# Nobel in Economics

**URL:** <http://discourse.iapct.org/t/nobel-in-economics/7714>\
**Category:** CSG2001\
**Created:** [October 13, 2001, 7:23am UTC](http://discourse.iapct.org/t/nobel-in-economics/7714 "2001-10-13T07:23:00Z")\
**Posts on this page:** 20\
**Page:** 1

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**Author:** ![BJORN\_SIMONSEN](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/b/8baadc/32.png) [@BJORN\_SIMONSEN](http://discourse.iapct.org/u/BJORN_SIMONSEN)\
**Post date:** [October 13, 2001, 7:23am UTC](http://discourse.iapct.org/t/nobel-in-economics/7714/1 "2001-10-13T07:23:00Z")

</div>

[From Bjorn Simonsen (2002.10.13.10.30 EST)]

from Rick Marken (2002.10.10.1050)

> So I suggest that we discuss Kahneman's work and evaluate it from a

perceptual

> control theory perspective.

Thank you Rick for the URL to "Foundations of Behavioral and Experimental  
Economics: Daniel Kahneman and Vernon Smith.

The traditional postulates in economics are unbounded rationality, pure  
self-interest (expected-utility theory) and complete self-control.  
These postulates are drawn up to make an over-complex world more survey able  
for them who describe the economic world. They found some variables and made  
them constant and wrote theories. They had the knowledge that this was a  
simplification and that later scientists would let them be variable.  
Economics is a young branch of knowledge.

In the last years the economy faculties are mostly supplied with  
psychologists and sociologists. Daniel Kahneman is one of them. He is a  
cognitive psychologist and he laid hold of the human rationality. He (and  
Tversky) contributed with a decision theory under uncertainty. And he  
described that human decisions are not marked by rationality.

His "law of small numbers" tells us that individuals attribute the same  
probability distribution to the empirical mean from small and large samples.

If Kahneman had been a PCT-er he would have known that this is more a  
description of he perceiving relationships among events. The people in the  
experiment may have been controlling quite other things. (B:CP page 155).

His Prospect theory (1979), Decision-making under uncertainty is explained  
well in PCT. I think Bill Powers formulated the same in other words in 1973.  
My interpretation of his Prospect theory is that individuals try to perceive  
what their reference tell them to perceive.  
In the paper Rick referred to (section two in this mail) page 17 the author  
writes: " ..... First, in prospect theory, the decision maker is not  
concerned with final values of wealth \_par se\_, but with changes in wealth,  
"delta"w, relative to some reference point. This reference point is often  
the decision-maker's current level of wealth, so that gains and losses are  
defined relative to the \_status quo\_. ......"  
This is PCT. (?? what do you say?)

I think decision-making could be an interesting theme.

Bjorn

---

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**Author:** ![BJORN\_SIMONSEN](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/b/8baadc/32.png) [@BJORN\_SIMONSEN](http://discourse.iapct.org/u/BJORN_SIMONSEN)\
**Post date:** [October 18, 2001, 8:27pm UTC](http://discourse.iapct.org/t/nobel-in-economics/7714/2 "2001-10-18T20:27:27Z")

</div>

[Bjorn Simonsen (2002.10.13.10.30 EST)]

from Rick Marken (2002.10.14.1010)  
Bjorn Simonsen (2002.10.13.10.30 EST)

> > The traditional postulates in economics are unbounded rationality, pure  
> > self-interest (expected-utility theory) and complete self-control.

> Do you happen to know why those assumptions are made? Or how do they fit

into

> macro-economic models?

I tried to indicate; those assumptions are made to simplify a theory  
describing a complex world. I asked Arne Kinserdal ( a local professor in  
economics) and his answer was the same. But if you still ask if I know why,  
my answer is no.  
Macro-economic is the study about national assemblies as "national income  
accounts", "employment and unemployment". For me the variables in  
macro-economic are incompatible relative to the variables in micro-economic.  
I am not able to answer your last question.

> > His "law of small numbers" tells us that individuals attribute the same  
> > probability distribution to the empirical mean from small and large

samples.

> Do you know why this is a big deal to economists?

I don't think "the law of small numbers" is a big deal to economists. I  
think psychologists working at the business schools and universities discuss  
"the law of small numbers" with the senior economists the same places, and  
the senior economists are thinking about the law (just thinking about it). I  
also think the Nobel committee gave the Nobel price in economics to Kahneman  
to give a signal to the senior economists (micro-economics) just as the  
Nobel committee in Norway used the occasion to signal its displeasure with  
President Bush's policy toward Iraq (NY Times.

> Who ever thought that people intuitively understand sampling distributions?

What does knowing \>that the variance of the distribution of a sample  
average decreases as the square root of sample \>size (according to the law  
of large numbers) have to do with

> economic behavior?

I don't think you perceived my comment to Tversky and Kahnemans reflections  
about the law of small numbers. I wrote that the intuitively understand  
sampling distributions is an example where Tversky and Kahneman controlled  
for their perceptions of relationships. It is not an example describing the  
real world. So my answer to your first question is that Kahneman thinks that  
people intuitively understand sampling distributions.  
I am not clever enough in the science of marketing to answer your second  
question.

