Some thoughts on trade in general and world trade in particular.

[Gothmog]

Better than my family? My wife and two small children?
I can't imagine.

Can you say what you are hinting at?

While I know what you mean by 'impose', remember that as George Washington said: "Government is not reason; it is not eloquence; it is force. Like fire, it is a dangerous servant and a fearful master."

So changing the relative proportions of votes is a form of violence IMO.

I'm not saying it's right or wrong, it's something I ponder... as betazed put it:
'is there a palatable solution'.

 

[punkbass2000]

Better than my family? My wife and two small children?
I can't imagine.

No, that's not what I'm getting at. You won't find something better.

Can you say what you are hinting at?

Good question. I'm not sure I can. It certainly seems to be much easier to say what I'm not hinting at, unfortunately. I can't seem to stop trying, though. Be it directed outwardly or inwardly. I know what I mean, but I can't say it, not even to myself. I realize this is not very helpful, and I apologize for having led you into a dead-end.

While I know what you mean by 'impose', remember that as George Washington said: "Government is not reason; it is not eloquence; it is force. Like fire, it is a dangerous servant and a fearful master."

So changing the relative proportions of votes is a form of violence IMO.

I agree with you here, but I must also point out that I don't think it's very important. Government does what it may, but really there is no government. Government is not force; just a label. Though I'm sure you know that.

I'm not saying it's right or wrong, it's something I ponder... as betazed put it:
'is there a palatable solution'.

Palatable to who and for how long? I agreed with you when you said if people think they are happy, they are. However, I do not agree that what they think will make them happy will actually make them happy. Once it is in the future, it remains there.

 

[JerichoHill]

@@GothMog
--My apologies for earlier. I was dealing with other people who were decidedly very stupid, and that irritation extended to several replies. Sigh.

(It is interesting the extent to which economists mix rationality with emotion. I tend to think to rationality as 'pertaining to reason', and reason as 'deduced logically'. That's my bias though, your definition is equally correct.)
--That is a common misunderstanding. Outside of economics, rationality to me is pertaining to reason as you speak. However, when we observe someone's decision tree, and later ask them how they made a decision (especially when it seems to the observers as irrational), their process that they describe seems to be rational.

It seems then that the short answer to "So is it rational to want a gay interior decorator, or a white school teacher, even if the quality of their service is demonstrably less?" is "yes". I would have thought "no".
--That is correct, at least to most economists. We may not understand it based on variables we see, but we're pretty sure that it is, on average, a rational decision.

Generally speaking, over the long haul, individually rational decisions that are not utlity/profit maximizing in either the long-run or to society as a whole eventually diminish. New branches always take their place though.

Is this an axiom or is there any way to back it up?
--It's theory, I suppose. I can't off hand get something to back it up, but I can give an example. Generally speaking, a non-optimal decision will diminish. The best example off the cuff I can think up is segregation/discrimination in hiring of African Americans in the middle 20th cent. US. Removing a pool of labor from the work force you will hire necessarily means that, as one hires from the remaining pool, one would eventually hire someone of less quality than a member of the pool you excluded. A businessman not practicing discrimination would necessarily have a more efficient workforce.

--The following example will suffice. I assume two businesses have perfect information on the valuation of employees. One practices discrimination and values the labor of employees in group b at -2 than their actual value.

Employees
A B
10 7
8 6
6 3
2 3

--If an employer had to pick 3 employees from this group, two members of group A and 1 member of group B would be employed. However, is that employer is discriminating against group B, he would pick 3 members of group A. His group of workers is valued less than the group that would be picked without discrimination.

--If left alone, and ceteris paribus, the business with the more valued workers would be more competitive, and more profitable, than the one which practiced discrimination.

--I think its pretty clear where I am going with this example. One business is better positioned than the other. It is more probable one business survives than the other.

It is obvious why you want to make this assumption from a modeling perspective, you want a local minimum to approach.
--Ayup.

