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>They behave more like ideal economic actors. I believe the author is making the mistake of equating the "rational" in "economics' rational actors" to be peopl

by jasode 12y ago

>They behave more like ideal economic actors. I believe the author is making the mistake of equating the "rational" in "economics' rational actors" to be people who choose wisely. The type of wise choices that most of society would agree to lead to positive outcomes. My understanding is that formal economics is using "rational" as in "rational choice theory"[1]. It's a specific term-of-art that's different from the everyday usage of "rational." It's not some positive measure to satisfy a global optimum. A "rational actor" is simply someone who reliably arrives at the same consistent choices given the knowledge and preferences he happens to have. If a consumer chooses CocaCola over water even though soda's sugar content causes obesity and teeth decay, the consumer is still classified as "rational" even though it looks like a suboptimal choice within the bigger picture of healthy living. Economics' rational choices satisfy a local optimum (consumer's imperfect preferences) and not a global one. [1]http://en.wikipedia.org/wiki/Rational_actor http://en.wikipedia.org/wiki/Rational_actor

fnayr 12y ago
Exactly. Rationality in economics simply means an agent maximizes his (expected) utility from the common and specific knowledge he currently has.
deleted 12y ago
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pash 12y ago
Yes, that's basically correct. To an economist, you're rational (modulo some technicalities) if (a) when you have to, you can always decide which of two things you want more (yes, it's OK to want some things equally), (b) whenever you want A more than B and B more than C, then you want A more than C, and (c) whatever you say you want (or think you want) your behavior actually reflects (a) and (b). If you're not rational in this sense, please stay indoors, or at least refrain from trading with bearded men in tweed, because a perfectly scrupulous economist will take you for everything you're worth by giving you exactly what you want. :P For details, see these lecture notes [0], particularly the axioms of choice theory on slide 4. (Or take a micro theory course!) 0. http://ocw.mit.edu/courses/economics/14-03-microeconomic-theory-and-public-policy-fall-2010/lecture-notes/MIT14_03F10_lec03.pdf http://ocw.mit.edu/courses/economics/14-03-microeconomic-the...
- jamesaguilar 12y ago
  Problem is, few people are actually like this. Behavioral economics have demonstrated that humans are vulnerable to hyperbolic discounting, which is irrational. Because what I want for myself now is different from what I want for myself next week. Telling people who are vulnerable to this to stay indoors is roughly the same as telling everyone to stay indoors. Personally, I think the initial question is ill formed. It would be like asking, "do tall people exist?" Although now that I read the article, what the author is really answering is the question of whether rationality along different tests is correlated. That is, is there a common underlying variable. How fascinating.
  - spacehome 12y ago
    I'm not sure hyperbolic discounting is all that irrational. Example from Wikipedia illustrating hyperbolic discounting: "For instance: "Would you prefer a dollar today or three dollars tomorrow?" or "Would you prefer a dollar in one year or three dollars in one year and one day?" For certain range of offerings, a significant fraction of subjects will take the lesser amount today, but will gladly wait one extra day in a year in order to receive the higher amount instead." To me, the biggest risk is the counterparty risk that you'll never see the other person again. I myself would take $1 today from someone I've never met over $3 tomorrow, because I'm quite skeptical they'd even show up. Of course, the chance a person shows back up 365 vs. 366 days from now is pretty much identical, so I'd take the $3.
    - ansible 12y ago
      I agree with your thoughts on hyperbolic discounting. Maybe I'll be dead next year. Maybe I just don't trust you. Probabilistic reasoning is a tricky business. Also, I can reason about the likelihood that the store is going to have a loaf of bread tomorrow because we have experience dealing with that every day. The kind of scenarios concocted by economists are quite odd. Rarely is a stranger just giving you money with no strings attached.
- lotsofmangos 12y ago
  I don't think I have ever met anyone who generally meets those three conditions.

by jasode 12y ago

fnayr 12y ago

Exactly. Rationality in economics simply means an agent maximizes his (expected) utility from the common and specific knowledge he currently has.

deleted 12y ago

[deleted]

pash 12y ago

Yes, that's basically correct. To an economist, you're rational (modulo some technicalities) if (a) when you have to, you can always decide which of two things you want more (yes, it's OK to want some things equally), (b) whenever you want A more than B and B more than C, then you want A more than C, and (c) whatever you say you want (or think you want) your behavior actually reflects (a) and (b). If you're not rational in this sense, please stay indoors, or at least refrain from trading with bearded men in tweed, because a perfectly scrupulous economist will take you for everything you're worth by giving you exactly what you want. :P For details, see these lecture notes [0], particularly the axioms of choice theory on slide 4. (Or take a micro theory course!) 0. http://ocw.mit.edu/courses/economics/14-03-microeconomic-theory-and-public-policy-fall-2010/lecture-notes/MIT14_03F10_lec03.pdf http://ocw.mit.edu/courses/economics/14-03-microeconomic-the...

jamesaguilar 12y ago
Problem is, few people are actually like this. Behavioral economics have demonstrated that humans are vulnerable to hyperbolic discounting, which is irrational. Because what I want for myself now is different from what I want for myself next week. Telling people who are vulnerable to this to stay indoors is roughly the same as telling everyone to stay indoors. Personally, I think the initial question is ill formed. It would be like asking, "do tall people exist?" Although now that I read the article, what the author is really answering is the question of whether rationality along different tests is correlated. That is, is there a common underlying variable. How fascinating.
- spacehome 12y ago
  I'm not sure hyperbolic discounting is all that irrational. Example from Wikipedia illustrating hyperbolic discounting: "For instance: "Would you prefer a dollar today or three dollars tomorrow?" or "Would you prefer a dollar in one year or three dollars in one year and one day?" For certain range of offerings, a significant fraction of subjects will take the lesser amount today, but will gladly wait one extra day in a year in order to receive the higher amount instead." To me, the biggest risk is the counterparty risk that you'll never see the other person again. I myself would take $1 today from someone I've never met over $3 tomorrow, because I'm quite skeptical they'd even show up. Of course, the chance a person shows back up 365 vs. 366 days from now is pretty much identical, so I'd take the $3.
  - ansible 12y ago
    I agree with your thoughts on hyperbolic discounting. Maybe I'll be dead next year. Maybe I just don't trust you. Probabilistic reasoning is a tricky business. Also, I can reason about the likelihood that the store is going to have a loaf of bread tomorrow because we have experience dealing with that every day. The kind of scenarios concocted by economists are quite odd. Rarely is a stranger just giving you money with no strings attached.
lotsofmangos 12y ago
I don't think I have ever met anyone who generally meets those three conditions.