I agree that it is possible to make a description of an economy in such terms as there being no inefficiency. Just as (and closely related to the fact that) it is possible to make a description of a person’s actions in such terms that they are never irrational; everything they do, they do because they value the most doing it. But is this a fruitful way of thinking?
Let us take an example, varying a bit on novalis’. You are walking and see $20 on the street, about to fall into the drain. Counsciously, you think you should pick it up; but somehow, you don’t and keep walking instead. What actually happened, though you are not really conscious of it, is that you were momentarily distracted by music from a passing car, and while trying to identify the song your brain failed to issue the order “bend and pick the money” until you had walked a couple of steps past it, at which points the sunk costs fallacy made you loath the idea to walk back.
Now, there are two ways of describing this:
a) The outcome, despite appearances, was Pareto-efficient; you valued identifying the music and not retracing your steps more than the $20, otherwise you would have picked it up.
b) The outcome was inefficient; you don’t really place any intrinsic value on the things your brain chose; it was just a glitch that made you momentarily irrational.
The question is not which description is true. It is which is more fruitful, more generalizable, more able to interpret and predict your behavior in new circumstances. I suspect that the answer is certainly the second one when we want to do neuropsychology and cognitive science. The first one might make pure economics more simple and elegant, but at the cost of isolating it form other sciences.
I agree that it is possible to make a description of an economy in such terms as there being no inefficiency. Just as (and closely related to the fact that) it is possible to make a description of a person’s actions in such terms that they are never irrational; everything they do, they do because they value the most doing it. But is this a fruitful way of thinking?
Let us take an example, varying a bit on novalis’. You are walking and see $20 on the street, about to fall into the drain. Counsciously, you think you should pick it up; but somehow, you don’t and keep walking instead. What actually happened, though you are not really conscious of it, is that you were momentarily distracted by music from a passing car, and while trying to identify the song your brain failed to issue the order “bend and pick the money” until you had walked a couple of steps past it, at which points the sunk costs fallacy made you loath the idea to walk back.
Now, there are two ways of describing this:
a) The outcome, despite appearances, was Pareto-efficient; you valued identifying the music and not retracing your steps more than the $20, otherwise you would have picked it up.
b) The outcome was inefficient; you don’t really place any intrinsic value on the things your brain chose; it was just a glitch that made you momentarily irrational.
The question is not which description is true. It is which is more fruitful, more generalizable, more able to interpret and predict your behavior in new circumstances. I suspect that the answer is certainly the second one when we want to do neuropsychology and cognitive science. The first one might make pure economics more simple and elegant, but at the cost of isolating it form other sciences.