
What computer science can teach economics (2009) - bkudria
http://news.mit.edu/2009/game-theory
======
vezzy-fnord
The article is mostly about game theory, which has been a staple of economics
for quite a while.

That said, I would be very wary of jumping to such endeavors simply because a
particular branch of mathematics appears to supply a useful vernacular for a
particular economic problem. More often than not, it leads to a situation
where instead of offering new perspectives on problems, you simply repeat the
same Walrasian equilibrium analysis or whatever orthodoxy, but in a more
pompous language.

In fact, by far the most mind-bending and mentally invigorating economists
have been those who have almost no mathematical analysis whatsoever. These
include, for instance, GLS Shackle and Ludwig M. Lachmann. Their entirely
verbal analyses has expanded understanding of real-world economic phenomena
far more than papers on game theory, I'd argue.

Mathematical economics like the Solow-Swan growth model, Cobb-Douglas
production functions, Walrasian auctioneer markets and Paretian static
equilibrium models have sowed great confusion and unrealistic assumptions as
much as they may have enlightened. A lot of misunderstandings on economic
policy originate from taking comparative statics models too literally.

That said, there might be some use of theoretical CS. I've had the impression
that process algebras like Hoare's CSP for modeling concurrency can be used
for some microfoundations and thought experiments. I don't think any economist
has done this yet.

~~~
mafribe

       The article is mostly about game theory, 
       which has been a staple of economics for 
       quite a while.
    

I suggest to read the article more carefully. It's about applying the study of
computational complexity to game theory. When you approach conventional game
theory from this angle, things become interesting: e.g. where conventional
game theory says a Nash equilibrium exists, the complexity angle suggests that
the market won't find the equilibrium, because the laptop can't (for example
the problem might be NP complete), and the laptop is much faster than the
market.

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curuinor
H. Simon was among the founders of artificial intelligence and a very
important microeconomicist, and I have often thought that these disciplines
are not fundamentally different. What problem does backpropagation solve?
Credit assignment. What problem does the market solve? Credit assignment. How
do they do it? Localization of computation.

~~~
TeMPOraL
I think it's more general than that. Both backpropagation and the market
introduce a _feedback loop_. That's the source of the behaviour. You can see
similar phenomena in other closed-loop systems. That's why I think control
theory is one of the best things humans invented ;).

~~~
curuinor
Positive feedback loop, specifically. Tesauro noted power-law times in BP
learning and you can go off and look at highly skew distributions in BP weight
assignments on your own. Simon had a little program of research on skew
distributions in economics (you cannot throw a stone but you hit one: money,
firm size, investments, trades, income, GDP, yadda yadda), and how they are
best explained by positive feedback loops.

------
clavalle
>Finally, he says, it may be that where the Nash equilibrium is hard to
calculate, some approximation of it — where the players’ strategies are almost
the best responses to their opponents’ strategies — might not be. In those
cases, the approximate equilibrium could turn out to describe the behavior of
real-world systems.

I often think about how death and pain affect economic decisions. Someone who
is poor and must be paid next week or start to go hungry, for example, makes
much different economic decisions than someone who still needs to work to eat
but has a cushion -- they can go several months without pay without risking
starvation hunger. Even though they are in similar danger over time periods
that are not too different, the second groups act as if it is no danger at
all.

So there is a time horizon dependency at the moment of decision. I wonder how
the complexity of the likelihood calculation affects the falloff rate of the
death or pain variable? I wonder if we are constantly making these rough
approximations and have some intuitive sense of when the numbers get too fuzzy
to be meaningful and at that point get ignored?

Does somebody know of any resources that may have dealt with the economics of
desperation?

~~~
yellowstuff
You're right, there have been several economics studies showing that poverty
causes stress which makes it more difficult to make decisions that are
"rational" in a classical economics sense, such as sacrificing in the short-
term for a long-term pay off. Searching "behavioural economics poverty" turns
up a lot of good articles, here's an overview:

