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.
perhaps you should consider when a mans appraisal of whether he should do an act or not, is important.
is the appraisal at the end of his life the most significant as he then has a retrsospective on all his life?
is it the first act if he ever performs which sets the stage for all to come?
or is it the point at which he decides to act each time he acts?
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
If the desperate man who needs to pay for an operation to save his life but can't afford it, puts his life savings on a horse but then the horse loses. The man will then wish that he had never made the bet because he will live out his last remaining days even poorer than he would have been otherwise. So clearly he does not "prefer the state of affairs resulting from action to that from no action".
So clearly he does not "prefer the state of affairs resulting from action to that from no action".
Yep, he does. He preferred to take a gamble. He may regret it later on, but it was his preferred course of action ex ante. He may have 'not acted' (whatever that means) and regretted that instead. So what? At the time the ("in")action was taken it was preferred.
To darkness I condemn you...
mickanomics: nirgrahamUK:well, he demonstrated a preference in action. to then say that he never did prefer choosing what he chose, is a lie. I think I have worked out why you are so convinced I am wrong.... You are considering the *immediate* effect of the action. If we consider the happiness of the man immediately before making the bet to immediately after making the bet (but before finding out whether he has won the bet or not). Then you are perfectly right. The man does prefer the "after" to the "before". But I would suggest that this is not the true basis on which the man decision is made. A man's action is determined but his prediction of the *total* effects of his action, both short and long term, something like the integral (I'm using the mathematical sense of the word) of happiness over time from the moment of the action forward to the end of his life.
nirgrahamUK:well, he demonstrated a preference in action. to then say that he never did prefer choosing what he chose, is a lie.
I think I have worked out why you are so convinced I am wrong....
You are considering the *immediate* effect of the action. If we consider the happiness of the man immediately before making the bet to immediately after making the bet (but before finding out whether he has won the bet or not). Then you are perfectly right. The man does prefer the "after" to the "before". But I would suggest that this is not the true basis on which the man decision is made. A man's action is determined but his prediction of the *total* effects of his action, both short and long term, something like the integral (I'm using the mathematical sense of the word) of happiness over time from the moment of the action forward to the end of his life.
People's predictions can be wrong. Action is taken when people perceive they will benefit, on net balance, from an action...compared to all other actions available that they are aware of. We can't know intentions, but we do know that in order to take a certain action, a person must prefer that action to the other ones they are aware of.
So BEFORE any action, people prefer the "after" action scenario based on their predictions and based on their predictions of what would happen if they took a different course.....but those predictions are not always correct. So AFTER the fact they can be dissatisfied, aka "buyer's remorse." However, most people(of course this is an empirical issue when I say "most" and i don't have statistics on it or anything, lol) are satisfied with an action after they take it....and if they're not, then they wouldn't continue to make that same decision in the future.
Jon Irenicus: If the desperate man who needs to pay for an operation to save his life but can't afford it, puts his life savings on a horse but then the horse loses. The man will then wish that he had never made the bet because he will live out his last remaining days even poorer than he would have been otherwise. So clearly he does not "prefer the state of affairs resulting from action to that from no action". Yep, he does. He preferred to take a gamble. He may regret it later on, but it was his preferred course of action ex ante. He may have 'not acted' (whatever that means) and regretted that instead. So what? At the time the ("in")action was taken it was preferred.
Yes, that's it. He prefers the gamble to no gamble, and the action he takes is the gamble. He'd probably even prefer to have the chance to take the gamble again over the money he lost, after the gamble. Even if not, though, he preferred the gamble the first time around. The gamble, by the way, is "the state of affairs resulting from action", even if it is an uncertain state of affairs. The same can be true for any entrepreneurial action, which are by definition uncertain.
Mises was not a fool, you (not Jon) should continue reading for his real meaning (which is fleshed out over the course of thousands of pages) instead of trying to pick apart his sentences, especially seeing as he only learned English as a second language when he was well past his youth.
nirgrahamUK: perhaps you should consider when a mans appraisal of whether he should do an act or not, is important. is the appraisal at the end of his life the most significant as he then has a retrsospective on all his life? is it the first act if he ever performs which sets the stage for all to come? or is it the point at which he decides to act each time he acts?
The point at which he makes the appraisal is the instant before the action. But lets be careful about what he is making the appraisal of. He is not simply estimating how he will feel the instant after the action. Instead he is estimating the full long term effect of his action. Indeed the immediate short term effect my be negative - for example the act of saying "yes doctor, go ahead and give me that painful injection" will lead to an immediate short term reduction in wellbeing followed by a longer term improvement in wellbeing that outweighs it.
filc:The whole interview is mute and irrelevant.
