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Yes, if people are rational actors, whatever they do is rational according to their private utility function. So, if anything they do is rational, then how is i

by pradn 6y ago

Yes, if people are rational actors, whatever they do is rational according to their private utility function. So, if anything they do is rational, then how is it "rational", which supposedly depends on some objective metric?

pas 6y ago
It's rational because objectively the agent does what is best for it. Basically that's the definition of being rational. But without any qualifications, constraints, or additional context this description of decision theory is not really useful. (That was the point I tried to convey in my original comment.) What even the general theory is useful for, is to quickly reduce the question of the very general behavior/decision problem in to "show me your utility function and I'll tell you what you will do". Of course then that becomes a problem. How to model utility, how to formalize expected utility over all possible actions. What about priors (as in path-dependence, so do we want to encode that into the utility function - and constantly dynamically update the function, like a Bayesian agent would update its beliefs - or somehow manage it separately)? ... Basically I was trying to persuade people to don't say things like "economists are dumb, because people are not rational utility maximizers", because that's a false implication. Of course they are, but - just like you said - this doesn't help us better predict people's (agents') behavior, just gives us a new task to model their utility functions. And that's where regret comes in. (Which is basically risk-aversion, which is what behavioral economics studies. People are not symmetric about positive and negative expectations. They value avoiding negative-utility events more than they value encountering positive-utility events. And of course with this insight now we can build better economic models - for example we can use this to "explain" why wages are more sticky - especially downward - than we would expect, also with some handwaving we can explain why in times of crisis people are let go instead of decreasing their hourly compensation, why some people are so gullible [peer pressure, confirmation bias ~ cognitive dissonance], and so on.)

by pradn 6y ago

pas 6y ago

It's rational because objectively the agent does what is best for it. Basically that's the definition of being rational. But without any qualifications, constraints, or additional context this description of decision theory is not really useful. (That was the point I tried to convey in my original comment.) What even the general theory is useful for, is to quickly reduce the question of the very general behavior/decision problem in to "show me your utility function and I'll tell you what you will do". Of course then that becomes a problem. How to model utility, how to formalize expected utility over all possible actions. What about priors (as in path-dependence, so do we want to encode that into the utility function - and constantly dynamically update the function, like a Bayesian agent would update its beliefs - or somehow manage it separately)? ... Basically I was trying to persuade people to don't say things like "economists are dumb, because people are not rational utility maximizers", because that's a false implication. Of course they are, but - just like you said - this doesn't help us better predict people's (agents') behavior, just gives us a new task to model their utility functions. And that's where regret comes in. (Which is basically risk-aversion, which is what behavioral economics studies. People are not symmetric about positive and negative expectations. They value avoiding negative-utility events more than they value encountering positive-utility events. And of course with this insight now we can build better economic models - for example we can use this to "explain" why wages are more sticky - especially downward - than we would expect, also with some handwaving we can explain why in times of crisis people are let go instead of decreasing their hourly compensation, why some people are so gullible [peer pressure, confirmation bias ~ cognitive dissonance], and so on.)