Will rational economic decision making be any better?

“whatever the merits of behavioural economics, analysing the economy through individual behaviour will provide no direction towards a more productive and rational economics.”1

In decision making, everything is relative, we measure our options in relation to everything in the world around us, we all have different values and what is considered to be a good or bad economic decision is not just our opinion of the effect on our lives as a result, but by everyone else affected. But there is no visualization that I know of in existence at the moment that can show the effects of all our economic choices, or there would be no uncertainty, no risk and in reality – no financial investment that involved risk. However if we remove risk from economic / financial choices at a micro-level, how are our brains going to behave – what will we try and risk instead and/or could we survive without this as humans. How much are our brains dependent on making choices that involve risk – how does it affect our health if we don’t – I’m sure there are many scientists who know the answer.

If we can’t describe the world and the complexity, our models are always going to be flawed and there is not a utopian financial engineering answer. So the decision could be:

  • to carry on improving financial engineering, using technologies and working through successive failures but without a complete understanding of how much we can improve and in how much time
  • and ‘outsource’ our intelligent thinking to an artificial form if we are capable of creating this, letting AI improve itself? Or call it advanced rather than artificial intelligence.

In Co-opetition, Biology and AI, Steve Omuhundro suggests that AI will self-improve through rational decision making, calculating probabilities and act in order to maximise utility. At a macro level, he suggests co-operation as the way forward2 This has also been explored further by Tom Haskins and other commenters – whether co-operation belongs with complicated (market) or complex (network) or co-operation+collaboration = complex (network).3

So is free-market economics not also co-operation + collaboration or are these are too complex to actually be achievable by the humans and the level of trading that is required for everyone to exist ? We will never have a level playing field, so is a combination of independent rational decision-making possible ? If it is inter-dependent (my understanding of networks is limited but I think networks are inter-dependent and counter-dependent) then rational economics at a macro-level would be difficult – how could you have a fair market price for anything ? We can become more informed than before with the web but that doesn’t necessarily mean at a micro-level we make better decisions, so why would this happen in a more complex organizational structure? Also favourable financial terms for developing economies to improve such as better trading relationships with developed nations – the “missing markets”4 . Can study of natural structures produce better markets?

Natural enterprises

“appreciate that most systems are too vast and complex to fully know or control….allow an (always incomplete and ever-changing) understanding of the dynamics of the system to emerge over time…have learned to take a more improvisational approach to risks and operational problems, learning how and with whom to collaborate and respond quickly and effectively when problems arise”5

Will explore this and the role of rational decision making within natural organizational structures and processes, more tomorrow. For example, the difference between rational competition and rational co-operation and whether a natural economy is possible? I’m also interested in the differences between micro-financial  or economic activity, local financial or economic activity and the concept of free-money.

Because future self-modification needs clear goals
Goals as utility functions
Beliefs as probabilities
Act to maximize expected utility
Update beliefs using Bayesrule

1. Derbyshire S (2009), Brain dysfunction did not cause the recession, Spiked Online, available at: http://www.spiked-online.com/index.php?/site/article/6638/
2. Omuhundro S, (2009),  Co-opetition in Economics, Biology and AI, Selfaware Systems, available at: http://selfawaresystems.com/2009/02/18/talk-on-co-opetition-in-economics-biology-and-ai/
3. Haskins T et al (2009), Co-operating or Collaborating, Growing Changing Learning Creating, available at: http://growchangelearn.blogspot.com/2009/05/cooperating-or-collaborating.html#comment-form
4. Hausmann R, Velasco A (2004), The causes of financial crises: moral failure versus market failure,  Harvard University, available at: http://ksghome.harvard.edu/~AVelasco/Files/Research/Causes_of_Crises_Dec2004.pdf
5. Pollard D (2006), Natural versus Monolithic Organizations,  How to Save the World, available at http://blogs.salon.com/0002007/2006/03/07.html#a1458

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