Obviously I'm allowed to ask whatever questions I like in the interview. Now tell me, which answer to any of the questions is incorrect?
mickanomics:The point at which he makes the appraisal is the instant before the action. But lets be careful about what he is making the appraisal of. He is not simply estimating how he will feel the instant after the action. Instead he is estimating the full long term effect of his action. Indeed the immediate short term effect my be negative - for example the act of saying "yes doctor, go ahead and give me that painful injection" will lead to an immediate short term reduction in wellbeing followed by a longer term improvement in wellbeing that outweighs it.
lol.
mickanomics:But lets be careful about what he is making the appraisal of. He is not simply estimating how he will feel the instant after the action. Instead he is estimating the full long term effect of his action.
this is no-where denied.
mickanomics:The point at which he makes the appraisal is the instant before the action.
you are now Misesian, I dub you, Sir Mickanomics of Mises
mickanomics: which answer to any of the questions is incorrect?
which answer to any of the questions is incorrect?
All, because your answers are not a reflection of reality but that of a fairy tail. You should work for hollywood maybe, but not in economics. In hollywood pigs can fly, capitalists are evil, and the world is doomed in the next 10 years. In hollywood you can make any kind of script and have your actors answer to them in any way you want. In reality however you cannot control nor can you dictate what human actors do. Nor do you have the foresight or authoritity to even assume how such a man would answer in that situation. You are not omniscient. Sorry to disappoint.
filc:All, because your answers are not a reflection of reality but that of a fairy tail.
Virtually all economists (including Austrians) invent hypothetical situations in their reasoning.
mickanomics:Virtually all economists (including Austrians) invent hypothetical situations in their reasoning.
They have to reason ceteris paribus because it is impossible to account for every variable. Which is why modeling is a no-go.
If you find something evil that wobbles, push it. - Gary North
or prior (a priori) knowledge which is not a hypothetical. doesn't mean hypothetical's are not used, simply pointing out they are not the only methods used.
"I used to see a mountain as a mountain.. Thereafter.. when I saw a mountain; lo! it was not a mountain.. yet now of final tranquillity: I see a mountain just as a mountain as I used to.." - Master Yuan; molon labe
liberty student: mickanomics:Virtually all economists (including Austrians) invent hypothetical situations in their reasoning. They have to reason ceteris paribus because it is impossible to account for every variable. Which is why modeling is a no-go.
I'm confused... What is the difference between Hazlitt's hypothetical broken window and the hypothetical things that follow from that, and my hypothetical musings?
mickanomics:What is the difference between Hazlitt's hypothetical broken window
It is Bastiat's Parable of the Broken Window.
mickanomics:and the hypothetical things that follow from that
such as?
mickanomics:and my hypothetical musings
You reason a posteriori, Austrians reason a priori.
http://en.wikipedia.org/wiki/A_priori_and_a_posteriori
Bastiat uses reason to construct the narrative. You use the narrative to construct reason.
I don't believe the study of economics, particularly macroeconomics, is complete without the understanding of human mass psychology. I don't think bubbles and manias can ever be stopped, because it is against human nature to do so. We are not robots and we do not exist in a vacuum. People are social and interactive by nature.
People unconsciously become participants in bubbles whether they are aware of it or not. You say that all that needs to be done to prevent them from happening is implementing a sound money policy. If it were only that simple. It is naive to say that if rates were kept high then the bubble would never happen. First of all the various bubbles such as in real estate and stocks were a gradual affair that were decades in the making. It was also a global affair. Ten year mortgages pre-war, became 20 year, then 30 year mortgages by the 70s. Lending standards slackened. Credit card issuance proliferated. There was no one person or one policy that could stop have stopped it. Government officials themselves became part of the bubble. There are pressure from investors, elected "leaders", and the general public not to get in the way of bubbles.
Additionally many bubbles aren't recognized until after the fact. I bet more than a few libertarians themselves became succumbed to tech stocks in the late 90s because everyone else were buying them. They were part of the mess themselves without knowing it. It is extremely difficult to go against the grain. If anyone has any experience in stock speculation, they know how difficult it is to make money. Anyone can make a gazillion trading stocks on test system, yet when that same plan is implemented using real money, they end up losing money 90-95% of the time.Why? Because people succumb to the emotions of fear and greed.
Is it a surprise the Efficient Market Theory has become more and more discredited by leading scholars?
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