Risk neutrality

[Adam Smith]

Originally posted by Agathon
Yes but these are economists, and their whole discipline is founded on such things.

Another clueless troll. Have you been comparing notes with UR again?

PS:
Blake got it right.

[Verto]

Re: Risk neutrality

Originally posted by Park Avenue

I can't believe our company's Risk Analyst disagreed with me on this.

I can't believe you made this thread.

[Ninot]

put all your troops in Australia, and don't try to hold onto Europe. Those are my tips for Risk.

[Urban Ranger]

Originally posted by Adam Smith
Another clueless troll. Have you been comparing notes with UR again?

Why, you don't agree that economics is mostly voodoo?

[Saras]

To a commie, yes. To someone with a brain, it's a disciplined science

[Agathon]

Originally posted by Adam Smith
Another clueless troll. Have you been comparing notes with UR again?

No. I just think it is a pseudo subject as it is conducted at present. A decent economics would look at what people actually do, rather than making ridiculous assumptions about rational action.

Some do the former, but not nearly enough.

[Urban Ranger]

Originally posted by Saras
To a commie, yes. To someone with a brain, it's a disciplined science

Well, I guess you could call it "science," but that's really stretching the word.

[DaShi]

Which one is being stretched?

1. The observation, identification, description, experimental investigation, and theoretical explanation of phenomena.
2. Such activities restricted to explaining a limitied class of natural phenomena.
3. Such activities applied to an object of inquiry or study.
4. Knowledge, especially that gained through experience.

[Saras]

Originally posted by DaShi
Which one is being stretched?

The one which contradicts party doctrine

[Adam Smith]

Originally posted by Urban Ranger
Why, you don't agree that economics is mostly voodoo?

What voodoo? Are you on your "utility is not observable" and "there are no testable hypotheses in eocnomics" rants again?

[Adam Smith]

Originally posted by Agathon
No. I just think it is a pseudo subject as it is conducted at present. A decent economics would look at what people actually do, rather than making ridiculous assumptions about rational action.

Some do the former, but not nearly enough.

A theory that says that anybody can do anything at any time for any reason is not a useful theory because it imposes no restrictions and therefore yields no testable hypotheses. You have to posit some kind of restrictions. The economic assumptions about rationality are as follows:

1. Completeness: for any two goods X and Y, either X => Y (X is preferred to Y) or Y => X
(edit: or both, which implies that the consumer is indifferent between X and Y)
2. Transitivity: if X => Y and Y => Z, then X => Z
3. Non-satiation: if X and Y are goods, then more X is better than less X, and more Y is better than less Y.

(Source: Hal Varian, Microeconomic Analysis, 1978, p. 80-84. This is Varian’s graduate text, not the undergraduate.)

Anything ridiculous here?

People like Vernon Smith (Nobel Prize 2002) ran some experiments to see if these assumptions hold up. In a couple of famous papers he found that even pigeons and drunks follow these basic axioms of behavior. People like Mark Machina (UCSB) have found that you can even weaken these assumptions somewhat (e.g., people are not quite sure which of two goods are better) and still get the basic results to follow.

You seem to say that people are irrational, but people actually seem to be able to buy a can of beans in the grocery store without having a nervous breakdown. This suggests to me that there is some kind of underlying decision process that can be modeled and tested. That is what empirical economic work is all about: looking at what people and firms actually do. There are plenty of economists out there doing good empirical work, providing useful information for consumers, producers, and policy makers. Good empirical work consists of getting good data, holding other factors constant (see, e.g., your claims that prices rose after NZ deregulated electricity), checking to see if the underlying assumptions are borne out. If not, you need to take another look at the theory. You might complain that economists make “ridiculous assumptions about rational actions�, but in fact, the testable hypotheses which flow from the basic assumptions are almost always confirmed. (e.g., the forty studies I once cited for you indicating that government enterprises are less efficient than private enterprises.)

One does not learn about these underpinnings of economics in a basic class, and certainly not in the popular press. Writing about economics does not make somebody an economist any more than writing about health makes somebody a physician. I will grant you that much of economics today has become theoretical, overly mathematical, and inaccessible to most people. This is probably because good empirical work won’t get you tenure. (This is my main criticism of economics today.) But unless you can tell me what is ridiculous about these basic assumptions, then I would have to say your criticism is uninformed.

[DanS]

Pearls before swine.

[Saras]

Ditto.

[KrazyHorse]

A philosopher and an economist arguing over the futility of each other's disciplines.

I don't really care who wins, as long as they both get hurt.

[KrazyHorse]

Personally, I'm risk averse. It makes sense to be so when you are convinced that you play the game better than average. If, on the other hand, you think that your opponents have an edge on you it makes sense to try to gamble with reasonable odds as much as possible...