Friday, November 30, 2012

Lars Syll — Rational expectations – assuming we know what in fact we never know

In a laboratory experiment run by James Andreoni and Tymofiy Mylovanov and presentedhere, the researchers induced common probability priors, and then told all participants of the actions taken by the others. Their findings is very interesting, and says something rather profound on the value of the rational expectations hypothesis in standard neoclassical economic models:
Lars P. Syll's Blog
Rational expectations – assuming we know what in fact we never know
Lars P. Syll | Professor, Malmo University

Summary: REH doesn't take into account the moron factor. :)

5 comments:

Matt Franko said...

Tom,

This is a fascinating post... I'm going to have to think about this one for a week... rsp,

Matt Franko said...

OK Tom,

It looks like the experiment's arbitrator between 'rational' and 'irrational' was mathematics. (differing distruibution of colored balls in clear jars)

The professors may be overestimating the mathematical capabilities of the subjects to make the "odds on" correct choice.

The control group was briefed by the professors on the situation before they made their decision, this is an appeal to authority for the subjects and the subjects yielded to the authority of the professors.

It may be interesting to redesign the experiment where math is NOT involved.. if you could even do that come to think of it... how would you otherwise determine rationality if math is not involved?

imo many more people than we realize "do not get the math" even at what for us seems like extremely rudimentary levels...

iow, if you had a jar with 3 green and one red ball and let people describe the outcome of picking those balls out over time, many people would NOT come up with "75% of the time you will pick a green ball and 25% a red one".... some might say: "well it depends on which ones you pick out" or something like that....

rsp,





Matt Franko said...

Let's say we have some people who have no information.

Over, and over, and over and over again, they are told something that is FALSE.

This information can be seen to be false thru mathematics. However, our subjects have NO capability to discern this thru math.

Over time, because they have heard this false info for so long and so often, they have yielded to the authority of those perceived by them to BE in authority and are 100% convinced it is true.

Now along comes Mike, he has the math skills to determine that this info is false. And Mike tells them so.

Remember, these people have NO math capability to determine if Mike is correct in his assertion.

Others have opined here that in this situation, the other person is put into a "fight or flight" situation. OK.

If they choose "flight" they will remain in falsehood.

If the choose "fight"... AND LOSE ... they will escape the falsehood.

The only way out for them is to FIGHT AND LOSE.

We exclusively witness that when faced with this "fight or flight" choice, those who remain in the false MUST choose "flight".

(think Mike's last appearance oppo Santelli where it got so bad for Santelli that when the moderator Carl Q. would not throw Santelli a lifeline via a metaphor, Santelli literally screamed for the producer to cut off the interview...)

The "mechanism" within them that regulates the "fight or flight" response is hard-wired to the "flight" position.

For biological info on this mechanism (the β2-adrenergic receptor, which responds to adrenaline to regulate the body’s fight-or-flight response) see here:

http://mikenormaneconomics.blogspot.com/2012/11/g-protein-receptor-work-wins-nobel.html

(looks like they have some bad proteins or something... this isnt my area, but it looks like they have proteins that exclusively regulate the response to the "flight" side)

this is like a malfunctioning logic circuit in information systems design... it is supposed to be 'fight' OR 'flight' but for them it is short circuited to 'flight'.

(btw Perhaps WE are hardwired to "fight" and this is why you often hear things like: "the MMT people are cranky/testy" etc...)

Looks like these false people may be in REALLY bad shape.... they cant "fight".... they cant get out of the falsehood without the authority they are currently appealing to being "replaced" for them....

rsp,

Matt Franko said...

Tom,

Looks like the morons might be that way because:

1. They lack math cognitive skills and/or

2. they have biological protein receptor switches hard-wired in the "flight" position...

If what Roger thinks is true that these proteins replicate in some sort of autocatalytic reaction, this would seem to have the effect of driving them deeper into "flight" and they can never get out of it....

rsp,

Tom Hickey said...

It may be interesting to redesign the experiment where math is NOT involved.. if you could even do that come to think of it... how would you otherwise determine rationality if math is not involved?

But this is not what economists mean by "rational expectations." Rational expectations involves doing the math.