Archive for the ‘economics’ Category

Rôles of Prescriptive Models in Economics

Sunday, 30 May 2021

In introductory treatments of economics, one often encounters a distinction drawn between what is called positive economics and what is called normative economics. In these names — and in typical discussion — there are problems.

The meaning of positive here is restricted to fact, as opposed to speculation. Now, on the one hand, supposedly positive economics, like all attempts by human beings to understand the world, is permeated by speculations, which in scientific effort are hypotheses. (The philosophic movement called positivism arose with incompetent aspirations.) On the other hand, contrasting the normative with something called positive entails an implication, insinuation, or declaration that the normative cannot be placed on as solid a foundation as the rest of our understanding. Sometimes a lack of present agreement is treated as if proof that there is no objective ethical truth; sometimes the question is just begged. In any case, the distinction is irrational.

Instead using the terms descriptive and prescriptive steps away from the worst aspect of using positive, though it would be less corrosive to refer to non-prescriptive economics as, well, non-prescriptive or as non-normative.

However, in behavioral science, elements drawn from prescriptive theory are often useful non-prescriptively, either as approximations or as bounding cases. Economic rationality and expected-utility maximization (the latter sometimes conflated with the former) are such elements.

Some economists would not even recognize economic rationality or expected-utility maximization as prescriptive in any case, because they are meta-preferential — they express a preference for structures of preference that have ordering properties such as transitivity and acyclicity, but say nothing about ultimate objectives and thus, in themselves, say nothing about whether one should prefer tomatoes to apples or life over death.

The prescriptive arguments for economic rationality and for expected-utility maximization are to the effect that those who conform realize more of their objectives — regardless of what those objectives might be — than those who do not, with it usually treated as tautologic that one desires such maximization.[1]

The non-prescriptive arguments for economic rationality and for expected-utility maximization as approximations note that these are relatively tractable models of behavior for which evolutionary dynamics will select. Because the models are taken from prescriptive work, some people mistake or misrepresent any use of them as necessarily prescriptive, but the claim is neither that social or other biologic evolution ought to select for something approximated by such behavior nor that agents ought to engage in the behavior for which evolution selects. (If anything, what is illuminated is that evolution selects for a propensity to such prescriptions!)

I endorse use of these models as tractable approximations in many cases, but I also embrace use of a weaker notion of economic rationality as a bounding case. A boundary of economic outcomes is given by considering what those outcomes would be were agents economically rational.

Behavioral economics concerns itself with when-and-how people actually behave, and especially with failures of the aforementioned models. Although this research is not what I do, I acknowledge its value. However, a great deal of what passes for behavioral economics involves an inferential leap from identifying a real or apparent deviation of behavior from one of these models to a conclusion that this-or-that result could be obtained by state intervention, with the researcher looking away from any proper examination of the behavior of agents determining practices of the state. Behavioral economics is thus used as the motte for a statist bailey. Additionally, even behavioral researchers with no apparent statist agenda often fail to recognize when behavior that seems at odds with these models is or may be instead at odds with some presumption of the researcher.[2]


[1] The main-stream of economic theory treats completeness of preferences as a feature of economic rationality but I've never seen a prescriptive argument even attempted for this feature. The prescriptive cases for transitivity and for acyclicity seem to presume an absence of conflicting, prior meta-preferences. The prescriptive argument for expected-utility maximization is especially problematic.

[2] While I have problems with some of the work and with much of the rhetoric of Gerd Gigerenzer, he has ably identified important cases of such failure on the part of researchers.

As a man thinketh

Monday, 3 May 2021

Assuming something that is not necessarily believed by oneself or by one's audience or by either is a regular practice in various intellectual pursuits.

In discussion of policy, appropriateness of the set objectives of a real or imagined audience will often be assumed by economists who are either attempting to proceed in a wertfrei[1] manner or to argue for or against some ostensible means of accomplishing that set of objectives because of how those means would affect other matters about which the economist has a normative position. Thus, an economist who does not believe that an objective is right and proper may none-the-less assume that it is, to explain

  • that some policy will not accomplish the objective; or
  • that some policy will be most effective at accomplishing the objective; or
  • that some policy might be very effective at accomplishing the objective, but would, will, or does come at unacknowledged costs of importance to some in the audience; or
  • that some policy will be very effective in accomplishing the objective, and would, will, or does bring unrecognized benefits of importance to some in the audience.

One of the various things that I find uncomfortable about engaging in discussion of policy is that some people lose or never catch sight of the point that my assumption of objectives is not an endorsement of those objectives. However, I think that repeatedly assuming objectives in the context of being socially surrounded by people with those objectives will indeed lead some analysts to fall into the habit of presuming those objectives — of implicitly embracing those objectives — and may eventually lead them to endorsing those objectives overtly.

Unhappiness prevails amongst various libertarians and near-libertarians, concerning the comportment of what are called beltway libertarians, who are scholars, intellectuals, and professional political operatives located in or near the District of Columbia, and who self-identify with libertarian yet who have been silent about some of the most illiberal[2] policies of our day, or contort themselves to argue that these policies are actually libertarian, or even assert that circumstances warrant policies that they acknowledge to be illiberal. For the most part, the liberal community elsewhere simply takes it that the beltway libertarians have been corrupted by their context; I am here suggesting part of the mechanism of corruption.


