tag:blogger.com,1999:blog-17232051.post5748186216834478786..comments2024-03-28T03:16:14.104-04:00Comments on Noahpinion: Big Ideas in Macroeconomics book review, Part 3: General EquilibriumNoah Smithhttp://www.blogger.com/profile/09093917601641588575noreply@blogger.comBlogger25125tag:blogger.com,1999:blog-17232051.post-59977756154737528002014-06-28T10:30:54.196-04:002014-06-28T10:30:54.196-04:00I only glanced at this, but the idea that general ...I only glanced at this, but the idea that general equilibrium can 'emerge' even if the usual microeconomic assumptions do not hold (eg perfect information, complete markets, all transactions can be made using a walrasian engineer) i think is well known in 2 main cases in statistical mechanics. The details often empirically don't matter because in the limit of the 'law of large numbers' of people one gets (close to) the general equilibrium results. Even when those imperfections on the micro level do matter, one can often define a 'quasi-equilbrium' (see FPU experiment) so that essentially the ergodic hypothesis holds over some subset of the accessible space (and this is what SMD more or less says in my view---assuming sado (or pseudo) masochistic domination). One can also think of 'deterministic fractals' and 'chaotic diffusion' . Yakovenko mentions this in his statistical theory of income distribution---there are diffferent ways of getting the exact same result, whether its a random process or a deterministic one, and you really can't distinguish the two.<br /> is it 'by the grace of god go i' or did i deserve it?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-83142387718579710832014-06-18T15:59:13.025-04:002014-06-18T15:59:13.025-04:00Rosser,
Good argument. Hopefully you looked up th...Rosser,<br /><br />Good argument. Hopefully you looked up the meaning of "systematic" by now.Krzyshttps://www.blogger.com/profile/15794655390770135247noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-58226982946295074452014-06-18T15:16:53.986-04:002014-06-18T15:16:53.986-04:00Krzys,
Do not misread what people write. I m...Krzys,<br /> Do not misread what people write. I most certainly did not say that in bond markets we see "no-arbitrage bound violations...all the time." Most certainly did not say that. Take the money and run, jerk.rosserjb@jmu.eduhttps://www.blogger.com/profile/09300046915843554101noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-14111671955042716502014-06-18T14:13:33.854-04:002014-06-18T14:13:33.854-04:00Really? you have easy no-arbitrage bound violatio...Really? you have easy no-arbitrage bound violations in bonds all the time? Please, show me. Actually, show me the money. Krzyshttps://www.blogger.com/profile/15794655390770135247noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-36630336800605037402014-06-18T10:33:28.969-04:002014-06-18T10:33:28.969-04:00Ross does not see what as a problem? (Are you alwa...Ross does not see what as a problem? (Are you always so cryptic?) And why is what Ross thinks important.reasonhttps://www.blogger.com/profile/10958786975015285323noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-81216960237917743782014-06-18T10:10:10.642-04:002014-06-18T10:10:10.642-04:00Your last sentence is difficult to interpret. Yes ...Your last sentence is difficult to interpret. Yes we should take our assumptions seriously - and be aware of what they acchieve (making the model simpler to handle) and what it costs us if they do not hold (sensitivity analysis). That doesn't mean we should treat them as essential to good research.reasonhttps://www.blogger.com/profile/10958786975015285323noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-8139209840259780702014-06-18T10:04:10.964-04:002014-06-18T10:04:10.964-04:00This is a clever game. If I'm observed to be w...This is a clever game. If I'm observed to be wrong, I'm not wrong by definition.<br /><br />Institutional people have noted that one of the current a la mode business strategies is to maximise price discrimination. So yes, in a sense they are selling different products (timing different, location different etc) and also using different bundling to make similar products difficult to compare (Yves Smith plea for vanilla financial products might be apposite here).