Which economic school of thought most resembles “the standard picture” of cogsci rationality? In other words, which economists understand probability theory, heuristics & biases, reductionism, evolutionary psychology, etc. and properly incorporate it into their work? If these economists aren’t of the neo-classical school, how closely does neo-classical economics resemble the standard picture, if at all?
Unnecessary Background Information:
Feel free to not read this. It’s just an explanation of why I’m asking these questions.
I’m somewhat at a loss when it comes to economics. When I was younger (maybe 15 or so?) I began reading Austrian economics. The works of Murray Rothbard, Ludwig von Mises, etc., served as my first rigorous introduction to economics. I self-identified as an Austrian for several years, up until a few months ago.
For the past year, I have learned a lot about cognsci rationality through LW sequences and related works. I think I have a decent grasp of what cognsci rationality is, why it is correct, and how to conflicts with the method of the Austrian school. (For those who aren’t aware, Austrians use an apriori method and claim absolute/infinite certainty, among other things.) The final straw came when I read Bryan Caplan’s “Why I am not an Austrian Economist” and his debate with Austrian economist Walter Block. Caplan ably defended BayesCraft. I—with emotional difficulty—consciously updated my belief in Austrianism to below 0.5. I knew I could no longer be an Austrian, nor did I want to be.
Caplan is an neo-classical economist, and neo-classical seems to be the dominant school of modern economic thought. So I’m reading my way through introductory neo-classical economics textbooks. (Specifically, Principles of Macreconomics and Principles of Microeconomics by Mankiw.) I am also looking to take some economics courses when I start university in the fall. My primary major will likely be mathematics, but I am considering double majoring in economics. Maybe get a graduate degree in economics? I don’t know yet.
But I’m apprehensive about reading bad economics textbooks because I don’t know enough good economics to sort out the bunk. And the reason I want to read economics textbooks in the first place is to learn more good economics. So I’m in a catch 22. I think I’m safe enough reading a standard intro to micro/marco book. But when it comes to finance? Banking? Monetary theory? I haven’t a clue who to trust.
So I’m looking to take what I do know (cogsci rationality) and see where it is utilized in economics. If there is a school of economic thought that uses it as their methodology, I think that serves as very strong evidence I can likely trust what they say.
Econ grad student here (and someone else converted away from Austrian econ in part from Caplan’s article + debate with Block). Most of economics just chugs right along with the standard rationality (instrumental rationality, not epistemic) assumptions. Not because economists actually believe humans are rational—well some do, but I digress—but largely because we can actually get answers to real world problems out of the rationality assumptions, and sometimes (though not always) these answers correspond to reality. In short, rationality is a model and economists treat it as such—it’s false, but it’s an often useful approximation of reality. The same goes for always assuming we’re in equilibrium. The trick is finding when and where the approximation isn’t good enough and what your criteria for “good enough” is.
Now, this doesn’t mean mainstream economists aren’t interested in cogsci rationality. An entire subfield of economics—Behavioral Economics—rose up in tandem with the rise of the cogsci approach to studying human decision making. In fact, Kahneman won the nobel prize in economics. AFAICT there’s a large market for economic research that applies behavioral economics to problems typically studied in classical, rational agent settings. The problem isn’t the demand side—I think economists would love to see a fully general theory of general equilibrium with more plausible agents—it’s the supply side: getting answers out of models with non-rational agents is a difficult task. It’s already hard enough with rational agents for models to be anywhere near realistic—in macro models with micro foundations, we often assume all agents are identical and all firms are identical. This may seem terribly unrealistic, but often there’s some other complication in the model that makes it hard enough to find solutions. Adding heterogenous firms and agents is an extra complication that may not add anything illuminating to the model. So, many economists treat the rationality assumptions which are fundamental to neoclassical economics similarly. If the rationality of agents within their model is tangential to the point they’re trying to make (which may only be known empirically), they’ll choose the easier assumption to work with. There are fields where the frailty of human rationality seems centrally important, and those are the fields where you’re most likely to see nonstandard rationality assumptions. Behavioral Finance is an example of one of these.
The biggest thing I would say is, don’t think in terms of “schools” of economic thought. Think in terms of models and tools. Most good ideas are eventually assimilated into the “neoclassical” economic toolkit in some form or another. And besides, thinking in terms of schools of thought is a good way to unintentionally mind-kill yourself.
As far as textbooks go, most higher level (intermediate micro and above) will present models without making any claims about when they’re a good approximation and when they aren’t. Oftentimes this is because the models being presented are actually just stepping stones to the more realistic and more complicated models economists are actually using. This is generally good, though I wish there were more empirical evidence presented. Any edition of Microeconomic Analysis by Varian will give you a good intermediate level (requires some calculus) rundown of standard micro theory. Think of it as taking standard economic intuitions (to economists—even austrians) and writing down equations that describe them so that we can talk about them precisely. I’d steer clear of any non-graduate level macro textbooks. The macro we teach undergrads is not the macro practicing macroeconomists actually believe. (Even on the graduate level, there isn’t a generally accepted class of models that economist agree on, so it might not be that useful to study modern macro). If your mathematical background is stronger, Mas-Colell, Whinston and Green’s Microeconomic Theory is a standard first year graduate micro text that’s densely packed with a lot of material. Simon and Blume’s Mathematics for Economists is the standard math primer used to prepare students for the class Mas-Colell is typically used in, if you’re unsure about your math background.
Wow! That was extraordinary helpful. My only regret is that I have but one upvote to give.
You’re right about the unintentional self-mindkilling from focusing of schools of thought. It’s obvious to me in hindsight.
It might just be a leftover from my Austrian days, but I am thoroughly skeptical of any macroeconomic model. A red flag for me is when I read that macro models aren’t generally reducible to micro models. The only reason I’m reading a macro textbook is that my school requires intro to macro as a prerequisite to intro to micro. And I was thinking of studying introductory macro so I have a decent hand on it when I have to take it in school.
Reading the first 100 pages of Mankiw’s Principles of Macroeconomics hasn’t been too terrible. Though so far I think it has basically been micro disguised as macro. But based on what you’re saying, I think it might be better to stop reading it for now. I’ll just learn it when I take it in school.
My math background is okay, but not fantastic. I took some calculus my senior year of high school and got up to integration. For my freshman year of university, I’m taking Calc 1 in the fall and Calc 2 in the spring. Mathematics is likely my primary major, so I think I’ll read Mathematics for Economists and then move onto Varian.
Thank you very much for the suggested books, advice, and insight.
If you’re going to attack Varian, I’d suggest not focusing on Mathematics for Economists too much. Make sure you understand basic constrained maximization using the lagrangian and then you’re ready for Varian. Anything else he does that seems weird you can pick up as needed. Constrained maximization is usually taught in Calc 3 AFAIK, but I don’t think it’s too difficult if you can handle Calc 1.
A red flag for me is when I read that macro models aren’t generally reducible to micro models.
This shouldn’t be as much of a red flag as it is to most people. Is it a red flag when micro models don’t reduce to plausible theories of psychology? Not if it isn’t worth the effort of doing micro with said theories. Similarly, there’s a trade-off between microeconomic foundations in macro models and actually getting answers out of the models. Often the microeconomic foundations themselves aren’t even plausible to begin with. It still might be a red flag based on the details of the tradeoff at the margin, but I’m not sure it’s that clear.
I was just reviewing Mathematics for Economists. While a lot of it sounds fascinating, it’s probably not what I need at the moment. Too much of it is over my head. So on second thought, I’ll probably just review the first half of Calc 1, learn the second half, and tackle Varian.
