[MUD-Dev] DID vs. MORAG "complexity"

[Matt Mihaly]

On Fri, 23 May 2003, Jeff Cole wrote:

> That is not to say that studying MOM*/MUD economies is not
> valuable.  Quite the contrary.  Predictive accuracy may well be
> the philosopher's stone, but I think it is a poor measure of
> "getting somewhere."  Doesn't your inherent-irrationality theory
> preclude predictive accuracy?

I realize you're talking to Dave here, but there's a lot more than
that about economics that precludes it from ever achieving any
significant degree of predictive accuracy.

Fundamentally, most natural sciences can be predictive because there
is no will or self-reflection on the part of the agents of the
system. The sun is going to behave the same way regardless of what
an astronomer here on earth thinks of it. (Please avoid bringing up
the uncertainty principle here. It has little bearing on most
natural science.)

In economics on the other hand, the agents being studied are able to
affect the system being studied (indeed, they cannot help
themselves) as well as modify their views on the system as a result
of the actions of the system. For instance, classical economics
(which, granted, is no longer taken very seriouly except in the
world of muds ;) ) would try to tell you that the price of something
should, in the absence of most kinds of interference, has a stable
point towards which the price trends. If the price drops a bit, it
should soon start going up again (barring some other change), or at
least stop dropping, as demand will heat up as the price goes down.

In the real world, on the other hand, a drop in price could cause
that to happen, but could also, in and of itself, cause a larger
drop in price due to the herd mentality of investors. Is that
rational? Maybe, maybe not.  Who cares. For a field that is trying
so damn hard to be useful, economics sure has a way of trying to
change the world to fit nicely into its little formulas rather than
accepting that it's -not- going to be a predictive science. Remember
that Long Term Capital Management, whose failure threatened to shake
the foundations of the world economy, had two Nobel winners as
senior members.

George Soros, the philosopher/financier/freedom-promoter has a lot
to say about this kind of thing in his excellent book, "Open
Society: Reforming Global Capitalism." Highly recommended.

--matt


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