I have given some thought (about two minutes) to what is wrong with the economic theory that gave us the Great Moderation, with its eternal promise of no Great Flood ever again, only the colors of rainbows. The temptation for theorists, in seeking a way forward, is to throw the baby out with the floodwater, and then the ark at the baby. But perhaps that would be a mistake. Perhaps the ark could be salvaged if a simple genetic modification were made to the baby. It has been customary to suppose that this baby is a rational human being, and moreover that this rational human being is representative of other human beings. Now, in all honesty, who here among us can claim to be represented by this?heteconomist.com
Not Even Rational Fools
Peter Cooper
The modification to the traditional rationality assumption that enables us to explain everything without requiring any other hand wringing or change in philosophy is simply this:
Many of us are morons.
That’s it. One small but powerful change in mindset and we can explain it all.I guess Peter has been reading MNE. :)
3 comments:
Not just morons. There is also perversity. The assumption of rational choice excludes consciously and intentionally perverse behavior, which, as it turns out was rampant in the financial industry.
Even Maestro Greenspan admits he was taken in by this false assumption as grand regulator, and the rest is history. The moron here was Greenspan in overlooking the obvious — like FBI reports of rampant fraud in the mortgage industry, issued in 2005.
I am considering applying to Matt's foundation for a research grant. :)
PS. I always read MNE.
Peter,
"We're out of money" ;) rsp,
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