On the topic of macro reducing to micro, point taken. I appreciate the clarification.
Good idea. I wouldn’t worry about complicated integrals if you’re just preparing for Varian. You’ll need integration, but I don’t recall anything too complicated. It’s mainly the differential calculus that you’ll need.
Debating with Block would turn any rationalist off of Austrian econ. No one got it comletely right except Mises himself. Actually not even him, but he was usually extremely rational and rigorous in his approach—more than any other economist I know of—albeit often poorly communicated.
In any case, any non-ideologically motivated rationalist worth their salt ought to be able to piece together a decent understanding of the epistemological issues by reading the first 200 pages of Human Action.
No one got it comletely right except Mises himself. Actually not even him
Um… and you—alone among the ignorant masses—realize and know all this because...? Sorry, but I don’t have a high prior on your authority in the discipline.
Actually not even him, but he was usually extremely rational and rigorous in his approach—more than any other economist I know of—albeit often poorly communicated.
Interestingly, this is pretty much what I used to say about Marx when I was a Marxist.
My point was to indicate that not all people who put stock in the “Austrian school” accept post-Misesians as competent intepreters. I meant, essentially: Mises had it right, but read his original work (not later Austrians) and you’ll be able to tell whether I’m right.
Economics is much bigger than it looks from the outside. People sometimes ask me why I’m studying economics, and my honest answer is “I want to be able to build machines that know how to trust one another”.
Experimental economists use cogsci sometimes. Many economists incorporate those findings into models. And you can find Bayesian models in game theory, as alternate equilibrium concepts. But if you’re looking for a school of universally Bayesian economists who employ research from cognitive science to make predictions, you won’t find them. And I don’t really know why it would matter. You won’t find many biologists using cogsci rationality either, but that doesn’t mean their research findings are false.
Ignore schools of thought entirely and focus on independent empirical/theoretical questions. Use your cogsci rationality skills to differentiate between good and bad arguments and to properly weigh empirical papers. The historical disciplines are largely about politics anyway. The biggest tips for assessing econ are: 1) Most empirical papers are (sometimes necessarily) bad and should only change your priors by a small amount; you should look for overwhelming empirical findings if an argument goes against your (reasonable) priors, and 2) High degrees of consensus are a very good sign. On that second point, most textbooks will be stuff that most economists agree on.
if you’re looking for a school of universally Bayesian economists who employ research from cognitive science to make predictions, you won’t find them. And I don’t really know why it would matter. You won’t find many biologists using cogsci rationality either, but that doesn’t mean their research findings are false.
Sure, I don’t think a biologist studying mitochondria needs to be an expert on cogsci. Not being an expert on cogsci doesn’t make the biologist’s findings false. Similarly, it doesn’t necessarily make the economist’s findings false if she isn’t well versed in cogsci.
But the reason I’m interested in economists who know cogsci (as opposed to biologists, chemists, or physicists) is that their work directly involves human judgments and decision making under uncertainty. And isn’t the precisely what cogsci discusses? Working from a better model of how human beings reason might lead to a better model of how the economy operates. Maybe I’m wrong about that?
Ether way, I think your later point suffices to address this.
Ignore schools of thought entirely and focus on independent empirical/theoretical questions. Use your cogsci rationality skills to differentiate between good and bad arguments and to properly weigh empirical papers.
Even if economists aren’t well versed in cogsci, if they’re making any relevant mistakes, then I’ll hopefully catch them when reading.
As another econ grad student and former self-professed Austrian, I’ll concur with Matt Simpson. Some economists have a good handle on these topics and others don’t, but there aren’t clear demarcating lines. Except for in macro, there aren’t clearly identifiable schools, which is a good sign. By field of study, micro theorists are more likely to use rationality jargon, be familiar with probabilistic logic, and know a few H&B classic like the Allais or Ellsberg paradoxes. Whether micro theorists actually apply this knowledge better than other economists is another question.
If you are interested in macro, check out Snowden and Vane’s Modern Macroeconomics. It presents the full gamut of perspectives, steel-manning mainstream and heterodox schools chapter by chapter.
Assuming you are referring to Austrian-style business cycle theory, the book has a chapter written by Roger Garrison on the subject. While the theory might not be applicable in general, he make a good case that a boom/bust cycle could be generated by credit expansion.
Oops, I wasn’t clear. Monetary Disequilibrium is “Austrian” but is not the same thing as “Austrian Business Cycle Theory” (I think it’s mostly orthogonal and I think some Austrians discuss both as important).
Monetary Disequilibrium theory might more accurately be called a monetary economic theory rather than a macro economic theory.
Hey badger, thanks for the information. All of that is good to hear, especially since I’m mostly interested in micro. Down the line I may study finance, possibly get a CFA.
But if/when there comes to time for me to learn advanced macro, I’ll be sure to check out Modern Macroeconomics. Steel-manning all the perspectives sounds like it would be very useful to me. Thanks for the suggestion!
I don’t have anywhere near enough time to elaborate on this, but I always feel compelled to respond when anyone mentions Austrian economics. I just want to say—for what it’s worth—that even though I’m well-versed in LW-style rationality and epistemology, I consider the work of Ludwig von Mises, and everything that’s been an extension thereof, to be in good epistemological standing.
But beware. Mises himself was extremely terrible at explaining the epistemological foundation of his work in a way that avoided being as impenetrable as it was reminiscent of the sort of philosophy most looked down upon on this website, and those who have more than a mere glimmer of understanding of where he was coming from are few and far between, and none of them are popular Austrian economists one would normally run into.
I implore you, and anyone else reading this who’s interested, to investigate and scrutinize the epistemological status of the Austrian School not by reading the incompetent, confused regurgitations of the work of a man who himself could hardly do justice to his method, but by analyzing Austrian economic theory itself, and let it stand or fall by its own strength. I know I know, the epistemological commentary makes it sound like religion. It does! But this is merely an epic failure of communication—something (I consider) monumentally unfortunate given the massive importance of what (I believe) this school has to offer to the world.
That comment was at −2 for several hours, but just now went back to 0. Judging from those two downvotes, some clarification may be in order. I think I may have sounded too confident about my unsubstantiated assertions while not being clear enough about the core issue I was attempting to raise.
What I was trying to bring up is that a school’s epistemological commentary and their actual epistemological practice need not necessarily be aligned. There’s nothing that says that one must know exactly what one is doing, and furthermore be able to communicate it effectively, to be competent at the task itself.
This, I believe, is the story of the Austrian school. Their actual epistemological practice is in many ways solid, but their epistemological commentary is not. All too many intelligent, scientifically-minded people reject the economic theory because the epistemological theory sounds so ridiculous or pseudoscientific. But what I’m saying is that these people are correct about the latter, but not about extending to backward to the former.
What basis does one have for rejecting the epistemological basis of the actual economic theory on the grounds that their epistemological commentary is bad? In what way does one’s commentary about what one is doing have that strong of a causal connection with the success of the endeavor itself? Instead, one must let the theory itself stand or fall upon its own strength.
Rather than looking at the economic theory itself, figuring out the epistemological basis (or lack thereof), and then deciding whether it stands on firm epistemological ground, they look to the Austrians to do their research for them. This, I believe, is a mistake. Mises was bad at communicating his epistemology (though I consider it in many ways solid), and others were just plain bad on epistemology. This does not mean the economic theory is (necessarily) on shaky ground.
