One thing I as an economics student get asked most is: why do economists think people are rational? Surely people don’t do calculations or complicated logical reasoning before they act?
On the second question, I completely agree because I don’t have a lovely formula in my head that tells me what to eat for lunch, what shampoo I buy or any other hundreds of minute or significant decisions I make everyday. But what I do have is an idea of what I like: I’m vegetarian so meat is off the table for lunch, I hate the smell of mint so I’ll never go for a shampoo has herb in it, and so on. This is what we students of economics know as preference. Rationality in the economic sense, really is just about preferences.
Continuing with my lunch and shampoo, if I did eat say beef for lunch or I actually bought a shampoo with basil fragrance, then without any new information, I’m the classic definition of irrationality according to economics. So what exactly is rationality then? In simple words, rationality means the following:
- The ability to make a decision
- The ability to identify one’s preference that makes sense
- The ability to make a decision based on the preference identified.
So you see, really there’s no calculations of any sort, and by making sense in 2), I meant if you prefer apples to oranges to bananas under all circumstances, then when present with an apple and a banana, you will always get an apple.
Then you say, what about these utils or whatever your professor calls it? Isn’t that what we get from plugging numbers into these “utility functions”? In a way, yes and in many other ways, no. I think it is obvious that we can’t measure satisfaction with numbers and dollars. Who is to say one’s pleasure from eating an apple is $5 more than the pleasure from eating a banana? Utility functions are a way to represent preferences. Thanks to mathematics, if you can give me your preference over fruits, I can write “taunting” maths expressions to represent what you like.
Looking back at apples and bananas, if you are a huge fan of apples (as in fruits) and can never get enough of it, then I could write something like u(x)=2x where x is the number of apples you have. And this is saying nothing more than: the more apple you have, the better you feel. In this case, u(x)=2x is saying EXACTLY the same thing as u(x)=100x unless you want to offer me some more information.
On a last note about this rationality business, these functions don’t exist in my or your or anyone’s mind. It’s is a way economists use maths and numbers to build a model and hope to understand decisions and behaviours. Think about those horrifying “utility functions” you maximised or saw your friends maximised, the intuition behind can be really simple. So don’t be afraid the next time you say someone is rational or say yourself is rational. You are not a walking calculating machine or a sophisticated logician (neither is a bad thing in anyway), you are just a normal person as anyone else who knows what she wants and acts like it.
I was browsing random pages and chatting with random friends earlier on, and two terms grasped my attention: futurology and prediction market.
Futurology is pretty self-explanatory: study of the future. It was a hot topic many many years ago, but not so much right now. Anybody who says he or she is a futurologist or futurist is possibly nobody. Why is that you ask, don’t all scientists and social scientists predict the future? Well, a futurist is not someone who predicts the future, it’s someone who does nothing except predicting the future. Huge difference.
And we don’t fancy those predictions as much as our parents or grandparents did in the golden age of futurology–in 1960s and 1970s. Prophecies back then were based on things that significantly changed people’s life and well understood by most people–such as electricity and telephone. But right now, the huge assumption is that our path is determined by things like nanotechnology, computer engineering and genetic engineering, things that most of us don’t understand. We are way beyond the realm of common wisdom and all senses of directions blurred–so there’s really nothing much left to be utilised or contradicted.
A few years back The Economist had an article outlining some rules for futurists: think small, think short-term, admit uncertainty and get a real job. So if you are employed and saying “I’m not sure what is going to happen to me tomorrow”, then well, you are a wise futurist. Congratulations! Forgive my sarcasm, but predicting the future is something even the time lords can’t master and they get the TARDIS while all we have is less than a time travelling wristband.
However, something related to futurology did prosper over the past couple of decades: prediction markets. As the name suggests, they are markets that trade predictions, or more accurately, bet on the future. You can enter the game by betting on a possible or probably outcome of some events: like the result of an election, capture of a known terrorist, or nuclear proliferation. The companies that run these prediction markets then gather all the betting data and based on the value people placed on certain outcomes, give a prediction with probability attached. Some interesting numbers are: Osama bin Laden being caught by 2007–15%; Obama winning the election–75%.
