Friday, October 16, 2015

Emergent representative agents: a means to an end

David Glasner responds to Tom Brown:
The problem with an emergent representative agent is that you need to explain emergence before you know what the emergent representative agent actually looks like, so I don’t see that arguing in terms of an emergent representative agent actually accomplishes anything. It still seems to me like a form of question begging.
I'd completely agree with David's sentiment in the case where you are actually trying to understand how something works. That is to say my recent set of posts talking about an emergent representative agent are actually meta-arguments. Updating my language a bit to use Gary Becker's paper, I am trying to argue three things:
  • The use of rational agents is not an immediate reason for mainstream economic theory to be wrong on its face. There's a lot of what Noah Smith calls lazy econ criticism that makes arguments like 'economists assume rational people, but people aren't rational ... LOL'. If a seemingly rational agent on average can emerge from irrational behavior, then takes the wind out of the sails of behavioral theories.
  • Microfoundations are probably irrelevant to macroeconomics. Macroeconomics can have very different properties from its microfoundations. This should have been well understood after the SMD theorem, but as Kirman [pdf] says the representative agent tries to sneak around it. Showing that the emergent representative agent relevant to macro can have very different properties from the individual micro-agents should put a stop to the sneaking.
  • Since rational agents can emerge from solely the properties of opportunity sets, let's skip the middleman (middle-agent?) and just use the mathematics of opportunity sets. The mathematics of opportunity sets is information theory (what messages could be constructed "given the opportunity" to use x bits). This information theory leads to basic supply and demand logic (but allows for specific failure modes) and is the impetus behind my paper.
Only the third one would be directed at David Glasner since he agrees with the second and doesn't make the first argument.

The first argument amounts to a defense of a swath of traditional economics. The second is a swipe at a different swath. The third is a potential third way -- or more like a rethink of the traditional diagram approaches.

4 comments:

  1. Jason, perhaps we are both people of the concrete steppes, but I'm more like a person of the concrete baby steppes... whereas you take two or three in a single stride. David may not be as concrete, but he has more your stride than mine.

    Let me try to paraphrase:

    David's complaint about the emergent representative agent (ERA) is that it seems to him you're postulating one that's fills the role of representative agent which is different from the micro representative agent (MRA), and he's saying that may be true, but he's not seeing the utility because he says you need to explain in what sense this ERA emerges before you can go about describing one, but once you've done that... well, that's where I get lost. I'm trying to find an analogy here to help me understand his complaint, but I'm drawing a blank.

    Moving on to your response (specifically your 3rd point): you say you agree with David that there's not much explanatory utility to the ERA. The real explanatory utility is in the information theory that allows a description of the ERA in the 1st place. The whole point of bringing up the ERA is to show that it coincides with the econ usual practice of using a representative agent (RA) (your point #1), that it does not have to "sneak around" the SMD theorem (like the MRA does: which is probably invalid) (your point #2), and that what's really important is the info theory from which the ERA was constructed (point #3), which you can tie to the econ concept of "opportunity sets." So in essence you're saying the ERA is there to help economists come to grips (in terms of things they're familiar with) with your info theory approach (which it turns out is just another way of talking about a long lost corner of econ already explored by Becker). So it's really a way of assuaging the discomfort of economists who glance at your "info equilibrium" approach and say "Nope, that's not any kind of econ we use here on Earth."

    I have an image in my mind of a parent trying to get their reluctant toddler to try cauliflower... perhaps saying "It's just like broccoli... you've had broccoli before. You *like* broccoli... it's just a different colored broccoli. You'll like it, trust us."

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    1. I tried to find a good photo, but I failed. This one's OK.

      Maybe broccliflower is a good "baby steppe." ;^)

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    2. My interpretation is that David is saying you need to derive the emergent representative agent -- you can't just posit it. And if you derive it from micro agents, why not just use the theory that you derived it from?

      I completely agree with that.

      And yes, the broccoli analogy is very much what this post is about. The emergent representative agent is supposed to mollify the "econ is wrong" people (who tend to be non-economists) as well as the "info theory is weird" people (most economists).

      I also thought it was fun and interesting on its own. Apparently it was interesting enough to get published in a journal in 1962.

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    3. Ah, the that makes sense. Thanks!

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