Ep. 109 LIVE from the Contra Cruise: Do People Behave the Way Economists Predict?

21 October 2017     |     Tom Woods     |     9

Krugman is a fan of Richard Thaler, winner of the Nobel Prize in economics, and speaks in favor of Thaler’s argument that real people often don’t act like the calculating robots of neoclassical lore. Thaler is right about that, but we’ve got a bunch of punchy responses to his more dubious claims — responses that are all the more fun to listen to because delivered before a live audience aboard the Contra Cruise!

Krugman Blog Post

Rationality and Rabbit Holes” (October 10, 2017)

Related Links

The Winner’s Curse?,” by Bob Murphy
Bursting Eugene Fama’s Bubble,” by Bob Murphy

Related Episode (Tom Woods Show)

Ep. 1021 The Nobel Prize and Behavioral Economics: Anything Here for Austrians? (Gene Epstein)

Need More Episodes?

Tom and Bob have their own podcasts! Check out the Tom Woods Show and the Lara-Murphy Report.

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  • Craig

    This is a point about economics which few (if any!) economists understand:

    Economics does NOT predict the way people behave but the way the economy as a whole will tend to evolve (if it is free).

    To do this economics predicts (or, better said, reasons out) what sort of behavior would be most economical (that is, would be most profitable). The conclusion is NOT that (all or any) people behave or calculate their behavior this way. The conclusion is that those people who act (WHETHER or NOT they do so for rational reasons or even by accident) in a way that most closely approximates that behavior will become more wealthy than those who don’t. As a result a greater portion of accumulated capital will be tend to be allocated in a rational way (even if those who are doing so are utterly irrational). And that, as a result, the economy will evolve to a greater extent as if people were behaving rationally (even if many do not).

    Therefore, it is irrelevant to the validity of economics if people really behave like “homo economicus” or not. This issue is a straw man.

    • Egg Salad Johnny

      The “economy as a whole” is an abstraction. Only individuals, making choices, exist. Your argument is invalid. It is Keynesian hot air. You’re fired.

    • Joshua Crosby

      Craig, you’re confusing economics with statistics. Economics, correctly understood, does in fact predict the activity of actors.

  • Marsh Creek

    Excellent show with some great concrete examples. Wish I could have been on the cruise given the stark reality that maybe there just might not be another next year… safe travels

  • tz1

    Did you go on the cruise so you were less likely to be blamed:

  • tolemo

    Bob’s point about Texas brisket was spot on!

  • Jim Kelleher

    If Bob really said physicists correct their models when observations
    don’t fit I think Bob should look closer into the crisis facing physics.
    A few examples.
    – the recent Nobel prize in Physics went to the LIGO
    team that found gravitational waves from merging black holes. This is
    nonsense for a number of reasons; the signal was a chirp smaller than
    the ability of the device to measure; it was noise, the signals from two
    detectors had a temporal discrepancy that should not exist, black holes
    are a mathematical construct from an erroneously derived proof of
    Einsteins field equations, stars are modeled as ideal gases that
    collapse to unreal zero volumes with infinite density and gravity. If
    stars are condensed matter, liquid or solid, collapse is impossible.
    None of this has been observed. Government funded physics reinforces
    cognitive dissonance.
    – the large hadron collider has cost $17
    billion to date and counting to detect the subatomic particle
    responsible for the gravitational force. None of the expensive high
    enegy physics programs have produced the expected results. But send more
    money and they will keep trying. Is it fraud or simply a left brain
    protecting itself?
    – the European Space Agency and NASA spent
    millions or billions to send a probe and lander to comet 67P. They
    expected a dirty snow ball. The lander bounced when the comet surface
    was harder than the lander was designed for. Previous comet probes made
    good observations that comets are not ice and dust but rock. Hubble
    space telescope detects a new comet beyond the orbit of Saturn where the
    temp is -440 deg F and NASA uses a press release to announce a frozen
    dirt ball from the origin of the solar system is on the way. Look at the
    pictures of 67P. Does that look like rock or dirty ice?

    might find a rich area to mine for government sponsored nonsense in
    astrophysics and astronomy. Cognitive dissonance is very strong in the
    scientific welfare side of the ledger. There are physicists that see a
    crisis in physics and are working to call attention to the problem.
    Government funding is one of the problems.

    Ron Paul, Peter Schiff
    and you, Tom and Bob opened my eyes and woke me up to the crisis in
    government funded economics and finance. When I looked further, first
    climate science and then physics I found the cancer is more widespread
    then most people recognize. It’s everywhere. Another big part of the
    problem is government education. And that gets back where I can
    congratulate you Tom and Bob on the great work you do identify the
    nonsense that these government approved Mandarins publish to keep us
    ignorant of their depredations on our liberty.

    For more
    information on the crisis in physics you may google “crisis in physics”
    and for an alternative cosmology based on the classical natural
    philosophy method view the youtube
    “Wallace Thornhill: The Elegant Simplicity of the Electric Universe (with improved audio) | EU2016”

  • Mike last

    Chris Voss (who was on the Tom Woods show a while back) wrote about his experiments with the splitting $100 game in his book on negotiation. All his students thought their agreements were perfectly rational, even though they varied widely on how they split the money, and none chose the 0, 100 split. His point in the book was that you can never separate human emotions from the negotiation, which is what the “negotiation experts” do. Sounds like the same principle holds true for economics, and trying to ignore human emotion could be one of the great failures of professional economists.

  • davegrille

    It is interesting how Hoover’s wage controls were so exquisitely damaging .