Quote:
Originally Posted by loquitur
Couple of things:
1) we don't know what is inside people's heads. We can't. So of course we can only evaluate rationality by observing their actions and then measuring the actions against some yardstick. I suppose that can be called ex post labelling, but there really isn't any other way to do it, right?
2) of course people can only make decisions based on the info they have available to them and their own capabilities. That's the very definition of being a rational actor. Your position seems to be that there is some independent absolute definition of what a rational decision is, against which everyone's decisionmaking can be evaluated. I don't agree with that at all. I think you can point to general tendencies, but that's all, because each person is unique and has his/her own priorities and abilities. The ability to forecast can only be based on gross generalizations and tendencies, based on what most people would deem rational in a general situation.
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Regarding ex post labelling, I agree that there aren't really a lot of viable other ways to make sense of people's behavior. However, I think it is important to keep in mind the limitations of the method, and that such a method, while frequently compelling from a common sense standpoint, doesn't really constitute proof of anything.
I don't think that there is some sort of absolute definition of rational. The kind of economic theory espoused by Ace assumes that there is an absolute definition of rational, and clearly I disagree. Hence my statement that the phrase "rational people behave in predictable ways" is a fallacy. One problem with the phrase, as used by Ace, is that the definition of rational that it uses is a theoretical construct that doesn't exist in reality. Another problem is that rational people aren't predictable precisely because there is no absolute definition of rational. In fact, rationality can exist within an irrational framework so that the rational status of a person can depend entirely on the scale at which they are observed.
For example: few would claim that Person A's motivation to spend time working to earn money to buy the things he wants is an irrational motivation. However, if you add a bit more context and mention that the Person A is addicted to buying cats and already has 25 that he can't take care, his motivations become a tad less rational. Is Person A a rational person? Is he predictable? How would he respond to a cat tax?
I agree that the ability to forecast can only exist in the context of general tendencies. I disagree that these general tendencies should be based on what most people would deem rational. I think it is much better policy to base these forecasts on actual data. The phrase "what most people would deem rational" means completely different things to different people. Things that seem rational to an objectivist may be completely counter to the things that seem rational to a socialist. Data doesn't lie. Statistics don't lie (though it is easy to misinterpret them if you don't know what you're doing).
People who say "We should/shouldn't enact this type of fiscal policy because the rational response of the populace will be ___________" are frequently drunk on their own overinflated sense of intellectual superiority. I place a great deal more trust in data than I do people who lack the intellectual humility required to avoid making grand predictions based on ideology. Besides, even with good data and a solid, ideology-free, grasp of historical trends, there is really no excuse for anyone to place a lot of faith in the accuracy of financial forecasting at the governmental level.
Quote:
Originally Posted by aceventura3
I am in a constant search to eliminate uncertainty.
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Uncertainty is always present. You'd be better of settling for the minimization of uncertainty. You should read Black Swan, it's a good argument against the problem with the illusion of certainty with respect to financial markets.