Edit: Oh, I thought I'd mention that while I am not up on modern economic theory I have studied quite a bit about utilitarianism, as Mill and Beckham are favorites of mine. It's in the background of most of what you say
--Rational Choice theorists would probably agree that a grandfather theory to theirs would be utilitarianism...

 

[Gothmog]

punkbass wrote:

No, that's not what I'm getting at. You won't find something better.

Hrm, there is only something or someone IME.

Unless we trace your post back...

I tend to think expecting happiness to be brought about through external factors will ultimately fail.

So you're saying that all happiness comes from within?

That's just too lonely for me, to quote my favorite beatle 'love is the answer' - not isolation. Love is risk, but without risk there is no gain.

However, I do not agree that what they think will make them happy will actually make them happy.

Good point. This is indeed why I ponder the question of imposing my views, either by coercion or force. It all hinges on the vain hope that all humans intrinsically value the same things. The starting place for this, and the potential for action IMO, lies in valuing humans first. I think we can agree on that, or potentially do away with the dissenters. The rest of our preferences must be secondary.

To some extent I think that fundamental religion stands in the way of this revolution. As it often puts knowledge of God above humans.





@JerichoHill - no offense taken.

Removing a pool of labor from the work force you will hire necessarily means that, as one hires from the remaining pool, one would eventually hire someone of less quality than a member of the pool you excluded. A businessman not practicing discrimination would necessarily have a more efficient workforce.

Yeah, I get that but what if the society in question also practices the same discrimination.

For example, Dolphin-free tuna. Costs more to make the same product. The only difference is fewer dolphins killed. Viable product in a society where dolphin's are valued (and food is abundant), not viable in a society where dolphin's are not valued as much (and/or food not so abundant).

You would quantify that as some 'emotional value' in your models, yes?

Well, I'm just saying that we all have a slew of 'emotional values' some of which we are not even aware of, and which dominate our actions.

If these emotional value coefficients vary more across cultures than within them doesn't it seem that there is no 'equal value for equal labor' stipulation?

That is even if we take away all regulations (not that we could unless we also eliminate the nation-state), and somehow equalize all infrastructure (another huge undertaking), doesn't it seem likely that there will still be large wage differentials across cultures?

In the real world, as I understand it, wages depend strongly on history and culture. There is no way that I can think of to 'equalize labor costs'.


FYI I am going to read up on Becker, thanks for that. Is there anything like 'On Liberty' out there by him?

 

[punkbass2000]

punkbass wrote: Hrm, there is only something or someone IME.

Unless we trace your post back...
So you're saying that all happiness comes from within?

Not exactly, but sort of. I'd like to elaborate, but I feel whatever I say about it will be inaccurate as well. It might be fair to say that happiness has to come from within. No matter what is going on around, in each and every assessment of happiness you must either decide that you want "it" ("external" reality) or that you don't. It's easy to fall into the idea that it is the things around you forcing you to feel one way or another. Keep in mind that I do agree that there are things that you cannot choose to want (at least not easily).

That's just too lonely for me, to quote my favorite beatle 'love is the answer' - not isolation. Love is risk, but without risk there is no gain.

That's fine. But I still am inclined to ultimately put the onus here on you, though I don't think you'd mind that

Good point. This is indeed why I ponder the question of imposing my views, either by coercion or force. It all hinges on the vain hope that all humans intrinsically value the same things. The starting place for this, and the potential for action IMO, lies in valuing humans first. I think we can agree on that, or potentially do away with the dissenters. The rest of our preferences must be secondary.

Therein liesw the problem, for me. I don't think it would be possible for humans to all value the same things in any meaningful sense. Only in vague abstractions can they do so (we all want "happiness", for example). However, I do not know what we can do. I once thought the internet was a good method, since you can reach so many so easily, but I don't believe so any more. It's a great spot for learning since you can discover and absorb many things from many people, but for my purposes of relieving people of suffering it is inadequate. I am having far greater success, I think, in real life and am thus turning away from the internet. I won't go into the reasons here, for sake of brevity.

