The Dismal Mind - Economics as a Pretension to Science - Part III

Written by Sam Vaknin


Continued from page 1

VII. Time Inconsistencies

People tend to lose control of their actions or procrastinate because they place greater importance (greater "weight") onrepparttar present andrepparttar 132669 near future than onrepparttar 132670 far future. This makes them both irrational and unpredictable.

VIII. Positivism versus Pragmatism

Should economics be aboutrepparttar 132671 construction and testing of of models, which are consistent with basic assumptions? Or should it revolve aroundrepparttar 132672 mining of data for emerging patterns (=rules, "laws")? Onrepparttar 132673 one hand, patterns based on a limited set of data are, by definition, inconclusive and temporary and, therefore, cannot serve as a basis for any "science". Onrepparttar 132674 other hand, models based on assumptions are also temporary because they can (and are bound to) be replaced by new models with new (better?) assumptions.

One way around this apparent quagmire is to put human cognition (=psychology) atrepparttar 132675 heart of economics. Assuming thatrepparttar 132676 human is immutable and knowable - it should be amenable to scientific treatment. "Prospect theory", "bounded rationality theories" andrepparttar 132677 study of "hindsight bias" and other cognitive deficiencies arerepparttar 132678 fruits of this approach.

IX. Econometrics

Humans and their world are a multi-dimensional, hyper-complex universe. Mathematics (statistics, computational mathematics, information theory, etc.) is ill equipped to deal with such problems. Econometric models are either weak and lack predictive powers or fall intorepparttar 132679 traps of logical fallacies (such asrepparttar 132680 "omitted variable bias" or "reverse causality").



Sam Vaknin is the author of Malignant Self Love - Narcissism Revisited and After the Rain - How the West Lost the East. He is a columnist for Central Europe Review, United Press International (UPI) and eBookWeb and the editor of mental health and Central East Europe categories in The Open Directory, Suite101 and searcheurope.com.

Visit Sam's Web site at http://samvak.tripod.com




Notes on the Economics of Game Theory - Part III

Written by Sam Vaknin


Continued from page 1

Acts are either means to an end or ends in themselves. This is no infinite regression. There is bound to be an holy grail (happiness?) inrepparttar role ofrepparttar 132666 ultimate end. A more commonsense view would be to regard acts as means and states of affairs as ends. This, in turn, leads to a teleological outlook: acts are right or wrong in accordance with their effectiveness at securingrepparttar 132667 achievement ofrepparttar 132668 right goals. Deontology (and its stronger version, absolutism) constrainrepparttar 132669 means. It states that there is a permitted subset of means, allrepparttar 132670 other being immoral and, in effect, forbidden. Game Theory is out to shatter bothrepparttar 132671 notion of a finite chain of means and ends culminating in an ultimate end and ofrepparttar 132672 deontological view. It is consequentialist but devoid of any value judgement.

Game Theory pretends that human actions are breakable into much smaller "molecules" called games. Human acts within these games are means to achieving ends butrepparttar 132673 ends are improbable in their finality. The means are segments of "strategies": prescient and omniscient renditions ofrepparttar 132674 possible moves of allrepparttar 132675 players. Aside fromrepparttar 132676 fact that it involves mnemic causation (direct and deterministic influence by past events) and a similar influence byrepparttar 132677 utility function (which really pertains torepparttar 132678 future) it is highly implausible. Additionally, Game Theory is mired in an internal contradiction: onrepparttar 132679 one hand it solemnly teaches us thatrepparttar 132680 psychology ofrepparttar 132681 players is absolutely of no consequence. Onrepparttar 132682 other, it hastens to explicitly and axiomatically postulate their rationality and implicitly (and no less axiomatically) their benefit-seeking behaviour (though this aspect is much more muted). This leads to absolutely outlandish results: irrational behaviour leads to total cooperation, bounded rationality leads to more realistic patterns of cooperation and competition (coopetition) and an unmitigated rational behaviour leads to disaster (also known as Paretto dominated outcomes).

Moreover, Game Theory refuses to acknowledge that real games are dynamic, not static. The very concepts of strategy, utility function and extensive (tree like) representation are static. The dynamic is retrospective, not prospective. To be dynamic,repparttar 132683 game must include allrepparttar 132684 information about allrepparttar 132685 actors, all their strategies, all their utility functions. Each game is a subset of a higher level game, a private case of an implicit game which is constantly played inrepparttar 132686 background, so to say. This is a hyper-game of which all games are but derivatives. It incorporates allrepparttar 132687 physically possible moves of allrepparttar 132688 players. An outside agency with enforcement powers (the state,repparttar 132689 police,repparttar 132690 courts,repparttar 132691 law) are introduced byrepparttar 132692 players. In this sense, they are not really an outside event which hasrepparttar 132693 effect of alteringrepparttar 132694 game fundamentally. They are part and parcel ofrepparttar 132695 strategies available torepparttar 132696 players and cannot be arbitrarily ruled out. Onrepparttar 132697 contrary, their introduction as part of a dominant strategy will simplify Game theory and make it much more applicable. In other words: players can choose to compete, to cooperate and to cooperate inrepparttar 132698 formation of an outside agency. There is no logical or mathematical reason to excluderepparttar 132699 latter possibility. The ability to thus influencerepparttar 132700 game is a legitimate part of any real life strategy. Game Theory assumes thatrepparttar 132701 game is a given andrepparttar 132702 players have to optimize their results within it. It should open itself torepparttar 132703 inclusion of game altering or redefining moves byrepparttar 132704 players as an integral part of their strategies. After all, games entailrepparttar 132705 existence of some agreement to play and this means thatrepparttar 132706 players accept some rules (this isrepparttar 132707 role ofrepparttar 132708 prosecutor inrepparttar 132709 Prisoners' Dilemma). If some outside rules (ofrepparttar 132710 game) are permissible why not allowrepparttar 132711 "risk" that allrepparttar 132712 players will agree to form an outside, lawfully binding, arbitration and enforcement agency as part ofrepparttar 132713 game? Such an agency will be nothing if notrepparttar 132714 embodiment,repparttar 132715 materialization of one ofrepparttar 132716 rules, a move inrepparttar 132717 players' strategies, leading them to more optimal or superior outcomes as far as their utility functions are concerned. Bargaining inevitably leads to an agreement regarding a decision making procedure. An outside agency, which enforces cooperation and some moral code, is such a decision making procedure. It is not an "outside" agency inrepparttar 132718 true, physical, sense. It does not "alter"repparttar 132719 game (not to mention its rules). It ISrepparttar 132720 game, it is a procedure, a way to resolve conflicts, an integral part of any solution and imputation,repparttar 132721 herald of cooperation, a representative of some ofrepparttar 132722 will of allrepparttar 132723 players and, therefore, a part both of their utility functions and of their strategies to obtain their preferred outcomes. Really, these outside agencies ARErepparttar 132724 desired outcomes. Once Game Theory digests this observation, it could tackle reality rather than its own idealized contraptions.



Sam Vaknin is the author of Malignant Self Love - Narcissism Revisited and After the Rain - How the West Lost the East. He is a columnist for Central Europe Review, United Press International (UPI) and eBookWeb and the editor of mental health and Central East Europe categories in The Open Directory, Suite101 and searcheurope.com.

Visit Sam's Web site at http://samvak.tripod.com




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