How did this happen? Isn’t studying epistemology a tool for coming up with sound theory? Wouldn’t being terrible on epistemology be a huge red flag? Yes, but the basic story is that Mises was good on epistemology, but bad at communicating it. His predecessors then read and assimilated his economic theory and thus picked up his actual epistemic habits—what he actually did in practice, his mental hygiene patterns, etc.--while misunderstanding his epistemological commentary.
The result is a bunch of people who are good on economic theory, but bad at explaining where exactly all these mental hygiene habits came from or what their epistemological significance is. You could say that they all got there sort of by accident, because they don’t really understand why what they’re doing is good, but that’s beside the point. All that’s important is that Mises was a solid thinker, and a lot of people—for whatever reason—picked up where he left off.
Austrian theory would certainly be better if a team of LW-style rationalists could enter the scene and start explaining what the Austrians have failed to. Mises and his mental hygiene habits certainly have had some momentum, but the longer this goes on—the longer the school is dominated by people who’s only source of epistemological fortitude is the unconscious assimilation of an old thinker’s mental habits—the worse the school will spiral away from its grounded center, until nothing is left of the previous foundation.
It’s a tragic situation, to be sure. Austrian economics is as incisive and important at times as it is insane at others, and this is why I would always hesitate to identity myself as a follower of the Austrian school, despite the massive value I believe it has buried behind some of its more visible components.
Although I don’t fully understand the reference, I think I sort of see where it’s going.
Either way though, epistemological practice is what one does in coming up with a way of modeling economic activity or anything else, and epistemological commentary is one’s attempt to explain the fundamentals of what exactly is going on when one does the former.
In this case, you know it’s the result of epistemological practice when it’s an actual economic model or whatever (e.g., the Austrian Business Cycle Theory), and you know it’s epistemological commentary when they start talking about a priori statements, or logical positivism, or something like that.
In other words, they’re batshit crazy, but somehow manage to say some sensible things anyway? I’d be uneasy about assuming that getting the right answers implies that they must be doing something rationally right underneath, and only believe they believe that stuff about economics being an a priori science.
Re the Halo Jones reference: At one point, Halo Jones has joined the army fighting an interstellar war, and in a rare moment of leisure is talking with a hard-bitten old soldier. The army is desperate to get new recruits into the field as fast as possible, and the distinction between training exercises and actual combat is rather blurred. Halo asks her (it’s an all-female army), “How do you know if it was combat, or just combat experience?”. She replies, “If you’re still alive afterwards, it was just combat experience.”
Far from being batshit crazy, Mises was an eminently reasonable thinker. It’s just that he didn’t do a very good job communicating his epistemological insights (which was understandable, given the insanely difficult nature of explaining what he was trying to get at), but did fine with enough of the economic theory, and thus ended up with a couple generations of followers who extended his economics rather well in plenty of ways, but systematically butchered their interpretation of his epistemological insights.
People compartmentalize, they operate under obstructive identity issues, their beliefs in one area don’t propagate to all others, much of what they say or write is signaling that’s incompatible with epistemic rationality, etc. Many of these are tangled together. Yeah, it’s more than possible for people to say batshit insane things and then turn around and make a bunch of useful insights. The epistemological commentary could almost be seen as signaling team affiliation before actually getting to the useful stuff.
Just consider the kind of people who are bound to become Austrian economists. Anti-authority etc. They have no qualms with breaking from the mainstream in any way whatsoever. They already think most people are completely batshit insane, and that the world is a joke and is going down the tubes. There’s nothing really to constrain them from sounding insane on epistemology. It’s not a red flag to them if everyone seems to disagree.
Forget the epistemology. They’re just parroting confused secondary accounts of the work of a thinker who himself utterly failed in his endeavor to explain where he was coming from on this topic, and they’re parroting it to signal team affiliation, a break from the mainstream, etc. Beliefs don’t always propagate throughout the whole web, especially when they’re less usefully analyzed as “beliefs” and more as mere words spilled for the purpose of signaling something.
If you read enough and listen to enough of the modern Austrian school (which is a tragically hard prospect given how allergic most LW-style rationalists would be to the presentation and style of argumentation), you’ll find that what’s going on in the world, or rather what’s going so wrong in society, will become incredibly clear, and half of everything will fall into place. It’s one of the two major pieces in the puzzle—the other of which may be found on Less Wrong.
Your proposed synthesis of Mises and Yudkowsky(?) is moderately interesting, although your claims for the power and importance of such a synthesis suggest naivete. You say that “what’s going so wrong in society” can be understood given two ingredients, one of which can be obtained by distilling the essence of the Austrian school, the other of which can be found here on LW but you don’t say what it is. As usual, the idea that the meaning of life or the solution to the world-problem or even just the explanation of the contemporary world can be found in a simple juxtaposition of ideas will sound naive and unbelievable to anyone with some breadth of life experience (or just a little historical awareness). I give friendly AI an exemption from such a judgement because by definition it’s about superhuman AI and the decoding of the human utility function, apocalyptic developments that would be, not just a line drawn in history, but an evolutionary transition; and an evolutionary transition is a change big enough to genuinely transform or replace the “human condition”. But just running together a few cool ideas is not a big enough development to do that. The human condition would continue to contain phenomena which are unbearable and yet inevitable, and that in turn guarantees that whatever intellectual and cultural permutations occur, there will always be enough dissatisfaction to cause social dysfunction. Nonetheless, I do urge you to go into more detail regarding what you’re talking about and what the two magic insights are.
Oh sorry. I didn’t mean that “what’s going so wrong in society” is a single piece that can be understood given those two ingredients but is otherwise destined to remain confusing. I meant that what one finds on Less Wrong explains part of what’s going so wrong, and Austrian economics (if properly distilled) elucidates the other.
I should clarify though that Less Wrong certainly provides the bigger picture understanding of the situation, with the whole outdated hardware analysis etc., and thus it would be less like two symmetrical pieces being fit together, and more like a certain distilled form of Austrian economics being slotted into a missing section in the Less Wrong worldview.
I also didn’t mean to suggest that adding some insight from Less Wrong to some insight from the Austrian school would suddenly reveal the solution to civilization’s problems. Rather, what I’m suggesting would just be another step in the process to understanding the issues we face—perhaps even a very large step—and thus would simply put us in a better position to figure out what to do to make it significantly more likely that the future will go well.
Not two magic insights, but two very large collections of knowledge and information that would be very useful to synthesize and add together. Less Wrong has a lot of insights about outdated hardware, cognitive biases, how our minds work and where they’re likely to go systematically wrong, certain existential risks, AI, etc., and Austrian economics elucidates something much more controversial: the joke that is the current economic, political, and perhaps even social organization of every single nation on Earth.
As people from Less Wrong, what else should we expect but complete disaster? The current societal structure is the result of tribal political instincts gone awry in this new, evolutionarily discordant situation of having massive tribes of millions of people. Our hardware and factory presets were optimized for hunter-gatherer situations of at most a couple hundred people (?), but now the groups exceed millions. It would be an absolute miracle if societal organization at this point in history were not completely insane. Austrian economics details the insanity at length.
I have also found claims that one or a few simple ideas can solve huge swaths of the world’s problems to be a sign of naivity, but another exception is when there is mass delusion or confusion due to systematic errors. Provided such pervasive and damaging errors do exist, merely clearing up those errors would be a major service to humanity. In this sense, Less Wrong and Misesian epistemology share a goal: to eliminate flawed reasoning. I am not sure why Mises chose to put forth this LW-style message as a positive theory (praxeology), but the content seems to me entirely negative in that it formalizes and systematizes many of the corrections economists (even mainstream ones) must have been tired of making. Perhaps he found that people were more receptive to hearing a “competing theory” than to having their own theories covered in red ink.
