4 ms·

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 th

by 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 pash 12y ago

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.