To some extent I think that fundamental religion stands in the way of this revolution. As it often puts knowledge of God above humans.

Even then I think they revolution would still not be new. It's the same thing. We've done that (as a species). We've tried every method and still nothing. I don't see why putting all humans first would be better than the putting select groups of humanity first, ultimately. It may be better in the sense that I agree that your human relationships will better cultivate and sustain happiness that economics, however.

 

[Xenocrates]

One thing sticks out a mile on this thread - there's no ass-hats posting on it. You know who I mean....

Maybe the lengthy first post repelled them like anti-mosquito spray?

A good thread, there's nothing much I am able to add except that under modern capitalism we exist only to serve the economy and not the other way round. There is no distinction between 'good' trade and 'bad' trade; everything is boiled down to $.

IMO the reason why currency units are a very powerful motivating force is that they are 1 dimensional and exist only in thought. It is hard to compare an apple and a pear, or even two apples, as they have an infinite number of characteritics. However money has but one; quantity. I think that the financially motivated are the too dumb to contemplate a landscape, a moral problem or an object of art. It's good that money exists as other ways of motivating the cretins generally involve guns, however it is bad that Governments too have fallen into the trap.

 

[Xenocrates]

This is one of those rare threads that offer up gems on second readings. In other words, there's something I missed.

The problem of freedom of movement of labour. In a marketplace there is currency, goods, information, energy and labour. A perfect free market of the kind that some of the hot heads around here actually believe in requires all types of 'product' to be equally free. It doesn't matter so much how much freedom of movement they have, but that one kind of 'product' is a free as the next. It doesn't take a genius to work out that things that have mass will be more difficult to trade than things that don't for physical reasons. the 'free market' is as idealistic and utopian as Communism every was.

Problems of poverty arise when all you have to offer the market is subject to greater constraints than what the other guy has. The solution to this is to limit the freedom of capital and information, and to a lesser extent goods so that the free market is maintained. This perversly means that tariffs etc are helpful to the free market.

The free market is neither free nor a market. There is more available than we could ever comprehend and the fact that the market is larger than our capacity for understanding means that it aint a market. We can't make decisions about which product fits our needs best because we can't get the information. If I want to buy a TV not made with child slave labour or with low pollution prcessess I can't. The only characteristics that I'm allowed[/B] to consider are price and quality. I can't judge quality because the infoirmation that I have access to is often false - so I'm left only with the dollar.

My last (I promise) point is that economics does not exist alone in the World. there are other systems, social, religious, linguistic, scientific, cultural and poltical etc. that interact with each other. Free movement of labour is incompatible with democracy for several reasons:

a) people will vote against it
b) those that frequently follow their opportunities will be unable to participate fully in the democratic landscape of their new location as they are not familiar with the circumstances of their new home (or it's language).
c) people that move repeatedly will have greater power due to the fact that they can vote more often in a year in many places.
d) fraud will increase as it's harder to keep track of individuals

This is another reason why the free market democrats (small d!) that spam here and everywhere lese are wrongminded. Sometimes it's good to support a simplistc world view so that the majority are able to perform in it, but the truth still matters.

It's the interaction between these systems that characterises the world in which we live and not the economic system alone. The world is very complex.

Economics is a game really someone alluded to that before. 'Game theory' is a powerful tool here, but most economists overlook it.

Apoligies for verbosity:

"Economists have become a plague as dangerous as rabbits, prickly pear or cane toads. Economists have become the cultural cane toads of Canberra, oozing over the landscape and endangering myriad indigenous species. Not only the economy but also mental health would be greatly improved if we could lift the fog of obfuscation on things economic. The first step is to take economists from their pedestal and to see them as the curiosities they are. The first step to reducing their power is to reduce their legitimacy. How is this to be achieved? First, economists' outpourings should, as a matter of principle, be met with laughter, derision, benign paternalism. They should cease to be employed as media commentators. In the long term they should cease to be hired. Let them be pensioned off and die out. Extinction is a worthy end for a profession whose brief is rotten to the core."