Considering we already had a post on the epistemic problems of the school, would you be willing to write a post or sequence on what you consider particularly interesting or worthwhile in Austrian economics?
A possible analogy for how Crux views the Austrian economics might be how most of us view the Copenhagen quantum mechanics of Bohr, Heisenberg et al: excellent science done by top-notch scientists, unfortunately intertwined with a confused epistemology which they thought was essential to the science, but actually wasn’t. (I don’t know enough about Austrian economics to say if the analogy is at any level correct, but it seems a sensible interpretation of what Crux says).
Block and Rothbard do not understand Austrian economics and are incapable of defending it against serious rationalist criticism. Ludwig von Mises is the only rigorous rationalist in the “school”. His works make mincemeat of Caplan’s arguments decades before Caplan even makes them. But don’t take my word for it—go back and reread Mises directly.
You will see that the “rationalist” objections Caplan raises are not new. They are simply born out of a misunderstanding of a complex topic. Rothbard, Block, and most of the other “Austrian” economists that followed merely added another layer of confusion because they weren’t careful enough thinkers to understand Mises.
ETA: Speaking of Bayesianism, it was also rejected for centuries as being unscientific, for many of the same reasons that Mises’s observations have been. In fact, Mises explains exactly why probability is in the mind in his works almost a century ago, and he’s not even a mathematician. It is a straightforward application of his Austrian epistemology. I hope that doesn’t cause anyone’s head to explode.
It’s been a while since I read Man, Economy, and State, but it seemed to me that Rothbard (and therefore possibly von Mises) anticipated chaos theory. There was a description of economies chasing perfectly stable supply and demand, but never getting there because circumstances keep changing.
In fact, Mises explains exactly why probability is in the mind in his works almost a century ago, and he’s not even a mathematician. It is a straightforward application of his Austrian epistemology. I hope that doesn’t cause anyone’s head to explode.
Sure. He wrote about it a lot. Here is a concise quote:
The concepts of chance and contingency, if properly analyzed, do not refer ultimately to the course of events in the universe. They refer to human knowledge, prevision, and action. They have a praxeological [relating to human knowledge and action], not an ontological connotation.
Also:
Calling an event contingent is not to deny that it is the necessary outcome of the preceding state of affairs. It means that we mortal men do not know whether or not it will happen.
The present epistemological situation in the field of quantum mechanics would be correctly described by the statement: We know the various patterns according to which atoms behave and we know the proportion in which each of these patterns becomes actual. This would describe the state of our knowledge as an instance of class probability: We know all about the behavior of the whole class; about the behavior of the individual members of the class we know only that they are members.
A statement is probable if our knowledge concerning its content is deficient. We do not know everything which would be required for a definite decision between true and not true. But, on the other hand, we do know something about it; we are in a position to say more than simply non liquet or ignoramus.
For this defective knowledge the calculus of probability provides a presentation in symbols of the mathematical terminology. It neither expands nor deepens nor complements our knowledge. It translates it into mathematical language. Its calculations repeat in algebraic formulas what we knew beforehand. They do not lead to results that would tell us anything about the actual singular events. And, of course, they do not add anything to our knowledge concerning the behavior of the whole class, as this knowledge was already perfect—or was considered perfect—at the very outset of our consideration of the matter.
In fact, Mises explains exactly why probability is in the mind in his works almost a century ago, and he’s not even a mathematician.
Claiming Ludwig in the Bayesian camp is really strange and wrong. His mathematician brother Richard, from whom he takes his philosophy of probability, is literally the arch-frequentist of the 20th century.
And your quote has him taking Richard’s exact position:
The present epistemological situation in the field of quantum mechanics would be correctly described by the statement: We know the various patterns according to which atoms behave and we know the proportion in which each of these patterns becomes actual. This would describe the state of our knowledge as an instance of class probability: We know all about the behavior of the whole class; about the behavior of the individual members of the class we know only that they are members.
When he says “class probability” he is specifically talking about this. …
They do not lead to results that would tell us anything about the actual singular events.
Which is the the precise opposite of the position of the subjectivist.
Claiming Ludwig in the Bayesian camp is really strange and wrong. His mathematician brother Richard, from whom he takes his philosophy of probability, is literally the arch-frequentist of the 20th century.
And Ludwig and Richard themselves were arch enemies. Well only sort of, but they certainly didn’t agree on everything, and the idea that Ludwig simply took his philosophy of probability from his brother couldn’t be further from the truth. Ludwig devoted an entire chapter in his Magnum Opus to uncertainty and probability theory, and I’ve seen it mentioned many times that this chapter could be seen as his response to his brother’s philosophy of probability.
I see what you’re saying in your post, but the confusion stems from the fact that Ludwig did in fact believe that frequency probability, logical positivism, etc., were useful epistemologies in the natural sciences, and led to plenty of advancements etc., but that they were strictly incorrect when extended to “the sciences of human action” (economics and others). “Class probability” is what he called the instances where frequency worked, and “case probability” where it didn’t.
The most concise quote I could find to make my position seem much more plausible:
Only preoccupation with the mathematical treatment could result in the prejudice that probability always means frequency.
And here’s a dump of all the quotes I could find on the topic, reading all of which will make it utterly clear that Ludwig understood the subjectivist nature of probability (emphasis mine, and don’t worry about reading much more than just the emphasized portions unless you want to).
First:
Where there is regularity, statistics could not show anything else than that A is followed in all cases by P and in no case by something different from P. If statistics show that A is in x% of all cases followed by P and in (100 − x)% of all cases by Q, we must assume that a more perfect knowledge will have to split up A into two factors B and C of which the former is regularly followed by P and the latter by Q.
Second:
Quantum mechanics deals with the fact that we do not know how an atom will behave in an individual instance. But we know what patterns of behavior can possibly occur and the proportion in which these patterns really occur. While the perfect form of a causal law is: A “produces” B, there is also a less perfect form: A “produces” C in n% of all cases, D in m% of all cases, and so on. Perhaps it will at a later day be possible to dissolve this A of the less perfect form into a number of disparate elements to each of which a definite “effect” will be assigned according to the perfect form. But whether this will happen or not is of no relevance for the problem of determinism. The imperfect law too is a causal law, although it discloses shortcomings in our knowledge. And because it is a display of a peculiar type both of knowledge and of ignorance, it opens a field for the employment of the calculus of probability. We know, with regard to a definite problem, all about the behavior of the whole class of events, we know that class A will produce definite effects in a known proportion; but all we know about the individual A’s is that they are members of the A class. The mathematical formulation of this mixture of knowledge and ignorance is: We know the probability of the various effects that can possibly be “produced” by an individual A.
Third:
What the neo-indeterminist school of physics fails to see is that the proposition: A produces B in n% of the cases and C in the rest of the cases is, epistemologically, not different from the proposition: A always produces B. The former proposition differs from the latter only in combining in its notion of A two elements, X and Y, which the perfect form of a causal law would have to distinguish. But no question of contingency is raised. Quantum mechanics does not say: The individual atoms behave like customers choosing dishes in a restaurant or voters casting their ballots. It says: The atoms invariably follow a definite pattern. This is also manifested in the fact that what it predicates about atoms contains no reference either to a definite period of time or to a definite location within the universe. One could not deal with the behavior of atoms in general, that is, without reference to time and space, if the individual atom were not inevitably and fully ruled by natural law. We are free to use the term “individual” atom, but we must never ascribe to an “individual” atom individuality in the sense in which this term is applied to men and to historical events.
