Sunday, October 16, 2005

John Quiggin writes of rationality

"Shorter JQ: the word ‘rational’ has no meaning that cannot better be conveyed by some alternative term. Avoid it."

in longer JQ he considers various definitions. The one which is used by economists would be

5 logically consistent as opposed to inconsistent

Of these points, the last may require some further explanation. Various consistency properties have been proposed as requirements for rationality. The one that is most obviously reasonable, though not invariably compelling, is transitivity. If I prefer A to B, and B to C, I should prefer A to C.

I would like to amplify on the comment "not invariably compelling".

Consistency is really a red herring. The reason is that it is really a clearly false statement that utility functions are time separable and not a statement of rationality at all. If given a chance for Pizza or conversation I choose Pizza then given a choice between reading a book and conversation I choose conversation then given a chance between reading another book and shoving another Pizza down my throat I read a book this just shows I had a very empty stomach and now have a full one. It does not mean I am irrational.

All of the alleged implications of rationality such as trasitivity revealed pref etc are really absurd claims about time separability. If they were what economists really mean by rationality then all economists would have long since admitted that no one is rational. Instead they are silly arguments which have nothing to do with anything and are accepted only by theorists who have lost track of the concept of consumption.

Got to admit that Amartya Sen said this long ago but it was clear to me before I heard it from him.

The whole idea of rationality as consistency requires that one may face the same choice twice. This is impossible if the choice made in the past has an effect on the objective in the present. All know that past choices do have such effects. Thus rationality means transitivity when there is no really good reason to think that non separabilities are important, that is to say, nothing.

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