Dr. Evan Jones, Economics Department, University of Sydney quoted on
http://dieoff.org/page242.htm

The hegemony of economists over priests and philosphers isn't good.

I hope that I have added to this thread rather than detracted from it. Every idea that I have posted on this forum has been my own. Sometimes I feel trapped in a room full of headline writers for the popular press and news presenters from Fox. This thread is a welome break from that.

 

[JerichoHill]

Yeah, I get that but what if the society in question also practices the same discrimination.

For example, Dolphin-free tuna. Costs more to make the same product. The only difference is fewer dolphins killed. Viable product in a society where dolphin's are valued (and food is abundant), not viable in a society where dolphin's are not valued as much (and/or food not so abundant).

You would quantify that as some 'emotional value' in your models, yes?

--Yes, but I would then say that another society would eventually have better production if they have no such discriminatory practices.

Well, I'm just saying that we all have a slew of 'emotional values' some of which we are not even aware of, and which dominate our actions.

If these emotional value coefficients vary more across cultures than within them doesn't it seem that there is no 'equal value for equal labor' stipulation?
--It is generally held that "these other factors" affect behavior at the margins, but do not affect overall patterns of behavior. Thus two societys, one that discriminates and one that does not, will still display similar behavior, but at the margins, the non discriminatory society will perform better. Over time, the marginal differences add up. Or something...

That is even if we take away all regulations (not that we could unless we also eliminate the nation-state), and somehow equalize all infrastructure (another huge undertaking), doesn't it seem likely that there will still be large wage differentials across cultures?
--Culture will influence cost of living, labor productivity and expectations, which also should be factored in when determining if wages are equalized accounting for all factors. Thus, we know we will capture some of the effects of biases and discrimination in culture via those other measures.

In the real world, as I understand it, wages depend strongly on history and culture. There is no way that I can think of to 'equalize labor costs'.
--I would look at wages in SE Asia before and after the boom, bust, and rebuilding. They are much higher now, and it is more equal. Most emerging economies show evidence of this.


FYI I am going to read up on Becker, thanks for that. Is there anything like 'On Liberty' out there by him?[/QUOTE]

http://www.becker-posner-blog.com/

http://home.uchicago.edu/~gbecker/Becker_cv.pdf

I recommend the articles...theory of marriage is great!

 

[JerichoHill]

Just as an FYI, "Game Theory" as described by Nash has been pretty much disproven

New theory is based on "Experimental Economics" I recommend reading some works by Vernon Smith. It is agent based modeling based on the rational choice model (using economics as the decision equation) and works much better

I *do* happen to believe that a free market with minimal restrictions (mainly competition oversight) will outperform any other model currently conceived today.

 

[Xenocrates]

Just as an FYI, "Game Theory" as described by Nash has been pretty much disproven

I *do* happen to believe that a free market with minimal restrictions (mainly competition oversight) will outperform any other model currently conceived today.

Don't know about the first point, I just mentioned it because perhaps the economy should work in the way that it describes. I try not to read books as I have this fear of believing some well-wrote BS. I prefer to try to tackle these problems myself; I may sound crazy sometimes, but I hope that's because others have been mentally polluted and not me really being crazy.

About outperforming; well it depends what the economy is for. Increase in wealth as it is defined today just doesn't do it for me. If social and other types of progress are considered to be the purpose of the economy we have the problem of deciding what progress is.

In a way it's lucky that environmental meltdown is just around the corner as this makes defines progress for us. That's why I'm in the green energy business.

 

[Ayatollah So]

http://privatewww.essex.ac.uk/~scottj/socscot7.htm

Here's a vital passage from the above link:

Individuals, they argue, act as if they were fully rational and, therefore, rationality can be taken as an unproblematic starting point. There is no need to dig any deeper into individual psychology: whatever psychology may say about motivation does not affect the fact that social relations and exchange processes can be understood as if all individuals were purely rational actors. This argument is tenable only if a rather extreme positivist view of knowledge is adopted, and most realists would expect to find some attention given to the psychological basis of motivation and, therefore, to attempts to test out the adequacy of particular psychological assumptions. While these epistemological issues point beyond my present concerns (see Delanty 1997), they should be borne in mind in the following discussion.

