[From Rick Marken (2002.11.12.1505)]
Bill Williams (UMKC 12 November 2002 3:30 AM CST) --
Rick: I was only joking in the "flicking the scab off passage." It was
in "response" to your Irrepressible monkey passage in a recent email. Funny
sometimes isn't obvious.
Ah. Wonderful. Thanks.
Best
Rick
--
Richard S. Marken, Ph.D.
The RAND Corporation
PO Box 2138
1700 Main Street
Santa Monica, CA 90407-2138
Tel: 310-393-0411 x7971
Fax: 310-451-7018
E-mail: rmarken@rand.org
[From Bill Williams UMKC 12 November 2002 3:30 AM CST]
What I had in mind was the effect upon the giffen good (bread) of a
sequence of equal increases in price. But, the effect would have systematic
effects upon the pattern of meat consumption as well. Rick's plot of
his "simulation" of the Giffen effect does appear to exhibit the effect.
The surprizing thing to me is as far as I know this effect is unknown.
THere is also a similiar income effect which generates a profile of the
ratio of giffen good to normal good. When the two effects are combined you
have a 3-D "giffen surface." And, it seems to me that the existence of the
surface could be experimentally demonstrated. I haven't written a program
that depicts the Surface-- I've thought that Mathematica might provide a
way to generate a good representation. but then I don't know Mathematica.
I may not be "responding" to things in the sequence of email. Things are
sort of chaoitic here-- equipment falling apart, or being confiscated, etc.
And, there's other stuff, here that should be taken care of on something of
a priority basis.
Without getting into in detail, it seems to me that shifting the
description of the basic giffen argument to a consideration of sweet and
bitter gruel has some advantages in terms of the simplist possible
description. There would be three control systems-- I think: a budget loop,
a caloric loop, and a loop for better taste. THere are I think some choices
as to how the three loops would be organized. Upon the basic "simulation"
( observing Bruce Nevin's critque ) it seems to me an additional layer
could be added which would control for the cummulative effect of errors in
savings and the consumer's weight. A more complicated "simulation" cold
take into account the situation in which there are reference levels for
meat and bread consumption.
Rick: I was only joking in the "flicking the scab off passage." It was
in "response" to your Irrepressible monkey passage in a recent email. Funny
sometimes isn't obvious.
best
Bill Williams
[From Bill Williams UMKC 12 November 2002 5:15 PM CST]
In "response" to Bill Powers (2002.11.12.1509)
What I had in mind was the pattern in which the quantity of bread consumed
in ratio to a price change changes. But, there are, of course also effects
upon the purchase of meat. I've been surprized that this hasn't been
pointed out-- but apparently people haven't been looking in the right
direction. However, once the question is considered it seems that this
pattern ought to be obvious. So, obvious that it can be worked out from
first principles with considerable confidence. When the price effect is
combined with a similar income effect, the result is a 3-D Giffen Surface--
which, I think, could be experimentally demonstrated.
best
Bill Williams
Rick, my comment about "flicking the scab off" was in "response" to your
remark about the "irrespressible monkey" in a recent post. It was intended
to be a joke, in response to what I read as being a jest. But, funny isn't
always obvious, is it!
[From Bill Williams UMKC 12 November 2002 5:30 PM CSt)
My email is really weird. when it looked as if my previous post didn't get
through I repeated it. Then the missing post shows up-- after I had for the
most part written it again from memory.
sorry bout that
[From Bill Powers (2002.11.12.1727 MST)]
Bill Williams UMKC 12 November 2002 5:15 PM CST --
In "response" to Bill Powers (2002.11.12.1509)
What I had in mind was the pattern in which the quantity of bread consumed
in ratio to a price change changes.
I only reported two points per condition, but of course more points can be
provided to give a picture more like your computer plot.
In case what I did wasn't clear, I set the meat price to $5.00 and then
looked at bread consumption for two bread prices, $1.00 and $1.33. This
change in bread price produced a certain percentage change in bread
purchases. Then I set the meat price to about $2.50 and looked at bread
consumption for the same two bread prices. The percentage change in bread
consumption for the same change in bread price was much larger when the
meat price was set lower (meaning more meat was being purchased).
