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Today's post comes from Econned. On this very enjoyable Saturday I spent the last 12 hours sitting in a chair reading this gem, I came across this thought provoking quote which sparked my interest:
"Amazingly enough, people in the real world are often stupid and do things that waste money. Behavioral economists have conducted experiments in laboratory settings that confirm that most people have cognitive biases that undermine their ability to function as logically and consistently as the neoclassical framework dictates" (p. 56).
Yves Smith seems to be quite the contrarian. In this passage she argues that much of economic theory is incorrect because humans are irrational. While I don't agree with much of Smith's argument, I agree that humans are irrational and that fact plays a major role in the way markets operate. I am not sure I can go as far as to say that the economic theory underlying American society is so inaccurate that we should disregard it, but I understand that Smith is just trying to make a point.
Thoughts?
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I agree with you that economic theory shouldn't be completely disregarded but I think sometimes these theories are too idealistic since they are based off the premise of a rational man. Economic theories, at least the basic ones I've learned, fluster me because they are based off assumptions that seem naive at times. If one premise doesn't hold true, then shouldn't it negate the whole idea? Or just add the side note to theories ; "Sorry, this doesn't work if the human is extremely irrational." I don't know.
ReplyDeleteI agree with Michelle. I often find econcomic theory to be difficult to grasp, because many time they are based on perfect or nearly perfect circumstances, when in reality that is far from true. I dont believe that they should be disregarded, just takin with the notion that the economy doesn't run as smoothly and perfectly as most theories that i've encountered give off.
ReplyDeleteI also agree that economic theory shouldn't be completely thrown to the wind. However, because they are based off situations that only occur in an idealistic world, these theories are often difficult to apply in the real world.
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