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Rational Optimism?

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By Peter Dorman (originally published at Econospeak) “Rational” Optimism? I just finished this long, rather convoluted meditation on “rational optimism”.  Must we admit the world is getting better, getting better all the time? Really, there are two types of multidimensionality that need to be considered.  The first is that “better” is, if it’s anything, vector valued.  Many aspects of life go into its calculation, as well as the distribution of outcomes across places and peoples.  Typically some things will be getting better and others worse, so either we abandon blanket judgments or we propose weights.  Instead the discussion on both sides is a combination of hard (or hard-ish) numbers for particular indicators, like life expectancy and poverty, and vague

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by Peter Dorman (originally published at Econospeak)

“Rational” Optimism?

I just finished this long, rather convoluted meditation on “rational optimism”.  Must we admit the world is getting better, getting better all the time?

Really, there are two types of multidimensionality that need to be considered.  The first is that “better” is, if it’s anything, vector valued.  Many aspects of life go into its calculation, as well as the distribution of outcomes across places and peoples.  Typically some things will be getting better and others worse, so either we abandon blanket judgments or we propose weights.  Instead the discussion on both sides is a combination of hard (or hard-ish) numbers for particular indicators, like life expectancy and poverty, and vague aggregations like “most” or “in general”.

Second, the financial notions of alpha and beta are highly relevant to this discussion.  What matters is both the mean outcome of interest and the risk attached to it.  In a sense, the modern world has purchased yield (realized material benefits) at the cost of greater tail risk (catastrophic climate change, nuclear war).  This should be obvious, but the point is that reward cannot be evaluated apart from risk.

I’m not passing judgment on the bottom line (if there even is one), just saying that, if optimism/pessimism is a matter worth speculating on, we might as well do it in a disciplined way.

Dan Crawford
aka Rdan owns, designs, moderates, and manages Angry Bear since 2007. Dan is the fourth ‘owner’.

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