[From Rick Marken (2004.03.03.0920)]
Peter Small (2004.03.03)--
Although PCT is a neat concept to visualize the way humans make
decisions,
Actually, it's a model that explains how people control.
its weakness is that it can make predictions only if all
the variables are known. This is always highly unlikely.
I agree that if you don't know the variables involved in behavior then you
can't make predictions about behavior. But in the example you gave
(regarding Keynes ideas about the relationship between profit and
employment) the variables and their relationship to each other are known and
understood. Profit is one variable and it's the difference between expenses
and income. Employment is another variable and, for simplicity, I assumed
that employment was a producer's only expense. Income is equivalent to what
I called the disturbance, d. So in my equation, p = k1 (d - e) I was
basically defining profit as being proportional to income (d) less expenses
(e), which is certainly what profit (and loss, depending on the relative
values of d and e) is from my experience.
In this instance, PCT assumes that profit is the control variable and
provides the motivation for employers to hire more employees.
According to PCT, profit is a _controlled_, not a control variable. The
verbal distinction is very important. While a control variable controls the
actions of a system, a controlled variable is controlled _by_ the actions of
the system. A controlled variable doesn't provide motivation; it is the
object of control.
But, in a real life situation, profit is unpredictable.
This is true in my analysis as well because d (income) is assumed to vary
unpredictably over time. I can see how you wouldn't notice this if you are
unfamiliar with PCT. But in PCT, as applied to human behavior, disturbances
(d) are typically assumed to be unpredictable (and often detectable) time
varying influences on a controlled variable, things like the the direction
of a crosswind when controlling the direction in which a car is traveling.
The driving force is usually a perception of demand.
PCT shows that perceptions don't "drive" actions, they are controlled by
actions. Demand is not itself a controllable perception but a variable that
contributes to a perception that is controllable (profit). Demand
corresponds to d in my analysis. Variations in demand have an influence on
profit (a perception of the "bottom line") as do variations in expenses
(employment). The producer varies expenses to compensate for variations in
demand which are unpredictable. The point of my analysis was to show that
demand -- the disturbance to profit -- does appear to "drive" variations in
employment (expenses). But it "drives" employment via its effect on the
variable that is actually under control -- profit.
Employers aim to satisfy demand and
if demand appears to be greater than can be satisfied by a current
work force they will employ more people. This will continue to happen
as long as this maintains a profit. This is what Keynes' model is
telling us.
If this conclusion is based on the understanding that profit is a controlled
variable and that expenses are driven by demand because demand is one of the
main disturbances to that variable, then Keynes had it right.
Having spent some time in the fashion business, I've had plenty of
experience of this. When a fashion trend appears, all the
manufacturers respond by concentrating their resources upon it. There
is often a shortage of a particular skill and the cost of this skill
goes up.Just as quickly as fashion trends appear, they can wane and die out.
Then resources are taken away and the employees specializing in that
area become redundant.
I have no doubt that this is what is observed. This is a _fact_: basically
it's the observation that e = d (employment varies directly with demand).
The behavioral illusion refers to the _interpretation_ of this fact as a
direct causal (or S-R) relationship where demand causes the producer to
increase employment. Control theory shows that this apparent S-R
relationship is an illusion. PCT shows that the e = d relationship is
actually a side effect of the operation of a control system (the producer)
that is acting (by varying expenses) to protect a controlled variable
(profit) from disturbance. The reason for the illusion is failure to notice
the controlled variable (profit in this case). PCT shows that the controlled
variable _must_ be taken into account in explanations of human controlling
(like that done by producers).
This is a stimulus-response situation and PCT
is only useful at a current, micro level and is ho help in being able
to control or predict the overall situation.
As I noted above, the apparent S-R relationship between demand and
employment (expenses) is an _illusion_. PCT is not only useful but essential
to understanding what is going on here. What is going on is _not_ a response
(varying expenses) to a stimulus (demand). It is an action aimed at
protecting a controlled variable (profit) from disturbance.
Best regards
Rick
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--
Richard S. Marken
MindReadings.com
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