As someone who thinks both rational and irrational motivations are important, I've often noticed economists glossing over the differences between what people say they value, and what they "act as if" they value. Which is fine, I guess: it's more a matter of psychology than economics. But if you want to know how (ir)rational people are, those differences would be one good place to look.

I think that many of the factors Gothmog points out, which lead to very well paid Hollywood masseuses etc., are cases of people "acting as if" things are valuable, but not being willing to say that these things are valuable. And if you're going to reason as Betazed sometimes does, from common sense assumptions about what's valuable to economic conclusions about where wages will go in the future, you need to watch out for these factors. Common sense assumptions about what's valuable will lie closer to "what people say is valuable" than "what people act as if" is valuable.

 

[Gothmog]

Pubkbass2000 wrote:

But I still am inclined to ultimately put the onus here on you, though I don't think you'd mind that

I don’t mind at all, it’s not as if I arrived at this haphazardly.

I don't see why putting all humans first would be better than the putting select groups of humanity first, ultimately.

Well, it’s a subtle point but I was advocating putting the select group of humanity that values humans over all else – first.

It may be better in the sense that I agree that your human relationships will better cultivate and sustain happiness that economics, however.

Yeah that’s it in a nutshell at the macro and micro levels. The goal for me is not just economy, but human well being – i.e. happiness. The problem is that is not easy to quantify, unlike GNP.

@Xenocrates – where’s my asshat? I know I left it around here somewhere.

This is a very good point:

It is hard to compare an apple and a pear, or even two apples, as they have an infinite number of characteritics. However money has but one; quantity.

As was your following discussion. You said much that I had on my mind, but somewhat crisper. Is this a known theory of some description? I did study some Green economics and deep ecology back in the day, is this line of thought an offshoot of that?

@JerichoHill – It seems to me that all societies discriminate. Unless there is some objective list of value that I missed somehow (it’s probably with my asshat).

Looking briefly at Becker’s bio I notice “Accounting for tastes” (1996) and “Social Economics : Market Behavior in a Social Environment” (2003). Here’s an excerpt from the former

the problem of preferences and values: how they are formed and how they affect our behavior. He argues that past experiences and social influences form two basic capital stocks: personal and social. He then applies these concepts to assessing the effects of advertising, the power of peer pressure, the nature of addiction, and the function of habits.

The latter discusses a method of including social and cultural factors in economic models, and mentions the feedback that individuals acting in response to these factors actually create the social environment itself.

Looks interesting…

 

[betazed]

It doesn't take a genius to work out that things that have mass will be more difficult to trade than things that don't for physical reasons.

It is interesting you say that. Because, when I think about it, trading stuff that has no “mass” i.e intangible stuff is actually more difficult than trading tangible “stuff”. This is owing to pricing. It is easier to price stuff that you can touch see and more importantly compare with something else. The burgeoning trade in services is a late twentieth century phenomenon where we finally have technology to standardize services and almost reduce it to “stuff” you can touch and feel.

This perversly means that tariffs etc are helpful to the free market.

You have to elaborate on that one. I am sure everyone here will appreciate a real life example where tariffs are helpful for the free market (in the long run). I can see how a time bound tariff can have other social benefits (not necessarily +ve in a cost benefit analysis). But I cannot see how it can be beneficial in the long run. Also, historically we have seen all short term tariffs become entrenched and become long term tariffs.

The only characteristics that I'm allowed to consider are price and quality. I can't judge quality because the infoirmation that I have access to is often false - so I'm left only with the dollar.

You are correct about that. That is basically my argument of not building all the costs in the price of the television.