Fourth:
Calling an event contingent is not to deny that it is the necessary outcome of the preceding state of affairs. It means that we mortal men do not know whether or not it will happen.
Fifth:
For this defective knowledge the calculus of probability provides a presentation in symbols of the mathematical terminology. It neither expands nor deepens nor complements our knowledge. It translates it into mathematical language. Its calculations repeat in algebraic formulas what we knew beforehand. They do not lead to results that would tell us anything about the actual singular events. And, of course, they do not add anything to our knowledge concerning the behavior of the whole class, as this knowledge was already perfect—or was considered perfect—at the very outset of our consideration of the matter.
Sixth:
A statement is probable if our knowledge concerning its content is deficient. We do not know everything which would be required for a definite decision between true and not true. But, on the other hand, we do know something about it; we are in a position to say more than simply non liquet or ignoramus.
Etc. Probability is in the mind. It is subjective, and dependent upon the current state of knowledge of the observer in question. He seems very clear on this matter.
Back to you:
When he says “class probability” he is specifically talking about this. …
They do not lead to results that would tell us anything about the actual singular events.
Which is the the precise opposite of the position of the subjectivist.
Is it? Let’s analyze the full quote:
For this defective knowledge the calculus of probability provides a presentation in symbols of the mathematical terminology. It neither expands nor deepens nor complements our knowledge. It translates it into mathematical language. Its calculations repeat in algebraic formulas what we knew beforehand. They do not lead to results that would tell us anything about the actual singular events. And, of course, they do not add anything to our knowledge concerning the behavior of the whole class, as this knowledge was already perfect—or was considered perfect—at the very outset of our consideration of the matter.
All he’s saying is that taking one’s knowledge of the behavior of a class of events the behavior of the individuals of which one knows nothing, and putting it into mathematical notation, does not magically reveal anything about those individual components.
For example (taken from that Mises Wiki link), if you know approximately how many houses will catch fire per year in a neighborhood, but you don’t know which ones they will be, transforming this knowledge into mathematical probability theory is no more than a potentially more concise way of describing one’s current state of knowledge. It of course cannot add anything to what you already knew.
In fact, this isn’t even relevant to the topic at hand. Believe it or not, some people thought probability theory was magical and could help them win at games of chance. This was him responding to that mysticism. I certainly don’t see how it makes him not a subjectivist on probability theory, especially when the whole analysis is about states of knowledge etc.
I didn’t say he was in the Bayesian camp, I said he had the Bayesian insight that probability is in the mind.
In the final quote he is simply saying that mathematical statements of probability merely summarize our state of knowledge; they do not add anything to it other than putting it in a more useful form. I don’t see how this would be interpreted as going against subjectivism, especially when he clearly refers to probabilities being expressions of our ignorance.
An economics question:
Which economic school of thought most resembles “the standard picture” of cogsci rationality? In other words, which economists understand probability theory, heuristics & biases, reductionism, evolutionary psychology, etc. and properly incorporate it into their work? If these economists aren’t of the neo-classical school, how closely does neo-classical economics resemble the standard picture, if at all?
Unnecessary Background Information:
Feel free to not read this. It’s just an explanation of why I’m asking these questions.
I’m somewhat at a loss when it comes to economics. When I was younger (maybe 15 or so?) I began reading Austrian economics. The works of Murray Rothbard, Ludwig von Mises, etc., served as my first rigorous introduction to economics. I self-identified as an Austrian for several years, up until a few months ago.
For the past year, I have learned a lot about cognsci rationality through LW sequences and related works. I think I have a decent grasp of what cognsci rationality is, why it is correct, and how to conflicts with the method of the Austrian school. (For those who aren’t aware, Austrians use an apriori method and claim absolute/infinite certainty, among other things.) The final straw came when I read Bryan Caplan’s “Why I am not an Austrian Economist” and his debate with Austrian economist Walter Block. Caplan ably defended BayesCraft. I—with emotional difficulty—consciously updated my belief in Austrianism to below 0.5. I knew I could no longer be an Austrian, nor did I want to be.
Caplan is an neo-classical economist, and neo-classical seems to be the dominant school of modern economic thought. So I’m reading my way through introductory neo-classical economics textbooks. (Specifically, Principles of Macreconomics and Principles of Microeconomics by Mankiw.) I am also looking to take some economics courses when I start university in the fall. My primary major will likely be mathematics, but I am considering double majoring in economics. Maybe get a graduate degree in economics? I don’t know yet.
But I’m apprehensive about reading bad economics textbooks because I don’t know enough good economics to sort out the bunk. And the reason I want to read economics textbooks in the first place is to learn more good economics. So I’m in a catch 22. I think I’m safe enough reading a standard intro to micro/marco book. But when it comes to finance? Banking? Monetary theory? I haven’t a clue who to trust.
So I’m looking to take what I do know (cogsci rationality) and see where it is utilized in economics. If there is a school of economic thought that uses it as their methodology, I think that serves as very strong evidence I can likely trust what they say.
Econ grad student here (and someone else converted away from Austrian econ in part from Caplan’s article + debate with Block). Most of economics just chugs right along with the standard rationality (instrumental rationality, not epistemic) assumptions. Not because economists actually believe humans are rational—well some do, but I digress—but largely because we can actually get answers to real world problems out of the rationality assumptions, and sometimes (though not always) these answers correspond to reality. In short, rationality is a model and economists treat it as such—it’s false, but it’s an often useful approximation of reality. The same goes for always assuming we’re in equilibrium. The trick is finding when and where the approximation isn’t good enough and what your criteria for “good enough” is.
Now, this doesn’t mean mainstream economists aren’t interested in cogsci rationality. An entire subfield of economics—Behavioral Economics—rose up in tandem with the rise of the cogsci approach to studying human decision making. In fact, Kahneman won the nobel prize in economics. AFAICT there’s a large market for economic research that applies behavioral economics to problems typically studied in classical, rational agent settings. The problem isn’t the demand side—I think economists would love to see a fully general theory of general equilibrium with more plausible agents—it’s the supply side: getting answers out of models with non-rational agents is a difficult task. It’s already hard enough with rational agents for models to be anywhere near realistic—in macro models with micro foundations, we often assume all agents are identical and all firms are identical. This may seem terribly unrealistic, but often there’s some other complication in the model that makes it hard enough to find solutions. Adding heterogenous firms and agents is an extra complication that may not add anything illuminating to the model. So, many economists treat the rationality assumptions which are fundamental to neoclassical economics similarly. If the rationality of agents within their model is tangential to the point they’re trying to make (which may only be known empirically), they’ll choose the easier assumption to work with. There are fields where the frailty of human rationality seems centrally important, and those are the fields where you’re most likely to see nonstandard rationality assumptions. Behavioral Finance is an example of one of these.
The biggest thing I would say is, don’t think in terms of “schools” of economic thought. Think in terms of models and tools. Most good ideas are eventually assimilated into the “neoclassical” economic toolkit in some form or another. And besides, thinking in terms of schools of thought is a good way to unintentionally mind-kill yourself.