[http://www.economist.com/news/finance-and-
economics/21635477...](http://www.economist.com/news/finance-and-
economics/21635477-behavioural-economics-meets-development-policy-poor-
behaviour)

~~~
clavalle
That is interesting but seems to put too much onus on the poor individual.

>poverty makes people feel powerless and blunts their aspirations

What if it is more than a feeling? What if they are not irrational but seeing
quite rationally what transactions await them?

Let's assume that two sides of a potential transaction are rational, and
further assume that each side will maximize the value they have after the
transaction. The poor person comes to the table with a value of 100 units but
that they cannot eat and cannot be transferred directly for edible widgets --
lets call them time units. They must trade for 25 edible widgets or starve.
You can buy each edible widget for one liquid currency unit. They sit across
from a person that can pay them in liquid currency units for their time units
knowing they can make 120 liquid units using those time units. That person
knows they're poor and at risk of starvation if they do not trade their time
unit for liquid units quickly. Being cold, rational actors they start the
negotiation low. 1 liquid unit for all 100 time units. The poor person will
starve anyway and thus refuses. Negotiation continues until they hit the magic
number of 25 liquid units and an agreement is struck. The poor trades 100 time
units to the person that can make 120 liquid units with it for 25 liquid
units...they lose, but don't lose it all through death. The employer makes a
profit of 95 liquid units.

Let's run through the same scenario with someone who's not desperate. The
employer needs that employee knowing they can make 120 units with those time
units in their possession. With no other players in sight, they might
negotiate all the way up to 119 liquid units for those time units knowing they
will profit. The employer's profit is 1 liquid unit and the employee gets 94
more than the poor person who was facing a complete wipe out if they refused
the offer.

Competition changes things obviously and this is a simplistic model but the
fundamental point is that one is negotiating against loss and is willing to
take any loss above total loss while the other is negotiating to increase
value. The second can afford to have aspersions and has every reason to feel
like they have a good measure of power -- while the other is truly powerless
and they live at the whim of others and have no rational right to have
aspirations because they have no way to improve their negotiating position nor
any expectation for that to change since every transaction they enter into is
to reduce loss rather than increase their possessed value.

~~~
icebraining
Yes, a non-poor person has a better BATNA, therefore they can demand more from
the other party. But I think the studies show that the poverty has an effect
even beyond that.

~~~
clavalle
I guess my problem with studies that show the other effects of poverty is that
they seem to paint the poor as just hapless, irrational, creatures; subhuman
and deserving of their plight since they can't reason their way out of it.

And, who knows, they may be, but I'm going to have to see a lot more proof
than what I've seen so far which tend to be of the vein 'well, look at their
circumstances. You wouldn't make that decision that led them there. I wouldn't
make that decision that led them there. Obviously they are not rational like
you or me'.

It is very strange that everyone in the economic model of the world is assumed
to be rational but the poor.

~~~
icebraining
While your concern is valid - patronizing and disrespecting the poor is
rampant - I don't think that's a _consequence_ of observing this effect;
there's usually a prior belief. After all, the evidence is actually against
the "subhuman" hypothesis - it shows that the reduced quality of the decisions
is specifically a result of the environment, not an innate deficiency of some
individuals.

Also, the assumption that everyone is rational is no longer unquestionable,
ever since behavioral economics started gaining prominence.

------
mizzao
Economics is a highly inbred field, which makes it very difficult to transmit
cross-disciplinary information. The recent popularity of machine learning in
the field might be a rare exception.

Economists only cite other economists. One of my colleagues put it this way:
if you write a paper that is interesting to economists, and an economist finds
it and does some follow-up work, that paper will get all the citations from
economists.

~~~
bachmeier
> Economics is a highly inbred field, which makes it very difficult to
> transmit cross-disciplinary information.

I disagree. Economists pull in work from many other fields: statistics, math,
computer science, political science, sociology. Kahneman and Granger are
recent Nobel Prize winners that didn't have a PhD in economics.

> The recent popularity of machine learning in the field might be a rare
> exception.

Not really. Economists were applying neural networks in the 1990's, just as
one example. The problem is that these ideas often fizzle out because they
weren't designed for economic data and it turns out that they don't provide
much value.

> Economists only cite other economists.

That's the real issue. The field of economics is very closed. It's even worse
than you describe. Not only do you have to cite papers written by economists,
you have to cite the right economists, or the referees will stop reading and
write a negative report. Getting new approaches into economics is easy if you
have connnections within the editorial process that rejects more than 90% of
submissions.

~~~
mizzao
> Kahneman and Granger are recent Nobel Prize winners that didn't have a PhD
> in economics.

I don't know about that--it was really a chore to christen the field of
behavioral economics, previously considered to be "psychology".

------
pash
Economists have been investigating these concerns for decades. There is work
dating from the late 1960s on the computability of general equilibria under
uncertainty, and concerns about computability have played a role in the
influential literature on bounded rationality. A small sub-field of the
discipline, usually called "computable economics", began to appear in the
mid-1990s, when K. Vela Velupillai [0] began to publish papers on the topic.

Velupillai is a central figure in computable economics, and you will find
references to much of the work that's been done in the area if you search for
his name or browse Google Scholar for his papers [1] (and the papers that cite
his).

0\.
[https://en.wikipedia.org/wiki/Vela_Velupillai](https://en.wikipedia.org/wiki/Vela_Velupillai)

1\.
[https://scholar.google.com/scholar?q=KV+Velupillai](https://scholar.google.com/scholar?q=KV+Velupillai)

------
grillvogel
i love how CS people always assume everyone in every other field is just
slacking off waiting on the programmers to assist them with their elite
knowledge about things no one else has considered

~~~
_yosefk
Actually economists are easily the worst offenders of any field - they even
gave a name to it, "economic imperialism"

------
feed16
There's a third option when shooting a penalty kick: aim straight for the
goalie. No matter which side the goalie goes for, the shooter always wins.