A giffen surface could be plotted, but there isn't much left to explain
about this effect, so I'm not sure what this plot would tell us that we
don't already know. Your suggestion about using different names for the
controlled variables is good. I'm sure there is more to learn about this
effect (I didn't mean to imply we were done with it) -- and about
price-consumption relationships in general. I'd like to see a program in
which we just deal with goods as g1, g2, ... gn, and look at general
relationships, now that we've seen a few concrete examples. Wouldn't it be
nice to be able to talk about The Giffen (or Williams) Price-Consumption
Laws? Or something like that?
Have you noticed that if you increase the price of meat, purchases of meat
decline just as the supply-demand idea demands? I'm sure you have.
Best,
Bill P.
[From Bill Williams UMKC 13 November 2002 12:30 AM CST]
[Bill Powers 2002.11.12.0530 MST] Version Control
I'm not sure what the plot [the GIffen Surface] would tell us that we
don't already know.
I don't think the plot would tell "us" anything. We all more or less
understand control theory. But, the "Surface" is a nice iconic conceptual
object that exhibits the systematic properties of a control theory type
consumer. When the Giffen surface is compared to a similar 3-D
representation of the orthodox conception of the consumer the differences
between the two predictions can be compared systematically. The argument
for the Giffen Surface represents all the points in what could be called
the Giffen domain. Particularly after the Nobel award to two
experimentalists this past year, I would think that if we could obtain a
modest visibility for the Giffen argument then there might be much more
interest on the part of animal behavior type researchers in testing such a
model than there would have been in the past. In my own view the Surface
doesn't have anything new to say, and in a sense it is trival. But, this
is one of the interesting things about the Surface-- the combination of
triviality and the fact that no one has seen it! Now, how is such a thing
possible?
Some years ago, I drove down to Texas and put up a poster of the Giffen
effect at Tom Bourbon's invitation at a psychogical conference. During the
afternoon the poster was up, a fellow from a distributed processing
research group stopped to look at my two or three page description of the
Giffen effect. After studying the material for some time, I ask him if he
had any questions. All he said was, "I don't get it." He wasn't resentful
or pevish about it. He said it in a purely matter of fact tone. And,
nothing I could say seemed to help him understand the effect. Finally, he
wondered off. I would suppose as a member of this distributed processing
group the fellow was intelligent enough. But, somehow there appeared to be
something that blocked his understanding. I don't know about this guy, but
the people I know in economics have great difficulty believing that it is
possible to generate a theoretical alternative to orthodox economics. After
all, the neo-classical system has been around for more than a hundred years
and no one during that period has so much as even claimed that they have a
comparable system-- not a system that explains how prices and quantities
are determined in a market by the interaction of economic individuals. NOw,
obviously not all markets are determined by the interactions of
individuals-- and there are different kinds of markets not only in respect
to the element of monopoly power, but also with respect to the type of
goods. Bond trading is different in some crucial respects than heavy
machine tool sales. However, with some, or a lot of work these details seem
to be explicable using control theory explainations.
However, as a representative icon, I think something like the Giffen
Surface may be important in communicating an understanding that a control
theory model has the capacity to generate a complex prediction of how a
consumer caught in the context of the Giffen Domain will behave. It gives
the audience something that is both simple and at the same time
sufficiently diffiuclt that they will have something they don't forget, and
stays with them while they chew on the possiblity that it might just
possibly be correct.
I'll continue this, but I'm using the CSGnet posting service rather than my
email, so I don't wish to risk the loss of a larger block of text.
to be continued.
[From Bill Williams UMKC 13 November 2002 1:00 AM CST]
Bill Powers (2002.11.12:1727) Version Control
Wouldn't it be nice to be able to talk about the Giffen ( or Williams )
Price-Consumption Laws? Or somthing like that?
I suppose so. But, wouldn't it be even sweeter, if we could compell other
people to talk about it instead?
In my previous post, I suggested that the "GIffen Surface" might be sort of
pink elephant that once economists encountered it, they might not be able
to easily forget. However, confidently they might say it was all nonsense,
they might in private be subject to a sneaky fear that the Giffen and other
control theory models might just be true. And, the orderly conformation of
the Giffen surface would be in itself visually impressive and possiblity a
challenge to orthodox theorists. On the heterodox side is likely that some
people might adopt it as an alternative to orthodoxy's use of models based
upon maximization. HOwever, for this to happen I think it would require
convincing the people at the center the heterodox revolt, that the new
conception is worthwhile. Most people aren't going to have the confidence
to decide one way or another based upon their own assessment, so they won't
take the risk of making fools of themselves by having an opinion about a
novel theoretical proposal. And, despite protests, one of the principle
weakness that pervades contemporary heterodox economics is a belief that to
explain some aspects of economic behavior one must make use of orthodox
theory. A similiar thing happened in psychology in the 1950's when
humanist's and clinical psychologists were willing to cede experiemental
and theoretical psychology to behavorists and plead only that they be
allowed to go their own way in encounter's with their clients. One of the
problems at present is that while economists make use of what they call
models, very few economists have ever generated models themselves. And, in
a recent survey of citation practices by economists over a five year period
no one in the top 13 economics journals cited a publication in a psychology
journal. Not once in five years. And, very few pages in economics journals
actually make use of actual data. (See Leoniff, Wassley. 1971 Theoretical
Assumptions and Non-observed Facts." American Economic Review vol 61.
