friction--just that it's a compounding factor that doesn't keep us from meaningfully studying the subject.
      - falsedan 9y ago
        > the same applies with economics My second paragraph tries to make the case that, with economics, the real-world conditions which are ignored in order to simplify the calculations are not nearly as well understood, nor measurable, or adjustable for as friction and air resistance. Plus, they do not have as linear a response as friction/air resistance. > it's a compounding factor that doesn't keep us from meaningfully studying the subject I disagree, it makes the study of the perfect market completely unusable for predicting real-world behaviour.
chrismealy 9y ago
Intro is taught assuming perfect markets, with caveats. You are one of the rare outstanding students who remembers the caveats! This book's approach is to introduce a general model of strategic interactions, and then discusses perfect competition as a special case (much later in the book). This is big part of what makes the book more realistic than the conventional approach.
stephengillie 9y ago
My econ classes always started by repeating the mantra "Markets aren't perfect and information doesn't move perfectly, but if it did..." And for the rest of the hour we'd pretend that markets are perfect and information flows like free beer. Too much time is spent being confused about how oligopolies form to consider that these are never identical market players, and the balance of production inequalities between these competitors may itself define the oligopoly.
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jjoonathan 9y ago

Sure, but if your econ class was like mine, highly competitive markets received the most examination, discussion, and general attention, while low-competition markets were relegated to a paragraph or perhaps even a footnote. The relative prevalence of the two in the real world suggests a different allocation of attention.

