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(Message started by: BenVitale on Nov 4th, 2009, 11:27am)
Title: Economic thought, concepts
Post by BenVitale on Nov 4th, 2009, 11:27am
The discussion started in the Religion (http://www.ocf.berkeley.edu/~wwu/cgi-bin/yabb/YaBB.cgi?board=truth;action=display;num=1074532038;start=100#100
) thread.

The theme is : rational behavior

It is often alleged that altruism is inconsistent with economic rationality, which assumes that people behave selfishly. Certainly, much economic analysis is concerned with how individuals behave, and homo economicus is usually assumed to act in his or her self-interest. However, self-interest does not necessarily mean selfish. Some economic models in the field of behavioral economics assume that self-interested individuals behave altruistically because they get some benefit, or utility, from doing so.


For those who are interested to find out more about Economics:

HISTORY OF ECONOMIC THOUGHT (http://homepage.newschool.edu/het//)
Title: Re: Economic thought, concepts
Post by BenVitale on Nov 4th, 2009, 12:06pm

Quote:
[...] However, self-interest does not necessarily mean selfish. Some economic models in the field of behavioral economics assume that self-interested individuals behave altruistically because they get some benefit, or utility, from doing so.



on 11/02/09 at 12:28:17, towr wrote:
If they get some benefit, or utility, from it; then you're right back to the presumption they do it for a selfish reason.  
If altruism itself is an agents goal, then any behaviour towards that goal is self-interest, even when it is not to their own benefit. It is self-interested because it furthers their interests (goals), which in this case aren't a selfish interests, but nevertheless still their own.



I was surprised and amused to find out that even expert economists themselves may end up misusing the term and reverting to the normal definition without noticing.  



on 11/02/09 at 12:28:17, towr wrote:
Perhaps it is a term that would be better abandoned.
Title: Re: Economic thought, concepts
Post by BenVitale on Nov 4th, 2009, 12:11pm

If we abandon the term 'self-interest' as you suggest, how are we then going to define rational behavior?  


on 11/02/09 at 12:28:17, towr wrote:
You could use and/or invent terms that are not ambiguous.
You could, for example, say that rational behaviour is behaviour aimed at, and plausibly bringing you closer to, achieving your goals.
It would remove a bias towards selfishness in the goals and it makes intentionality a component of rational behaviour.


How about:

In economics:  
Rational behavior is a key assumption.
People make choices in pursuit of satisfaction.


on 11/02/09 at 12:28:17, towr wrote:
That implies selfish interests again. People make choices for many reasons other than satisfaction.


Basic premise:

Given the choice, people prefer more to less and would rather be better off than worse off.  


on 11/02/09 at 12:28:17, towr wrote:
I don't think people in general prefer more to less. They prefer "enough" to "too little" and "too much". I suppose you could say they do prefer to be better off, but then, if they didn't, it wouldn't be "better" according to their standards. If you try to insert an objective measure for "better" (such as wealthier) then I doubt it is true.
Title: Re: Economic thought, concepts
Post by BenVitale on Nov 4th, 2009, 12:13pm

on 11/02/09 at 12:28:17, towr wrote:
You could use and/or invent terms that are not ambiguous.

You could, for example, say that rational behaviour is behaviour aimed at, and plausibly bringing you closer to, achieving your goals.
It would remove a bias towards selfishness in the goals and it makes intentionality a component of rational behaviour.


It seems to me that what you're saying is, rational behavior is the success of of goal attainment, whatever those goals may be. Thus, in this context, rational behavior is equated with behavior that is self-interested to the point of being selfish.

This is how I understand your statement.
Title: Re: Economic thought, concepts
Post by towr on Nov 4th, 2009, 12:45pm

on 11/04/09 at 12:13:37, BenVitale wrote:
It seems to me that what you're saying is, rational behavior is the success of of goal attainment, whatever those goals may be. Thus, in this context, rational behavior is equated with behavior that is self-interested to the point of being selfish.

This is how I understand your statement.
Then you have managed to grossly misunderstand it in a number of ways.

