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phoenixyfriend · 7 months

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The Myth of the Rational Actor

Ko-fi prompt from @vincentursus:

the myth of the rational actor please?

The myth as such: people will act in a perfectly rational manner, and the economy will respond in reaction to that.

So... the idea here is that emotions will never influence someone's actions in making economic choices.

Which is, as we can guess, bullshit.

To quote Medium,

Mainstream (neo-classical) economics idealizes human beings as perfectly rational actors when it comes to making decisions. This concept, known as rational choice theory, is based on three assumptions: 1. People have complete and consistent preferences (which can be assigned quantitative values called utilities) among a set of decision outcomes 2. People act independently based on full and relevant information 3. People always select the decision option that maximizes their utility.

So. That's absurd. Let's start from the bottom, utility.

One of the first things you learn in any marketing class is that half the industry is run on an appeal to emotion.

(The other half of it actually is an appeal to logic, like 'you can use this tool to compare your insurance costs,' which is the aforementioned rational action.)

The most obvious example of that utility element being wrong is: Food.

For a completely rational actor, the food purchased would be the most nutrition for the least cost. Taste is irrelevant. Ambience is irrelevant. Occasion is irrelevant. You fill out the food pyramid for whatever you can pay the least amount of cash. Buy a fifty pound bag of rice, wholesale canned tuna, and frozen veggie mixes that you only need five minutes to heat up and consume.

Chocolate? No. Salt or sugar? Only enough to fulfill your need for water absorption. Spices? Waste of money!

This sounds extreme, because a complete lack of emotional impact on your purchasing habits is extreme. You seek things that make you happy or pleased. You search for sweet tastes that cheer you up, for fatty tastes that satisfy you, for spicy flavors that you can eat in a competition with your friends to prove who's the manliest.

That's not rational! But we do it! Food is an inherently irrational thing to purchase, unless you are so strapped for cash that you cannot afford to be anything other than fully dedicated to the highest calorie:dollar ratio that you can find.

The other thing that the utility factor disregards is charity. On the standard 'rational' definition used in economics, charity is completely irrational for anyone who doesn't get a tax cut from it.

But people engage in charitable actions and donations anyway.

Full and relevant information: Uhhhhh no

I think we can all agree that full and relevant information is not actually a reality for most people.

Manufacturers bend the truth. Marketers omit things. Word of mouth is unreliable. Influencers lie. Online reviews are fake.

Some don't! But you don't know who is or isn't lying unless there is a law that controls what information they can put out. Researching takes time, and figuring out which lies are actually lies is difficult.

There are a lot of videos all over YouTube talking about scams, both the obvious, and the more subtle. There's a reason that misinformation is such a huge industry these days, and hey! A lot of misinformation relies on those aforementioned appeals to emotion that are both a marketing device and a rhetorical one.

Complete and consistent preferences: Sometimes?

I mean, some people have complete and consistent preferences. I have a favorite Starbucks drink that I get most times (technically I have four and it depends on the weather). I have stylistic preferences for my clothing. I have musical preferences.

But it still takes me time to make decisions when at a restaurant, you know? My little sister likes a lot of foods, sure, but if you ask her to pick a place to eat it can take literal hours. Hell, there are entire phenomenons named after the fact that people don't have preferences and have trouble making decisions!

And on top of all that, you have people whose 'preference' is spontaneity. They pick whatever they haven't tried before, because it's new, and exciting, and that's cool!

Which really harshes the mellow on that whole "clear and consistent preferences" thing.

Where does that leave us?

Well, the rational actor is clearly a majorly inaccurate standard to hold individual consumers and the market to. That said, I don't think more than a handful of very extreme people would ever claim that the rational actor is an absolutely perfect predictor for the market.

Rather, it's used as a starting point. If the market reacts to forces in a completely rational manner, here is what we would be expecting. Then, upon projecting the actions of the market under the most rational and perfect conditions, we can apply other possible factors. The possible success of a marketing campaign. The risks of weather or politics impacting supply lines. An unexpected trend rising up from a comedic social media moment among teens and young people.

Imagine you have a catapult. Imagine you know what the catapult will do under perfect conditions, with consistent rope length and artillery weight and weather conditions. The numbers you run your basic physics class formulas with are the rational actor.

The market trends that cause that rational prediction to have error margins is the equivalent of "the wind's been varying between 3mph and 9mph, and from NW to SWW."

I'm not sure how safely I can get away with embedding images that I don't personally have the rights to when they're actually relevant to the education portion of this, and not just a silly joke like the TGP inclusion up there, so I'll just tell you to go look at the first graph at this link, and you'll see what I mean about the 'best, most predictable case' line vs the 'actual possibilities' forecast.

Hope that helps!

(If you wanted me to go more into the history of this concept than its actual uses, uh... whoops?)

#economics #economic forecasts #capitalism #phoenix talks #ko fi #ko fi prompts #research #rational actor #myth of the rational actor

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joannabethharvelle · 7 years

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Small Favors || one shot; endverse

[[ @hopelesshapless ]]

Frankenstein spun uselessly in the background amidst Jo’s curses, the needle thumping impatiently to let her know that the album was over. In fact, it had been over for quite some time now, Jo had just hoped that if she ignored it long enough, the old machine would somehow just know that it’s job was over for the moment. Apparently though, no such luck. The hunter’s blonde hair was pulled up messily in a hastily made and sweaty bun, piled haphazardly on top of her head, loose tendrils clinging to the sticky skin on her forehead and temples as she hunched over her task on the floor of Cas’s cabin, metal tools spread around in front of her, blow torch set off far to the side on a heat resistant stand.

