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*They model reality by proxy, they don’t describe it. | *They model reality by proxy, they don’t describe it. | ||
*They are idealised shorthand, and depend for their coherence on key simplifications that do not in fact appear in nature: no friction, symmetry, no supervening causes, homogeneity, infinite elasticity etc. | *They are idealised shorthand, and depend for their coherence on key simplifications that do not in fact appear in nature: no friction, symmetry, no supervening causes, homogeneity, infinite elasticity etc. | ||
==== | ====Market models==== | ||
Modeling how human beings behave in the absence of rules. | Modeling how human beings behave in the absence of rules. <br> | ||
=====Model 1: {{author|Adam Smith}}’s {{br|The Wealth of Nations}}===== | |||
*''' | Assumes qualities of human interaction that do not in practice exist: | ||
*'''Rational participants''': players act in an economically rational way | *'''A level playing field''': perfect equality, capability, opportunity and symmetry of information between participants.<br> | ||
*'''No collusion''': | *'''Rational participants''': players act in an economically rational way <br> | ||
*'''Information is free''': Information is universally, immediately available, and therefore has no value (so there is no value in keeping it) | |||
*'''No collusion''': Corollary of the Level playing field: participants are honest, do not take advantage of natural advantages and do not conspire to subvert market conditions. | |||
=====Model 2: {{author|Thomas Hobbes}}’ {{br|Leviathan}}===== | |||
: | Survival of the most brutish. Nature is red in tooth and claw. <br> | ||
*No cooperation | |||
*No altruism | |||
*No trust | |||
=====Shortcomings with each model===== | |||
Neither model describes '''not''' an equilibrium state among human beings. | |||
*Information is not universal, immediate, or homogenous. Therefore it is inherently valuable: those who have it have a distcinct advantage over those who do not. | |||
*Therefore it is economically rational to hoard information. | |||
*We ''do'' cooperate. We naturally form alliances and protect valuable assets.Cooperating actors can: | |||
*''Rig'' the market in their favour <br> | |||
*''Change'' the market. Where there were ten equal players, now there are nine: Eight equal small ones, and a bigger one. In a game of survival of the fittest the big one has an advantage. | |||
Market conditions and cooperation strategies are interdependent. Just by being in the market, you change it. Gauss vs power law. <br> | |||
:::(iv) Basic rule – wherever there is cooperation there must be trust. Credit, reputation, a man’s word being his bond. <br> | :::(iv) Basic rule – wherever there is cooperation there must be trust. Credit, reputation, a man’s word being his bond. <br> | ||
::::(1) But trust in a brutish market is a scarce commodity. A brutish market is characterised by nasty exchanges – one offs, negative sum games, a predator and prey. Generally one side doesn’t survive. How can trust survive? Single round prisoners dilemma says it can’t. We are doomed to brutish existence. <br> | ::::(1) But trust in a brutish market is a scarce commodity. A brutish market is characterised by nasty exchanges – one offs, negative sum games, a predator and prey. Generally one side doesn’t survive. How can trust survive? Single round prisoners dilemma says it can’t. We are doomed to brutish existence. <br> | ||