Free movement of labour is incompatible with democracy for several reasons:

Which is the reason democracy (as we practice it) sucks. Also just because our current democratic standards do not permit it does not mean that it is bad. All it says is that it is not practical in out current system. So either we make it practical or we face the dire choice of paying the costs of a inefficient system. Since there are no free lunch we will pay the costs sooner or later.

people that move repeatedly will have greater power due to the fact that they can vote more often in a year in many places.

Voting rights need not be combined with moving labor. But it is true that voting rights as implemented right now is not in sync with a freely moving labor. Another reason why democracy as implemented sucks.

But if you want to know how (ir)rational people are, those differences would be one good place to look. <snip> Common sense assumptions about what's valuable will lie closer to "what people say is valuable" than "what people act as if" is valuable.

I do not think people are inherently irrational (at least economically speaking). I also think (probably arbitrarily and without data to support me) that when people irrationally value non-tangible things as Gothmog point out earlier, their actions appear irrational to us because costs have not been passed to the people. Lets take two examples, tax cuts and environment.

people always prefer tax cuts (even if it is deficit funded) in spite of greater future costs and people on the average are not environment conscious. Why so?

In both case what the current economic structures do is that the actual cost(s) is passed on to someone else (in fact in both cases to the future generations). Instead of that if somehow we can make the average realize that the cost will actually be paid by him I wonder how much they will be willing to agree with the tax cuts. Would the American public agree to a 5% cut today if after 5 years the rate is increased by 6%? I don’t think so. Would the American public buy SUVs if the cost of gasoline is a monotonically increasing curve? I know they will not. Check out the demand vs. supply of Toyota Prius.

I think this is also what Jericho Hill is trying to say. People are rational and take rational decisions given the current information around them. if we give them the appropriate information and set up the correct costs and incentives they will of their own free will choose what you may call a “rational” decision.

That being said I understand that are completely irrational decisions that have no economic incentive or reason; like a man preferring a white doctor than a black doctor or vice versa. In this case, I think these imperfections are comparatively small compared to the imperfections that I am talking about here and we can live with these imperfections.

I am not asking for a economic utopia, or believe that it is achievable. All I am asking is that we start the journey on the road to one.

 

[JerichoHill]

Here's a vital passage from the above link:



As someone who thinks both rational and irrational motivations are important, I've often noticed economists glossing over the differences between what people say they value, and what they "act as if" they value. Which is fine, I guess: it's more a matter of psychology than economics. But if you want to know how (ir)rational people are, those differences would be one good place to look.

The point of the "as if" argument is to say that most of the time, people act rational. That gives the researcher an out when in fact people are not. Newer economic theory does attempt to factor in values/preferenes/tastes, but we still leave it basically in the error term of the model (though using some cultural variables as proxies is somewhat commonplace now)

@@Xeno
You should read books =)...Just be selective on which you read. Nash's text is still a classic, even though his Nash equilibrium isn't supported by current theory. If you want to avoid reading crud, look at past Nobel Prize winners (at least in econ) Typically they'll have a few good books that are easily understandable to non-economist types in their dossier.

@@Back at Gothmog
The infant industry arguement, the last of the "tariffs are good for the economy" was taken down by Friedman around the 70s. I forget which work, but no one seems to want to argue Friedman on that point now... Generally speaking, there's no practical reasons why tariffs will help a nation's economy if that economic is functioning reasonably well. If a tariff "helps" there's something very wrong with the economy...

Betazed is correct about trading intellectual goods.

@@in general

Overall, we economists think that most "irrational" decisions are ones which the agent did not have full information (which maybe is or is not available. Thus irrationality, insofar as our modeling is concerned, is simply the byproduct of some sort of information deliquency.

Basically, even the irrational decisions are themselves rational ones. We hope, at least, because if our agents in our models have perfect information, then any irrational behavior is completely captured in that error term

 

[punkbass2000]

I don’t mind at all, it’s not as if I arrived at this haphazardly. Well, it’s a subtle point but I was advocating putting the select group of humanity that values humans over all else – first. Yeah that’s it in a nutshell at the macro and micro levels. The goal for me is not just economy, but human well being – i.e. happiness. The problem is that is not easy to quantify, unlike GNP.