<br /><br />One of my favourite examples is anti-virus software, where the one click internet renewal, costs more than buying a new copy on disk.reasonhttps://www.blogger.com/profile/10958786975015285323noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-6750584826745367232014-06-18T09:49:11.597-04:002014-06-18T09:49:11.597-04:00This comment has been removed by the author.reasonhttps://www.blogger.com/profile/10958786975015285323noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-35034834828225351012014-06-18T04:22:31.997-04:002014-06-18T04:22:31.997-04:00"ever"? Many times, Krzys, many times, ..."ever"? Many times, Krzys, many times, although maybe less so with bonds than with some other assets.rosserjb@jmu.eduhttps://www.blogger.com/profile/09300046915843554101noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-45417926403214226802014-06-18T01:48:43.358-04:002014-06-18T01:48:43.358-04:00Yes, experimental results show bubbles in the most...Yes, experimental results show bubbles in the most obvious situations, but the question is how does it apply anything: have you ever seen pricing, say, for bonds systematically deviate from basic valuation bounds, like it happens in experimental designs?Krzyshttps://www.blogger.com/profile/15794655390770135247noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-14414456593375201202014-06-17T19:39:17.295-04:002014-06-17T19:39:17.295-04:00Substitute "the four humours framework of hea...Substitute "the four humours framework of health" for Arrow, et al, and you see why it's so hard to see the problem with a paradigm from the inside:<br /><br />Arrow-Debreu-McKenzie equilibrium is a framework, not a theory or model. You can't falsify or disprove ADM as a concept, just like you can't falsify the practice of writing down reaction equations in chemistry.Thornton Hallhttps://www.blogger.com/profile/11402495641975262697noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-52328225360607754772014-06-17T16:05:08.907-04:002014-06-17T16:05:08.907-04:00You said:
"Actually, I think this is not quit...You said:<br />"Actually, I think this is not quite right. ADM assumes the Law of One Price, and you can theoretically observe how well that holds."<br /><br />I'm not sure I agree because the validity of the Law of One Price depends on how you define a single good. For example, suppose Apple stock (a very uniform good) sells for a different price on two different exchanges. I can view this as a failure of the Law of One Price. Or, I can say that, if the price is different on the two exchanges, then there must be some difference between the exchanges, in which case Apple stock on one exchange is not really the same good as Apple stock on the other exchange. Ultimately, I believe the Law of One Price holds by definition, but can, in a sense, fail to hold observationally for a given model if that model makes assumptions about two goods being the same good.<br /><br />This doesn't mean that the Law of One Price is empty. Instead, it means we should take seriously its implications, as an axiom, and, when it fails to hold, think about what went wrong in our model.Joshua Weisshttps://www.blogger.com/profile/10313541087554190148noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-66408471701909605882014-06-17T15:27:46.064-04:002014-06-17T15:27:46.064-04:00Ross does not see it as a problem.Ross does not see it as a problem.Anonymoushttps://www.blogger.com/profile/12599006340469818689noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-46593647950142606492014-06-17T15:01:04.878-04:002014-06-17T15:01:04.878-04:00Oh, and yep, I was thinking of the Crockett-Duffy ...Oh, and yep, I was thinking of the Crockett-Duffy stuff and Vernon Smith stuff.Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-72312495807500335132014-06-17T14:59:07.097-04:002014-06-17T14:59:07.097-04:00Yup. Micro people I talk to say that they rarely u...Yup. Micro people I talk to say that they rarely use GE anymore anyway. But Athreya says GE might be emergent, which is an interesting idea (but would kill most if not all modern DSGE macro models).Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-40295243637659604132014-06-17T14:51:49.222-04:002014-06-17T14:51:49.222-04:00Let me add as someone who actually spends more tim...Let me add as someone who actually spends more time worrying about GE from the micro than the macro side that the attitudes of the DSGE/Athreya types when they nearly mindlessly hijack the concept (although maybe Athreya has indeed done some serious thinking about it) is pretty much of a joke in the eyes of those on the micro side who watch this spectacle. He politely says little about all this, but if anybody thinks Ken Arrow is impressed by what has gone on with this, they are sadly mistaken.rosserjb@jmu.eduhttps://www.blogger.com/profile/09300046915843554101noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-61190106141958738212014-06-17T14:48:59.067-04:002014-06-17T14:48:59.067-04:00Yes, of course, SMD. Shame on me.
