Seeing as it has remained obscure to me for some time now, what are the main differences between the Austrian and Behavioral Economics? Or, more specifically, between Praxeology and its correspondent in the enemy camp (i.e. behavioral school).
mickanomics: nirgrahamUK:so clearly he prefered the state of affairs he thought would follow from his buying the ticket to what he thought would follow from not buying the ticket. Lets do an imaginary interview with a guy who has just bought a lottery ticket but before the result is known... Q: "Do you expect to win the lottery?" A: "No. Obviously its possible... but I don't expect to win" Q: "What will be the consequence of you not winning the lottery?" A: "I will have lost the cost of the ticket" Q: "How will your 'state of affairs' be after finding out you've not won, compared to how you were before buying the ticket?". A: "I will be less happy". Q: "Let me get this straight, you have taken an action for which you forecast that your state of affairs after the action is less good than before your action?" A: "Yes." BTW, this interview was conducted with a "desperate man" who is not getting any thrill from the gambling process.
nirgrahamUK:so clearly he prefered the state of affairs he thought would follow from his buying the ticket to what he thought would follow from not buying the ticket.
Lets do an imaginary interview with a guy who has just bought a lottery ticket but before the result is known...
Q: "Do you expect to win the lottery?"
A: "No. Obviously its possible... but I don't expect to win"
Q: "What will be the consequence of you not winning the lottery?"
A: "I will have lost the cost of the ticket"
Q: "How will your 'state of affairs' be after finding out you've not won, compared to how you were before buying the ticket?".
A: "I will be less happy".
Q: "Let me get this straight, you have taken an action for which you forecast that your state of affairs after the action is less good than before your action?"
A: "Yes."
BTW, this interview was conducted with a "desperate man" who is not getting any thrill from the gambling process.
The whole interview is mute and irrelevant. Your first question should have been.
Q: Why did you buy the lottery ticket?
A: Because I wanted to.
End of discussion. Valuation is subjective. Your trying to pass judgement on another mans subjective valuation process. Unless your intentions are to make everyone think and value things as you do you cannot do this without you yourself sounding irrational. It's like making everyone only like/eat chocolate and everyone's favorite color only being red.
Statism is a religion.
mickanomics:Agreed. Although the rise can be an a narrow area while the fall is in "everything else".
Theoretically yes. But that did not happen in the events you cover in your blog.
Can you explain the ABCT to me?
If you find something evil that wobbles, push it. - Gary North
Esuric:The prices rise for long periods of time because of inflation
If prices of things only ever rose because of the growth of the money supply then the relative price of one type of good compared to another would never change. This is obviously not the case. Your basis for avoiding question 2 is therefore flawed.
liberty student:Can you explain the ABCT to me?
Borrowing to invest in X in and of itself raises the money supply, which in turn increases the nominal price of X and the rise in prices makes people more likely to borrow to invest in X and so on. This of course would be impossible if interest rates were allowed to rise in response to the increased demand for loans.
mickanomics:Borrowing to invest in X in and of itself raises the money supply, which in turn increases the nominal price of X and the rise in prices makes people more likely to borrow to invest in X and so on. This of course would be impossible if interest rates were allowed to rise in response to the increased demand for loans.
This is incorrect.
I can't help but feel we're wasting our time since you still have not immersed yourself in anything Austrian.
liberty student:This is incorrect.
That's very kind of you to tell me exactly in what way I am wrong.
mickanomics: Borrowing to invest in X in and of itself raises the money supply, which in turn increases the nominal price of X and the rise in prices makes people more likely to borrow to invest in X and so on. This of course would be impossible if interest rates were allowed to rise in response to the increased demand for loans.
I see some mistakes:
1. Borrowing does not necessarily raise the money supply. Rather, it relies on the means of the borrowing. If I loan $30 dollars from my savings to someone, the money supply has not increased, rather, the money has changed ownership, as in any other trade. Rather, the money supply is increased if someone deposits money in an account, and the money is loaned while simultaneously allowing the person to trade the money in their account. The additional money created is in the form of bank statements.
2. A price ceiling on the interest rate only creates a shortage of loans if its high enough. It operates independently of ABCT.
Schools are labour camps.
mickanomics:That's very kind of you to tell me exactly in what way I am wrong.
The only reason I am still responding, is because I am not very bright, I have a high time preference for internet debating, and there are sunk costs into this already.
