Why People Claim Chains Of Deduction Don't Work For Human Issues

[Borodog]

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Another question that would help nme clarigy things:

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In any event, there are plenty of modern economists who think that downward sloping demand curves are just some empirical phenomena, that there might even be upward sloping demand curves somewhere, if only you keep looking!

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These poeple who keep looking, how would they recognise an upwards sloping demand curve if one existed and they stumbled across it?

chez

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They would take a bunch of data, graph it, see an upward slope and erroneously conclude that they have identifies an upward sloping demand curve, rather than a downward sloping demand curve that is moving to the right, for example.

For example, one could graph a stock market bubble and conclude that it is an example of an upward sloping demand curve, when really it is a downward sloping demand curve that is moving to the right.

If you think I'm crazy, just search for the innumerable studies where people try to show that some increase in the minimum wage has not actually resulted in a reduction in employment.

The look at employment before the increase, and employment after, and if the latter is greater than the former, they take this as evidence that increasing the minimum wage caused the increase in employment, when of course it can't. We can say withh 100% certainty that the increase in employment would have occured anyway, and in fact would have been higher in the absence of the minimum wage hike. I had an argument on this very forum about this; he insisted that the labor market could have upward sloping demand curves, when really all such a study shows is a downward sloping curve moving to the right.

[Sephus]

fwiw i have an econ degree from u-m and i think i remember being on "the other side" of that debate about the card, kruger study. my position, i think, was that it's "not entirely clear" what's really going on and that card and kruger et al seemed to have at least somewhat reasonable suggestions.

no reason to redo that thread though.

[chezlaw]

I'm very attracted by your approach but still unsure its not a different way of understanding the same thing. I also worry I miss the point as the terms and subject are new to me.

Anyways, here's an example of an upwards sloping demand curve to play with.
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Chezlaw enterprises produce the ChezX to make his billions. ChezX goes on sale for $7.99 and is carried by all major outlets. Its doesn't sell very well.

bemused Chezlaw investigates and finds that 1% of people aware of the ChezX buy it but they never talk abut it to others and only become aware of it by seeing it for sale.

Market it better comes the cry from the advertising wallahs but an alternative idea is suggested by the neuro-economics department - increase the price to $11.99 and it will sell better - they explain why but everyones fallen into a drunken stupour. The price goes up to $11.99 and sales triple.

An investigation is carried out. People still only become aware of the product by seeing it, the only thing that's changed in the shops is the price tag and its still bought by 1% of people who are aware of it. All test show that those who paid $11.99 have exactly the opinion of the ChezX as those who paid $7.99.

Questions:

1) is this impossible?

2) would you count it as an upwards sloping demand curve?

3) might those you disagree with count it as an upwards sloping demand curve?

4) if No to 2) but yes to 3) then aren't you talking at cross-purposes.

5) what did the neuro-economist say?

chez

[Borodog]

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I'm very attracted by your approach but still unsure its not a different way of understanding the same thing. I also worry I miss the point as the terms and subject are new to me.

Anyways, here's an example of an upwards sloping demand curve to play with.
---------

Chezlaw enterprises produce the ChezX to make his billions. ChezX goes on sale for $7.99 and is carried by all major outlets. Its doesn't sell very well.

bemused Chezlaw investigates and finds that 1% of people aware of the ChezX buy it but they never talk abut it to others and only become aware of it by seeing it for sale.

Market it better comes the cry from the advertising wallahs but an alternative idea is suggested by the neuro-economics department - increase the price to $11.99 and it will sell better - they explain why but everyones fallen into a drunken stupour. The price goes up to $11.99 and sales triple.

An investigation is carried out. People still only become aware of the product by seeing it, the only thing that's changed in the shops is the price tag and its still bought by 1% of people who are aware of it. All test show that those who paid $11.99 have exactly the opinion of the ChezX as those who paid $7.99.

Questions:

1) is this impossible?

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No. Quite possible. Happens all the time.

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2) would you count it as an upwards sloping demand curve?

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No. By advertising you are making people aware of it when they weren't before; economically it's a different good. If you had a situation where everyone knows about the good, say a TV, for sale at $199, and you increase the price to say $299, and people suddenly said to themselves, "Well, I didn't want that TV before, but now that it costs me more, I will buy", that would be an upward sloping demand curve. People that use price as a proxy for quality, for example, aren't doing this, and neither are investors (in say art or the stock market) who use the increased price as a proxy for future increases in price; thus the increased price good is a different good from it was when it had a lower price.

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3) might those you disagree with count it as an upwards sloping demand curve?