Regarding the ...Yes, of course, SMD. Shame on me.<br /><br />Regarding the experiments on GE dynamics, what I see out three is pretty thin. Are you thinking of the Crockett-Duffy stuff or maybe Arifovic-Evans on learning to believe in sunspots? There is a lot less in terms of experiments than you make it sound like here, and they are plenty limited, not to mention being open to multiple equilibria (see Arfivovic et al).<br /><br />Good luck with your JMP, assuming it is still out there under consideration and all that. The hounds of emjr will be greatly disappointed when you get ti published, :-).rosserjb@jmu.eduhttps://www.blogger.com/profile/09300046915843554101noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-16629766664192283292014-06-17T11:51:11.145-04:002014-06-17T11:51:11.145-04:00It's true that you can write market games in w...It's true that you can write market games in which the *full information* Nash equilibrium is Walrasian, but I don't find this a convincing microfoundation for Walrasian equilibrium. It requires too much information. Every agent needs to know the preferences, endowments and technology of every other agent in the economy in order to calculate the equilibrium prices in her head. But one of the attractive things about Walrasian equilibrium was precisely that people don't need to know everything in the economy, they just need to know their own preferences and market prices. This informational decentralization property is lost if you need full information to get to equilibrium prices in the first place.<br /><br />The holy grail of disequilibrium theory would be a model of market games under imperfect information in which agents gradually learn just enough to get to equilibrium prices, without having to learn the whole state of the economy. AFAIK no-one has succeeded in writing such a model. (The experimental literature and some agent-based models, e.g. Herbert Gintis's recent work, have come closest, but they don't attempt to provide general results, or models with optimizing agents.)<br /><br />To be clear, my point isn't that GE theory is unrealistic (although it is). Even on its own terms, it doesn't provide a convincing/intellectually satisfying account of why markets might ever be in equilibrium.Keshavhttps://www.blogger.com/profile/12910240714703883226noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-13346800770464543152014-06-17T10:22:28.693-04:002014-06-17T10:22:28.693-04:00Don Ross's Philosophy of EconomicsDon Ross's Philosophy of EconomicsAnonymoushttps://www.blogger.com/profile/12599006340469818689noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-68672672488337018092014-06-17T10:03:13.122-04:002014-06-17T10:03:13.122-04:00Ey Noah,
can you write a book to this theme? plea...Ey Noah,<br /><br />can you write a book to this theme? please. At least for those with the Keynes/Hayek/Minsky background. pleas, please, pleaseAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-32336807516000735012014-06-17T09:06:06.753-04:002014-06-17T09:06:06.753-04:00This comment has been removed by the author.Luis Celhayhttps://www.blogger.com/profile/09895282745726678296noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-39664257022719748862014-06-17T06:39:15.339-04:002014-06-17T06:39:15.339-04:00You can set up experiments so that they do not con...You can set up experiments so that they do not converge to equilibrium: http://ideas.repec.org/a/eee/jetheo/v115y2004i2p209-249.html<br /><br />So it is not just logic that Athreya and other macroeconomists ignore.Robert Vienneauhttps://www.blogger.com/profile/00872510108133281526noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-61121502535709031472014-06-17T03:20:30.884-04:002014-06-17T03:20:30.884-04:00One is that those nice Vernon Smith type experimen...<i>One is that those nice Vernon Smith type experiments where markets converge rapidly to equilibrium are single market partial equilibrium ones.</i><br /><br />There are general-equilibrium ones with multiple goods.<br /><br /><i>In any case, this is a weak reed for jumping to ADM GE exists and is unique and we can dismiss SDM.</i><br /><br />I assume you mean "SMD". Anyway, see the rest of my review...<br /><br /><i>The other is that experiments, initiated back in 1988 by Vernon Smith and some coauthors in Econometrica have shown that bubbles exist in asset markets ubiquitously. They even show up when people have full information in finite time horizons, which is not supposed to happen, but a straightforward refutation of rational expectations.</i><br /><br />My job market paper was on precisely that topic, as I recall... ;-)Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-80669688043819358232014-06-17T02:53:09.790-04:002014-06-17T02:53:09.790-04:00Two things missing from this discussion.
One is t...Two things missing from this discussion.<br /><br />One is that those nice Vernon Smith type experiments where markets converge rapidly to equilibrium are single market partial equilibrium ones. Very few experiments have involved multiply interacting markets, although Smith has done some with two market interacting that have behaved pretty well. In any case, this is a weak reed for jumping to ADM GE exists and is unique and we can dismiss SDM.<br /><br />The other is that experiments, initiated back in 1988 by Vernon Smith and some coauthors in Econometrica have shown that bubbles exist in asset markets ubiquitously. They even show up when people have full information in finite time horizons, which is not supposed to happen, but a straightforward refutation of rational expectations. Needless to say, most DSGE models do not allow for such things, which is part of why they did so badly in explaining 2008, in contrast to some people who paid more attention to Minsky....<br /><br />Barkley Rosserrosserjb@jmu.eduhttps://www.blogger.com/profile/09300046915843554101noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-5731575887941421172014-06-17T02:17:46.219-04:002014-06-17T02:17:46.219-04:00I puked a little.I puked a little.Anonymousnoreply@blogger.com