Economic models as knowledge-surrogates

28 September, 2015 at 16:29 | Posted in Economics | Leave a comment

The standard way in which time is introduced into economic theory is by having models with time lags in the equations. Shackle quickly disposes of this by pointing out that it poses a question rather than answers one …

One way out of these difficulties is simply to abandon time; to confine one’s attention to the ‘momentary world of perfect pre-reconciled choice’ … In the method of statics, one might expect, there is some hope of keeping things sufficiently watertight for the agent’s reason to have something definite to work on: the impoverishment of the framework of thought by the exclusion of time may be compensated for by the rigour with which one can formulate the now self-contained static theory …

Surrogate_reality-AugmentedThe second possibility is what I will call ‘the de-naturing of time’. Thus, one can consider agents choosing not a self-contained, momentary act of conduct, but rather a whole time-path or plan for future conduct. But this brings us immediately up against the … simultaneity problem. And this, in turn, means that the theory can only be made workable by supposing that these plans or time paths have somehow been pre-reconciledso that they are all mutually consistent and realisable. Accordingly, in such a situation, the expectations on which plans were based could all be fulfilled (or, more precisely, would be ‘self-generating’). This would then mean that the future produced no surprises: ‘time’ elapses but bears no novelty and no uncertainty. It is a future about which all agents have the perfect knowledge-surrogates for achieving the appearance of being ‘fully informed’. It will be no surprise to learn that in such a situation market prices (including now certain inter-temporal prices) are perfect knowledge-surrogates …

Alan Coddington

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