The Dichotomy II
Dr. David Altig at Macroblog observes in Are Consumers Rational?:
"A great deal of individual behavior appears to be perfectly rational; Most of that which does not appear so rational has small consequences for the individual decision maker (with the "irrationality" tending to disappear over time); There are always some people who persist in making apparently irrational, and costly, choices."
and notes that Phillip Ball observes in Fisking David Altig:
“The rational expectations hypothesis swept through macroeconomics during the 1970s and permanently altered the landscape. It remains the prevailing paradigm in macroeconomics, and rational expectations is routinely used as the standard solution concept in both theoretical and applied macroeconomic modeling.” "Look, I’m glad that hypothesis is now being debated..."
Based on the premise put forth in The Dichotomy, we ponder two things:
What happens when the majority of people are making apparently rational choices, which in the end turn out to be irrational and costly choices...
and assuming the above:
the ramification of the rational expectations hypothesis being used routinely as the standard solution concept in both theoretical and applied macroeconomic modeling...
We leave you with this:
Seemingly "rational" behavior in a politically fear based, religiously influenced, group think regime can be very similiar to the irrationally exhuberant behaviour of market participants caught in the greed and profit motive of a market mania.
The band played on, they danced, and its time to pay the piper, what will those costs be?
"A great deal of individual behavior appears to be perfectly rational; Most of that which does not appear so rational has small consequences for the individual decision maker (with the "irrationality" tending to disappear over time); There are always some people who persist in making apparently irrational, and costly, choices."
and notes that Phillip Ball observes in Fisking David Altig:
“The rational expectations hypothesis swept through macroeconomics during the 1970s and permanently altered the landscape. It remains the prevailing paradigm in macroeconomics, and rational expectations is routinely used as the standard solution concept in both theoretical and applied macroeconomic modeling.” "Look, I’m glad that hypothesis is now being debated..."
Based on the premise put forth in The Dichotomy, we ponder two things:
What happens when the majority of people are making apparently rational choices, which in the end turn out to be irrational and costly choices...
and assuming the above:
the ramification of the rational expectations hypothesis being used routinely as the standard solution concept in both theoretical and applied macroeconomic modeling...
We leave you with this:
Seemingly "rational" behavior in a politically fear based, religiously influenced, group think regime can be very similiar to the irrationally exhuberant behaviour of market participants caught in the greed and profit motive of a market mania.
The band played on, they danced, and its time to pay the piper, what will those costs be?
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