jstrom 9y ago
Isn't that the logical approach to teaching it though? Start with the base case, analyze how it functions, then start looking it how it changes when you remove an assumption. Similar to how physics starts with perfectly elastic point-masses in vacuum on a friction-less plane.
- tw1010 9y ago
  Sorry to go off topic, but isn't this a case where "reasonable" would be a better choice of word than "logical". There's nothing particularly logical about teaching a thing one way over another.
- jerf 9y ago
  I used to think of the world of Physics 101 as PhysicsLand. It is a horrible place. There is no air. There are a huge number of infinitely sharp, yet infinitely rigid objects lie in wait to slice you to bits; even cubes can't be trusted with their infinitely sharp edges. Feathers and bowling balls are constantly falling on you from above, and there's no terminal velocity to slow them down. You can't even stand up to escape, unless you've been there long enough that friction has finally gotten installed. But beware, because shortly after that, the infinitely sharp, infinitely rigid things start whirling around. It's a horrible place... and as far as most people make it in physics. Econ 101 may only be able to teach very simple models before most people also wander away to learn something else, but they are still useful models, and I still think people come away from discussions of how irrational humans are and how simplified economic models are and all these other things and think that the basics of Supply and Demand have therefore been disproved and I can go off and socially engineer without having to worry about them... but they haven't. The edges of the Law of Supply and Demand may fractal off into ever-more complicated corner cases as you approach their edges, most of which happen in the real world, but the core idea is still valid and you're still naked in the face of the real world's complexity if you think they aren't relevant, just as, for all the immense simplification, Physics 101 is still relevant to the real world even if it's the only physics you ever take.
- JamesBarney 9y ago
  It is if you plan on eventually teaching the exceptions. But if 95% of the students aren't going to study long enough to make it to the exceptions, and 95% of the real world are "exceptional" markets than maybe we should rethink how we teach it.
- dragonwriter 9y ago
  > Isn't that the logical approach to teaching it though? If you assume what used to be called “the standard social science model” centered on rational choice theory is, if not a actually right, a reasonable approximation for common conditions akin to Newtonian mechanics, sure. OTOH, if, as seems to be increasingly common (across the social sciences), you see it more akin to Aristotelean mechanics that coincidentally looks like some real phenomenon but gets the mechanism wrong for the general outline of how things behave, then, no.
- scythe 9y ago
  If you assume competitive markets are "simpler" than uncompetitive markets this is certainly true. However it is questionable to me that this would actually be the case. Rather the advantage of the traditional approach to economics isn't that competitive markets are simpler but that the axiomatic framework which is built on them can be generalized in a mathematically rigorous way to describe most kinds of uncompetitive markets. In order to provide real intellectual (rather than political) competition a different way of teaching economics would need to start with axioms of uncompetitive markets and deform them to also describe competitive markets. That doesn't seem to be happening in this book, however.
  - icebraining 9y ago
    If you assume competitive markets are "simpler" than uncompetitive markets this is certainly true. However it is questionable to me that this would actually be the case. I think it's true by the Anna Karenina principle; there are many ways for a market to be uncompetitive.
- quadrangle 9y ago
  This is a broader question of pedagogy. There's first-principles approaches to teaching and then there's example-based, case-study and other approaches. I happen to have sympathies with first-principles, but I've learned over time as a teacher that it can be quite flawed. I've grown to embrace statistical learning: show lots of complex real-world cases until the aggregate makes the statistically-significant patterns common to all the cases clear to the students. That's often actually superior to the abstract fiction of first-principles.
- js8 9y ago
  The problem is Physics 101 is a good approximation to reality, and you know where. The free markets are not a good approximation of normal markets, because the strategies of the actors are completely different. The problem is with game theory - the limit of optimal strategies for some games is not always the same as the optimal strategy for the limit game. This breaks the ability to approximate. So, for example, you cannot make conclusion from a game with infinite number of actors ("free market") to a game with finite number of actors.
  - JumpCrisscross 9y ago
    > The free markets are not a good approximation of normal markets, because the strategies of the actors are completely different You can use freshman economics to predict the average oil price in a given year, from tables of quantities supplied and demanded. Where one finds deviation, e.g. when OPEC was founded, meaningful new information arrived. Most markets don't follow freshman economics which is why there is lots of interest in developing better models. But we don't start physics with CFD.
    - js8 9y ago
      > You can use freshman economics to predict the average oil price in a given year, from tables of quantities supplied and demanded. Not sure if I completely understand what you want to do, but if I do, this is not drawing supply/demand curves, this is just predicting the prices based on history of supply and demand. The supply/demand curves (that is, the model) is what I am criticizing.
      - icebraining 9y ago
        You can't predict based on history without having a model that tells you how to extrapolate that history.
        js8 9y ago
        You could have a statistical model. You record supply, demand and price over time period and then you can predict price by matching it to supply and demand. No knowledge of supply/demand curves is needed. But I am not clear if this is what parent wants to do.
- arethuza 9y ago
  "physics starts with perfectly elastic point-masses in vacuum on a friction-less plane" It's been a while but I'm pretty sure our high school physics classes started with weights accelerating (or not) down an inclined plane - i.e. we actually started with actual trolleys pulling paper tape through ticker timers...
saosebastiao 9y ago
Highly competitive markets are the most well understood and predictable. It's the same reason we focus on and talk about the scientific outcomes where p < 0.05.
deleted 9y ago
[deleted]
moduspol 9y ago
You do the same thing in physics when your calculations assume no friction or wind resistance. It's not because friction or wind resistance aren't commonly present in real life. Of course they are. It's because they're tougher to calculate and often require estimation. You'd be missing the point if you assumed these calculations are meaningless because you're not including those factors. They're just ways the answer could change in real life applications that need to be kept in mind. And just like they don't footnote every physics example with "[1] In the real world, friction and wind resistance exist and will affect the end result," they don't do it in economics, either. This is kind of an understanding of the basics of the concepts.
- falsedan 9y ago
  > You'd be missing the point if you assumed these calculations are meaningless because you're not including those factors. We don't think they're meaningless, just that the calculated results won't 100% predict the actual movement of physical bodies in the real world. Friction and wind resistance are well-understood, and a reasonable model can have its predictions altered to suit the local conditions. The perfectly competitive market doesn't have these well-understood complications. If you have a prediction of a block sliding down a ramp, you could easily give a range for expected error due to the effects of friction and wind resistance (using known, measured values taken of commonly-seen materials & conditions). You could even take the modelled prediction, go out in the field, plug in the local conditions, and get an accurate result!
  - moduspol 9y ago
    > We don't think they're meaningless, just that the calculated results won't 100% predict the actual movement of physical bodies in the real world. Right, and the same applies with economics. I'm not claiming human behavior (relative to economics) is comparable scientifically to friction--just that it's a compounding factor that doesn't keep us from meaningfully studying the subject.
    - falsedan 9y ago
      > the same applies with economics My second paragraph tries to make the case that, with economics, the real-world conditions which are ignored in order to simplify the calculations are not nearly as well understood, nor measurable, or adjustable for as friction and air resistance. Plus, they do not have as linear a response as friction/air resistance. > it's a compounding factor that doesn't keep us from meaningfully studying the subject I disagree, it makes the study of the perfect market completely unusable for predicting real-world behaviour.

chrismealy 9y ago

Intro is taught assuming perfect markets, with caveats. You are one of the rare outstanding students who remembers the caveats! This book's approach is to introduce a general model of strategic interactions, and then discusses perfect competition as a special case (much later in the book). This is big part of what makes the book more realistic than the conventional approach.

stephengillie 9y ago

My econ classes always started by repeating the mantra "Markets aren't perfect and information doesn't move perfectly, but if it did..." And for the rest of the hour we'd pretend that markets are perfect and information flows like free beer. Too much time is spent being confused about how oligopolies form to consider that these are never identical market players, and the balance of production inequalities between these competitors may itself define the oligopoly.

Alyssa5454 9y ago
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