Revealed Preferences (people are liars)

[tame_deuces]

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Yes it is all dandy. Until you figure out that a coercion-free society is a far fetch. Bystander effect, groupthink, Stanley Milgram, Solomon Asch, Philip Zimbardo - these are just a few keywords to wiki for too see why.

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Groupthink. Interesting. Some bad people are out there, and they might hurt other people, so I can feel good about hurting other people myself!

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Not exactly. But if you consider anyone that strays from the view of your ingroup as ignorant, if your group is overly enthusiastic of its beliefs, if you tend to class people differing from the group into a single pool, if you never question the groups beliefs and if your group contains people that shoots down questions of the groups belief - then you are likely groupthinking.

[Luxoris]

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You're missing the point, and making mine for me. It's often claimed in these debates that the forces of rationality will restrain people and companies from doing undesirable things and keep a lid on chaos, fraud, and predation.

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But nobody, even if they make these claims, claims that it will be 100% effective.

If anecdotal evidence is your "ZOMG GOTCHA" here, then you must agree that statism is a huge failure since every iteration of it has tried to stop murderers, and none has every succeeded. Ditto for theft. And fraud. And predation. And we don't even have to get into the cases where the state itself engages in those practices.

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Apart from that you're missing the broader point relevant to this thread that action and preference can be incongruous with the actions that a person would undertake with a clear head and proper information.

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But who is disputing this?

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Lol. Economics attempts to form theories on how to achieve the greatest common good. If you don't dispute that mistakes are made due to lack of information, mistakes in an individual's self-assesment of utility and/or irrational actions then you are admitting that economic policy cannot be accurately based solely on "revealed preferences", yet that is a basic tenet of Austrian economics. In fact von Mises goes so far as to reject indifference as being possible, which Caplan thorougly dismantles.

[mosdef]

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Economics attempts to form theories on how to achieve the greatest common good.

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I disagree. "Economics" is a very broad label covering all aspects of studying production and consumption. It may be your goal to use economics to measure common good and optimize it, it is not appropriate for you to substitute that goal for a description of the entire field of study.

[Luxoris]

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Economics attempts to form theories on how to achieve the greatest common good.

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I disagree. "Economics" is a very broad label covering all aspects of studying production and consumption. It may be your goal to use economics to measure common good and optimize it, it is not appropriate for you to substitute that goal for a description of the entire field of study.

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mmmm...I didnt. I singled out one goal, "attempts to". There was no implication that that was the entire field of study.

[mosdef]

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Economics attempts to form theories on how to achieve the greatest common good.

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I disagree. "Economics" is a very broad label covering all aspects of studying production and consumption. It may be your goal to use economics to measure common good and optimize it, it is not appropriate for you to substitute that goal for a description of the entire field of study.

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mmmm...I didnt. I singled out one goal, "attempts to". There was no implication that that was the entire field of study.

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Sorry, but my interpretation of "ABC attempts to XYZ" is that the purpose of ABC is to achieve XYZ. The purpose of economics is to study production and consumption. The goal of achieving a social calculus is NOT the purpose of ecnomics, although many individuals may try to use the results of economics to do just that.

[xorbie]

pvn and borodog,

I'm not sure if the two of you have actually begun to believe that the glib, thoughtless responses you guys trot out every time we have this debate actually constitute an argument.

There are complex issues in economics (particularly the subfield I'm most interested in - behavioral economics) that attempt to detail the various phenomena brought up in this thread. Yet the two of you continue to somehow believe that you are above all this petty academic research, that somehow your overarching dogma takes care of everything. And, before you can object about fallacies of straw men and appeals to authority, I'm gonna tell it like it is.


The fact is, time-dependent preferences are a tricky issue in economics. How should I, as an economist, weigh future utility vs. utility now? How should I, as a human being making choices, weigh future utility vs. utility now? I see no attempt to answer these questions, besides simply "this is how person X does it and this is how person Y does it and we can't argue because how could you know better". Well, I do know better, and I won't accept the argument that I don't simply because it is conceivable that I'm wrong.