> > If Kahneman had been a PCT-er he would have known that this is more a  
> > description of he perceiving relationships among events. The people in the  
> > experiment may have been controlling quite other things. (B:CP page 155).

> But why does Kahneman think that this behavior (estimating population means  
> based on same means) has anything to do with economics?

I don't know, but Kahneman is a scientist and a teacher at a business school  
and he is a member of the Econometric Society. Maybe there are some  
disturbances where he is.

> > His Prospect theory (1979), Decision-making under uncertainty is explained  
> > well in PCT. I think Bill Powers formulated the same in other words in

1973.

> > My interpretation of his Prospect theory is that individuals try to

perceive

> > what their reference tell them to perceive.  
> > In the paper Rick referred to (section two in this mail) page 17 the

author

> > writes: " ..... First, in prospect theory, the decision maker is not  
> > concerned with final values of wealth \_par se\_, but with changes in

wealth,

> > "delta"w, relative to some reference point. This reference point is often  
> > the decision-maker's current level of wealth, so that gains and losses are  
> > defined relative to the \_status quo\_. ......"  
> > This is PCT. (?? what do you say?)

> Actually, it doesn't sound much like PCT to me (except for the use of the  
> word "reference"). It sounds like adaptation level theory, where a

perception

> is defined relative to an internally specified reference (adaptation)

point.

> If prospect theory says that the decision maker acts so as to bring wealth

to

> a reference point, then it is PCT-like. Of course, to be truly PCT-like it  
> would also have to explain what the perceptual variable "wealth" (or

"change

> in wealth") is and why that variable is assumed to be controlled.

Here I will comment two things. First I didn't write that the prospect  
theory sound much like PCT. If you reread it I wrote that Bill Powers in  
1973 formulated how people decide and they do it when they control their  
perceptions.

Second, You may be right. You are the PCT-er if anyone among us are that  
more than others. But I am under the delusion that if Kahneman had learned  
PCT. He would say: "A decision maker control his perceptions (his wealth  
\_par se\_) relative to his reference by generating an action (making a  
decision) that tends strongly to counteract the disturbing influence on his  
reference." I asked him, but he is as you a busy man.

> > I think decision-making could be an interesting theme.

> I do to. I think economics is based on the idea that economic behavior  
> involves decision making. I think this is dead wrong. I think economic  
> behavior involves \_control\_, and only rarely decision making (which is

simply

> internal conflict resulting from attempts to control for incompatible  
> results).

I too. But I am not sure I agree with what you wrote in the brackets. I  
remember you wrote 990919:

> > > When there is a conflict between control systems there is  
> > > no way to resolve the conflict (eliminate error) by  
> > > generating the "right" outputs; that is, you can't solve  
> > > the conflict at the level of the conflict itself.

I think you meant we can't control for the results?

> Could you or anyone else on the net give us a concrete example of how  
> Kahneman's findings (about, say, the "law of small numbers") are used in  
> economic models?

Maybe there is a marketing man among us?

Bjorn

---

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**Author:** ![BJORN\_SIMONSEN](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/b/8baadc/32.png) [@BJORN\_SIMONSEN](http://discourse.iapct.org/u/BJORN_SIMONSEN)\
**Post date:** [October 18, 2001, 8:48pm UTC](http://discourse.iapct.org/t/nobel-in-economics/7714/3 "2001-10-18T20:48:08Z")

</div>

[Bjorn Simonsen (2002.10.18.23:00 EST)]

from Rick Marken (2002.10.14.1010)  
Bjorn Simonsen (2002.10.13.10.30 EST) (should be 2002.10.18,22:45 EST)

> > Actually, it doesn't sound much like PCT to me (except for the use of the  
> > word "reference"). It sounds like adaptation level theory, where a

perception

> > is defined relative to an internally specified reference (adaptation)

point.

> > If prospect theory says that the decision maker acts so as to bring wealth

to

> > a reference point, then it is PCT-like. Of course, to be truly PCT-like it  
> > would also have to explain what the perceptual variable "wealth" (or

"change

> > in wealth") is and why that variable is assumed to be controlled.

> Here I will comment two things. First I didn't write that the prospect

theory sound much like \>PCT. If you reread it I wrote that Bill  
Powers in 1973 formulated how people decide and they do \>it when they  
control their perceptions.

> Second, You may be right. You are the PCT-er if anyone among us are that

more than others. But I \>am under the delusion that if Kahneman had learned  
PCT. He would say: "A decision maker control \>his perceptions (his wealth  
\_par se\_) relative to his reference by generating an action (making \>a  
decision) that tends strongly to counteract the disturbing influence on his  
reference." I \>asked him, but he is as you a busy man.

You \_are\_ right

I asked Kahneman

Do I understand the prospect theory correct when I express that the decision  
maker generates actions (behave) and changes the perceptions of wealth until  
it corresponds  
with his references.

