tag:blogger.com,1999:blog-6837159629100463303.post3852117695131916685..comments2023-06-18T01:25:08.748-07:00Comments on Information Transfer Economics: Against human-centric macroeconomicsJason Smithhttp://www.blogger.com/profile/12680061127040420047noreply@blogger.comBlogger19125tag:blogger.com,1999:blog-6837159629100463303.post-68097453330956533222017-08-02T17:01:05.373-07:002017-08-02T17:01:05.373-07:00We actually have no idea if an economy is a "...We actually have no idea if an economy is a "complex system" as one has never been successfully described by any model.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-89894352628000771912017-08-02T16:58:09.700-07:002017-08-02T16:58:09.700-07:00This is different. Yes, we observe humans buying a...This is different. Yes, we observe humans buying and selling things, but do the various decisions made matter to the aggregate data?<br /><br />No one has ever built an empirically accurate model that showed this mattered, so we technically don't know that it does.<br /><br />Think of it this way: a not very good model of a human agent has say 1000 parameters. There are 100 million agents in the US. That is a 100 billion dimensional problem.<br /><br />In macro, there are maybe a few hundred variables at best that we think describe an economy (interest rates, unemployment rates, GDP).<br /><br />That means either a) the complexity of those human agents pretty much vanishes in the aggregate, or b) there are millions of additional macro aggregates that can be measured.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-8856194027543521222017-08-02T16:51:17.390-07:002017-08-02T16:51:17.390-07:00OTOH if what you're getting at that the Ration...OTOH if what you're getting at that the Rational Expectations Theory in economics is probably bogus since people aren't well modeled as rational agents, then I'm on board with that. <br />The Noah Smith quote is typically ignorant twaddle, since it's not true at all that complex systems always reduce to ergodic stochastic ensembles. Curie point, anyone? Unknownhttps://www.blogger.com/profile/10994509912655287453noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-4768891993338337532017-08-02T16:49:07.831-07:002017-08-02T16:49:07.831-07:00The claim that human behavior may not be involved ...The claim that human behavior may not be involved in macroeconomic seems odd, since buying and selling appear to be distinctive human (well, conscious-agent if we include animals) behavior. If you can show me an example of stars or electrons buying or selling, I'd be interested to see it.Unknownhttps://www.blogger.com/profile/10994509912655287453noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-85644529084680011222014-08-06T16:21:26.892-07:002014-08-06T16:21:26.892-07:00I have -- I actually reference it in my as yet unp...I have -- I actually reference it in my as yet unpublished post.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-89347080626827656762014-08-06T08:20:06.414-07:002014-08-06T08:20:06.414-07:00O/T: Jason, have you seen this?
http://worthwhile...O/T: Jason, have you seen this?<br /><br />http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/08/the-quantity-theory-and-neutrality-of-money-when-money-is-endogenous.html#moreTom Brownhttp://www.google.comnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-22335583181476686362014-08-06T00:06:17.050-07:002014-08-06T00:06:17.050-07:00Thanks; answered!Thanks; answered!Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-71885985023152883612014-08-06T00:05:57.673-07:002014-08-06T00:05:57.673-07:00I think my comment on your post got too long too (...I think my comment on your post got too long too (but I left it anyway) :)Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-54215101974624607802014-08-05T21:11:05.241-07:002014-08-05T21:11:05.241-07:00Started to reply but it got too long =)
http://rea...Started to reply but it got too long =)<br />http://realfreeradical.com/2014/08/06/taking-the-people-out-of-economics/Mike Freimuthhttp://realfreeradical.comnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-91702277638114799042014-08-05T09:11:26.158-07:002014-08-05T09:11:26.158-07:00This is very surprising to me! Thanks.This is very surprising to me! Thanks.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-10410290124034609562014-08-05T09:10:47.220-07:002014-08-05T09:10:47.220-07:00Follow on questions here:
http://pragcap.com/foru...Follow on questions here:<br /><br />http://pragcap.com/forums/topic/against-human-centric-macroeconomics#post-70541Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-91180020567113139372014-08-04T19:56:26.532-07:002014-08-04T19:56:26.532-07:00Much the same way there is no temperature in a sys...Much the same way there is no temperature in a system with two particles, there is no macroeconomics in a system of two people. This model is only valid for N >> 1 (i.e. the reason for the macro in macroeconomics). But let's look at the small economy limit anyway ...<br /><br />In the limit of a small economy, human behavior has a large impact (you need N >> 1 people in order for their "psychology" to cancel out on average). However, if we buy and sell stuff to each other, then our total nominal output in any given year would be approximately <i>log NGDP ~ k log M + c + ε</i> where M is the quantity of whatever it is we're using for money (and c and k are constants). The error term ε would be large, because as one person, you control half the economy, and your psychology wouldn't necessarily cancel mine. You may overvalue my assets by a large fraction of the economy or for whatever reason a large portion of the money M may go unused in transactions (a recession).Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-29741404629813476022014-08-04T19:36:01.363-07:002014-08-04T19:36:01.363-07:00Jason:
