Aphorisms on risk

Neither risk aversion nor risk tolerance. In their minds, all agents are risk-neutral. Distinction between "risk-averse" or "risk-tolerant" must exclusively refer to subjective valuating differences that agents have in weighing risks with respect to some ultimately arbitrary benchmark.

Impossibility of risk loving or risk seeking. It is logically impossible that an agent be a "risk lover" or "risk seeker". Imagine there are, for some agent whosoever, something which is a good for him and something which is a bad for him, and that he is offered these two different lotteries: the first one which offers to him the good with (what for the agent is subjectively a) probability 1 and the bad with (also subjective and from the agent's viewpoint) probability 0, and the second one which offers him the good with probability 0.5 and the bad with probability 0.5. A true risk lover would accept the second lottery; nevertheless we can say apodictically that no agent will ever choose the second lottery. Not the wackiest loony cuckoo in history, not the sickest compulsive gambler in the world; not the most audacious, temerarious, rashest, most reckless, adventuresome daredevil have ever loved risk qua risk. What some people love is the risky prize, therefore being on the eyes of others risk tolerant. But there cannot, by definition, be "utility from risk".

Holmes' economics

The reason why there are secrets is mostly a lack of observation.

Free will

What the assumption of free will amounts to is a full renounce to any attempt to explain purposeful behavior as an effect of some material cause whatsoever. It is not a recognition, neither explicit nor implicit, that free will is un-caused. As long as a research program, for instance that of psychology, successfully bursts into the causes of purposeful behavior, it reveals free will as not really being such, it shatters it; not to speak of, say, the physiological study of the brain. Of course, these research programs are so humble that we will always have room for free will.

On the one side free will, i. e. purpose, can be interpreted as random and so, analyzed (in some, but clearly not the causal, aspects) through the methods of statistic inference. On the other side, it can be viewed as a spontaneous (this is, undesigned) order.

Starkey on institutions

"Almost all institutions are monarchical." David Starkey

Exceptions and randomness as lack of knowledge, not of cause

Exceptions are only apparent. They embody lack of knowledge not of cause. It is the same with randomness. A random event is an ultimately deterministic (caused) one, but we don't have a way to measure that cause so that we cannot forecast the outcome.

Pervading profits

There is not such a thing as a firm which doesn't maximize profit. When you apparently observe such a behavior, either you are not defining well who is the firm or you are not taking in account all the costly expenses or the incomes from the production of the good in question.

In what sense perfect competition is an optimum

The perfect competition partial equilibrium is Pareto-optimum with respect to the pre-equilibrium perfect competition. However, since the monopolist gets a better profit by being a monopolist than in perfect competition, a perfect competition partial equilibrium which starts with a pure-monopoly-then-turned-into-perfect-competition is not a Pareto-optimum. Or to put it another way, you can't use the perfect competition optimality as an argument to dismantle a monopoly. (By the way if you are trying to attack a monopoly, better use the Hayek argument on the spread of information through a free market.)

The much-trumpeted perfect competition optimality is not argument for perfect competition (whatever it is in the real world) but for not to stop the tendency through equilibrium in the particular structure of perfect competition; i. e., perfect competition optimality is a particular case of equilibrium optimality (vis-à-vis disequilibrium).

The monopolist as (necessarily) a price discriminator

The maybe most popular microeconomics book reads "we suppose that the monopolist knows the demand function for its product..." (1). This raises the question: why in the hell isn't such a monopolist a perfect discriminator? I mean, he know what prices he can charge for every marginal quantity supplied, and he doesn't do it?! Can we think about a pure monopolist not being at a time a perfect discriminator as something but a logical contradiction? Tell me a reason why such a monopolist would charge the same price to anyone knowing how much surplus he can exact from each.Yes, you can impose some institutional arrangement, but can you think of any which doesn't violate the standard Marshallian setting?

(1) Mas Colell et al. Microeconomic Theory. 1995. Page 384.