“Alright, alright. Jesus... I hear you,” pulling off her one ratty welding glove she’d found in one of the supply sheds and discarding it on the floor beside her, she put the small bowl of materials she had in her lap on top of the glove and clambered to stand. Her bare feet were silent as she made her way across the room, toeing one of her shirts that had somehow found its way into the middle of the floor closer to the ever-growing pile of dirty laundry on the way to, for what seemed like the sixth time already, switch out the vinyl on the old record player. Despite her frustration, she was careful while doing this, lifting the needle and removing the disk, sliding it gently back into its sleeve. For a moment she debated on if she wanted another album, or if it would help with her concentration if there was no music for a while.

That notion didn’t last long; ever since Cas had left with the group on the ‘exploratory mission’, or whatever the hell Dean had called it, staying in the silence for too long caused her mind to wander; making up problems and worst case scenarios and what-ifs until it felt like she might go crazy. So, she meandered over to the little collection, drumming her fingers thoughtfully on the album she held in her hands, realizing that if nothing else, this little task would be a semblance of a break from her previous one. Even if it was only momentarily.

Fingers flip through worn album covers, passing a few of her own that she’d added over the last few months, finally selecting one that was a soft faded blue, sliding in the previous one to take its place. It only took a few moments to load the next vinyl, tossing the sleeve onto the counter, brushing her hands off on her jean shorts and plopping back down amidst her collection of glass beads, shards, and bottles as Journey’s “Frontiers” crackled to life.

Cas had been gone for three days, which wasn’t all that long as far as runs went; but there hadn’t been more than a day since they got together that they’d been apart. There was still a day and a half left before she got to see him again, and time was passing by oh-so-slowly. She’d decided the day before to go with a small group to check out an abandoned settlement they’d located a few miles out; something to take up time and keep her mind busy. Much to the group’s surprise, the hastily made and hastily abandoned little set up was actually fairly well stocked full of useful things. As always, she’d brought along her pack; since she and Cas had been -- whatever it was they were, she had made a habit of nicking small things here and there when she found something she thought he would like, as long as it wasn’t a real detriment to the rest of their camp.

While the abandoned camp was chock full of supplies, she came out with mostly empty pockets when it came to little treasures this time around; finding nothing that really caught her eye other than a little bag of dried fruit mix that was, amazingly, unopened. The other thing she found was amongst what looked like a section from a library that someone had salvaged and hung onto.

A worn, old hardcover titled “Do It Yourself: Glass Crafting for Beginners.”

Had she found this three or four months ago, she wouldn’t have given it a second look. Now, though -- since everything had happened -- since the late night meetings, the purposefully left behind shirts, the small, subtle gifts and everything else that made up their quasi-forbidden, definitely scandalous, and utterly exhilarating love affair? Well...

Now, Jo smiled down at the pages that she held in her lap, replacing the bowl for the time being, rucking the rolled sleeves of one of Cas’s old, faded plaid button downs farther up her forearms and out of her way of her hands. Now, this book gave her not only a way to spend these last two days but could potentially result in something that she could give him that he could use and have openly; something that would remind him of her and mean nothing to anyone else.

Her fingers drug along the pages, skimming through words absently as Seperate Ways started. Her head bobbed slightly back and forth, absently to the beat, until she got to the line that she was searching for.

“What the hell is a carb?” She mumbled to herself, under her breath. “Supposed to melt goddamned bread or -- pasta...” her voice trailed off as she pulled the open shirt closer around herself, covering her bare middle, and put the glove back on. Grabbing the blowtorch, she began to heat the bits of glass to melting, starting with the clear bottles, saving the colored bits to use for decoration.

It took almost exactly that remaining day and a half, but in the end, Jo was able to make a pipe to her liking. Good sized, the glass of the body painted and marbled to look like a galaxy, the grip a clear bubble surrounding a miniature sunflower. When Cas returned to his cabin, he would find it on his bedside table, next to a handwritten note and the little bag of stolen treats.

C -- Welcome home ♥ I don't know if I made this thing right, it took me two days and I almost burned your cabin down. Three times. Come over to my place when you get this, I smuggled some extra dinner from the mess hall for you. You can test my present out over dinner and moonshine. I can’t wait to show you how much I missed you, my handsome, blue eyed hippie. PS, I stole my favorite shirt of yours. The soft red flannel. You weren't her to stop me, so... it's mine now. PPS, Chuck thinks you took his blow torch. I couldn't tell him it was me because I like being on his good side and it isn't my fault you were his first assumption. Anyway, hurry up and read this faster. I want to show off the lingerie I found a few weeks ago. Always yours, Jo

#jo harvelle #cas #endverse #fan fic #hopelesshapless #the broken and the damned #I queued this up for you #i miss you my queen #and Jo misses her broken angel #<33333333333

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