[1]  Normatively neutral.

[2] I use liberal and illiberal in their original and proper senses.

Obscured Tautology and the Persistence of Socialism

Thursday, 28 January 2021

Since sometime in my childhood, I have repeatedly encountered arguments of the form

If X were Y enough, then X would be able to Z.

For example

If you were smart enough, then you'd be able to fix that widget.

The enough makes this claim a tautology; it really just unpacks to

If X were Y enough to Z, then X would be able to Z.

But the tautology is vacuous and useless in cases in which

Y enough to Z

is not possible, as in

pretty enough to solve Hilbert's Fifteenth Problem

It is true that

If Madeline were pretty enough to solve Hilbert's Fifteenth Problem, then Madeline would be able to solve Hilbert's Fifteenth Problem.

It just isn't true that

Someone could be pretty enough to solve Hilbert's Fifteenth Problem.

Outside of pædogogic exercises, when someone makes a declaration of form

If X were Y enough, then X would be able to Z.

he or she is presuming or insinuating that

At the margin, there is some level of Y that is sufficient to be able to Z.

but this proposition may not be true, and certainly ought to be examined before accepting

If X were Y enough, then X would be able to Z.

as part of an argument that

X ought to be more Y

or that

Z can be accomplished.

The reason that I write about this issue of logic now is that is seems to me that a great many people essentially believe that

All that is necessary for socialism to work is for us to take control and to be sufficiently virtuous; thus, when socialism fails it is either because we are not in control or are not sufficiently virtuous; and thus, no matter how much or how often attempts at socialism fail, we must struggle to take control and to be virtuous — perhaps by finding ways to incentivize virtuousness — until socialism succeeds.

Some critics would perhaps want to ask the genuinely important question of to just whom this we and us refer, but for my purpose here they can be left as a variable to be assigned whatever value the political left might want. My objection is that lurking in the argument is

If X were virtuous enough, then X would be able to make socialism work.

And, in this context, even a genuine failure of socialism will not be seen as a reason to quit trying. The socialists can always tell themselves We can succeed next time, or at least fail better.

The typical opponent of socialism argues that socialism will fail because people will not be motivated to expend sufficient effort. Not only can this been seen as a problem of virtue by the political left; it has been seen as a problem of virtue by the political right, who sometimes ascribe the impossibility of well functioning socialism to Original Sin.

But a motivation to work with sufficient intensity is not the deepest practical problem of socialism. The problem of knowing at what to workthe Problem of Economic Calculation — is the deepest problem. We can presume that, somehow, everyone conforms utterly to a left-wing notion of virtue, and still the Problem of Economic Calculation will abide.

At the margin, there is no level of virtue on the part of any us or of any them that is sufficient to be able to make socialism work.

But, hidden behind an obscured and misapplied tautology, the presumption that such a level exists can keep socialists banging their heads against the wall indefinitely and putting other people against the wall indefinitely.

Illuminating a Bit of Urban-Myth Economics

Saturday, 16 January 2021

On YouTube, I encountered a video selling something (I didn't get to whatever it was) based upon a controversial theory, and using economic prejudices to make his case. To make the economic part of his case, he told an old, true story, but left-out an important detail.

There are a few incandescent light-bulbs that have been in continual use for many decades. (He referred to one of these.) They haven't needed to be changed. But that doesn't somehow prove that the manufacturers of light-bulbs have formed a cartel that avoids selling us cost-effective light-bulbs that will last many decades.

The bulbs that last for decades run on DC (direct current) rather than AC (alternating current). AC displaced DC because of issues of generation and of transmission; you'd be paying more for electricity if your power company used direct current. And, that these bulbs are run continuously means that they are never turned-off, and thus have only been turned-on once. It is the strains on the filament from being turned-on repeatedly and from running alternating current that cause our incandescent bulbs to fail more quickly. If you really want your bulbs to last longer, then install rectifiers in your lamps, and either never turn the bulbs off or also install devices that gradually increase the current when the light is turned-on.

Or just accept that you're trading higher bulb costs for lower power costs and lower costs of lamps.

Humpty Dumpty and Commerce

Thursday, 7 January 2021

Fairly inexpensive hair combs made of hard rubber — rubber vulcanized to a state in which it is as about firm as a modern plastic — could be found in most American drugstores at least into the mid-'90s. Now-a-days, they have become something of a premium item. I was looking at listing on Amazon supposedly of hard rubber combs and discovered, to my annoyance, that a careful reading of the descriptions showed that most of the combs explicitly described as hard rubber were made of plastic. To me, the situation seemed to be of pervasive fraud, as it will to many others.

But then I realized that it is more likely to be something else. Fraud, after all, involves deliberate misrepresentation. Whereäs we live in a world in which a great many people believe that no use of a word or phrase is objectively improper — that if they think that hard rubber means a rubbery plastic or a plastic that looks like another substance called hard rubber, then it indeed means just that. (Of course, we cannot trust any verbal explanation from them of these idiosyncratic meanings, as they may be assigning different meanings to any words with which they define other words.)

