I’m not sure that the centipedes walking decision can’t be seen as formed from a rule of thumb that is effectively optimal (given the adjustment cost of re-evaluating the rule).

Simply put, the centipedes that have a better rule will not get eaten – and as a result will breed. If rules are genetic or taught then the optimal rule will eventually dominate.

But we can’t observe the rules – so the value judgment is the belief that the rules are formed to take us from the individuals decision process to an optimal outcome.

There is no room for multiple equilibrium in beliefs or systematic biases in formed rules – both of which might be relevant.

Isn’t the value judgment in deciding the value of the purpose? I’m pretty sure the relationship between a set of rules and the distribution of outcomes they produce can be described without reference to anyone’s values.

What is more interesting to me is where the centipede chooses to walk. If it goes in the wrong direction, it gets picked off by birds and other predators. This is a much harder problem. The rules of thumb a centipede uses to decide where to go work sometimes, but not always.

The centipede clearly doesn’t optimize its decision of where to go.

Sorry that I have been unclear.

The value judgment is that these rules of thumb evolve and move in a way that leads to optimal outcomes. We are describing the purpose for the rule in a way which requires making a value-laden statement – specifically because the evidence is still being working on (both for and against).

FRIEDMAN – BERNANKE

Matt, perhaps I misunderstand what you’re saying, but surely this is a factual question not a value judgment. How do values come into describing the rules of thumb people use in market transactions?