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

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

You are viewing a comment permalink. View the original post to see all comments and the full post content.

Comments (13)

You are viewing a single comment's thread. Show more comments above.

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: Technologos 08 June 2009 06:37:35PM 3 points [-]

Even more so, Gary Becker proved in 1962 that you don't need rationality for many of the basic principles of microeconomics to hold. All you need is for each person to have a maximum budget--a noncontroversial assumption if there ever was one.

Many different kinds of non-utility-maximizing behavior and maximizing behavior across nonstandard preferences (sticky actions, bounded rationality, etc) still produce the key results.