This issolation may be having the effect of generating a belief that to do
modeling with any orginality or explore psychology, or attempt to cope with
actual economic data is so esoteric a choice that it amounts to almost
certain professional suicide-- a belief that eventuates into an even more
extreme versions of orthodox dogma. The caption post-autistic is not an
exageration. But, the rigidity and aridness of the othodox model in the
right circumstance can have the effect of generating a revolt- like the
present one.
In other fields critical papers and initiatives have generated rapid
transitions in scientific fields-- such as the Hopfield-Tank Neuro-Net
paper, the initial report on high temperature super-conductors, the
decision at Harvard by Bundy to fund Brunner's Cognitive Science program. I
could be mistaken but I have a sense that heterodox economics may be in a
condition analogous to a log close to the flashpoint temperature. Next fall
a conference intended to organize the future of heterodox economics will be
held here ( UMKC ). I've held off publishing stuff in economics previously
because I saw little point in publishing in a context in which there seemed
to be little chance that what I had to say would catch on. But, I think
the current situation may be sufficiently different that now is the time
get the material in print and see what happens. But, I have some ideas
about how this might be done with the best chance of sucess. If I publish
a Giffen paper in economics I have an idea that the paper will be
identified as coming from an unknown author located at UMKC. The UMKC part
would be in the paper's favor. But, I have an idea that a joint publication
by a colaboration from the CSG organization might be better received. I
think I'm now prepared to write about issues concerning the history and
meaing of the Giffen effect with a measure of assurance. I can even say
most of what I think ought to be said about the parallel problems of
orthodox conomics and behaviorism in psychology. However, what I could say
about the theoretical issues involved at the foundation of control theory
would at best be barely adaquate compared to the insights which Powers
could provide. And, while I can to some extent program-- Rick no doubt
could do a better job generating models in an accessible format. I'm
strickly limited to programing in Pascal. Together I think it would be
possible to generate a paper that would be much more impressive than the
sort of thing I would create working alone. What I'm thinking about would
be limited primarily to the Giffen effect, but I'd want to include, at
least as implications a claim to comprehensiveness and generality. I've
generated enough demos of various anomolous cases such as: the backward
bending labor offer curve, the Veblen/Duseseenberry effect, a formalization
of Veblen's notion of conspcious consumption, an explaination of the
stickiness of prices, the peculiar nature of labor's decision to strike, a
control theory alternative to orthodoxy's theory of the firm, and paradoxes
in gambling and insurance that I feel some confidence that a control theory
approach is capable explaining econmic behavior in comprehensive terms.
Anyway, I'd like you to think about undertaking such a collaborative effort.
cordially yours
Bill Williams
BTW: I think authorship should be ordered alphabetically.
[From Bill Powers (2002.11.13.0742 MST)]
Bill Williams UMKC 13 November 2002 1:00 AM CST --
BTW: I think authorship should be ordered alphabetically.
More comments on the rest soon. But the senior author of a paper on
economic theory simply must be an economist. Your name will be familiar to
at least a few economists; you have the Union Card. Think about what will
induce economists to read the paper and don't worry about being nice to
your colleagues.
If I am to do anything useful in this effort I will need tutorials in all
the subjects you bring up: concise reviews and explanations. It is highly
unlikely that I would be able to get those publications in any timely way,
or understand which parts of them are relevant. or even understand the
terminology.
Best,
Bill P.