His answer was

no, not quite. What it does say is not very complicated, but you must study  
it in an orderly fashion to understand it. Best,

DK

I dont think I am going to study it.

Bjorn

---

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**Author:** ![Richard\_Marken2](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/r/edb3f5/32.png) [@Richard\_Marken2](http://discourse.iapct.org/u/Richard_Marken2)\
**Post date:** [October 10, 2002, 3:49pm UTC](http://discourse.iapct.org/t/nobel-in-economics/7714/4 "2002-10-10T15:49:03Z")

</div>

[From Rick Marken (2002.10.10.1050)]

The Nobel in Economics this year went to Daniel Kahneman, a psychologist who studies  
human decision making under uncertainly. I am not that familiar with his work (most  
of which was done with Amos Tversky, who was not able to share the prize since since  
it is not awarded posthumously; Tversky was very young when he died several years  
ago); it always seemed intensely uninteresting. And, of course, what I did understand  
of it seemed completely misguided once I had learned how to look at behavior through  
control theory glasses. But now that Kahneman's work has been recognized with a  
Nobel, perhaps it's would be worthwhile to become more familiar with it. It would be  
nice if one of us could write a critique of it from a control theory perspective.

So I suggest that we discuss Kahneman's work and evaluate it from a perceptual  
control theory perspective. Could someone start by giving an short description of  
what Kahneman did that merited a Nobel.

Best regards

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](mailto:rmarken@rand.org)

---

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**Author:** ![Richard\_Marken2](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/r/edb3f5/32.png) [@Richard\_Marken2](http://discourse.iapct.org/u/Richard_Marken2)\
**Post date:** [October 10, 2002, 4:22pm UTC](http://discourse.iapct.org/t/nobel-in-economics/7714/5 "2002-10-10T16:22:59Z")

</div>

[From Rick Marken (2002.10.10.1120)]

An official description of the basis for the Nobel award to Kahneman (and Vernon Smith,  
about whom I know nothing at all) can be found at:

> [http://www.nobel.se/economics/laureates/2002/ecoadv02.pdf](http://www.nobel.se/economics/laureates/2002/ecoadv02.pdf)

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

---

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**Author:** ![Richard\_Marken2](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/r/edb3f5/32.png) [@Richard\_Marken2](http://discourse.iapct.org/u/Richard_Marken2)\
**Post date:** [October 15, 2002, 5:18pm UTC](http://discourse.iapct.org/t/nobel-in-economics/7714/6 "2002-10-15T17:18:13Z")

</div>

[From Rick Marken (2002.10.14.1010)

Bjorn Simonsen (2002.10.13.10.30 EST)--

> Thank you Rick for the URL to "Foundations of Behavioral and Experimental  
> Economics: Daniel Kahneman and Vernon Smith.

You're very welcome.

> The traditional postulates in economics are unbounded rationality, pure  
> self-interest (expected-utility theory) and complete self-control.

Do you happen to know ewhy those assumpions are made? Or how do they fit into  
macro-economic models?

> In the last years the economy faculties are mostly supplied with  
> psychologists and sociologists. Daniel Kahneman is one of them...

> His "law of small numbers" tells us that individuals attribute the same  
> probability distribution to the empirical mean from small and large samples.

Do you know why this is a big deal to economists? Who ever thought that  
people intuitively understand sampling distributions? What does knowing that  
the variance of the distribution of a sample average decreases as the square  
root of sample size (according to the law of large numbers) have to do with  
economic behavior?

> If Kahneman had been a PCT-er he would have known that this is more a  
> description of he perceiving relationships among events. The people in the  
> experiment may have been controlling quite other things. (B:CP page 155).

But why does Kahneman think that this behavior (estimating population means  
based on same means) has anything to do with economics?

> His Prospect theory (1979), Decision-making under uncertainty is explained  
> well in PCT. I think Bill Powers formulated the same in other words in 1973.  
> My interpretation of his Prospect theory is that individuals try to perceive  
> what their reference tell them to perceive.  
> In the paper Rick referred to (section two in this mail) page 17 the author  
> writes: " ..... First, in prospect theory, the decision maker is not  
> concerned with final values of wealth \_par se\_, but with changes in wealth,  
> "delta"w, relative to some reference point. This reference point is often  
> the decision-maker's current level of wealth, so that gains and losses are  
> defined relative to the \_status quo\_. ......"  
> This is PCT. (?? what do you say?)

Actually, it doesn't sound much like PCT to me (except for the use of the  
word "reference"). It sounds like adaptation level theory, where a perception  
is defined relative to an internally specified reference (adaptation) point.  
If prospect theory says that the decision maker acts so as to bring wealth to  
a reference point, then it is PCT-like. Of course, to be truly PCT-like it  
would also have to explain what the perceptual variable "wealth" (or "change  
in wealth") is and why that variable is assumed to be controlled.

> I think decision-making could be an interesting theme.

