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It's because basic economic theory makes some really bad assumptions. It assumes everyone has the information they need, and sellers can instantaneously change
by thayne 1y ago
It's because basic economic theory makes some really bad assumptions. It assumes everyone has the information they need, and sellers can instantaneously change prices in response to changes in demand or cost of production.
Neither of which is true in the real world.
- wtallis 1y agoI don't think you've successfully demonstrated that those assumptions are bad. They're simplifying assumptions that are necessary to have a "basic" economic theory in the first place—one with tractable and understandable mathematics that can produce an answer without immediately dumping you into partial differential equations or requiring impossibly detailed input data. The assumptions are only bad if they prevent the simple models from being useful, and the existence of a scenario where a model's simplifying assumptions prevent it from being useful does not prove that the model is worthless.
- thayne 1y agoI don't think the model is worthless. But there also going to be many real world scenarios where they aren't good enough. It's like doing physics where you assume perfectly uniform spherical objects in a vacuum. It isn't worthless just because that isn't how the real world works, but depending on the circumstance it can also give you incorrect results, and sometimes even be way off.
- JumpCrisscross 1y ago> basic economic theory makes some really bad assumptions. It assumes everyone has the information they need, and sellers can instantaneously change prices in response to changes in demand or cost of production This…is not true. What theory are you referring to?
- throwawayqqq11 1y agohttps://en.m.wikipedia.org/wiki/Homo_economicus https://en.m.wikipedia.org/wiki/Homo_economicus Its a long time known flaw in economics. Im sure there are better models but i still agree with GP, the scientific field of economics is still a joke on par with psychology.
- deleted 1y ago[deleted]
- SpicyLemonZest 1y agoThere's nothing in this article about an assumption of perfect information or of instantaneous price changes.
- anigbrowl 1y agoIt's not so much that theory makes these assumptions, as that they describe the simplest economic models. You can make your models as detailed or not as you'd like, but the more work to construct/operate/understand them, the lower your likely return on that effort. It's just like how some people want simplistic games like Candy Crush, others want high investment ones like Dwarf Fortress.
- WalterBright 1y ago> It assumes everyone has the information they need This is incorrect. Lack of information is priced in as "risk".
- sethammons 1y agoThis is satisfying similar to the ai response in Hyperion as (spoilers) the entire system collapses.