[From Bill Williams UMKC 13 November 2002 9:16 AM CST]
[Bill Powers 2002.11.13.0742 MST]
OK, there is a sense in which I am the one who knows where the most likely
spot is to insert the wedge. And, it is essential to use a nominclature
that avoids as far as possible creating misunderstandings. But, it seems to
me that the point of the whole exercise ought to be create an awareness
that an alternative to orthodox economic theory and its foundation in the
conception of economic behavior as a process of maximization is now
availible. What will be an astonishing characteristic for most economists
will be the obious characteristic that the new conception owes nothing at
all to the older orthodox world view. ( In fairness it might be said the
older viewpoint served to identify the important problems by its inablilty
to cope with processes like the Giffen effect. ) There is, even among many
quite conventional economists, an awareness that the orthodox theory does
not provide an adaquate treatment of 1) a process in time, 2) interaction
including in this conflict either internally or between persons, and there
is a growing doubt about whether maximization actually describes economic
decisions as a causal process. Control theory in contrast doesn't have
these deficiencies. It is a description of, or an analysis of a process
taking place in time. It can be used to provide an analysis of both
processes internal to a person, and external behaviors where there is
conflict between persons. And, control theory is a theory that is causal in
character. I can point to the critical literature in economics which
identifies these problems as inherent characteristics of the orthodox
literature. The identification of orthodox econimics with maximization for
the last century makes for a clearly defined static target. I think I
understand enough of a control theory approach to these issues to make use
of modeling, even if inefficiently, to develop the implications of
phenomena such as the Giffen effect. But, I would have difficulty
developing an exposition of the theoretical structure of control theory.
While I understand in a pragmatic sense how the slowing factor has in
influence upon stablity, I am not in a position to demonstrate how the
classical specification of a control process using the notation of
differenctial equations is connected to the Euler method used in the
proportional control loop programs. If the proposed paper is to have the
desired impact I think it is important that such issues be handled in a way
that is confidence inspiring for a readership, an important part of, which
is what ever else their defects, mathematically sophisticated. Quite
orthodox economists are now using control theory. But, they are using it to
make an outdated conception of human behavior dance. Some of these people
once shown that a control thoery perspective can do the whole job may say
to themselves "Why didn't I think of that?" Many of the people doing
orthodox work may be orthodox out of any deepseated conviction, but sheerly
because they haven't been able to think of any other way to do economics.
I'm not insisting at this point that the three items above, which I'll call
1) time, 2) interaction, and 3) causation are necessarily the only way the
contrast between maximization and control theory has to be considered. Or
that is neccesarily the whole story. After I do the controlt theory
seminar friday, I'll have time to think about a tentative organizational
schme. But, maybe you could say how the three issues as a link between the
recognized defects of orthodoxy and the virtues of control theory strikes
you as a theme for comparison and contrast.
cordially yours
Bill Williams
[From Bill Powers (2002.11.13.1042 MST)]
Bill Williams UMKC 12 November 2002 3:30 AM CST --
THere is also a similiar income effect which generates a profile of the
ratio of giffen good to normal good. When the two effects are combined you
have a 3-D "giffen surface."
Can you describe what the variables would be on the two axes, and what
value would be plotted for each point? I could incorporate such a plot with
a demo of the giffen effect. Or Rick could probably work out a way to plot
it with a spreadsheet which would have all the goodies like hidden-line
removal, which I don't know how to do.
I'm still looking at alternative ways to set up the Giffen demo --
including doing it with equations, analytically. The possibilities are
multiplying.
Best,
Bill P.
And, it seems to me that the existence of the
surface could be experimentally demonstrated. I haven't written a program
that depicts the Surface-- I've thought that Mathematica might provide a
way to generate a good representation. but then I don't know Mathematica.I may not be "responding" to things in the sequence of email. Things are
sort of chaoitic here-- equipment falling apart, or being confiscated, etc.
And, there's other stuff, here that should be taken care of on something of
a priority basis.Without getting into in detail, it seems to me that shifting the
description of the basic giffen argument to a consideration of sweet and
bitter gruel has some advantages in terms of the simplist possible
description. There would be three control systems-- I think: a budget loop,
a caloric loop, and a loop for better taste. THere are I think some choices
as to how the three loops would be organized. Upon the basic "simulation"
( observing Bruce Nevin's critque ) it seems to me an additional layer
could be added which would control for the cummulative effect of errors in
savings and the consumer's weight. A more complicated "simulation" cold
take into account the situation in which there are reference levels for
meat and bread consumption.Rick: I was only joking in the "flicking the scab off passage." It was
in "response" to your Irrepressible monkey passage in a recent email. Funny
sometimes isn't obvious.best
Bill Williams
[From Bill Williams UMKC 13 November 2002 2:00 PM CST]
Bill Powers 2002.11.13.1042 MST]
> What would be the two axes?