My defense of linguistic prescriptivism has for the most part been driven by concerns other than those immediate to commercial transactions. And, when I've seen things such on eBay as items described with mint condition for its age or with draped nude, my inclination has been merely to groan or to laugh. But it seems to me that the effects of ignoring or of rejecting linguistic prescription have found their way into commercial transactions beyond the casual.

Well, those who are not prescriptivists are hypocrites if they complain, and they're getting no worse than they deserve.

Perverted Locusts

Wednesday, 9 December 2020

Those who support locking-down in response to SARS-CoV-2 are like weird locusts. Instead of eating the crops; these locusts prevent growth and harvest. That is to say that they prevent economic activity, which is an implicit consumption of an especially perverse sort. In any case, they leave despair and literal starvation in their wake.

Transcription Error

Monday, 23 November 2020

To my chagrin, I find that I made a transcription error for an axiom in Formal Qualitative Probability. More specifically, I placed a quantification in the wrong place. Axiom (A6) should read [image of formula] I've corrected this error in the working version.

Science and the Humanities

Saturday, 7 November 2020

Reading a book first published in 1951, I am reminded that, at one time, the definition of humanities included sciences of human behavior within its scope. Now, one seldom encounters that inclusion in contemporary use, and the Merriam-Webster Dictionary explicitly excludes the study of social relations (though it says nothing explicit about that part of behavior outside of the social).

In the earlier period, there was a question of whether the study of human behavior were fundamentally different from the study of the properties of other things. Those who insisted upon such a difference would speak and write of science and the humanities as if of two separate things.

But the tools by which the physical, biological, and behavioral science were studied were increasingly shared. The physical and biological sciences took-up probability and statistics; the biological sciences have taken-up chemistry, mechanics, and game theory; the behavioral science have taken-up biological explanation and mathematical modelling. All have been affected by the same philosophic theories of method. A dichotomy of science and the humanities cannot prevail so long as the behavioral sciences are included amongst what are called humanities.

Apparently that dichotomy was so dear to some of those who insisted upon it that they attempted its preservation by implicitly changing what they intended with humanities in order to hold fast to it. Of course, the newer definition doesn't maintain the original dichotomy; but replaces it with a new one.

An Exercise in Economic Thinking

Monday, 13 July 2020

Yester-day, I posted a problem to Facebook:

Assume that the market for CEOs of large corporations is very tight, with directors competing ferociously for candidates. How will the burden of a tax on compensation to CEOs be distributed between the CEOs and the stockholders? If a heavily progressive tax is placed on the incomes of CEOs, what will happen to the pre-tax income levels of these CEOs?

So far, for whatever reasons, no one has offered answers, though the answers should be obvious. What makes the exercise interesting is the inversion of the answer to the second question. A great many people who could correctly and quickly answer the question itself it would almost surely miss the inversion if not asked the question.

Making Your Vote (or Non-Vote) Count

Sunday, 14 June 2020

In nearly every election of a state official, even those in which only a few hundred voters participate, the margin of victory is more than one vote. What that means is that, if any one voter had refrained from voting, or if any one abstaining voter had not abstained, the candidate who won would still have won. Some people — even some very intelligent people — conclude that the vote of an individual has no efficacy beyond that of other acts of expression. Those people are missing something.

Indeed, one's vote or refusal to vote has absolutely no effect on the election at hand. There are various things that one can do prior to the election which may help one candidate to achieve a margin of victory, or prevent another from achieving such a margin. But one's own vote isn't going to make any difference in that election.

However, as potential candidates and parties decide what to do with future elections in mind, they look at margins of victory in past elections. Potential candidates decide whether to run and, if they choose to run, how to position themselves, informed by those margins. Parties decide their platforms and whom to nominate, informed by those margins. With large margins in their favor, they feel free to alienate a greater number of potential voters; with small margins or losing margins, they consider what to do differently in order to pull voters who previously voted for another, or who didn't vote at all.

Thus, an individual vote or the decision not to vote has a small effect — but its only effect — on later elections and on behavior of those who are acting with concern for later election.

The least effective thing that a potential voter can do is to vote for a candidate whom he or she dislikes. People in America who have held their noses to vote for the Democratic or Republican nominee in order to stop the nominee of the other party did worse than to throw-away their votes; they have helped to ensure that the next pair of choices would likewise be disagreeable, and that the behavior of officials in the mean time would likewise be disagreeable. It is only if one genuinely thought that one of these candidates were worthwhile that one should have voted for him or for her, and then still only to affect the next election and interim behavior of officials.

The most effective thing that a potential voter as such can do is to vote for a candidate of whom that voter approves, even if that candidate has no chance of winning, or to submit a ballot from which no candidate receives a vote. An increasing number of people are doing the latter, either in expression that no candidate is worthy, or to challenge the legitimacy of the process in a way that makes it difficult for these people to be dismissed as apathetic by apologists for the process.