I do to. I think economics is based on the idea that economic behavior  
involves decision making. I think this is dead wrong. I think economic  
behavior involves \_control\_, and only rarely decision making (which is simply  
internal conflict resulting from attempts to control for incompatible  
results).

Could you or anyone else on the net give us a concrete example of how  
Kahneman's findings (about, say, the "law of small numnbers") are used in  
economic models?

Best regards

Rick

---

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**Author:** ![Richard\_Marken2](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/r/edb3f5/32.png) [@Richard\_Marken2](http://discourse.iapct.org/u/Richard_Marken2)\
**Post date:** [October 19, 2002, 3:51pm UTC](http://discourse.iapct.org/t/nobel-in-economics/7714/7 "2002-10-19T15:51:56Z")

</div>

[From Rick Marken (2002.10.19.0850)]

Bjorn Simonsen (2002.10.13.10.30 EST)

> Macro-economic is the study about national assemblies as "national income  
> accounts", "employment and unemployment". For me the variables in  
> macro-economic are incompatible relative to the variables in micro-economic.

This may be true of economics now but I don't think it \_should\_ be true. I  
think the behavior of aggregates of individuals should be derivable from  
assumptions about the organization of the individuals themselves. I've made a  
couple of stabs at showing what I mean by this. One of those stabs is in the  
"H. economicus" paper that is reprinted in \_More Mind Readings\_. That paper has  
its problems but I think it does show how control theory at the individual  
(microeconomics) level could provide a basis for the behavior of aggregates of  
individuals (macroeconomics).

Bjorn Simonsen (2002.10.18.23:00 EST)--

> I asked Kahneman

Nice going!!

> Do I understand the prospect theory correct when I express that the decision  
> maker generates actions (behave) and changes the perceptions of wealth until  
> it corresponds with his references.

> His answer was

> no, not quite. What it does say is not very complicated, but you must study  
> it in an orderly fashion to understand it. Best,

> DK

I think you Norwegians did a \_much\_ better job with the Peace prize than the  
Swedes did with the Economics prize.

Best

Rick

> **···**
>
> --  
> Richard S. Marken  
> MindReadings.com  
> marken@mindreadings.com  
> 310 474-0313

---

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**Author:** ![Bill\_Williams\_UMKC](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/b/48db29/32.png) [@Bill\_Williams\_UMKC](http://discourse.iapct.org/u/Bill_Williams_UMKC)\
**Post date:** [October 20, 2002, 9:56am UTC](http://discourse.iapct.org/t/nobel-in-economics/7714/8 "2002-10-20T09:56:26Z")

</div>

[From Bill Williams UMKC 20 September 2002 5:00 AM CST]

> [From Rick Marken (2002.10.19.0850)]

[To]

> Bjorn Simonsen (2002.10.13.10.30 EST)
> 
> I think you Norwegians did a \_much\_ better job with the Peace prize than the  
> Swedes did with the Economics prize.

So, who in your considered opinion ought to have gotten the prize?

Bill Williams

> **···**
>
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_  
> Do you want a free e-mail for life ? Get it at [http://www.email.ro/](http://www.email.ro/)

---

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**Post date:** [October 20, 2002, 2:13pm UTC](http://discourse.iapct.org/t/nobel-in-economics/7714/9 "2002-10-20T14:13:47Z")

</div>

[From Rick Marken (2002.10.20.0715)]

> Bill Williams (UMKC 20 September 2002 5:00 AM CST )
> 
> \> [From Rick Marken (2002.10.19.0850)]
> 
> [To]  
> \>  
> \> Bjorn Simonsen (2002.10.13.10.30 EST)  
> \>  
> \> I think you Norwegians did a \_much\_ better job with the Peace prize than the  
> \> Swedes did with the Economics prize.
> 
> So, who in your considered opinion ought to have gotten the prize?

Are you kidding? William T. Powers, of course!

Best

Rick

> **···**
>
> ---  
> Richard S. Marken  
> MindReadings.com  
> marken@mindreadings.com  
> 310 474-0313

---

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**Author:** ![Bill\_Powers1](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/b/8e7dd6/32.png) [@Bill\_Powers1](http://discourse.iapct.org/u/Bill_Powers1)\
**Post date:** [October 20, 2002, 3:01pm UTC](http://discourse.iapct.org/t/nobel-in-economics/7714/10 "2002-10-20T15:01:52Z")

</div>

[From Bill Powers (2002.10.20.0854 MDT)]

Bill W:

> \> So, who in your considered opinion ought to have gotten the prize?

Rick M:

> Are you kidding? William T. Powers, of course!

Flattering but inappropriate. I'd suggest someone who can explain economic  
interactions with a competent model, So far I don't think there is anyone  
who can do that, so perhaps this prize might not have to be given every year.

I do wish that at least a few economists were commenting on the  
relationship between consumer buying power and ability of a producer to  
sell the product. Here we are again, with businesses madly cutting costs by  
laying off each other's customers. Nobody is going to get a prize for  
thinking up that brilliant move.

Best,

Bill P.

