Rationality and Chaos
Updated: 29th Nov. 2012
This is an entry I have wanted to do for some time. It is the first of three fractal insights I have discovered into economic assumptions (rationality, ceteris paribus, and perfect knowledge). This is a very difficult subject to describe; I hope I give it justice.
Understanding rationality is closely related to—if not the same as—understanding 'chaos': that is, complex systems are unpredictable. If we are to understand rationality, then we should understand chaos and, thus, fractals.
The definition of the fractal (attractor) is: same but different, at all scales. In our Economic models, we use the assumption ceteris paribus: we hold all other variables constant and treat all persons as rational to see the order (or the 'same', as in the definition) amongst complexity - just as other sciences do. This definition may be adapted or interpreted in this context of rationality to read as rational but irrational at all scales. This is to say that even the axe murder will weigh up cost over benefit - before throwing the axe, their choice is rational to them at the time of throwing, but relative to someone else watching (the fractal demonstrates relativity), it would appear extremely irrational. It is just to say they are reasoning 'differently' but using the 'same' method.
Again, all Science uses the notion of ceteris paribus - with its laboratories and control experiments, it 'freezes' out the chaos. Science can know (can derive a law, but with that knowledge, it cannot predict. We can know the likes of Newton's laws of gravity and use them to describe a pen falling from a table, but could we ever repeat the event so that the pen falls in exactly the same place, over and over? Theoretically, yes. Practically, no. I am contravening some 'deterministic' understanding here, but I say no. Even if we had all the information, I still say no because it is infinitely costly to get full information - this is demonstrated in the fractal and is the key principle of chaos theory.
Not being able to predict does not stop the work of science. In the same way, not being rational does not stop the work of economics. We are searching for patterns.
Ignore the chaos; find the order.
So, I would conclude that if we are to understand, we must treat all as rational so that we can find rational behaviour. But understand that when all is put together in reality, we will observe 'irrationality'—or chaos.
This is an entry I have wanted to do for some time. It is the first of three fractal insights I have discovered into economic assumptions (rationality, ceteris paribus, and perfect knowledge). This is a very difficult subject to describe; I hope I give it justice.
Understanding rationality is closely related to—if not the same as—understanding 'chaos': that is, complex systems are unpredictable. If we are to understand rationality, then we should understand chaos and, thus, fractals.
The definition of the fractal (attractor) is: same but different, at all scales. In our Economic models, we use the assumption ceteris paribus: we hold all other variables constant and treat all persons as rational to see the order (or the 'same', as in the definition) amongst complexity - just as other sciences do. This definition may be adapted or interpreted in this context of rationality to read as rational but irrational at all scales. This is to say that even the axe murder will weigh up cost over benefit - before throwing the axe, their choice is rational to them at the time of throwing, but relative to someone else watching (the fractal demonstrates relativity), it would appear extremely irrational. It is just to say they are reasoning 'differently' but using the 'same' method.
Again, all Science uses the notion of ceteris paribus - with its laboratories and control experiments, it 'freezes' out the chaos. Science can know (can derive a law, but with that knowledge, it cannot predict. We can know the likes of Newton's laws of gravity and use them to describe a pen falling from a table, but could we ever repeat the event so that the pen falls in exactly the same place, over and over? Theoretically, yes. Practically, no. I am contravening some 'deterministic' understanding here, but I say no. Even if we had all the information, I still say no because it is infinitely costly to get full information - this is demonstrated in the fractal and is the key principle of chaos theory.
Not being able to predict does not stop the work of science. In the same way, not being rational does not stop the work of economics. We are searching for patterns.
Ignore the chaos; find the order.
So, I would conclude that if we are to understand, we must treat all as rational so that we can find rational behaviour. But understand that when all is put together in reality, we will observe 'irrationality'—or chaos.
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