Tag Archives: Economics

Revealed preference theory — much fuss about ‘not very much’ We must learn WHY the argument for revealed preference, which deceived Samuelson, is wrong. As per standard positivist ideas, preferences are internal to the heart and unobservable; hence they cannot be used in scientific theories. So Samuelson came up with the idea of using the observable Choices – unobservable preferences are revealed by observable choices … Yet the basic argument is wrong; one...

On the limits of game theory  [embedded content] Back in 1991, when yours truly earned his first PhD​ with a dissertation on decision making and rationality in social choice theory and game theory, I concluded that “repeatedly it seems as though mathematical tractability and elegance — rather than realism and relevance — have been the most applied guidelines for the behavioural assumptions being made. On a political and social level, ​it is doubtful if the...

Abba Lerner and functional finance According to Abba Lerner, the purpose of public debt is “to achieve a rate of interest which results in the most desirable level of investment.” He also maintained that an application of Functional Finance will have a tendency to balance the budget in the long run: Finally, there is no reason for assuming that, as a result of the continued application of Functional Finance to maintain full employment, the government must...

The balanced budget mythology I think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked, [it] takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare...

Guest post by Jeff Mosenkis of Innovations for Poverty Action. Two podcast recommendations: NPR has a new podcast, Rough Translation, from former East Africa correspondent Gregory Warner (web, Apple). It looks at how questions we deal with here play out differently in other cultures. The first episode looks at how Brazil ended up with race tribunals to evaluate who was Black enough to qualify for affirmative action. The second looks at fake news planted by Russia in Ukraine. The fun “Tell...

Guest post by Jeff Mosenkis of Innovations for Poverty Action. Two podcast recommendations: NPR has a new podcast, Rough Translation, from former East Africa correspondent Gregory Warner (web, Apple). It looks at how questions we deal with here play out differently in other cultures. The first episode looks at how Brazil ended up with race tribunals to evaluate who was Black enough to qualify for affirmative action. The second looks at fake news planted by Russia in Ukraine. The fun “Tell...

Guest post by Jeff Mosenkis of Innovations for Poverty Action. Two podcast recommendations: NPR has a new podcast, Rough Translation, from former East Africa correspondent Gregory Warner (web, Apple). It looks at how questions we deal with here play out differently in other cultures. The first episode looks at how Brazil ended up with race tribunals to evaluate who was Black enough to qualify for affirmative action. The second looks at fake news planted by Russia in Ukraine. The fun...

Markets as beauty contests  [embedded content] div{float:left;margin-right:10px;} div.wpmrec2x div.u > div:nth-child(3n){margin-right:0px;} ]]> Advertisements

Solving the St. Petersburg Paradox [embedded content] Solving the St Petersburg paradox in the way Peters suggests, involves arguments about ergodicity and the all-important difference between time averages and ensemble averages. These are difficult concepts that many students of economics have problems with understanding. So let me just try to explain the meaning of these concepts by means of a couple of simple examples. Let’s say you’re offered a gamble...

In the past few days, I have read three pieces from Economists for Brexit - now renamed "Economists for Free Trade" - extolling the virtues of "hard" (or "clean") Brexit and calling for the UK to drop all external tariffs to zero unilaterally after Brexit. Two are written by professors of finance (Kent Matthews and Kevin Dowd). The third is from the veteran economist Patrick Minford.All three of these pieces wax lyrical about the benefits to GDP and welfare from unilaterally reducing...