rationality and ergodicity

classical economics postulates a human being strongly rational and developed the Expected Utility Theory for decisions in regime of uncertainty.

I got out of my economics study last century with the rather strong faith conviction that the basis of rationality in economic behaviours makes impossible to justify cooperation on rational ground.

And really it was not just me, some people had to build ad hoc theories to justify cooperation in terms of social capital, while some other simply took to show how the rationality hypothesis of human behaviour is really not grounded in reality, so behavioural economics is born and “people are “dumber and nicer” and more human compared to “econs” described in graduate economics texts”

Then lately I discover something funnily named ergodicity economics, got confused and took me a while to understand that it really describes a non-ergodic economics, models where the the ergodic hypothesis which is implicitely made in the Expected Utility Theory is abandoned.

A non-ergodic model better describes the economics and financial world and such model can retaina stronger definition of individual rational and has better chances to rebuild economics than chipping it away with the nudges criticism.

Utility Theory was built in the 18th century based on this “mistake” to think probability additive, made of independent events, while in reality, wealth accumulates over time and therefore when you consider probability of betting it becomes multiplicative, you have the St.Petersburg Paradox and maybe a cascade of consequences that brigns to my “rational man cannot cooperate” belief in university carried over to last here. Then I met the Farmers Fable and I got to love ergodicity economics (which is, a new foiundation of economics on non-ergodic pillars)

UPDATE march 22, 2021. Higher up I write “I got out of my economics study last century with the rather faith conviction that the basis of rationality in economic behaviours makes imposible any cooperation” but I cannot remember precisely which part of economic theory gave me this impression. Today, searching, I got to this paper of AMartya Sen “RATIONALITY AND UNCERTAINTY” http://homepage.sns.it/hosni/lori/readings/Sen%20-%201985%20-%20Rationality%20and%20uncertainty.pdf

The self-interest approach is crucial to the derivation of certain central results in traditional and modern economic theory, e.g., the Pareto optimality of competitive equilibria. / The traditional theory of utility provides a seemingly firm basis for the rationality of pursuing one’s utility – defined either in terms of Benthamite hedonism of pleasure calculus, or in terms of various formulations of desire-fulfilment. In fact, ambiguities in the concepts of ‘utility’ and ‘preference’ have played quite a substantial part in intermediating between self-interest and choice, giving the appearance of tying rational choice firmly to the pursuit of self-interest”

and elsewhere I guess trouble got crystallised with Samuelson formalisation, Samuelson considered ergodicity essential to make economics scientific (citation neeeded)

citation found, apparently Samuelson once said that economics can’t be scientific if you drop the erogodic assumption https://rwer.wordpress.com/2013/02/12/ergodicity-the-biggest-mistake-ever-made-in-economics/

and here https://larspsyll.wordpress.com/2012/08/07/paul-samuelson-and-the-ergodic-hypothesis/


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