Government failure as a market failure as no failure at all

Some people say that there are government failures rather than market failures. However, one could ask how is that a already-so-well-working market allows for a failing government to appear and grow up. Or maybe, a failing State is not but a stage in the institutional development in the way of an ever-improving market.

Best wishes for 2011

A true economics to subdue pseudo-economics math.

Exogenous versus endogenous

By definition, an agent cannot plan a shift of either his supply or his demand function for any good.

Profit

True profit is always for free. It is, as Knight writes (1), "unimputable income". That's why change in profit doesn't change purpuseful behavior to undertake: it is not action-changing.

(1) Knight, Frank. Risk, Uncertainty, and Profit. 1921 -1957-. Page 308 (chapter 10, paragraph 29).

Sherlock Holmes and economics

Think of a fictional character from a novel being very used in economics. Maybe, the first comes to your mind is Robinson Crusoe. It is so widely used that some people even talk about "Crusoe economics", the economics of an agent without interaction with others. Nevertheless, I find even more interesting the character of Sherlock Holmes. I guess he is the role model of what a good economist (any scientist, indeed) must aspire to be: "the most perfect reasoning and observing machine that the world has seen". Even if you don't agree with his method (I particularly don't think it to be as efficient as Conan Doyle depicts it), I guess you can, with great benefit for economics, define and debate about a sort of "Holmes epistemics".

The economist as something distinct

One of the undeniable tasks of the economist is to attain professional self-awareness: to be as clear as possible on what is not an economist.

Exchange and equilibrium

Exchange is the unequivocal proof of previous dis-equilibrium.

God as non-planned (spontaneous) order

The invisible hand is God's hand.

So, quoting Mises: "Fort the agnostic, atheistic, and antitheistic historians and economists there is no need to refer to Smith's and Bastiat's invisible hand." Theory and History, page 169.

In defense of extreme apriorism

It is not the task of the economist to determine whether actual equilibrium is going to be attained or not. His task comes to and end once he has correctly posed the role of the arbitrager in exclusively attaining such equilibrium as well as the enunciation of some general conditions from here on.

But when we, understandably anxious of arriving at specific equilibria, pretend to use economics to test or falsify empirical evidence of such equilibria or paths to equilibria, we ar at a total loss. And, as expected, the unfair condemnation of economics for no being "exact" or even useful at all doesn't take long to come out.

It is in that sense that Hayek is right in his 1937 paper Economics and Knowledge. Effectively, if you don't make certain assumptions about information, you are not going to be able to find equilibria. However, he is wrong in pretending that it is up to economics (the pure logic of choice) the accomplishment of this task. The methods and ways in which assumptions about the obtaining and coordination of information are entrepreneurial and far away from the method and traditional aim of economics. If you agree that that empirical task is a task of econonomics, you are compelled to accept as part of the tasks of economics the calculation of how to throw a ball in order to deceive a rival player and so scoring a goal or the successful bargain of the price of a Holstein cow in the town of Coronado, Costa Rica. Intuitively, you do not expect neither to require from an expert soccer player or a cattle merchant to take courses in what usually is taught in an economics course nor that an economist qua economist is prepared to score goals or evaluate cattle. Of course, you could require those abilities from whoever you call a competent economist and call this a merely semantic problem.

It is precisely difference about assumptions on information, particularly the non-coercive stickyness of prices which separate new Keynesianism from other brands of economics. So, you should conclude that the relevant difference doesn't deal with economics; it is rather ultra-economic.

Finally, you have other formal attempts to deal with the coordination through equilibrium, particularly game theory. And, in this, case, you have to note that game theory it's seen not just as an extension of economics, but rather as a quite independent discipline useful in several fields.

Sunk "costs"

As much as expenditure is sunk, it doesn't carry cost.

Market as an information system

A market is a system of creation and spread of information. No more, no less.

Logic versus obvious

Some critics of pure logic of choice could be caught saying that it can not create "information" but only rephrase it. Those people should begin to have clear that "logic" is not the same than "obvious".