Watch this
http://www.youtube.com/watch?v=FruzdmjJ1Sk
Please do the knowledge before you carry on with this debate.
filc:A) You don't explain why prices rised, we do.
That's not a reason to answer no to the question.
filc:B) If prices continue to rise than as you stated earlier those goods will become rationed and purchased in less quantity. Demand will be stifled. You even stated so yourself.
You have failed to support your answer with any logic.
liberty student: Watch this http://www.youtube.com/watch?v=FruzdmjJ1Sk Please do the knowledge before you carry on with this debate.
I had seen it before. I have watched several long Tom Woods lectures.
eliotn:1. Borrowing does not necessarily raise the money supply. Rather, it relies on the means of the borrowing. If I loan $30 dollars from my savings to someone, the money supply has not increased, rather, the money has changed ownership, as in any other trade. Rather, the money supply is increased if someone deposits money in an account, and the money is loaned while simultaneously allowing the person to trade the money in their account. The additional money created is in the form of bank statements.
I know that perfectly well. In my two sentence description of ABCT I assumed that most loans are from banks.
eliotn:2. A price ceiling on the interest rate only creates a shortage of loans if its high enough.
Sure, agreed. But I thought that was included in my description.
eliotn:It operates independently of ABCT.
Not quite sure what you mean by that. Are you saying that ABCT has nothing to do with interest rates?
mickanomics:I had seen it before. I have watched several long Tom Woods lectures.
Well, I am really curious how you could watch that, and not understand the ABCT because he explains it in a way an 11 year old could comprehend.
mickanomics: filc:A) You don't explain why prices rised, we do. That's not a reason to answer no to the question. filc:B) If prices continue to rise than as you stated earlier those goods will become rationed and purchased in less quantity. Demand will be stifled. You even stated so yourself. That's not a reason to answer no to the question. You have failed to support your answer with any logic.
What logic should I be following? Mickalogic?
yessir: The problem for me is that behavioral econ seems almost always a reason to invite or justify social engineering.
The problem for me is that behavioral econ seems almost always a reason to invite or justify social engineering.
This.
Vitor: yessir: The problem for me is that behavioral econ seems almost always a reason to invite or justify social engineering. This.
I agree, but not everyone who touts behavioral economics is trying to justify using the government stepping in and correcting things. Also the term is rather broad, encompassing everything from "irrational exuberance" (which supposedly 'explains' business cycles) to the way in which investors systematically over and under react to certain kinds of news about individual companies.
The former is only useful insomuch as it describes the psychological characteristics of people caught up in a boom (a couple of examples: the "it could never go down" psychology that is in full effect during the boom, whereas normally people would be more willing to concede that prices could fall, and the fact that uses of certain words in newspaper articles, terms such as 'bubbles' and starting with the tech boom 'irrational exuberance' tend to increase exponentially until the popping of the bubble - a correlation that might be just chance but more likely reflects growing awareness of the bubble and its lack of sustainability).
The latter is extremely useful to value investors. There have been many studies done that show that companies that have low price to book value, price to earnings, price to cashflow, etc ("value" stocks in the sense made popular by Benjamin Graham and his students, including Warren Buffet) tend to go up more (more than what? Keep reading) from positive earnings surprises (earning more money than analysts expected), and tend to go down less from negative earnings surprises (earning less money than analysts expected). The opposite holds true (on average, of course) for companies with high price to book, earnings, and cashflow stocks.
But the idea that irrational exuberance is the cause of bubbles and that it should somehow be reigned in by our wise leaders in government? That's bullshit. The psychological characteristics of the bubble are real, and they might help describe why particular sectors of an economy are inflated instead of others, but they are the symptoms of the bubble, not the cause. It does nothing to show how that inflating could have happened in the first place.
filc: You make a cognitive error that human behavior can be modeled by a computer, possibly to predect human behavior. As a result I'd like to recommend this. Human Action
You make a cognitive error that human behavior can be modeled by a computer, possibly to predect human behavior. As a result I'd like to recommend this.
Human Action
I've just been trying to read it. It was a painful process. I fear the book is too old fashioned, it uses all sorts of strange words and phrases I have to keep looking up three times per page. I got completely fed up when he said: "remember Spinoza’s dictum: Sane sicut lux se ipsam et tenebras manifestat, sic veritas norma sui et falsi est. " without giving an english translation!
Is there a more user friendly and modern AE book/article/lecture which will tell me why human behavior can not be modeled by computer?
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