Immagine a figure : the x axis would be income,
the y axis the price of the Giffen good,
the z axis would be ratio of consumption
of the Giffen to the superior good.
I'm assuming what I think is the simpler example of the sweet and bitter
gruel.
Income would vary from the minimum level at which it would be possible to
subsist upon the giffen good, to a maximum level beyond which the consumer
would escape the trap of the giffen effect.
The price of the giffen good ( the y axis ) could vary from zero to a level
at which any further increase in price would result in the consumer
starving as a result of any further price increase.
So, at one corner of the figure the consumer would have zero income, but
the price of the giffen good would also be zero. Then as income increases
the consumer would be able when the price of the giffen good is zero to
purchase some of the sweet gruel. THen At this income level increasing the
price of the bitter gruel would result in more bitter greul being purchased
until the whole of the budget is spent upon bitter gruel. Eventually as
income continues to be increased a point would be reached at which the
consumer could very nearly exist by consuming only sweet gruel. At this
point as the price of the bitter gruel is increased from zero the consumer
would very abruptly switch from sweet to bitter gruel. Then if income is
increased to the point at which the caloric requirement could be supplied
by consuming only sweet gruel the consumer could care less about the price
of the bitter gruel-- no bitter gruel is going to be purchased whatever the
price. When the consumer's budget and the price of sweet gruel exceeds the
level needed for survival the consumer will purchase only the sweet gruel
regardless of how high income goes, or variations in the price of the sweet
gruel-- as long as the combination is more than required to survive on
sweet gruel.
The above may not be all that readable, but I think it contains all the
information, or most of the information, describing the Giffen Surface.
I'll try to email a drawing of the figure using my regular email.
best
Billi williams
[From Bill Powers (2002.11.13.1607 MST)]
Bill Williams UMKC 13 November 2002 9:16 AM CST --
Rick Marken (2002.11.12)
Attached in an attempt to find the analytical solution of the Giffen
equations. Please check for errors.
Best,
Bill P.
GiffenAlgebra.doc (99 Bytes)
[From Bill Powers (2002.11.13.1619 MST)]
Bill Williams UMKC 13 November 2002 2:00 PM CST --
>I'll try to email a drawing of the figure using my regular email.
Came through fine. Got the idea -- I'll work on it.
Best,
Bill P.
[From Bill Williams UMKC 14 November 2002 3:20AM CST]
Looking for demo files for a semiar here I found an old program that
illustrates a peculiar feature, (peculiar from an orthodox standpoint anyway)
of a consumer's behavior when the price of a superior good is increasing. In
the attached program, as the price of the superior good is increased a white
circle moves first to the right indicating that the expenditure on the superior
good is increasing and then to the left indicating that expenditure is falling.
THe program starts out with the consumer having a budget that is above the
domain of the giffen effect. As the price is increased to the point at which
the Giffen effect cuts in the expenditure on superior good begins to fall as
consumption is shifted away from the superior good.
Today I showed one of the graduate students here the program I recently posted
to the CSGnet illustrating how there is a difference in the sensitivity of the
consumer to a price change when the price of meat is high vs when it is low.
What I wanted to see was whether he thought the difference was an interesting
phenomena-- something worth experimenting with. But, even though he's seen the
Giffen analysis a number of times, it has been several months since the last
time he was exposed to it. The result was that the argument was back to square
one-- he couldn't believe it when a price increase in the inferior good
generated an increase in purchases for the good. His reaction was, "My god,
that's really weird." My reaction too, I'd thought he'd understood the GIffen
effect after the last demo. I told him he'd been teaching the orthodox price
theory way too long.
bill Williams
Sge.exe (37.2 KB)
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[From Bill Williams UMKC 13 November 2002 3:50 PM CST]
Here's the drawing in the attachment if this works. I don't think this is
quite right, but maybe its close enough to give you an idea.
(Attachment Image1.jpg is missing)
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[From Bill williams UMKC 13 November 2002 6:00 PM CST]
After sending the jpg file of a drawing of the Giffen Surface, thought about it
a bit more it seemed to me that I'd made a couple of mistakes. It seems to me
now that the surface bows outward rather than sagging inward. But, then in the
revised version I make, I think, another mistake of drawing the left boundary
as curved. The point a which a price increase compells a consumer to survive on
only the Giffen good ought to increase in proportion to the increase in the
budget.
(Attachment gs.JPG is missing)
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