"When these assumptions [of equilibrium, competition, and the completeness of markets] fail, the very concept of rationality becomes threatened, because perceptions of others and, in particular, of their rationality become part of one’s own rationality. Even if there is a consistent meaning, it will involve computational and informational demands totally at variance with the traditional economic theorist’s view of the decentralized economy." -- Kenneth J. Arrow (1986). "Economic Theory and the Hypothesis of Rationality" Journal of Business, V. 59, N4, Pt. 2 (reprinted in The New Palgrave)A lot of this attempt to conceptually clarify the meaning of "rationality" uses game theory. In parallel with this theoretical work, economists and others have performed a body of experiments. These experiments found many cases in which the predictions of neoclassical theory were falsified. Daniel Hausman, in a chapter in his The Inexact and Separate Science of Economics, treats the resulting work as a case study. He tries to understand why mainstream economists retain a theory with such a poor track record in controlled experimental settings.
I have blogged on experimental economics before. (A Mark Thoma post post inspired me to put this post up.)
0 comments:
Post a Comment