---

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**Author:** ![Richard\_Marken2](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/r/edb3f5/32.png) [@Richard\_Marken2](http://discourse.iapct.org/u/Richard_Marken2)\
**Post date:** [October 20, 2002, 3:25pm UTC](http://discourse.iapct.org/t/nobel-in-economics/7714/11 "2002-10-20T15:25:03Z")

</div>

[From Rick Marken (2002.10.20.0820)]

> Bill Powers (2002.10.20.0854 MDT)]
> 
> Bill W:  
> \> \> So, who in your considered opinion ought to have gotten the prize?
> 
> Rick M:  
> \>Are you kidding? William T. Powers, of course!
> 
> Flattering but inappropriate...

I don't think so. Kahneman was awarded the prize, not for his economic modeling  
but for his contributions to understanding aspects of human nature that are  
presumably relevant to economics. I rate your contributions to understanding  
those same aspects of human nature to be orders of magnitude more significant  
than Kahneman's.

Best

Rick

> **···**
>
> --  
> Richard S. Marken  
> MindReadings.com  
> marken@mindreadings.com  
> 310 474-0313

---

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**Author:** ![Fred\_Nickols2](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/f/53a042/32.png) [@Fred\_Nickols2](http://discourse.iapct.org/u/Fred_Nickols2)\
**Post date:** [October 20, 2002, 9:08pm UTC](http://discourse.iapct.org/t/nobel-in-economics/7714/12 "2002-10-20T21:08:05Z")

</div>

[From Fred Nickols (2002.10.20.1700)] --

> Bill Powers (2002.10.20.0854 MDT)
> 
> I do wish that at least a few economists were commenting on the  
> relationship between consumer buying power and ability of a producer to  
> sell the product. Here we are again, with businesses madly cutting costs by  
> laying off each other's customers. Nobody is going to get a prize for  
> thinking up that brilliant move.

Hmm. It seems to me that the folks doing the laying off have a set of  
reference conditions that make eminent sense to them. It also seems to me  
that for them to be concerned about "laying off each other's customers"  
would require of them that they go up a couple of levels. El Presidente of  
Company A, compensated for the short-term profitability (or share price or  
whatever) does what is thought will produce the desired results and  
probably doesn't care that the people being laid off are customers of  
Companies B, C and D, nor that people being laid off at other companies are  
customers of Company A.

It further seems to me that it is the structure and nature of executive  
compensation systems (including their manipulability), not executives'  
faulty grasp of economics or economic systems or PCT or a PCT-based view of  
economics that leads to seemingly silly moves such as "laying off each  
other's customers."

Fred Nickols  
nickols@safe-t.net

---

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**Author:** ![Bill\_Williams\_UMKC](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/b/48db29/32.png) [@Bill\_Williams\_UMKC](http://discourse.iapct.org/u/Bill_Williams_UMKC)\
**Post date:** [October 21, 2002, 1:40am UTC](http://discourse.iapct.org/t/nobel-in-economics/7714/13 "2002-10-21T01:40:25Z")

</div>

[From Bill Williams UMKC 20 September 2002 8:00 PM CST

> [From Bill Powers (2002.10.20.0854 MDT)]

> I do wish that at least a few economists were commenting on the  
> relationship between consumer buying power and ability of a producer to  
> sell the product.

There are in fact "a few economists" who are commenting upon this absurdity.  
I don't know how many fit the category you have in mind, but I'm confident  
that there are several hundred. TAke a look at the "Post-Autistic economics"  
pages on the webb, and other links.

best

Bill williams

> **···**
>
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_  
> Do you want a free e-mail for life ? Get it at [http://www.email.ro/](http://www.email.ro/)

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**Post date:** [October 21, 2002, 3:20am UTC](http://discourse.iapct.org/t/nobel-in-economics/7714/14 "2002-10-21T03:20:12Z")

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[From Bill Powers (2002.10.20.21219 MDT)]

Bill Williams UMKC 20 September 2002 8:00 PM CST

> TAke a look at the "Post-Autistic economics"  
> pages on the webb, and other links.

Thanks, Bill, I will.

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**Post date:** [October 21, 2002, 2:07pm UTC](http://discourse.iapct.org/t/nobel-in-economics/7714/15 "2002-10-21T14:07:09Z")

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[From Bill Powers (2002.10.21.0745 MDT)]

Bill Williams UMKC 20 September 2002 8:00 PM CST

\>There are in fact "a few economists" who are commenting upon this absurdity.

> I don't know how many fit the category you have in mind, but I'm confident  
> that there are several hundred. TAke a look at the "Post-Autistic economics"  
> pages on the webb, and other links.

