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30 sats \ 8 replies \ @Undisciplined 3 Apr \ on: What Economists Do and Why They Do It science
I definitely want to push back on this idea. Resource allocation is a central part of economics and it only has mathematical solutions when you pretend to know things that are not only impossible to know, but also likely diverge from reality.
i.e. preferences are unknowable and don’t necessarily conform to the assumptions that make micro models solvable.
I think pushing back on the idea of mathematical solutions was the whole theme of the article. It also pushes back on the idea that other theories of economics are valid because they miss the basics, as you pointed out, like preferences determining the distribution of goods and wealth. Time preference is another heavily ignored idea by a lot of mainstream economists.
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There's a bit of a throwing out the baby with the bathwater thing going on.
There is a lot of emphasis on solving the solvable mathematical models, which isn't particularly important. It's worth going over, because there are definitely things to be learned from those solutions. They have real implications.
Rather than stop there, though, is would be more valuable to then explore what happens when the assumptions that led to those solutions are relaxed. This is also done in PhD programs, but it's less emphasized.
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Perhaps a point of disagreement would be that the mathematical solutions have a lot to do with reality. I question that. Some of the models suggest homo economus will do things that nobody, in their wildest imaginations would think of doing. Even after examining the premises of the model to see where things went awry, it is hard to figure out the flaws. Even relaxing assumptions give erroneous predictions.
I just wonder, myself, how much back-testing these theorists are doing. Another point is, that they do not seem at all interested in anything that seems to be fairly accurate at predicting behaviors as well as back-testing as valid.
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The solutions are a useful starting point, though, or the can be. Many of the assumptions about preferences are reasonable-ish, so you can at least have a baseline solution. Then you can think about how changes to the initial assumptions might shift the solution.
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I just wonder where they are coming up with preferential assumptions, is it from interviews, questionnaires or from actual observations of real purchases? They would all be erroneous if they are used as assumptions because none of them show real preferences for the next choice, and that includes purchase observations due to diminishing returns factor changing preferences. So, wouldn’t the starting assumptions always be incorrect?
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No, there are very weak assumptions made about the properties of preferences and then they just do the work in abstract to arrive at the functional form of the solution.
From there you can evaluate how different parameter values change the solution.