There is, of course, the easiest place to start: drug addicts. At one moment, an addict might tell you he has the preference to quit drugs. The next moment he's shooting up heroine. What's the deal? Apparently, the drug addict has a "revealed preference" to do heroine. Or, perhaps, in the former moment the drug addict made a very complex calculus of utility across time and decided to quit drugs, only to have his hunger for drugs . This calculus which our brain has evolved to carry out is something that sets humans apart from other animals, and I don't much care for tossing it aside. That we succumb to weakness at times should not invalidate this special talent, nor does it invalidate the results of this calculus.

More generally, there are actions we take that we regret even when they cause our intended results. What does this say about our preferences?

The limitations on our rationality are well studied. We make bad decisions all the time - and I don't mean decisions that I personally find bad. Study after study shows that I will make a different decision on which gambles to accept simply based on how they are phrased or what context they are given in. The same exact problem is presented to me, with the same exact results, and yet I choose differently. What preference has been revealed here, besides a preference for schizophrenic behavior?

As I stated, time preferences are a sticky issue. How to weigh them is difficult. If I need to do X today to achieve Y tomorrow, is it "bad" to do something that only gives me some limited utility today when the payoff from Y is much larger? Economics isn't necessarily geared to handle these questions, but it does well with money. Even in this narrow, limited domain, we humans have our follies.

Is $5 today really worth $50 tomorrow? I might act like it is, but won't I be rather disappointed tomorrow? Does this disappointment, which we can all agree is rather likely, not matter? What if it is shown that people are actually rather receptive to being forced to save money in the future, knowing that, when the time comes, they might act differently if not locked in? What if it is shown that this is actually a very good way of increasing savings rate, which we can all agree is probably good for people as individuals as well as for the economy as a whole?

When are we going to stop with the gimmicky response of "but the politicians know??" and start actually investigating the issue? Do you want to be right, or to be "right"? Instead of appealing to some vision or ideal of humankind, can we try some study? Some exchange of ideas that might lead to better understanding, rather than pointless arguments over fundamental moral assumptions that actually have little to do with the facts?

This post isn't complete, but here it is. Pick apart at will, but know that I won't be responding just for the sake of responding.

[Borodog]

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pvn and borodog,

I'm not sure if the two of you have actually begun to believe that the glib, thoughtless responses you guys trot out every time we have this debate actually constitute an argument.



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WYF are you talking about? [img]/images/graemlins/confused.gif[/img] My participation in this thread has consisted of 2 brief posts pointing out that the failings that Phil153 sees with individuals all apply, except to a far greater degree, to politicians and bureaucrats, whom Phil153 believes are the answer to all the world's woes, and to point out that two posters were starting to talk past each other with different definitions of "preference" and "action" and to tell them straighten it out before they wasted a lot of time yelling about different things.

[Borodog]

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pvn and borodog,

I'm not sure if the two of you have actually begun to believe that the glib, thoughtless responses you guys trot out every time we have this debate actually constitute an argument.

There are complex issues in economics (particularly the subfield I'm most interested in - behavioral economics) that attempt to detail the various phenomena brought up in this thread. Yet the two of you continue to somehow believe that you are above all this petty academic research, that somehow your overarching dogma takes care of everything. And, before you can object about fallacies of straw men and appeals to authority, I'm gonna tell it like it is.


The fact is, time-dependent preferences are a tricky issue in economics. How should I, as an economist, weigh future utility vs. utility now? How should I, as a human being making choices, weigh future utility vs. utility now? I see no attempt to answer these questions, besides simply "this is how person X does it and this is how person Y does it and we can't argue because how could you know better". Well, I do know better, and I won't accept the argument that I don't simply because it is conceivable that I'm wrong.

There is, of course, the easiest place to start: drug addicts. At one moment, an addict might tell you he has the preference to quit drugs. The next moment he's shooting up heroine. What's the deal? Apparently, the drug addict has a "revealed preference" to do heroine. Or, perhaps, in the former moment the drug addict made a very complex calculus of utility across time and decided to quit drugs, only to have his hunger for drugs . This calculus which our brain has evolved to carry out is something that sets humans apart from other animals, and I don't much care for tossing it aside. That we succumb to weakness at times should not invalidate this special talent, nor does it invalidate the results of this calculus.

More generally, there are actions we take that we regret even when they cause our intended results. What does this say about our preferences?

The limitations on our rationality are well studied. We make bad decisions all the time - and I don't mean decisions that I personally find bad. Study after study shows that I will make a different decision on which gambles to accept simply based on how they are phrased or what context they are given in. The same exact problem is presented to me, with the same exact results, and yet I choose differently. What preference has been revealed here, besides a preference for schizophrenic behavior?