Excellent link to truly revolutionary economists. I found the following by  
Bruce Edmonds of the Center for Policy Modeling, UK:

> But if we are to give up the chimera of numerical predictive models built  
> using a priori  
> principles, doesn't that mean we have to give up formal models and rigour?  
> I would say that we do not. What it does mean, however, is that we have to  
> use formal and computational models that are capable of capturing the  
> detailed behaviour as it is observed. We then need to constrain these  
> models as much as possible using observations of the relevant phenomena,  
> both in terms of the trajectories of the causal processes as well as the  
> outcomes; in terms of qualitative information (such as anecdotal accounts)  
> as well as quantitative data. Pinning down our models using only the  
> verification of predictive outcomes and an insistence on formal simplicity  
> will not be enough. We will need to capture the workings of the processes  
> stage by stage as they are observed.

This sounds like real modeling to me. Edmonds pins his hopes on "cognitive  
psychology," but sounds as if he would be amenable to PCT modeling as well.

I have not done much with my "test bed" approach, since it needs guidance  
from a real economist, but it seems to me it would be in line with what  
Edmonds talks about. First we need a model of the transactions and  
interactions that take place between real human agents, under the rules of  
the game as it is actually played, and then we can start trying to model  
the strategies, motivations, "decisions", and so on that consumers and  
managers follow, using real instances of behavior as a guide. Keynes seemed  
to have a model, but it was all in his head, so nobody else could figure  
out how he deduced what would happen in this or that circumstance. It's  
possible he was wrong, too, since the model was never stated so explicitly  
that anyone could run it and come to the same conclusions, and thus check  
up on his reasoning.

To return to the question I sketched in, however, I'm still wondering if  
there are any economists who are studying the connection between reducing  
the income of consumers and the inevitable effect on reduced sales by  
producers. I take it that it's still true that all income is either capital  
income or wages, with most of it coming from wages and all of it being paid  
out by producers as a cost of production. And I assume that Say's Law still  
holds, saying that the total income must be just enough to purchase the  
entire output in a steady-state economy (my paraphrase). Isn't it an  
appropriate role for national government to point out, forcefully, that  
layoffs and downsizing have the very opposite effect, macroeconomically  
that businesses hope it will have on their own micro economy? It's like  
pointing out that we can't \_all\_ live off our investments, if there's to be  
anything to buy. If everyone invested all of their money, nobody could buy  
anything.

Another quote from the Post-Autistic Economics web site (I think by  
Galbraith): "Deliver us from abstractions!"

Best,

Bill P.

.

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[From Bill Williams UMKC 21 SEptember 2002 7:00 pm CST]

> [From Bill Powers (2002.10.21.0745 MDT)]
> 
> Bill Williams UMKC 20 September 2002 8:00 PM CST
> 
> \>There are in fact "a few economists" who are commenting upon this absurdity.  
> \>I don't know how many fit the category you have in mind, but I'm confident  
> \>that there are several hundred. TAke a look at the "Post-Autistic economics"  
> \>pages on the webb, and other links.
> 
> Excellent link to truly revolutionary economists.

I'm not sure what's happened, but things seem to have reached a transition  
point. It started in France two years ago, and spread from there. THere will  
be a meeting next Fall here at UMKC to thrash out a "united front" program.  
NOt sure I'm altogether in favor of this myself, there is a lot of very crass  
opurtunism mixed in with the revoutionary plans.

> This sounds like real modeling to me. Edmonds pins his hopes on "cognitive  
> psychology," but sounds as if he would be amenable to PCT modeling as well.
> 
> I have not done much with my "test bed" approach, since it needs guidance  
> from a real economist, but it seems to me it would be in line with what  
> Edmonds talks about. First we need a model of the transactions and  
> interactions that take place between real human agents, under the rules of  
> the game as it is actually played, and then we can start trying to model  
> the strategies, motivations, "decisions", and so on that consumers and  
> managers follow, using real instances of behavior as a guide. Keynes seemed  
> to have a model, but it was all in his head, so nobody else could figure  
> out how he deduced what would happen in this or that circumstance. It's  
> possible he was wrong, too, since the model was never stated so explicitly  
> that anyone could run it and come to the same conclusions, and thus check  
> up on his reasoning.

Unfortunately the way people are attacking the problem isn't likely to generate  
consistency anytime soon. But, there is an ideological committement among the  
heterodox/pluralist contingent to a more equal distribution of income-- so they  
get many of the right answers on the basis of an overly complex and almost  
surely faulty proceses of reasoning.

> To return to the question I sketched in, however, I'm still wondering if  
> there are any economists who are studying the connection between reducing  
> the income of consumers and the inevitable effect on reduced sales by  
> producers. I take it that it's still true that all income is either capital  
> income or wages, with most of it coming from wages and all of it being paid  
> out by producers as a cost of production. And I assume that Say's Law still  
> holds, saying that the total income must be just enough to purchase the  
> entire output in a steady-state economy (my paraphrase). Isn't it an  
> appropriate role for national government to point out, forcefully, that  
> layoffs and downsizing have the very opposite effect, macroeconomically  
> that businesses hope it will have on their own micro economy? It's like  
> pointing out that we can't \_all\_ live off our investments, if there's to be  
> anything to buy. If everyone invested all of their money, nobody could buy  
> anything.