As far as textbooks go, most higher level (intermediate micro and above) will present models without making any claims about when they’re a good approximation and when they aren’t. Oftentimes this is because the models being presented are actually just stepping stones to the more realistic and more complicated models economists are actually using. This is generally good, though I wish there were more empirical evidence presented. Any edition of Microeconomic Analysis by Varian will give you a good intermediate level (requires some calculus) rundown of standard micro theory. Think of it as taking standard economic intuitions (to economists—even austrians) and writing down equations that describe them so that we can talk about them precisely. I’d steer clear of any non-graduate level macro textbooks. The macro we teach undergrads is not the macro practicing macroeconomists actually believe. (Even on the graduate level, there isn’t a generally accepted class of models that economist agree on, so it might not be that useful to study modern macro). If your mathematical background is stronger, Mas-Colell, Whinston and Green’s Microeconomic Theory is a standard first year graduate micro text that’s densely packed with a lot of material. Simon and Blume’s Mathematics for Economists is the standard math primer used to prepare students for the class Mas-Colell is typically used in, if you’re unsure about your math background.
Edit: Holy mother of grammar!
Wow! That was extraordinary helpful. My only regret is that I have but one upvote to give.
You’re right about the unintentional self-mindkilling from focusing of schools of thought. It’s obvious to me in hindsight.
It might just be a leftover from my Austrian days, but I am thoroughly skeptical of any macroeconomic model. A red flag for me is when I read that macro models aren’t generally reducible to micro models. The only reason I’m reading a macro textbook is that my school requires intro to macro as a prerequisite to intro to micro. And I was thinking of studying introductory macro so I have a decent hand on it when I have to take it in school.
Reading the first 100 pages of Mankiw’s Principles of Macroeconomics hasn’t been too terrible. Though so far I think it has basically been micro disguised as macro. But based on what you’re saying, I think it might be better to stop reading it for now. I’ll just learn it when I take it in school.
My math background is okay, but not fantastic. I took some calculus my senior year of high school and got up to integration. For my freshman year of university, I’m taking Calc 1 in the fall and Calc 2 in the spring. Mathematics is likely my primary major, so I think I’ll read Mathematics for Economists and then move onto Varian.
Thank you very much for the suggested books, advice, and insight.
No problem!
If you’re going to attack Varian, I’d suggest not focusing on Mathematics for Economists too much. Make sure you understand basic constrained maximization using the lagrangian and then you’re ready for Varian. Anything else he does that seems weird you can pick up as needed. Constrained maximization is usually taught in Calc 3 AFAIK, but I don’t think it’s too difficult if you can handle Calc 1.
This shouldn’t be as much of a red flag as it is to most people. Is it a red flag when micro models don’t reduce to plausible theories of psychology? Not if it isn’t worth the effort of doing micro with said theories. Similarly, there’s a trade-off between microeconomic foundations in macro models and actually getting answers out of the models. Often the microeconomic foundations themselves aren’t even plausible to begin with. It still might be a red flag based on the details of the tradeoff at the margin, but I’m not sure it’s that clear.
I was just reviewing Mathematics for Economists. While a lot of it sounds fascinating, it’s probably not what I need at the moment. Too much of it is over my head. So on second thought, I’ll probably just review the first half of Calc 1, learn the second half, and tackle Varian.
On the topic of macro reducing to micro, point taken. I appreciate the clarification.
Good idea. I wouldn’t worry about complicated integrals if you’re just preparing for Varian. You’ll need integration, but I don’t recall anything too complicated. It’s mainly the differential calculus that you’ll need.
Debating with Block would turn any rationalist off of Austrian econ. No one got it comletely right except Mises himself. Actually not even him, but he was usually extremely rational and rigorous in his approach—more than any other economist I know of—albeit often poorly communicated.
In any case, any non-ideologically motivated rationalist worth their salt ought to be able to piece together a decent understanding of the epistemological issues by reading the first 200 pages of Human Action.
Um… and you—alone among the ignorant masses—realize and know all this because...? Sorry, but I don’t have a high prior on your authority in the discipline.
I would have prefaced that with “in my opinion,” but I thought that was obvious. (What else would it be?)
Interestingly, this is pretty much what I used to say about Marx when I was a Marxist.
My point was to indicate that not all people who put stock in the “Austrian school” accept post-Misesians as competent intepreters. I meant, essentially: Mises had it right, but read his original work (not later Austrians) and you’ll be able to tell whether I’m right.
Is your nick from those times? Or a memory of them?
Slightly. Of course, the word has been used by many.
Economics is much bigger than it looks from the outside. People sometimes ask me why I’m studying economics, and my honest answer is “I want to be able to build machines that know how to trust one another”.
Experimental economists use cogsci sometimes. Many economists incorporate those findings into models. And you can find Bayesian models in game theory, as alternate equilibrium concepts. But if you’re looking for a school of universally Bayesian economists who employ research from cognitive science to make predictions, you won’t find them. And I don’t really know why it would matter. You won’t find many biologists using cogsci rationality either, but that doesn’t mean their research findings are false.
Ignore schools of thought entirely and focus on independent empirical/theoretical questions. Use your cogsci rationality skills to differentiate between good and bad arguments and to properly weigh empirical papers. The historical disciplines are largely about politics anyway. The biggest tips for assessing econ are: 1) Most empirical papers are (sometimes necessarily) bad and should only change your priors by a small amount; you should look for overwhelming empirical findings if an argument goes against your (reasonable) priors, and 2) High degrees of consensus are a very good sign. On that second point, most textbooks will be stuff that most economists agree on.
I found your comment very helpful. Thanks!
But your following point trips me up:
Sure, I don’t think a biologist studying mitochondria needs to be an expert on cogsci. Not being an expert on cogsci doesn’t make the biologist’s findings false. Similarly, it doesn’t necessarily make the economist’s findings false if she isn’t well versed in cogsci.
But the reason I’m interested in economists who know cogsci (as opposed to biologists, chemists, or physicists) is that their work directly involves human judgments and decision making under uncertainty. And isn’t the precisely what cogsci discusses? Working from a better model of how human beings reason might lead to a better model of how the economy operates. Maybe I’m wrong about that?
Ether way, I think your later point suffices to address this.
Even if economists aren’t well versed in cogsci, if they’re making any relevant mistakes, then I’ll hopefully catch them when reading.
As another econ grad student and former self-professed Austrian, I’ll concur with Matt Simpson. Some economists have a good handle on these topics and others don’t, but there aren’t clear demarcating lines. Except for in macro, there aren’t clearly identifiable schools, which is a good sign. By field of study, micro theorists are more likely to use rationality jargon, be familiar with probabilistic logic, and know a few H&B classic like the Allais or Ellsberg paradoxes. Whether micro theorists actually apply this knowledge better than other economists is another question.
If you are interested in macro, check out Snowden and Vane’s Modern Macroeconomics. It presents the full gamut of perspectives, steel-manning mainstream and heterodox schools chapter by chapter.
Out of personal interest: does Modern Macroeconomics discuss the “Monetary Disequilibrium” approach to macro?
Assuming you are referring to Austrian-style business cycle theory, the book has a chapter written by Roger Garrison on the subject. While the theory might not be applicable in general, he make a good case that a boom/bust cycle could be generated by credit expansion.
Oops, I wasn’t clear. Monetary Disequilibrium is “Austrian” but is not the same thing as “Austrian Business Cycle Theory” (I think it’s mostly orthogonal and I think some Austrians discuss both as important).
Monetary Disequilibrium theory might more accurately be called a monetary economic theory rather than a macro economic theory.
Hey badger, thanks for the information. All of that is good to hear, especially since I’m mostly interested in micro. Down the line I may study finance, possibly get a CFA.