No doubt these markets raise lots of controversies and have been interests of lots of researchers in the field of public policy, economics and political science. What if the prediction markets on the passing of a political leader turn into assassination markets? Prediction of election outcomes into election fraud? Yet many corporations use these markets to direct their strategic planning and marketing campaigns quite successfully.
The good news for us is, most of the prediction markets in operation do not use real money: winners get some sort of reward and losers don’t lose anything (except some ego). So I’ve heard that there’s a bet on immortality and the possible demise of mankind. I will bet if I can just figure out how I can collect if I win.
Originally posted on Terry Blog
This is what I believe happened: I took out my UPass and got onto the bus. Then I put it back to my bag. And due to the low quality of my card holder, UPass and UBC Card slipped out on their way into my bag and no one, myself included, realised that they were somewhere on the floor. When I got off bus, walked to my door and reached for my keys, I realised that the card holder is completely empty. A natural conclusion: cards are in the bag. Then I emptied my bag, they were not there. Whoops.
Told mum what happened and what is about to happen: $60 bucks to replace them. Mum said, it’s good that you didn’t lose something more important, and from now on you won’t lose anything until next term.
Kind of true. I do have this lovely habit of losing something each term. First term first year, rez card. Second term second year, credit card. First term second year, keys. Second term second year, bank card. Now it’s UPass and UBC Card’s turn I suppose.
And losing all those things made me realise that once they are gone, they are gone forever, not like when I was in Singapore, the only thing gone forever would be cash, everything else gets returned to me unharmed.
Well well well…off to UBC Carding office tomorrow then. Pat pat and off to eat some fruit.
I am from reading poetry and novles
watching clips from Broadway and Westned
from all the memories I have kept
and those that were lost
From endless wheat field and running horses
blue oceans and white beaches
From wiggling tails and paws
bright rainbow and yummy biscuits
I am from seeing Dad designing homes
Mum cooking my favourite stew
From the laughters and tears in school
ups and downs before my dream came true
The similarities bring us together
The differences make us stronger
That is my life
and it is always true
He wasn’t one of my favourite professors at the time, but he is definitely one now. I casually made an appointment with him to talk about my graduate school plans and some other random things.
We started off talking about the huge differences between macro and micro economics. He happily shared some of his experiences in micro and macro conferences and said after all these years, he was extremely happy that he chose micro over macro. Even in micro, there are different ways of doing things apparently. He mentioned quite a few examples from research by UBC professors, Professor Kevin Milligan’s recent support of HST and Professor Ralph Winter’s work on Yahoo! and auctions are among the most interesting ones.
And when he was talking about auctions in timber market, we had a discussion about a rather recent paper from Quarterly Economics Review and a research project by a current UBC PhD students. Then we moved on to the fabulous realm of applied microeconomics and game theory.
I asked him what courses I should take in order to be better prepared, he actually pulled out the whole econ department course schedule and read through almost all courses to give me some opinions on the content of the course as well as the background of the instructor. I have learnt more about UBC Econ department in that period than I have in the past year or so. (This is much much much more than what Arts Advising has done for me.)
And onto graduate schools, I said something about moving away from Vancouver, and he said yes, if you’ve got something in California like UCLA or Stanford, then definitely move away as sunshine never hurts anyone. And I said I would love to go to New York City and he laughed and said something like: the musicals themselves are worth it, not to mention Columbia and NYU. His comments on schools are definitely realistic, not just about academic reputation, but also the geographical location, food and people (after all, graduate school is not just about studying). Something he said about UT Austin (I’m not trying to upset anyone really), Texas got a really good programme, but face it, that’s Texas and this is Vancouver, why would you want to move anyway? which made me chuckle.
That was about 40 minutes we spent together and trust me, he was genuinely interested in what I think and what I want in my life. His encouragement and kind help mean a lot to me when I am still struggling with this whole graduate school preparation process.
P.S. Contrary to some common or not-so-common beliefs, he did love teaching and he did remember his students. He is incredibly intelligent yet he is also humble and knows his limit.