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  • “Often, the insights of behavioral economics are used or misused to support this thesis.”

    Posted by Jonathan on March 30th, 2013 (All posts by )

    Riffing on David Foster.

    It’s like how Keynes’s theory about liquidity traps is used to rationalize all kinds of govt spending programs, perhaps far beyond what Keynes himself would have advocated.

    1 Great man has a theory about a, b and c.

    2 Great man’s acolytes turn the theory into a dogma, religion and, eventually, industry.

    3 Politically savvy third parties with agendas use the theory to justify x, y and z.

     

    4 Responses to ““Often, the insights of behavioral economics are used or misused to support this thesis.””

    1. David Foster Says:

      The development of mathematical optimization methods during WWII and shortly thereafter was used as justification for economy-wide central planning.

    2. VSSC Says:

      The powerful tools of the New Deal State require those administrating to be Virtuous and Patriotic.

      We have the corrupt and maliciously hateful of their country.

      The New Deal State must end.

    3. Jeffrey Carter (@pointsnfigures) Says:

      Nudging us to socialism, or worse.

    4. Pouncer Says:

      Isn’t there a biased perception of the value of early efforts, due to the “network effect”?

      Say there are a bunch of activities, viewed as islands in the sea. The cost of any bridge appears to be prohibitive for any island. But pooling resources, one bridge can be built. Rational investors in fact solicit contributions to the pool, and find the shortest (least expensive) possible bridge between the biggest (most profitable) islands. The bridge is a great and profitable success. Another is undertaken — a longer bridge, linking the third-biggest island to the now-linked top-two. Even though the bridge is much more expensive, the profits are still high, because the link of the two-island to number 3 island has such impact. But, the percent return is not quite as high.

      A market might add one or two more bridges, note the diminishing return, and stop.

      A government will hire an economics analyst who will measure how much, total, was spent on bridges, how much, total, was returned by the linkage of (say, six) islands,and estimate the rate of return for ANY bridge.

      Kind of how the US views federal interstate highway expenses…