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ECONOMY Chap 2 : How economists learned to stop worrying and love…
ECONOMY Chap 2 : How economists learned to stop worrying and love mathematics
Introduction :
KOOPMANS : theory of humans behavior => how they make choice (need knowledge of the motifs and habits of consummers and of the profit)
Marginalists and Walras
Marginalist : ë hu research of pleasure + avoid pain
Walras
Woeld separate in 2 side + 2 type of fact
FACT :
NAturelle et inévitables/ fatames
Actions et volonté des hommes
Sciences
objet : fait naturel
Science pure et morale : objet = effet de la volonté humaine
Political ecomics as to be a science who study natural facts => biologique (action of produce and buy natural aspect (research of pleasure)
Political eco is a science and need to follow scientific methods
Idea of rationality + strategic behavior => people choose what is the best for them
Standards rationality and strategic interraction
An inquiry into the nature and causes of the wealth of nations
Soc is build around ind driven by their own interest
Good for the soc if everyone follow this rule
Marginalist idea :
Ind has an utility (seek for pleasure and try to avoid pain)
Pleasure : comsuption of differents goods and services
Ind have a taste(preference) and make choice about their consumption according to this preference
Ind experiences decreasing marginal pleasure from consuming additional units of goods
But contrainte of this seek of pleasure =>
Consumersis is contraint by it budgey
Worker maximises his wages under the constraint of the quatity of labour provided
Entreprenue maximes hsi profit under the contraint of cost
Cette recherhce en bénéfice des entrepreneurs et bénéfce des acheteurs se fait par l'équilibre des marchés
Equilibre quand : maximum satisfaction is reached for thr maximun quantity of buyers and sellets
An equilibrium is what is best for soc ( no rationing / no unsold goods)
La société dans son ensemble est un ensemble d'équilibres sur des marchés individuels équilibre
How can ind understand / anticipate what are other ind choice, desire, behavior ?
New theories during Cold War : John NASH
In order to determine their best behaviour, ind take into account other ind best behaviour
Ind anticipate the outcomes of the interactions with other ind
Rationality : doing the best choice for you and be aware of what other people will do to achieve their purpose
New branch in economy : Rational behaviour as strategic interaction
Nash / Allais/ Von Neumann
The Cowles Commission / The RAND corporation / The Office of Naval Research
based on mathematic
Human interaction is a game => basic blocks
Best response : strategiiie that is optimal for one player given the strategy actually played by other palyers or the belief of this players about other players's strategy choice
Equilibrium : a configuration where each player's strategy is his best response to the strategies of all other players
Players has no gain when deviating from given other players bes response
The prisoners dilemma"
2 crimianl interrogatd for a crime
2 possible action
Confess and have less prission
Deny
Pricing decisions
2 firm competiting in the same market
2 possibity
Superprofit with high taxes
Small profit with low prices
0 profit : when prices are highest than the competition
The mutual assured destruction
MAD
GF
Dvpt of thechnoand knowledge who will make sure that US/ URSS can defend from each other
In order toa void strike each side need :
Build an equivalent nuclear capacity
Build a second strike capabilities
Build capabilities to detect a fisrt strike
Can we put all human behaviour into rational strategic behaviour in mathematical form ?
Yes economics as an imperialism science Gary Backer
EX
Love and marriage can be explain by eco
Eco aspect of marriage
W + tâches ménagère répartion => aspect économqieu
relion
Conso de relion joue un rôle avec dieu => bonne conduite sinon enfer
Conso de biens relifgieux
Political implications
Bring back ack to liberalisme => neoliberalisme
When people do what is good for them => best for society =>
Need 0 intervention of gov
Milton and Rose Friedman => Free to choose
Every time authority make bad choice with éco => crise = gov are responsable of depression
Inspiration for Regan and Tatcher
Wealthy people know what is best for them and what is best for soc by investing and create employement => 0 need intervention of gov
Critique : Hyposthèses irréalistes sur le comportement humain
Foi, love, political schoice => complex decisions
People have moral principles and ethics (they can endure pain for "what is right"
People can miscalculate thing
They bet on an uncertain futur (Keynes)
People have feelings, experience, emotions, passion => empèche leur jugement
People don't always do what is best for them
Yes economics as an imperialism science Gary Backer
utilisation par certains économistes d'outils et méthodes de la science économique pour analyser des objets traditionnellement analysés par d'autres sciences sociales
EX
Love and marriage can be explain by eco
Eco aspect of marriage
W + tâches ménagère répartion => aspect économqieu
relion
Conso de relion joue un rôle avec dieu => bonne conduite sinon enfer
Conso de biens relifgieux
Political implications
Bring back ack to liberalisme => neoliberalisme
When people do what is good for them => best for society =>
Need 0 intervention of gov
Instrumentalism
Positive Vs normative science
Positive
Description of what thing are
Objective V
Language scientic => use to designate a systematic and organized methods of reasoning
Substantive hypotheses => designed to abstract essential features from complex reality
Théeories : have a different assumption that are not exact from the descriptive representations of reality
Normative
What is desirable
What thing should be
Based on positive economics
Behavioural economics
Amos TVERSKY / Daniel KAHNEMAN => 80's new type of dialogue
Rethinking rationality
Description of human behavior is strategic / rational but exist biaises
Revelant when facing risky decisions and social interraction
Revelant expicialleil when we take risk and we deal with people
Biaises
Framing effect (effet de cadrage) : quand les gens sont confronté à al possibilité de perdre => prennent beaucoup moins de risque que l'inverse (exemble on dit qu'on va sauver 200 personnes ou que 400 vont mourrir)
Time inconsistency : les gens font des gens incohérent quznd le temps passe
Prospect theory : people attach to much importance to small numbers (look at probability and chance => people are optomosoc "what if" ... Ex : Loto
Heurisitc : people tend to simplify complex problems : bring to some kind of simplification to make the best choice
Confirmation bias : people tend to overlook/dismiss revelant information
Idea of strategic people is wrong
people who do what is good for them eand for soc
But people 0 able to do what is good for them
Policy implications : Libertarian paternalism and nudging
Richard THALER and Cass SUNSTEIN