But if/when there comes to time for me to learn advanced macro, I’ll be sure to check out Modern Macroeconomics. Steel-manning all the perspectives sounds like it would be very useful to me. Thanks for the suggestion!
I don’t have anywhere near enough time to elaborate on this, but I always feel compelled to respond when anyone mentions Austrian economics. I just want to say—for what it’s worth—that even though I’m well-versed in LW-style rationality and epistemology, I consider the work of Ludwig von Mises, and everything that’s been an extension thereof, to be in good epistemological standing.
But beware. Mises himself was extremely terrible at explaining the epistemological foundation of his work in a way that avoided being as impenetrable as it was reminiscent of the sort of philosophy most looked down upon on this website, and those who have more than a mere glimmer of understanding of where he was coming from are few and far between, and none of them are popular Austrian economists one would normally run into.
I implore you, and anyone else reading this who’s interested, to investigate and scrutinize the epistemological status of the Austrian School not by reading the incompetent, confused regurgitations of the work of a man who himself could hardly do justice to his method, but by analyzing Austrian economic theory itself, and let it stand or fall by its own strength. I know I know, the epistemological commentary makes it sound like religion. It does! But this is merely an epic failure of communication—something (I consider) monumentally unfortunate given the massive importance of what (I believe) this school has to offer to the world.
That comment was at −2 for several hours, but just now went back to 0. Judging from those two downvotes, some clarification may be in order. I think I may have sounded too confident about my unsubstantiated assertions while not being clear enough about the core issue I was attempting to raise.
What I was trying to bring up is that a school’s epistemological commentary and their actual epistemological practice need not necessarily be aligned. There’s nothing that says that one must know exactly what one is doing, and furthermore be able to communicate it effectively, to be competent at the task itself.
This, I believe, is the story of the Austrian school. Their actual epistemological practice is in many ways solid, but their epistemological commentary is not. All too many intelligent, scientifically-minded people reject the economic theory because the epistemological theory sounds so ridiculous or pseudoscientific. But what I’m saying is that these people are correct about the latter, but not about extending to backward to the former.
What basis does one have for rejecting the epistemological basis of the actual economic theory on the grounds that their epistemological commentary is bad? In what way does one’s commentary about what one is doing have that strong of a causal connection with the success of the endeavor itself? Instead, one must let the theory itself stand or fall upon its own strength.
Rather than looking at the economic theory itself, figuring out the epistemological basis (or lack thereof), and then deciding whether it stands on firm epistemological ground, they look to the Austrians to do their research for them. This, I believe, is a mistake. Mises was bad at communicating his epistemology (though I consider it in many ways solid), and others were just plain bad on epistemology. This does not mean the economic theory is (necessarily) on shaky ground.
How did this happen? Isn’t studying epistemology a tool for coming up with sound theory? Wouldn’t being terrible on epistemology be a huge red flag? Yes, but the basic story is that Mises was good on epistemology, but bad at communicating it. His predecessors then read and assimilated his economic theory and thus picked up his actual epistemic habits—what he actually did in practice, his mental hygiene patterns, etc.--while misunderstanding his epistemological commentary.
The result is a bunch of people who are good on economic theory, but bad at explaining where exactly all these mental hygiene habits came from or what their epistemological significance is. You could say that they all got there sort of by accident, because they don’t really understand why what they’re doing is good, but that’s beside the point. All that’s important is that Mises was a solid thinker, and a lot of people—for whatever reason—picked up where he left off.
Austrian theory would certainly be better if a team of LW-style rationalists could enter the scene and start explaining what the Austrians have failed to. Mises and his mental hygiene habits certainly have had some momentum, but the longer this goes on—the longer the school is dominated by people who’s only source of epistemological fortitude is the unconscious assimilation of an old thinker’s mental habits—the worse the school will spiral away from its grounded center, until nothing is left of the previous foundation.
It’s a tragic situation, to be sure. Austrian economics is as incisive and important at times as it is insane at others, and this is why I would always hesitate to identity myself as a follower of the Austrian school, despite the massive value I believe it has buried behind some of its more visible components.
How do you know when it’s epistemology and when it’s just epistemological commentary?
(“If you’re still alive afterwards, it was just epistemological commentary”—not quite from The Ballad of Halo Jones)
Although I don’t fully understand the reference, I think I sort of see where it’s going.
Either way though, epistemological practice is what one does in coming up with a way of modeling economic activity or anything else, and epistemological commentary is one’s attempt to explain the fundamentals of what exactly is going on when one does the former.
In this case, you know it’s the result of epistemological practice when it’s an actual economic model or whatever (e.g., the Austrian Business Cycle Theory), and you know it’s epistemological commentary when they start talking about a priori statements, or logical positivism, or something like that.
In other words, they’re batshit crazy, but somehow manage to say some sensible things anyway? I’d be uneasy about assuming that getting the right answers implies that they must be doing something rationally right underneath, and only believe they believe that stuff about economics being an a priori science.
Re the Halo Jones reference: At one point, Halo Jones has joined the army fighting an interstellar war, and in a rare moment of leisure is talking with a hard-bitten old soldier. The army is desperate to get new recruits into the field as fast as possible, and the distinction between training exercises and actual combat is rather blurred. Halo asks her (it’s an all-female army), “How do you know if it was combat, or just combat experience?”. She replies, “If you’re still alive afterwards, it was just combat experience.”
Far from being batshit crazy, Mises was an eminently reasonable thinker. It’s just that he didn’t do a very good job communicating his epistemological insights (which was understandable, given the insanely difficult nature of explaining what he was trying to get at), but did fine with enough of the economic theory, and thus ended up with a couple generations of followers who extended his economics rather well in plenty of ways, but systematically butchered their interpretation of his epistemological insights.
People compartmentalize, they operate under obstructive identity issues, their beliefs in one area don’t propagate to all others, much of what they say or write is signaling that’s incompatible with epistemic rationality, etc. Many of these are tangled together. Yeah, it’s more than possible for people to say batshit insane things and then turn around and make a bunch of useful insights. The epistemological commentary could almost be seen as signaling team affiliation before actually getting to the useful stuff.
Just consider the kind of people who are bound to become Austrian economists. Anti-authority etc. They have no qualms with breaking from the mainstream in any way whatsoever. They already think most people are completely batshit insane, and that the world is a joke and is going down the tubes. There’s nothing really to constrain them from sounding insane on epistemology. It’s not a red flag to them if everyone seems to disagree.
Forget the epistemology. They’re just parroting confused secondary accounts of the work of a thinker who himself utterly failed in his endeavor to explain where he was coming from on this topic, and they’re parroting it to signal team affiliation, a break from the mainstream, etc. Beliefs don’t always propagate throughout the whole web, especially when they’re less usefully analyzed as “beliefs” and more as mere words spilled for the purpose of signaling something.
If you read enough and listen to enough of the modern Austrian school (which is a tragically hard prospect given how allergic most LW-style rationalists would be to the presentation and style of argumentation), you’ll find that what’s going on in the world, or rather what’s going so wrong in society, will become incredibly clear, and half of everything will fall into place. It’s one of the two major pieces in the puzzle—the other of which may be found on Less Wrong.