When I say "rational behaviour is behaviour aimed at, and plausibly bringing you closer to, achieving your goals", where do you see success mentioned? You can be rational and fail miserably. However, to fail rationally, it is necessary that the choices were in some way efficient given your beliefs and opportunities.
Putting down $10 for a chance to win $10 on a die rolling 1 is not a rational means to gain money, even if you do happen to win. Betting $10 to gain another $10 on a die not rolling 1 is a rational decision, even when you do not win. Rationality is about choosing means effectively. It is about hedging your bets for success, but it is not measured directly by success itself (statistical analysis will need to be involved, to account for chance).

Secondly, I do not see where you get the notion that it in any way involves selfishness. Selfishness is a property of goals, of gaining for oneself. Rationality lies in the realm of means (and in particular in choosing them). But I made no mention of what the goals were, and indeed in other places have said that altruism itself can be a goal.


* Self-interested behaviour is behaviour aimed at achieving goals (i.e. what ever interests you), be they selfish goals or not.
* Selfish behaviour is behaviour aimed at selfish goals
* Rational behaviour is behaviour that is effective at (choosing means to) achieve goals, be these goals selfish or not.
* Sneezing (typically) and other involuntary behaviour is none of these three. (Although it may have a function for the body, it is not intentional behaviour as the other three, it is not "aimed".)
Title: Re: Economic thought, concepts
Post by BenVitale on Nov 5th, 2009, 12:58pm
Okay, I misunderstood your statements.

I shall come back to continue this discussion.
Title: Re: Economic thought, concepts
Post by BenVitale on Nov 8th, 2009, 12:22pm
The notion or assumption of "rational behavior" is been proven to be inconsistent with consumer behavior.

Here's an article by Paul Krugman (http://en.wikipedia.org/wiki/Paul_Krugman)

It's an analysis of Milton Friedman's intellectual legacy: Who Was Milton Friedman? (http://www.nybooks.com/articles/19857)

I was particularly interested in the section where Paul Krugman writes about rational agent model :


Quote:
For most of the past two centuries, economic thinking has been dominated by the concept of Homo economicus. The hypothetical Economic Man knows what he wants; his preferences can be expressed mathematically in terms of a "utility function." And his choices are driven by rational calculations about how to maximize that function: whether consumers are deciding between corn flakes or shredded wheat, or investors are deciding between stocks and bonds, those decisions are assumed to be based on comparisons of the "marginal utility," or the added benefit the buyer would get from acquiring a small amount of the alternatives available.

It's easy to make fun of this story. Nobody, not even Nobel-winning economists, really makes decisions that way. But most economists--myself included--nonetheless find Economic Man useful, with the understanding that he's an idealized representation of what we really think is going on. People do have preferences, even if those preferences can't really be expressed by a precise utility function; they usually make sensible decisions, even if they don't literally maximize utility. You might ask, why not represent people the way they really are? The answer is that abstraction, strategic simplification, is the only way we can impose some intellectual order on the complexity of economic life. And the assumption of rational behavior has been a particularly fruitful simplification.

The question, however, is how far to push it. Keynes didn't make an all-out assault on Economic Man, but he often resorted to plausible psychological theorizing rather than careful analysis of what a rational decision-maker would do. Business decisions were driven by "animal spirits," consumer decisions by a psychological tendency to spend some but not all of any increase in income, wage settlements by a sense of fairness, and so on.

But was it really a good idea to diminish the role of Economic Man that much? No, said Friedman, who argued in his 1953 essay "The Methodology of Positive Economics" that economic theories should be judged not by their psychological realism but by their ability to predict behavior. And Friedman's two greatest triumphs as an economic theorist came from applying the hypothesis of rational behavior to questions other economists had thought beyond its reach.
Title: Re: Economic thought, concepts
Post by BenVitale on Nov 8th, 2009, 12:55pm
We could discuss games used in experimental economics that analyzes/ involves altruistic behavior --- games such as

- Dictator games
- Traveler's dilemma (see the p-beauty contest by John Maynard Keynes)
- Carrot vs. stick model
- why/when do 100 cents feel like it's worth more than a dollar
- etc.


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