CDR: Re: Re: A famine averted...
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I freely admit that I have absolutely no authority over things economic. But I do think you too have an overly simplified view of the theory - you do not seem to distinquish between the derivation of some of the parameters (e.g. price) of a dynamic system which is assumed to be in equilibrium based on known ones (e.g. measures of/related to demand, availability etc.) from actually working with the time evolution of the system (none of the variables are known a priori and the solution consists of complete time functions).
Economists do that all the time. It is called modeling. Lucas and Lawrence Klein won nobel prizes for doing it. I expect that other economists that I am not familiar with have also won Nobels in it.
For instance, in the basic example given above - price formation of a single good in an ideal closed market (i.e. given the normal assumptions of independence of participants, continuity of variables, perfect knowledge and so on) - can you cite a single understandable source with the rigorous derivation of bounds for over/undershoot in price upon rapid fluctuation in supply?
I doubt that I could provide any source on economics that you would regard as understandable. You are asking for a prediction of the behavior of human actors, predicting what people will do. One can only derive "rigorous" results if one makes assumptions about how people think and what they want. The most rigorous attempt at that is known as "rational expectations theory". Rational expectations theory (for which Lucas got his Nobel) assumes that people will make the best guess they can about future behavior of the market, then base their present behavior on that best guess, and the market will then reflect that present behavior. This of course produces inaccurate results for obvious reasons, and economists attempt to model people more accurately but less rigorously by using "rational ignorance" and "bounded rationality." All these are major areas of study in economics. --digsig James A. Donald 6YeGpsZR+nOTh/cGwvITnSR3TdzclVpR0+pr3YYQdkG DxdupuGKPAB/3JK3xLW6o/vv+Pqu/DksQ40lUL6M 4brEUhWqvkA5XljkmlgM1eGujT4yTvhuOYMtt5ayb
On Sun, 15 Oct 2000, James A.. Donald wrote:
Economists do that all the time. It is called modeling. Lucas and Lawrence Klein won nobel prizes for doing it. I expect that other economists that I am not familiar with have also won Nobels in it.
Of course. I'm just saying that most people, including many with extensive training in economic theory, simply do not have the level of mathematical sophistication to say *anything* about the long term dynamic behavior of economic systems even when the human and stochastic elements are abstracted away completely. So, there are few absolutes in economics.
You are asking for a prediction of the behavior of human actors, predicting what people will do. One can only derive "rigorous" results if one makes assumptions about how people think and what they want. The most rigorous attempt at that is known as "rational expectations theory".
You do not understand my point. Human factors are something which, naturally, cannot be predicted. But even if we model humans as, basically, automata, and impose severe conditions on their behavior, we are *still* left with a system which is exceedingly difficult to analyze globally. Hence the scarcity of stability and optimality proofs and even reasonable bounds on the expected behavior of global variables. The fact is that people on this list often use aggressive market economic arguments while discussing proposed social reforms. Now, if there is any inherent unstability to pure free market economy such arguments should perhaps be taken with a grain of salt. Sampo Syreeni <decoy@iki.fi>, aka decoy, student/math/Helsinki university
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Sampo A Syreeni