Thursday, February 11, 2010

Quote of the Day

. Thursday, February 11, 2010

See this is why you have to put rational expectations in your model. Otherwise you get these silly "fool people systematically" results that defy common sense. As bad as people think macro is with RE, trust me it was way worse before RE.


Kevin Grier, aka Angus, on some short-sighted Saudi Arabian policymakers.

It does bring up a larger point that has always bothered me about those who criticize rational choice modeling: what else can we do? If we model actors as irrational then... we have nothing to model. It's definitionally impossible to model stochastic processes. Yeah, yeah, "bounded rationality". I'm all for that, but all it does it blur the edges. The operative assumption is still rationality, just "bounded" by informational or other constraints.

Anyway, social scientists who insist that the rationality assumption is problematic confuse me. What are they studying?

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