And here I think we're back where we've started, in many sense. We don't really know what to do. We can't know whether or not people are happy and whether or not they will be happy. With regard to this thread, I tend to think that, ultimately, the labour equalization will likely bring about more happiness overall (assuming it doesn't lead to war, etc). Actually, it probably would lead to war and such. But if the labour equalization occurred in a vacuum, I think it would generally be of benefit.

This brings me to something I've been thinking of. You say how you think human relationships are the path to happiness. You are a very insightful person and I trust your opinions. So I'm wondering if you've found this to be a useful method for bringing about happiness in others. Not insomuch as they become happy by virtue of your valuing human relationships, but by coming around to your point of view and implementing it within their own lives. Do you think you have a generally viable method which can be meaningfully expressed and taught specifically, beyond such vague generalities as "valuing human relationships"?

 

[punkbass2000]

@@in general

Overall, we economists think that most "irrational" decisions are ones which the agent did not have full information (which maybe is or is not available. Thus irrationality, insofar as our modeling is concerned, is simply the byproduct of some sort of information deliquency.

Basically, even the irrational decisions are themselves rational ones. We hope, at least, because if our agents in our models have perfect information, then any irrational behavior is completely captured in that error term

Then how do you explain social psychological findings that suggest that people are not making rational decisions and just rationalizing the decisions they have made? It's not something one can prove (I don't think), but there appears to be tons of experiments that show it. Based on some research, it appears there is a section of the brain whose primary concern is to keep a coherent explanation of events which have occurred.

 

[JerichoHill]

@@Punkbass

If people did not behave approximately rationally, then our economic models would be a bunch of bunk, or any model of human behavior that uses forms of statistical or regression analysis.

I could care less, as an economist, if people are actually making rational decisions or not. They could be completely irrational decisions. I don't care. I just want to be able to predict decisions. What is actually going on inside the head doesn't matter. If my model predicts people's behavior based on rational assumptions, and it holds, then I can say that people do at least outwardly behave rationally.

The fact that I can predict, for example, when an individual is more likely to signal their religious identity to a potential dating/mating partner and when they are not as likely tells me that people at least outwardly behave approximately rationally. They are actually, as I found, trying to maximize returns on their investments of time and money.

The fact that human capital theory actually works, tells me that people outwardly behave in a rational, predictable manner.

There is alot of bad science in social psychology, IMHO. Actually, there's a lot of bad social science in general. You just gotta sort through the muck.

 

[warpus]

Rational or not, people's financial/economic decisions are heavily influenced by psychology.

It depends on what your definition of rational is.

If somebody buys a brand of toothpaste because they saw a commercial on TV advertising it and really liked it.. was that a rational decision?

Correct me if I'm wrong, but an economist would say that it wasn't - a rational decision would be somebody buying the toothpaste based on the merit of its performance and price - not psychological warfare.

If somebody wants to be really technical though, they could easily argue that it was a rational decision.

 

[punkbass2000]

Well, that's fair enough. It might be better to say people act predictably than to say they act rationally, then?

EDIT: Crosspost

 

[JerichoHill]

@@Punk

No, it wouldn't be fair to say that. Because the models we use assume rational behavior, and attempt to model rational behavior the fact that hold up and provide useful results shows that people do approximately behave in a rational manner.

if I model economic behavior as if they agents were rational, and after inputting all my data, I get results that correspond with how choices made in the real world (not my modeled world) then I must conclude that people behave like my model, and since my model assumes rational behavior, they must behave pretty rationally.


@@warpus
--A rational decision is one in which an individual takes into account all the information at their disposal and chooses the most, oh for simplicity sake's, let's call it the most profit-maximizing decision. A television commercial counts as information at one's disposal.

So, as I am an economist, I'd say that's a rational decision. Value is both tangible and intangible.