2007-10-06

The importance of "error term"

I have a thorough conviction that man is not rational. There is no way he can be. Emotions, trigerred by external stimuli and internal hormonal releases, are so strong that they have capability to mask any kind of rational thought process. No wonder, in the last few years, Nobel prize in Economics has been awarded less to core Economists and more to people/Economists working on psychology, decision making, et al.

Have started reading more papers and books on the subjects that cover human behavior. Two books - Fooled by Randomness and The Dilbert's Principle - though they look poles apart, have a common theme, Man's ir-rationality. Rationalizing our behavior, finding pattern in what is completely random, and attributing success to intelligence than to a random juxtaposition of events & actions, etc are quite common. Remember, most of the time we are talking about past and trying to find (and justify) a method in what is otherwise madness.


1. During ISB days, had objected to our Macroeconomics prof, Krishna Kumar, when he considered rationality to be given. He comes from Chicago school of thought.
2. Consultants (I was one not long ago) talk more about future.
3. I do not believe in fate, even if the other side of believing in randomness is believing in determinism.
4. The role of 'free will' is limited to our responses to events and actions of others, which are again random. To take it further, "free will" is not necessarily a rational expression.

9 comments:

Ravi Ivaturi said...

Nice post- Vijay!

A couple of points

1. Economists don’t use ‘rational’ in an elitist sense; rationality has a precise, mathematical meaning in economics. Loosely speaking, rational people are utility-maximizers. Technically speaking, a person is rational if he/she has complete and transitive set of preferences. Transitivity is- if I prefer A to B & B to C, then I should prefer A to C.
2. Your point on the human proclivity to find patterns everywhere is well-taken- clearly this results in us applying a cause-effect model to every event we encounter… guess we should move to a ‘correlation exists does not mean causation’ kind of model.

itheabsolute said...
This comment has been removed by the author.
itheabsolute said...
This comment has been removed by the author.
itheabsolute said...

Thanks for the comments Ravi.

1. Agree with you. however, that hardly helps Economists in making our understanding of human economic behavior better. For me, preferring A to B and B to C, does not translate into preferring A to C.

Btw, I do visit your blog. Find interesting topics and well written arguments.

cheers

Anonymous said...

Long time no see !!!

Anonymous said...

I'm reminded of a very apt quote by Czeslaw Milosz: "It is impossible to communicate to people who have not experienced it - the undefinable menace of total rationalism"...!!! Any views???

Anonymous said...

looks like this post inspires me to pick up the Norman Taub book.. is it a recommend ? Looks convoluted read to me.. Amit

itheabsolute said...

amit

yes; but if you expect every page to be exciting, then it will disappoint you. read it till the concept sinks in and then throw it away.

cheers

Alban, Teacher of God said...

Hi Vijay,

you are quite right. Man is not rational, or better, he is insane. The reason this is so is that his whole existence is based on madness. Man thinks he is separate from the universe, that there are different kinds of life, that life ends in death etc. None of this is true or possible. So man is a false assumption about himself, yet he cannot not be what life, the universe is.

I like your writing. You must have found a source of reason somewhere. We all need to train our minds to apply reason instead of our insanity.

Someone quoted Czeslaw Milosz. I believe that it is true. We can comminicate only through experience. When I know myself, I know everyone and everything. When I don't know myself due to fear, I know no one and nothing. Yet it must be so that everyone knows. That is the paradox. And there is no way out of it except that we escape it through the application of reason and help from beyond this world.



Cheers,
Alban

2007-10-06

The importance of "error term"

I have a thorough conviction that man is not rational. There is no way he can be. Emotions, trigerred by external stimuli and internal hormonal releases, are so strong that they have capability to mask any kind of rational thought process. No wonder, in the last few years, Nobel prize in Economics has been awarded less to core Economists and more to people/Economists working on psychology, decision making, et al.

Have started reading more papers and books on the subjects that cover human behavior. Two books - Fooled by Randomness and The Dilbert's Principle - though they look poles apart, have a common theme, Man's ir-rationality. Rationalizing our behavior, finding pattern in what is completely random, and attributing success to intelligence than to a random juxtaposition of events & actions, etc are quite common. Remember, most of the time we are talking about past and trying to find (and justify) a method in what is otherwise madness.


1. During ISB days, had objected to our Macroeconomics prof, Krishna Kumar, when he considered rationality to be given. He comes from Chicago school of thought.
2. Consultants (I was one not long ago) talk more about future.
3. I do not believe in fate, even if the other side of believing in randomness is believing in determinism.
4. The role of 'free will' is limited to our responses to events and actions of others, which are again random. To take it further, "free will" is not necessarily a rational expression.

9 comments:

Ravi Ivaturi said...

Nice post- Vijay!

A couple of points

1. Economists don’t use ‘rational’ in an elitist sense; rationality has a precise, mathematical meaning in economics. Loosely speaking, rational people are utility-maximizers. Technically speaking, a person is rational if he/she has complete and transitive set of preferences. Transitivity is- if I prefer A to B & B to C, then I should prefer A to C.
2. Your point on the human proclivity to find patterns everywhere is well-taken- clearly this results in us applying a cause-effect model to every event we encounter… guess we should move to a ‘correlation exists does not mean causation’ kind of model.

itheabsolute said...
This comment has been removed by the author.
itheabsolute said...
This comment has been removed by the author.
itheabsolute said...

Thanks for the comments Ravi.

1. Agree with you. however, that hardly helps Economists in making our understanding of human economic behavior better. For me, preferring A to B and B to C, does not translate into preferring A to C.

Btw, I do visit your blog. Find interesting topics and well written arguments.

cheers

Anonymous said...

Long time no see !!!

Anonymous said...

I'm reminded of a very apt quote by Czeslaw Milosz: "It is impossible to communicate to people who have not experienced it - the undefinable menace of total rationalism"...!!! Any views???

Anonymous said...

looks like this post inspires me to pick up the Norman Taub book.. is it a recommend ? Looks convoluted read to me.. Amit

itheabsolute said...

amit

yes; but if you expect every page to be exciting, then it will disappoint you. read it till the concept sinks in and then throw it away.

cheers

Alban, Teacher of God said...

Hi Vijay,

you are quite right. Man is not rational, or better, he is insane. The reason this is so is that his whole existence is based on madness. Man thinks he is separate from the universe, that there are different kinds of life, that life ends in death etc. None of this is true or possible. So man is a false assumption about himself, yet he cannot not be what life, the universe is.

I like your writing. You must have found a source of reason somewhere. We all need to train our minds to apply reason instead of our insanity.

Someone quoted Czeslaw Milosz. I believe that it is true. We can comminicate only through experience. When I know myself, I know everyone and everything. When I don't know myself due to fear, I know no one and nothing. Yet it must be so that everyone knows. That is the paradox. And there is no way out of it except that we escape it through the application of reason and help from beyond this world.



Cheers,
Alban