Political Theory

Re: The rational customer

Jon Irenicus — Tue, 01 Jun 2010 05:42:06 GMT

I'm not sure why you seem to rule government regulation out as a way to mitigate this need to gather information or subsidize said information.

I'm not sure why you don't. Perhaps you don't understand how useless monopolistic parasites are... Information is a commodity, to be provided like the market like any other one. The FDA is of course a resounding success of the government mandating information to be provided, so who are we peons to disagree?

Re: The rational customer

justinx0r — Sun, 30 May 2010 22:12:13 GMT

Not to my knowledge, but I barely keep up with behavioral economics/psychology studies (I don't really keep up with the field in general).

Re: The rational customer

Sieben — Sun, 30 May 2010 22:03:12 GMT

Have there ever been any experiments where the participants are rewarded, can communicate, and have repeat trials?

Re: The rational customer

justinx0r — Sun, 30 May 2010 21:55:57 GMT

Well, not falsify in a malicious manner (at least I don't think). More like their methods of seeing how 'rational' someone really is don't hold much water since the constraints placed on the testee are ridiculous and don't apply to the real world. They also don't take into account the fact that markets provide an incentive to be more rational because being irrational will lead to a loss. Since markets pressure people to be more rational than they would have otherwise been the assumption of a rational consumer is acceptable to make.

Re: The rational customer

Sieben — Sun, 30 May 2010 21:09:14 GMT

So... the article claims that behavioralists try to empirically falsify the economist's assumption of rationality, but the empirical tests are contrived and don't match up with the real world, which is actually pretty rational.

I think mises does a good job of deflecting critics' fears about consumers getting taken in by flashy advertising etc. He points out that whatever underhanded techniques are available to promote a product are available to everyone, so that purveyors of a crappy product will always be at a disadvantage that no marketing can ever make up for. His competitors with better products can simply employ the same marketing strategies.

Re: The rational customer

justinx0r — Sun, 30 May 2010 20:32:06 GMT

Here's a fairly well written article to get you started: http://econlib.org/library/Columns/y2010/McKenzierational.html

It delves into the criticism you were faced with and how markets give us incentives to be more rational.

Re: The rational customer

Nielsio — Thu, 20 May 2010 14:23:36 GMT

Now you're introducing yet another arbitrary ruler: high or low value. This doesn't exist. There is only personal (subjective) value and personal context, and the concepts I've explained are always at work.

Example:

I've never in my life checked if there was glass in the milk karton (or any other karton) that I've drank directly from. Irrational? No. I'm relying on the fact that multi-billion dollar companies stand to lose massive amounts of money if they aren't 100% careful with that stuff. Every day, millions of these products are consumed and so these products are constantly tested. If something was up it would quickly show up and there would be an immediate big time uproar.

Should all these millions of people tediously check everything they drink? No, that would be a massive waste of time.

Another mechanism that is at work is that if there was product information that could be captured and relayed to consumers at a profit, then we would expect firms to jump at that possibility of profit. And so, for any old and well-developed market, there is little rational reason to worry about that stuff.

Example:

It's profitable to provide consumer reviews of computer parts (sell magazines, sell ads, etc). Those reviews exist in abundance and are a strong check on safety, quality and price. There is little reason to worry that you're buying garbage. Companies that underperform are simply outcompeted in this cut-throat industry, and consumer reviews have everything to do with that. It's power is so strong that only a small part of actual buyers has to deeply inform itself for the mechanism to operate.

Re: The rational customer

LockeandSons — Thu, 20 May 2010 13:47:18 GMT

Sure, but then your example is a high value product (a car). Most people, I imagine, would spend some time thinking about where they want to get it fixed or what brand they want to buy new from - it's just common sense. For some products though it would be completely impractical and far too time consuming to go through the same process. Using the example of lead paint, how many people are realistically going to check each product they buy that is painted for lead based paint?

ps. I would just like to point out that this is not a side of the argument that I necessarily want to defend; I just found it interesting take on things.

