Monday, January 04, 2010

Stiglitz Takes on Rationality in Economics

Peter Boettke reports on Coordination Problem (HERE) comments on another speech by Professor Stiglitz, this time on rationality assumptions, the central core of neo-classical economics (Homo economicus for example), which is reported by Economist Online (HERE):

The speech originally was reported in Wall Street Journal.

The comments appended to the report show a clear tendency to attack Stiglitz for his complicity in teaching neo-classical mainstream economics (rather than take a ‘better a sinner who repents, etc., …’ approach and to question his status as one of the anointed priesthood.

A few Austrian commentators also make the point that if we adopted their approach there wouldn’t be much of a problem, which itself is a problem.

Joseph Stiglitz didn't mince words when he kicked off the American Economic Association's annual meeting in Atlanta on Saturday. The Nobel laureate, who teaches at Columbia University, launched into a blistering attack on fellow economists for building models that rely on rational behavior when the financial crisis offers so much evidence of irrationality.

Wall Street also got a broadside. To Mr. Stiglitz, the purpose of a financial system is "to manage risk and allocate capital at low transaction costs." What actually happened? "They misallocated capital. They created risk. And they did it at enormous transaction costs

No doubt we'll read more about his speech.

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Blogger michael webster said...

On a side issue, you might want to jump into the debate here:

4:46 am  
Blogger Gavin Kennedy said...


Thanks for the tip. I read the original post some day's ago, since which there has been correspondence at Cordination Problem. I shall follow up with a comment on the commentx.


10:47 am  
Blogger entech said...

I have recently watched Joseph Stiglitz at the university of edinburgh enlightenment series. He not only said that invisible hands was not good or bad but simply invisble because it wasn't there, He also said that Adam Smith would turn in his grave at the things being done in his name.

The university is very generous in making so much available, but that is the true function spreading knowledge. Enjoyed Dan Dennet as usual. I need a large glass of ambivilance and soda to watch Chomsky, always interesting but can't make up my mind with him.

11:39 pm  

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