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It's like this because they start from postulates that are contrary to reality. The idea that elements in an economic systems act in a rational way, or that the

It's like this because they start from postulates that are contrary to reality. The idea that elements in an economic systems act in a rational way, or that there is an "invisible hand" that drives the markets, or that the markets operate in equilibrium, these are all ad hoc ideas that have no basis in reality. I classify it more like a kind of economic theology.

pksebben 5y ago
Yeah, that rational markets bit I keep hearing about sounds more like an example of proof that the markets we have are not rational. Like; "IF the markets WERE rational, they would probably do thing" and then thing is something that is observably not happening.
cturner 5y ago
The purpose of economics is to explain complex interaction between systems. Analogy is a powerful communication tool. Such phrases allow us to communicate and reason about systems. The concepts raise the standard of policy development. Consider how much easier it is to discuss a proposal thanks to 'The Tragedy of the Commons'. Those few words serve as a shorthand for a dynamic. Without it you might need to spend half an hour stepping people through the dynamic each time you wanted to refer to it, and you would lose people along the way.
loki49152 5y ago
Assuming the rationality of economic actors goes wrong primarily because economists don’t know what “rationality” is and come up with weird accounts for what “rational” behavior would be under given circumstances. They aren’t talking about “rational” behavior in the sense laymen use the term. The “invisible hand” is also something that actually does exist and is straightforward to explain. It’s the tendency individuals making decisions in their own self-interest to find others with compatible self-interest as the motivation to make a trade. Every mutually self-interested transaction adds up to a total gain for the overall economy because each side makes the trade precisely because they judge the other’s offer to be of higher value to them. The key to demystifying the observation is the insight that “value” is a judgement made by individuals in relation to their own lives, not some inherent property that can be determined apart from individuals value judgements.

pksebben 5y ago

Yeah, that rational markets bit I keep hearing about sounds more like an example of proof that the markets we have are not rational. Like; "IF the markets WERE rational, they would probably do thing" and then thing is something that is observably not happening.

cturner 5y ago

The purpose of economics is to explain complex interaction between systems. Analogy is a powerful communication tool. Such phrases allow us to communicate and reason about systems. The concepts raise the standard of policy development. Consider how much easier it is to discuss a proposal thanks to 'The Tragedy of the Commons'. Those few words serve as a shorthand for a dynamic. Without it you might need to spend half an hour stepping people through the dynamic each time you wanted to refer to it, and you would lose people along the way.

loki49152 5y ago

Assuming the rationality of economic actors goes wrong primarily because economists don’t know what “rationality” is and come up with weird accounts for what “rational” behavior would be under given circumstances. They aren’t talking about “rational” behavior in the sense laymen use the term. The “invisible hand” is also something that actually does exist and is straightforward to explain. It’s the tendency individuals making decisions in their own self-interest to find others with compatible self-interest as the motivation to make a trade. Every mutually self-interested transaction adds up to a total gain for the overall economy because each side makes the trade precisely because they judge the other’s offer to be of higher value to them. The key to demystifying the observation is the insight that “value” is a judgement made by individuals in relation to their own lives, not some inherent property that can be determined apart from individuals value judgements.