Re: The rational customer

Nielsio — Thu, 20 May 2010 13:09:14 GMT

LockeandSons wrote:

I guess so. I think his argument was that regulations existed in the market because ordinary people wouldn't spend hours poring over what was the safest product to buy or had the best build quality etc, they would simply go out and purchase items with fragemented knowledge and a desire to spend money. Hence, many could be purchasing products that are genuinely unsafe - lead paint on a childs toy I think was the example he used. The free market essentially relies, (in as far as huge swathes of people not being injured/killed), on rational actions by the consumer. Of course people aren't 100% of the time in their day-to-day lives rational - hence the need for regulation.

I've dealt with this objection already in this post:

http://mises.org/Community/forums/p/16897/333805.aspx#333805

There is nothing wrong with weighing one's degree of certainty about a product with the price of gaining more certainty. The reason is because it is entirely contextual and personal.

For example:

If Bill Gates' car breaks down, and it's 5 years old, it could be perfectly rational for him to go to the nearest car shop of his current brand and buy a new one of the same brand and class.

For most other people it would be rational to let the car be repaired, or at least to read up on, shop around and test-drive multiple car-brands and haggle a bunch of dealers for the best price, before buying one.

The reason is because Bill Gates' time is worth much more than other people's time, to himself. In the same time that people spend coming up with a choice that has a higher degree of certainty of fitting with their needs and situation, Bill could have earned far and beyond the theoretical cost-function that it would save.

So we have two people who's actions can be entirely different yet entirely rational. To suggest that people are irrational simply because they don't spend an arbitrary amount of time to get to an arbitrary degree of certainty is... entirely arbitrary and would lead one to the conclusion that all people at all times are irrational ...even though they are improving their lives!?

Re: The rational customer

LockeandSons — Thu, 20 May 2010 12:41:48 GMT

So, according to him, telepathic supermen would do better than ordinary people.

I guess so. I think his argument was that regulations existed in the market because ordinary people wouldn't spend hours poring over what was the safest product to buy or had the best build quality etc, they would simply go out and purchase items with fragemented knowledge and a desire to spend money. Hence, many could be purchasing products that are genuinely unsafe - lead paint on a childs toy I think was the example he used. The free market essentially relies, (in as far as huge swathes of people not being injured/killed), on rational actions by the consumer. Of course people aren't 100% of the time in their day-to-day lives rational - hence the need for regulation.

Re: The rational customer

Telpeurion — Wed, 19 May 2010 02:21:20 GMT

We have to be careful not to commit logical fallacies or misuse words like 'rational' when Liberte is around, she will call you out anytime, anywhere. =p

Re: The rational customer

Vichy Army — Wed, 19 May 2010 01:02:29 GMT

The rational consumer, he goes on, "has all pertinent information at his fingertips about all products and can always make a cost/benefit analysis of every transaction.

So, according to him, telepathic supermen would do better than ordinary people.

The whole NeoClassical 'rationality' has nothing to do with human rationality, it doesn't even make internal sense. The whole problem of economics is in the coordination of resources without impossible-to-achieve omniscience, to develop methods of production without absolute technological knowledge, and to explain why things ever are coordinated; not to construct some imaginary, counter-factual and impossible world of unreality and then criticize reality for failing to correspond to their deluded fancies.

Re: The rational customer

Jesse — Wed, 19 May 2010 00:51:57 GMT

Any thoughts on what I could have used as a counter-agrument?

Today's Mises Daily.

Re: The rational customer

Nielsio — Wed, 19 May 2010 00:49:20 GMT

hayekianxyz wrote:

I'm not sure why you seem to rule government regulation out as a way to mitigate this need to gather information..

Only if it's voluntary does it respect people's personal, contextual, subjective valuation of the price of information.

If some persons think they're good at dealing with information, they should just offer their services. If they instead forcibly impose it you know and I know that it's a scam and has nothing to do with helping people.

The idea of coercive regulation of free markets is a complete joke. Any organization offering ratings and valuations should itself be open to total scrutiny by the consumer.

You think the AMA is the only organization that can rate doctors?

You think the FDA is the only organization that can rate drugs?

And so on..

No, of course not. These organizations tremble at the thought of having to compete.

They will all die out and all they'll have left to show is a long trail of economic destruction and death.

Re: The rational customer

nirgrahamUK — Wed, 19 May 2010 00:32:58 GMT

>>I'm not sure why you seem to rule government regulation out as a way to mitigate this need to gather information or subsidize said information.

what incentives do parasites have to provide these wonderful services?