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40 sats \ 5 replies \ @Rothbardian_fanatic OP 3 Apr \ parent \ on: What Economists Do and Why They Do It science
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.
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.
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I would say that they are weak. Assumptions of a steady state always seem to be weak, to me. Marginalism and Subjectivism seem to dictate that situation.
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Modern micro is also founded on Marginal and Subjective Utility. The assumptions made about preferences are "Rationality Assumptions" that are only slightly stronger than what the Austrians also assume.
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