hrishimittal comments on Macroeconomics, The Lucas Critique, Microfoundations, and Modeling in General - Less Wrong

0 Post author: Matt_Simpson 06 June 2009 04:35AM

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Comment author: Matt_Simpson 06 June 2009 05:02:12PM 2 points [-]

If you replace von Mises' intuitions with the particular intuitions neoclassical economics is built from ( to the extent that they differ), then it depends on the particular question you are trying to answer. Market activity is approximated reasonably well by the rationality assumption in a variety of cases. Kahnemann and Tversky's evidence that humans are irrational is certainly strong, but in many cases trying to incorporate this reduces tractability to such an extent that it isn't worth it, or at least we don't know how to incorporate it. A good heuristic is to use rationality for long-run phenomena and when possible, use irrationality for the short run.

Comment author: hrishimittal 07 June 2009 07:06:50PM 0 points [-]

and when possible, use irrationality for the short run.

How exactly do you use irrationality?

Comment author: William 07 June 2009 08:38:22PM 0 points [-]

You don't, you use a decision model that incorporates bias.