Capitalistic Musings

Sam Vaknin
ﳊ Capitalistic Musings

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Title: Capitalistic Musings
Author: Sam Vaknin
Release Date: June, 2005 [EBook #8214] [This file was first posted on July 3, 2003]
Edition: 10
Language: English
Character set encoding: US-ASCII

(c) 2002 Copyright Lidija Rangelovska.

Capitalistic Musings
Sam Vaknin, Ph.D.
Editing and Design:
Lidija Rangelovska
Lidija Rangelovska
A Narcissus Publications Imprint, Skopje 2002
First published by United Press International - UPI
Not for Sale! Non-commercial edition.

(c) 2002 Copyright Lidija Rangelovska.
All rights reserved. This book, or any part thereof, may not be used or reproduced in any manner without written permission from:
Lidija Rangelovska - write to:
[email protected] or to
[email protected]
Visit the Author Archive of Dr. Sam Vaknin in "Central Europe Review":
Visit Sam Vaknin's United Press International (UPI) Article Archive
ISBN: 9989-929-37-8
I. Economics - Psychology's Neglected Branch
II. The Misconception of Scarcity
III. The Roller Coaster Market - On Volatility
IV. The Friendly Trend
V. The Merits of Inflation
VI. The Benefits of Oligopolies
VII. Moral Hazard and the Survival Value of Risk
VIII. The Business of Risk
IX. Global Differential Pricing
X. The Disruptive Engine - Innovation
XI. Governments and Growth
XII. The Distributive Justice of the Market
XIII. The Myth of the Earnings Yield
XIV. Immortality and Mortality in the Economic Sciences
XV. The Agent-Principal Conundrum
XVI. The Green-Eyed Capitalist
XVII. The Case of the Compressed Image
XVIII. The Fabric of Economic Trust
XIX. Scavenger Economies, Predator Economies
XX. Notes on the Economics of Game Theory
XXI. Knowledge and Power
XXII. Market Impeders and Market Inefficiencies
XXIII. Financial Crises, Global Capital Flows and
the International Financial Architecture
XXIV. O'Neill's Free Dinner - America's Current Account Deficit
XXV. Anarchy as an Organizing Principle
XXVI. Narcissism in the Boardroom
XXVII. The Author
XXVIII. About "After the Rain"
Economics - Psychology's Neglected Branch
By: Dr. Sam Vaknin
Also published by United Press International (UPI)
It is impossible to describe any human action if one does not refer to the meaning the actor sees in the stimulus as well as in the end his response is aiming at.
Ludwig von Mises
Economics - to the great dismay of economists - is merely a branch of psychology. It deals with individual behaviour and with mass behaviour. Many of its practitioners sought to disguise its nature as a social science by applying complex mathematics where common sense and direct experimentation would have yielded far better results.
The outcome has been an embarrassing divorce between economic theory and its subjects.
The economic actor is assumed to be constantly engaged in the rational pursuit of self interest. This is not a realistic model - merely a useful approximation. According to this latter day - rational - version of the dismal science, people refrain from repeating their mistakes systematically. They seek to optimize their preferences. Altruism can be such a preference, as well.
Still, many people are non-rational or only nearly rational in certain situations. And the definition of "self-interest" as the pursuit of the fulfillment of preferences is a tautology.
The theory fails to predict important phenomena such as "strong reciprocity" - the propensity to "irrationally" sacrifice resources to reward forthcoming collaborators and punish free-riders. It even fails to account for simpler forms of apparent selflessness, such as reciprocal altruism (motivated by hopes of reciprocal benevolent treatment in the future).
Even the authoritative and mainstream 1995 "Handbook of Experimental Economics", by John Hagel and Alvin Roth (eds.) admits that people do not behave in accordance with the predictions of basic economic theories, such as the standard theory of utility and the theory of general equilibrium. Irritatingly for economists, people change their preferences mysteriously and irrationally. This is called "preference reversals".
Moreover, people's preferences, as evidenced by their choices and decisions in carefully controlled experiments, are inconsistent. They tend to lose control of their actions or procrastinate because they place greater importance (i.e., greater "weight") on the present and the near future than on the far future. This makes most people both irrational and unpredictable.
Either one cannot
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