As I stated, time preferences are a sticky issue. How to weigh them is difficult. If I need to do X today to achieve Y tomorrow, is it "bad" to do something that only gives me some limited utility today when the payoff from Y is much larger? Economics isn't necessarily geared to handle these questions, but it does well with money. Even in this narrow, limited domain, we humans have our follies.

Is $5 today really worth $50 tomorrow? I might act like it is, but won't I be rather disappointed tomorrow? Does this disappointment, which we can all agree is rather likely, not matter? What if it is shown that people are actually rather receptive to being forced to save money in the future, knowing that, when the time comes, they might act differently if not locked in? What if it is shown that this is actually a very good way of increasing savings rate, which we can all agree is probably good for people as individuals as well as for the economy as a whole?

When are we going to stop with the gimmicky response of "but the politicians know??" and start actually investigating the issue? Do you want to be right, or to be "right"? Instead of appealing to some vision or ideal of humankind, can we try some study? Some exchange of ideas that might lead to better understanding, rather than pointless arguments over fundamental moral assumptions that actually have little to do with the facts?

This post isn't complete, but here it is. Pick apart at will, but know that I won't be responding just for the sake of responding.

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It is quite clear to me that you have NO CLUE what my opinions are about any of this. You have some bizarre strawman carricature in your head and have decided that's what I believe. You're wrong. Are you going to tell me NOW that you know better what I believe than I do?

I mean, seriously, What. The. [censored].

[ianlippert]

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The fact is, time-dependent preferences are a tricky issue in economics. How should I, as an economist, weigh future utility vs. utility now? How should I, as a human being making choices, weigh future utility vs. utility now? I see no attempt to answer these questions, besides simply "this is how person X does it and this is how person Y does it and we can't argue because how could you know better". Well, I do know better, and I won't accept the argument that I don't simply because it is conceivable that I'm wrong.


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The problem I have with economists who try to do the social calculus is that they dont factor in the cost of government. They have a particular issue like drug addiction and want to maximize peoples utility (I'll assume your side is right for a moment) even if it goes against their revealed preferences. Then they have a government program that solves it and then they claim to have maximized the actors utility when infact its this theoretical maximum minus the cost of government.

Academic economics doesnt take into account the costs of the Iraq war, fiat money, innefficiency, or corruption. All the models are using a 'pure' form of government. But the problem is, is that once you have a mechanism for forcefully transferring wealth its going to get used to reduce your consumer surplus. So yes, mabey a government can do some things better than a free market. But its like you want to solve the AP scandal and instead we get a war in the middle east. The solution is far more volatile than the original problem.

[xorbie]

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The fact is, time-dependent preferences are a tricky issue in economics. How should I, as an economist, weigh future utility vs. utility now? How should I, as a human being making choices, weigh future utility vs. utility now? I see no attempt to answer these questions, besides simply "this is how person X does it and this is how person Y does it and we can't argue because how could you know better". Well, I do know better, and I won't accept the argument that I don't simply because it is conceivable that I'm wrong.


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The problem I have with economists who try to do the social calculus is that they dont factor in the cost of government. They have a particular issue like drug addiction and want to maximize peoples utility (I'll assume your side is right for a moment) even if it goes against their revealed preferences. Then they have a government program that solves it and then they claim to have maximized the actors utility when infact its this theoretical maximum minus the cost of government.

Academic economics doesnt take into account the costs of the Iraq war, fiat money, innefficiency, or corruption. All the models are using a 'pure' form of government. But the problem is, is that once you have a mechanism for forcefully transferring wealth its going to get used to reduce your consumer surplus. So yes, mabey a government can do some things better than a free market. But its like you want to solve the AP scandal and instead we get a war in the middle east. The solution is far more volatile than the original problem.

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I haven't said a word about government, have I? But even if we pretend I have, this is just another example of a post that has an assumption in mind and the argument doesn't quite get there.

If you want to actually assume that "my side is right", you can't just stop at saying that "government costs something". True, but where is the actual arithmetic? If "utility saved/increased through government program X" - "cost of government program X" > 0, should we then use this government program? Is this an issue of what is fundamentally right and wrong (government = bad), or an issue of pragmatics?