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Comments on: Why does the realism of assumptions matter? http://www.tvhe.co.nz/2012/05/15/why-does-the-realism-of-assumptions-matter/ The Visible Hand in Economics Tue, 15 May 2012 03:43:25 +0000 hourly 1 https://wordpress.org/?v=6.9.4 By: jamesz http://www.tvhe.co.nz/2012/05/15/why-does-the-realism-of-assumptions-matter/#comment-37862 Tue, 15 May 2012 03:43:25 +0000 http://www.tvhe.co.nz/?p=6957#comment-37862 In reply to Eric Crampton.

Sure, I was quoting it more for the point about methodology than Rogeberg’s argument about the plausibility of rational addiction. I think plenty of economists are happy to use as-if justifications for their models to avoid defending the assumptions. That’s fine, as long as they don’t infer welfare consequences from the as-if predictions.

In terms of rational addiction, I’m a bit torn. The model has some empirical support and models augmented with hyperbolic discounting seem to fit the stylised facts reasonably well. At the same time, humans don’t appear to do rational choice all that well, which casts doubt on the assumptions underpinning the model. Maybe we’ll find that there are just some tweaks that need to be made to it to properly represent people’s decision heuristics, but that’s fairly optimistic.

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By: Eric Crampton http://www.tvhe.co.nz/2012/05/15/why-does-the-realism-of-assumptions-matter/#comment-37861 Tue, 15 May 2012 03:35:26 +0000 http://www.tvhe.co.nz/?p=6957#comment-37861 To me, the rational addiction model’s empirical successes say that we can’t simply assume irrationality when describing consumption of addictive goods. We’ve not proved that all addicts are rational, but we have proved that we can’t simply assume that they aren’t.

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