Friday, February 17, 2012

does neoclassical economics deploy psychotic reasoning to explain human behavior?



nakedcapitalism | In his book Machine Dreams: Economics Becomes a Cyborg Science, the historian of economic ideas, Philip Mirowski, ties this directly to the ‘paranoid style’, as portrayed by Vannoy Adams above:

The Nash solution concept was not a drama scripted by Luigi Pirandello or a novel by Robert Musil; it was much closer to a novella by Thomas Pynchon. Just as von Neumann’s minimax solution is best grasped as the psychology of the reluctant duelist, the Nash solution is best glossed as the rationality of the paranoid. Nash appropriated the notion of a strategy as an algorithmic program and pushed it to the nth degree.

From these paranoid premises where all trust is eliminated and all action taken on the basis of perpetual fear, Nash then slips in an assumption that completes the circle and makes his vision of the economic agent truly in line by assuming telepathy on the part of the actor. From Modern Political Economics:

[Nash’s proof] only holds water if we can assume that [the economic agents] can potentially share common knowledge of the probability of no agreement [taking place when one agents threatens another]. But how can they, given that [each agent] has an incentive to overrepresent it [in order to strengthen their bargaining position]? As rationality alone cannot bring about such common knowledge, something closer to telepathy is necessary.[Author’s emphasis]

Or, Mirowski again:

In the grips of paranoia, the only way to elude the control of others is unwavering eternal vigilance and hyperactive simulation of the thought processes of the Other. Not only must one monitor the relative ‘dominance’ of one’s own strategies, but vigilance demands the complete and total reconstruction of the thought processes of the Other – without communication, without interaction, without cooperation – so that one could internally reproduce (or simulate) the very intentionality of the opponent as a precondition for choosing the best response. An equilibrium point is attained when the solitary thinker has convinced himself that the infinite regress of simulation, dissimulation, and countersimulation has reached a fixed point, a situation where his simulation of the response of the Other coincides with the other’s own understanding of his optimal choice. Everything must fit into a single interpretation, come hell or high water.[My emphasis]

Welcome to the concentration camp in which telepathy reigns and all privacy melts into ether!

We should, of course, take this as a powerful critique of the game theoretic foundations of modern neoclassical doctrine – foundations which were then built upon by Nobel prize winners Kenneth Arrow and GĂ©rard Debreu and many others. But we should also see this as something more.

Those who came before Nash recognised that the economy – inhabited as it is by people whose decisions are impossible to pin down – cannot be wholly reduced to some model or others. Keynes’ theories were the most eloquent expression of this, but even von Neumann who did develop game theoretic and general equilibrium models which he deployed for the purpose of economic explanation recognised the limits of this axiomatic way of portraying a capitalist economy. And yet, after the war, the neoclassicals pursued their closed, autistic models with gusto.

What we should see in this example is something about the very nature of trying to apply mathematical models to systems that are created and inhabited by humans. Modelling these systems is equivalent to trying to model those around us. And while many neoclassicals (we hope) would not try to write equations to explain their spouse’s or their child’s behaviours, they seem perfectly content to do so for everybody else – absurdity be damned!

13 comments:

Tom said...

To enlarge on my earlier point, mainstream economists are dangerously insane.  

These people will say anything.  They think they're right, but it's not "right" in the usual sense, it's closer to the divine right of kings.

John Kurman said...

I really need to go back and read the book "Supercooperators" to see which strategy worked out best as a local optima in a continuous game of Prisoner's Dilemma. There is, of course, no one static equilibrium (Fitness Seascape), and one should be ready to shift strategies, but, in general, 'tis better to cooperate rather than fuck each other over. Nash never got that. Now, to get politics out of the game, add a step where you advertise your intent prior to action. Do you lie or not lie? (And remember, despite what Mr. Spock says, withholding factual information is an act of deception, and therefore a lie).

CNu said...

 http://www.psychologytoday.com/blog/sex-dawn/201202/7-things-bonobos-can-teach-us-about-love-and-sex fist tap Dale...,

Temple3 said...

If you can't beat 'em, cheat 'em. http://www.reuters.com/article/2012/02/17/us-usa-bonds-forgery-idUSTRE81G11620120217 

I know you've seen this -- and not surprised to see this story break on a Friday. 

John Kurman said...

De Waal himself cautions against the idea of the simplistically peaceful bonobo. The fact that sex is a conflict resolution method, and the fact that they engage in a lot of sex, means they have a lot of conflict to resolve.

CNu said...

 Not until you pointed it out to me. Thanks magne.

Something VERY similar to this happened a couple years ago. I'ma have to hit the stacks and see if I can find that story/article, cause I'm almost certain I posted it at the time.

CNu said...

 Just a tiny drop in the bucket compared with today's imbroglio; http://subrealism.blogspot.com/2009/06/134-billion-in-suitcase.html

http://subrealism.blogspot.com/2009/06/1345-billion-bearer-bond-mystery.html

mebbe a test run?

Temple3 said...

Yep. Here's the wiki: http://en.wikipedia.org/wiki/Chiasso_financial_smuggling_case

This story, not surprisingly, is getting little traction in the national MSM. That's a lot of capacity and connects to even dream about HOLDING, let alone MOVING, 6.3T of anything (money, bonds, dirt, water, air, seeds, whatever).

Tom said...

Holy crap.  $6 trillion in a suitcase?

It makes no sense the way they're presenting it.  I wonder what's really happening.

Tom said...

How do they even keep getting caught?  Even that part doesn't make sense to me. 

Tom said...

Oh, never mind, they had started handing them out.  I thought it was more suitcases at the border again.

This has to be some kind of cloak/dagger stuff.   No criminal could be both crazy enough to paint that magnitude of target on himself, and also well-connected enough to carry it out.

Dale Asberry said...

The point is that no one else is even saying anything remotely like this. Are there any tried and true conflict resolution methods that humans have created that come anywhere close to the success that the bonobos enjoy? Another subtler point that I'm bringing out is how completely isolated we've become that our past sexuality as conflict resolver is not even available to us any longer -- that is what Christopher Ryan is getting on about. All of the most 'intelligent' mammals also happen to be the most social AND the most sexually profligate. Monogamy in humans is a control mechanism for sexually isolating alpha males to make them more controllable and for rewarding beta males because they are de-facto sexually self-controlled. Monogamy serves no good purpose for women no matter what soothing stories our society uses to manipulate them -- see Ryan's points 2 & 3.

nanakwame said...

Referring to process and mind: I found this interesting
http://www.livescience.com/18518-humans-broken-genes.html...and of course life goes on
...http://www.livescience.com/18506-space-robot-astronaut-handshake-robonaut-2.html