Your proposed synthesis of Mises and Yudkowsky(?) is moderately interesting, although your claims for the power and importance of such a synthesis suggest naivete. You say that “what’s going so wrong in society” can be understood given two ingredients, one of which can be obtained by distilling the essence of the Austrian school, the other of which can be found here on LW but you don’t say what it is. As usual, the idea that the meaning of life or the solution to the world-problem or even just the explanation of the contemporary world can be found in a simple juxtaposition of ideas will sound naive and unbelievable to anyone with some breadth of life experience (or just a little historical awareness). I give friendly AI an exemption from such a judgement because by definition it’s about superhuman AI and the decoding of the human utility function, apocalyptic developments that would be, not just a line drawn in history, but an evolutionary transition; and an evolutionary transition is a change big enough to genuinely transform or replace the “human condition”. But just running together a few cool ideas is not a big enough development to do that. The human condition would continue to contain phenomena which are unbearable and yet inevitable, and that in turn guarantees that whatever intellectual and cultural permutations occur, there will always be enough dissatisfaction to cause social dysfunction. Nonetheless, I do urge you to go into more detail regarding what you’re talking about and what the two magic insights are.
Oh sorry. I didn’t mean that “what’s going so wrong in society” is a single piece that can be understood given those two ingredients but is otherwise destined to remain confusing. I meant that what one finds on Less Wrong explains part of what’s going so wrong, and Austrian economics (if properly distilled) elucidates the other.
I should clarify though that Less Wrong certainly provides the bigger picture understanding of the situation, with the whole outdated hardware analysis etc., and thus it would be less like two symmetrical pieces being fit together, and more like a certain distilled form of Austrian economics being slotted into a missing section in the Less Wrong worldview.
I also didn’t mean to suggest that adding some insight from Less Wrong to some insight from the Austrian school would suddenly reveal the solution to civilization’s problems. Rather, what I’m suggesting would just be another step in the process to understanding the issues we face—perhaps even a very large step—and thus would simply put us in a better position to figure out what to do to make it significantly more likely that the future will go well.
Not two magic insights, but two very large collections of knowledge and information that would be very useful to synthesize and add together. Less Wrong has a lot of insights about outdated hardware, cognitive biases, how our minds work and where they’re likely to go systematically wrong, certain existential risks, AI, etc., and Austrian economics elucidates something much more controversial: the joke that is the current economic, political, and perhaps even social organization of every single nation on Earth.
As people from Less Wrong, what else should we expect but complete disaster? The current societal structure is the result of tribal political instincts gone awry in this new, evolutionarily discordant situation of having massive tribes of millions of people. Our hardware and factory presets were optimized for hunter-gatherer situations of at most a couple hundred people (?), but now the groups exceed millions. It would be an absolute miracle if societal organization at this point in history were not completely insane. Austrian economics details the insanity at length.
I have also found claims that one or a few simple ideas can solve huge swaths of the world’s problems to be a sign of naivity, but another exception is when there is mass delusion or confusion due to systematic errors. Provided such pervasive and damaging errors do exist, merely clearing up those errors would be a major service to humanity. In this sense, Less Wrong and Misesian epistemology share a goal: to eliminate flawed reasoning. I am not sure why Mises chose to put forth this LW-style message as a positive theory (praxeology), but the content seems to me entirely negative in that it formalizes and systematizes many of the corrections economists (even mainstream ones) must have been tired of making. Perhaps he found that people were more receptive to hearing a “competing theory” than to having their own theories covered in red ink.
Considering we already had a post on the epistemic problems of the school, would you be willing to write a post or sequence on what you consider particularly interesting or worthwhile in Austrian economics?
Yes. May be a while though.
A possible analogy for how Crux views the Austrian economics might be how most of us view the Copenhagen quantum mechanics of Bohr, Heisenberg et al: excellent science done by top-notch scientists, unfortunately intertwined with a confused epistemology which they thought was essential to the science, but actually wasn’t. (I don’t know enough about Austrian economics to say if the analogy is at any level correct, but it seems a sensible interpretation of what Crux says).
Block and Rothbard do not understand Austrian economics and are incapable of defending it against serious rationalist criticism. Ludwig von Mises is the only rigorous rationalist in the “school”. His works make mincemeat of Caplan’s arguments decades before Caplan even makes them. But don’t take my word for it—go back and reread Mises directly.
You will see that the “rationalist” objections Caplan raises are not new. They are simply born out of a misunderstanding of a complex topic. Rothbard, Block, and most of the other “Austrian” economists that followed merely added another layer of confusion because they weren’t careful enough thinkers to understand Mises.
ETA: Speaking of Bayesianism, it was also rejected for centuries as being unscientific, for many of the same reasons that Mises’s observations have been. In fact, Mises explains exactly why probability is in the mind in his works almost a century ago, and he’s not even a mathematician. It is a straightforward application of his Austrian epistemology. I hope that doesn’t cause anyone’s head to explode.
It’s been a while since I read Man, Economy, and State, but it seemed to me that Rothbard (and therefore possibly von Mises) anticipated chaos theory. There was a description of economies chasing perfectly stable supply and demand, but never getting there because circumstances keep changing.
This intrigues me, could you elaborate?
Sure. He wrote about it a lot. Here is a concise quote:
Also:
Claiming Ludwig in the Bayesian camp is really strange and wrong. His mathematician brother Richard, from whom he takes his philosophy of probability, is literally the arch-frequentist of the 20th century.
And your quote has him taking Richard’s exact position:
When he says “class probability” he is specifically talking about this. …
Which is the the precise opposite of the position of the subjectivist.
And Ludwig and Richard themselves were arch enemies. Well only sort of, but they certainly didn’t agree on everything, and the idea that Ludwig simply took his philosophy of probability from his brother couldn’t be further from the truth. Ludwig devoted an entire chapter in his Magnum Opus to uncertainty and probability theory, and I’ve seen it mentioned many times that this chapter could be seen as his response to his brother’s philosophy of probability.
I see what you’re saying in your post, but the confusion stems from the fact that Ludwig did in fact believe that frequency probability, logical positivism, etc., were useful epistemologies in the natural sciences, and led to plenty of advancements etc., but that they were strictly incorrect when extended to “the sciences of human action” (economics and others). “Class probability” is what he called the instances where frequency worked, and “case probability” where it didn’t.
The most concise quote I could find to make my position seem much more plausible:
And here’s a dump of all the quotes I could find on the topic, reading all of which will make it utterly clear that Ludwig understood the subjectivist nature of probability (emphasis mine, and don’t worry about reading much more than just the emphasized portions unless you want to).
First:
Second:
Third:
Fourth:
Fifth:
Sixth:
Etc. Probability is in the mind. It is subjective, and dependent upon the current state of knowledge of the observer in question. He seems very clear on this matter.
Back to you:
Is it? Let’s analyze the full quote:
All he’s saying is that taking one’s knowledge of the behavior of a class of events the behavior of the individuals of which one knows nothing, and putting it into mathematical notation, does not magically reveal anything about those individual components.
For example (taken from that Mises Wiki link), if you know approximately how many houses will catch fire per year in a neighborhood, but you don’t know which ones they will be, transforming this knowledge into mathematical probability theory is no more than a potentially more concise way of describing one’s current state of knowledge. It of course cannot add anything to what you already knew.
In fact, this isn’t even relevant to the topic at hand. Believe it or not, some people thought probability theory was magical and could help them win at games of chance. This was him responding to that mysticism. I certainly don’t see how it makes him not a subjectivist on probability theory, especially when the whole analysis is about states of knowledge etc.
I didn’t say he was in the Bayesian camp, I said he had the Bayesian insight that probability is in the mind.
In the final quote he is simply saying that mathematical statements of probability merely summarize our state of knowledge; they do not add anything to it other than putting it in a more useful form. I don’t see how this would be interpreted as going against subjectivism, especially when he clearly refers to probabilities being expressions of our ignorance.
Double post