I think Keynes understood this as early as the end of World War one when he  
broke with his government and published a tract \_THe Consequences of the Peace\_  
which explained that GErmany couldn't pay the settlement if the germans weren't  
allowed to trade-- that is sell goods to get the cash so that they could pay.  
THe allied governments wanted Germany to pay, but not to be allowed to trade.

But, then I cann't convince very many people that profits in the aggregate are  
zero-- which seems to me to be merely a matter of definitions. AS best I can  
detearmine the problem starts when some previous preconception, LIke everything  
depends upon saving more money, over-rides logic. I recently had a student who  
kept insisting that somehow profits had to be a positive number -- sort of like  
Bob Clark did one year at a CSG conference. I didn't argue with the guy.  
Instead I waited until we had a seminar where the chairmen of the department  
was around,( the chairman understands that if you subtract two numbers that are  
equal to each other the result is zero ) and I ran the argument again. The  
chairman understands the argument and says so, so this time the student didn't  
bring up his objections again.

I think I'm convinced that Bruce Nevin's word "equvocation" is the source of  
the difficulties. For some reason it seems like nearly everyone after defining  
things, then at some point wants to change the definition, but continue the  
argument.

HOwever, when the democrats believe that putting money in a "lockbox" is going  
to solve problems, its hard to tell what the republicans do that will be much  
worse-- except concentrate the wealth so that all the money will be safe in a  
very few trustworthy accounts.

> Another quote from the Post-Autistic Economics web site (I think by  
> Galbraith): "Deliver us from abstractions!"

Galbraith is now 93. STill in good health. I'd like to see him get the prize,  
but not much chance of that I suppose.

best

Bill Williams

> **···**
>
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_  
> Do you want a free e-mail for life ? Get it at [http://www.email.ro/](http://www.email.ro/)

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**Post date:** [October 22, 2002, 4:44pm UTC](http://discourse.iapct.org/t/nobel-in-economics/7714/17 "2002-10-22T16:44:12Z")

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[From Bruce Nevin (2002.10.22 12:44 EDT)]

Bill Williams UMKC 21 SEptember 2002 7:00 pm CST--

> **···**
>
> At 03:28 AM 10/22/2002 +0300, William Williams wrote:
> 
> > I'm not sure what's happened, but things seem to have reached a transition  
> > point. It started in France two years ago, and spread from there.
> 
> I see a concise history at  
> [http://www.btinternet.com/~pae\_news/history.htm](http://www.btinternet.com/~pae_news/history.htm)

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**Post date:** [October 23, 2002, 7:49am UTC](http://discourse.iapct.org/t/nobel-in-economics/7714/18 "2002-10-23T07:49:45Z")

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[From Bill Williams UMKC 23 September 2002 2:00 AM CST]

Bruce,

When I said, "I'm not sure what's happened,..." what I meant to say was "I  
dont' understand why the Post-Autistic Economics movement started when it did.  
There's nothing that I perceive that's changed recently which one can point to,  
at least that I know of, that would explain the "why" behind \_what's\_ taking  
place. I can't see that there is anything at all that's new in the student's  
complaints. And, why in France? I've asked European economists if they can  
explain it, but they haven't had an explaination.

I'll venture a conjecture. Ever since the humiliations of World War Two, there  
has been in French thinking something of a cosmological aspiration to restore  
the glory of French culture. And, in the current context one way to do this is  
to oppose whatever is the most obvious characteristic of American culture. And,  
contemporary orthodox economics is an American creation-- Paul Samuelson's  
\_Foundations\_ provided the model for the last half-centuries style of economic  
research. So, there may have been in the French context a unique opportunity  
for students to find a measure of support for a revolt against economic  
orthodoxy -- because this orthodoxy was percieved to be one more irritating  
example of the increasing dominance of American culture. So, the Post-Autistic  
movement may have its source in an anti-American bias in French culture.

Bill Williams

> **···**
>
> > [From Bruce Nevin (2002.10.22 12:44 EDT)]
> > 
> > Bill Williams UMKC 21 SEptember 2002 7:00 pm CST--  
> > At 03:28 AM 10/22/2002 +0300, William Williams wrote:
> > 
> > \>I'm not sure what's happened, but things seem to have reached a transition  
> > \>point. It started in France two years ago, and spread from there.
> > 
> > I see a concise history at  
> > [http://www.btinternet.com/~pae\_news/history.htm](http://www.btinternet.com/~pae_news/history.htm)
> 
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_  
> Do you want a free e-mail for life ? Get it at [http://www.email.ro/](http://www.email.ro/)

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[From Rick Marken (2002.10.23.1130)]

Bill Powers (2002.10.21.0745 MDT)

> Isn't it an  
> appropriate role for national government to point out, forcefully, that  
> layoffs and downsizing have the very opposite effect, macroeconomically  
> that businesses hope it will have on their own micro economy? It's like  
> pointing out that we can't \_all\_ live off our investments, if there's to be  
> anything to buy. If everyone invested all of their money, nobody could buy  
> anything.