Scenario: You and I are the only people l...Jason:<br /><br />Scenario: You and I are the only people left in the world. We talk, produce, trade, and argue about stuff.<br /><br />In this scenario, there will be "macro-economic" phenomena. We could add up our total spending over the course of a year. We could add up the number of hours we worked to produce stuff over the course of a year. We could add up how much total money we each own.<br /><br />Question: If your thesis concerning macro stats is correct, then it must be possible for you to know, and for me to know, how it is that these "macro" statistics came to be that isn't a result of what you and I did individually with our bodies and/or material things.<br /><br />If we debate this, and after many hours of debate and analysis, you remain convinced that something other than our individual behaviors is responsible, then A. How could we learn of what (who?) is responsible, and B. How it is different from a non-falsifiable God?Major_Freedomnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-4765520136013639592014-08-04T19:24:29.928-07:002014-08-04T19:24:29.928-07:00Although given the deeply ingrained idea that huma...Although given the deeply ingrained idea that human behavior is a major force in macro, the simulation might be more helpful in convincing people :)Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-84912709910929823132014-08-04T19:21:16.573-07:002014-08-04T19:21:16.573-07:00I wouldn't say it is necessarily that revoluti...I wouldn't say it is necessarily that revolutionary; the early quantity theories of money headed in this same direction ... until the Great Depression.<br /><br />Irving Fisher said in his 1892 thesis (on page 3):<br /><br />"To fix the idea of utility the economist should go no farther than is serviceable in explaining economic facts. It is not his province to build a theory of psychology."<br /><br />And then writes down on page 5:<br /><br />A/B = dA/dB<br /><br />for the exchange of two quantities. That is exactly the same as the information transfer model, except there is a log a/log b = 1/k factor out front.<br /><br /><a href="http://informationtransfereconomics.blogspot.com/2014/03/apples-bananas-and-information-transfer.html" rel="nofollow">http://informationtransfereconomics.blogspot.com/2014/03/apples-bananas-and-information-transfer.html</a><br /><br />His thesis advisor was Gibbs, of thermodynamics fame.<br /><br /><a href="http://books.google.com/books/about/Mathematical_Investigations_in_the_Theor.html?id=djIoAAAAYAAJ" rel="nofollow">Here's a link</a><br /><br />Fisher then introduces utility, where he goes astray. It is pretty amazing if you just take utility to be another quantity of some good or service, then his page 28 looks remarkably like <a href="http://informationtransfereconomics.blogspot.com/2014/06/towards-arrow-debreu-mckenzie.html" rel="nofollow">http://informationtransfereconomics.blogspot.com/2014/06/towards-arrow-debreu-mckenzie.html</a><br /><br />(Also, the book is free from Google. I may do a post on this because I didn't realize the magnitude of the similarity between Fisher's Mathematical Investigations and the ITM until now.)Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-91954083335365185862014-08-04T18:29:06.843-07:002014-08-04T18:29:06.843-07:00Thanks, Tom. I updated with the link.
I also cha...Thanks, Tom. I updated with the link. <br /><br />I also changed the sentence to "... and human thought has a peripheral role" in order to remove some ambiguity, added an "e.g." before the risk premia line and added a parenthetical "(relative to other channels)", hopefully making it a bit more clear.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-18745123544541749322014-08-04T09:42:11.296-07:002014-08-04T09:42:11.296-07:00It also get's to the core of what I find attra...It also get's to the core of what I find attractive about the ITM. Whenever I imagined using the scientific method to investigate macro before, I often came back to a unrealistic reductionist approach: essentially let's built "The Matrix" but w/o any biological humans at all... then we can repeat experiments exactly, etc. The other thought I kept having was "let's build a massive multiplayer online game" ... as a means of trying to control for the economic environment a bit better. The former is unrealistic. There still may be a place for the online game, but what I like about the ITM as apposed to the "reductionist" approach of building The Matrix is exactly what you describe in this post. Maybe the reductionist approach would be as wasteful and inefficient and unnecessary as it would be to discover the ideal gas law by running a high fidelity simulation of 6x10^23 individual molecules bouncing about in a container.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-84282133903969843852014-08-04T09:32:57.756-07:002014-08-04T09:32:57.756-07:00I think this post really gets to the philosophical...I think this post really gets to the philosophical heart (w/o using any math) of what's different (perhaps revolutionary?) about the ITM.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-68841438667384069392014-08-04T07:57:15.232-07:002014-08-04T07:57:15.232-07:00Jason, I enjoyed this post. Here's my previous...Jason, I enjoyed this post. Here's my previous question you were looking for I think:<br /><br />http://informationtransfereconomics.blogspot.com/2014/07/notes-from-ben-bernanke-and-p-model.html?showComment=1404767903653#c3710617198842574707<br /><br />I didn't even try your search box because it only works on the contents of the post I think. (Sometimes I think it even excludes the title!... which would be weird for a google product... though it is useful). Instead I did a google site search:<br /><br />site:http://informationtransfereconomics.blogspot.com/2014/ chimps<br /><br />I remembered I used the word "chimp"Tom Brownhttp://www.google.comnoreply@blogger.com