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They can count anything to be anything they like. The problem is that doing things like that is obfuscatory. It leads to bad decisions because one erroneously believes that increasing the price of a good will increase the demand ceteris paribus, all else being equal, when it is not ceteris paribus at all. It was not the increased price that caused the increased sales, it was the advertising.

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4) if No to 2) but yes to 3) then aren't you talking at cross-purposes.

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We certainly are talking at cross purposes. Their purpose is usually to justify some policy that is beneficial to a small special interest group at the expense of everyone else.

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5) what did the neuro-economist say?

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I don't know; what did the neuro-economist say?

[chezlaw]

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No. By advertising you are making people aware of it when they weren't before;

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Yes, but we are not advertising it.

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They can count anything to be anything they like. The problem is that doing things like that is obfuscatory. It leads to bad decisions because one erroneously believes that increasing the price of a good will increase the demand ceteris paribus, all else being equal, when it is not ceteris paribus at all. It was not the increased price that caused the increased sales, it was the advertising.

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but we will end up somewhere like this. but that's the point I'm trying to make - there's no reason for them to make those bad decisions because they're not disagreeing with you but talking at cross-purposes to you.

chez

[Borodog]

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No. By advertising you are making people aware of it when they weren't before;

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Yes, but we are not advertising it.

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Ah, I misread. I saw "market it better" and thought advertising.

In that case, then the answer is no, that's not possible, unless people forgot about the product in between having seen the product originally and the price increase, or other factors change. You're saying that people would actually go through a process like, "I don't want to pay $7.99, but at $11.99, I will buy." Does not happen.

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They can count anything to be anything they like. The problem is that doing things like that is obfuscatory. It leads to bad decisions because one erroneously believes that increasing the price of a good will increase the demand ceteris paribus, all else being equal, when it is not ceteris paribus at all. It was not the increased price that caused the increased sales, it was the advertising.

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but we will end up somewhere like this. but that's the point I'm trying to make - there's no reason for them to make those bad decisions because they're not disagreeing with you but talking at cross-purposes to you.

chez

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I'm not really sure where we're at anymore.

[Borodog]

By the way, you might find this interesting:

http://www.mises.org/journals/jls/19_1/19_1_5.pdf

Just got pointed to this. If you're not up to date on Austrianism, a Brian Caplan is a neo-classical economist who has taken it upon himself to tilt at the Austrian windmill. He's also a complete ass, and it is delicious to watch Block demolish him here.

[Borodog]

chezlaw,

I think I'm going to back off on my downward sloping demand curve example. I think all I've shown is that individual demand curves must be downward sloping. In the article I just linked to Block meantions "backward bending demand curves and Giffen goods", which honestly I have never heard of. I have some reading to do.

So, rather than downward sloping demand curves as an example of something that Austrians take to be true via a priori logical deduction and neo-classicals take to be just an empirical hypothesis, just take the first part of that post; the law of diminishing marginal utility.

[Borodog]

Giffen goods.

[CrayZee]

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But after many discussions on this and other forums, I now realize that there is another reason people resist the idea that logical arguments, such as those that expose contradictions in a person's worldview, are strong (if imperfect) impetuses to make people change their minds. Its not that people don't want to admit their weakness in logic. Rather it is because people hate to change their minds. Minds that for the most part were originally made up based on gut feelings. Without regard to whether it contradicted a gut feeling on another issue.


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Sounds like you discovered cognitive dissonance on your own. Inconsistencies in belief doesn't feel particularly good. Most people would rather have things align consistently with their worldview regardless of contrary evidence.

When it comes to the "small stuff," it's okay that cognitive dissonance takes hold so you can move forward unabated.

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Some people, like me, resist any urge to make up their mind before carefully examining the points involved. Pair The Board calls them boring. But for me the alternative is worse. Having a bunch of conflicting ideas about the world (though it may take some deep thought to see the conflict) and then going on to make a fool of yourself by claiming the chain of reasoning necessary to see those conflicts contains serious flaws. Just so that you can desperately hold on to those ill thought out ideas.

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Better to have a probabilistic belief on things rather than absolute. So, in effect, you aren't really absolutely making up your mind on many things, but rather current knowledge aligns best with a certain perspective. When the data changes, your belief follows accordingly. It's okay to lean in a certain direction at any given time.

It's also okay to be wrong on things as long as you're willing to change course. Us humans are wrong and biased all the time, no big deal. A healthy, balanced ego helps, too, i.e., confidence is good, arrogance and insecurity are not. A tough tight rope walk act for most people.