I don't think so. Employers are consumers, too, after all, and the employer whose  
business goes belly up is taken out of the consumption pool just as effectively as  
is a laid off worker. I don't agree that government should try to coax (or force)  
employers to not lay-off. Like rent control, it's likely to have worse side  
effects than the well intended results.

I think what government has to do is point out, forcefully, that certain policies  
are better than others for \_everyone\_. Rather than get too heavily involved in  
regulating the private sector (as in rent control) I think government should  
forcefully argue for the appropriateness of it's role as a redistributor of wealth  
and as a "safety net" when the private sector fails large segments of the economy  
(such the ~25% of children living in poverty in the US). What is needed is a  
return to a highly progressive income tax (with no loopholes), possibly with a  
negative income tax to deal with the unemployed and unemployable, and increased  
government spending on useful infrastructure (rapid transit, roads, schools,  
environmental cleanup, etc), to create employment and improve business and quality  
of life.

Getting these things to happen is a political rather than an economic theory  
problem. We really shouldn't have these problems in a liberal democracy like ours  
but, unfortunately, this democracy is actually a plutocracy thanks to the Supreme  
Court's remarkable ruling that money is speech. So we probably won't see much  
improvement in the US (in terms of giving a voice to the growing ranks of the  
poor, who are really the only ones suffering in this economy) until we have public  
(only) funding of political campaigns, as in the more advanced democracies of  
Europe. But, of course, the chances of this happening are slim and none since the  
rich control the process that elects those who would vote on such a measure.

Ah well. My advice to people who live in the US regarding economics is similar to  
my advice to them about healthcare: don't get poor (or sick). If you can't do  
that, then I say move to Norway.

Best regards

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

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**Post date:** [October 23, 2002, 9:01pm UTC](http://discourse.iapct.org/t/nobel-in-economics/7714/20 "2002-10-23T21:01:49Z")

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[From Bill Powers (2002.10.23.1425 MDT)]

Rick Marken (2002.10.23.1130)--

\>\>If everyone invested all of their money, nobody could buy anything  
.

> I don't think so. Employers are consumers, too, after all, and the  
> employer whose  
> business goes belly up is taken out of the consumption pool just as  
> effectively as is a laid off worker. I don't agree that government should  
> try to coax (or force) employers to not lay-off. Like rent control, it's  
> likely to have worse side effects than the well intended results.

I left too much unsaid. I should have said "If everyone invested all their  
money \_and lived off the dividends and interest\_, nobody could buy  
anything." The reason, of course, would be that nobody would be working to  
produce anything. There would be nothing to buy.

Of course it's also true that if everyone gives their money to corporations  
to pay for capital upkeep and improvements, which is what investment  
amounts to, there would not be much individual buying power left to buy  
what is produced. Companies could buy from each other, but the workers who  
receive the wages for making what is bought would, under the assumption,  
invest that money back into the companies, so there would still be no  
consumer buying power left to purchase the non-capital product. Only people  
with capital income could buy anything, and there would be nothing to buy  
because all the workers would have starved. So starting from either end,  
layoffs do not work if everyone does it.

The trouble with downsizing to cut costs is that it cannot rationally be  
adopted as a national policy (whether on purpose or just because business  
managers follow trendy ideas).The more workers who are laid off, the less  
buying power the composite consumer has with which to purchase the goods  
and services being made by those who are still working. Because of that,  
production must be decreased to prevent building up unsold inventory, and  
that reduces producer income by the same amount that was saved by laying  
off the workers. Another round of layoffs follows, and so on. This is a  
positive feedback situation in which the whole economy must shrink and  
eventually collapse.

> I think what government has to do is point out, forcefully, that certain  
> policies  
> are better than others for \_everyone\_. Rather than get too heavily  
> involved in  
> regulating the private sector (as in rent control) I think government should  
> forcefully argue for the appropriateness of it's role as a redistributor  
> of wealth  
> and as a "safety net" when the private sector fails large segments of the  
> economy  
> (such the ~25% of children living in poverty in the US). What is needed is a  
> return to a highly progressive income tax (with no loopholes), possibly with a  
> negative income tax to deal with the unemployed and unemployable, and  
> increased  
> government spending on useful infrastructure (rapid transit, roads, schools,  
> environmental cleanup, etc), to create employment and improve business and  
> quality  
> of life.

I mostly agree. As a more general view, however, I think that government  
(or national policy-making bodies of any kind) should pay attention to  
precisely those aspects of the economy that are national -- in short, to  
macroeconomics. What company A does relative to company B is irrelevant to  
the national economy; what is relevant is what companies A through Z ALL  
do. If regulators see downsizing spreading through the national economy as  
a way of improving profits, they should apply rules across the board that  
nullify this particular strategy, for example by increasing unemployment  
compensation taxes enough (retroactively) to cancel the savings (or some  
such idea based on better understanding than I have). The point would be  
to penalize or nullify strategies which, if pursued nationally, would lead  
to disaster, while leaving all other possibilities unregulated, without  
playing favorites, and without micromanaging.

Best,

Bill P.

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