CAMREC: Thought: rationality is more flexibility than optimality

From: the Campaign for Real Economics (camrec@mmu.ac.uk)
Date: Fri Apr 28 2000 - 12:02:13 BST

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    From: the Campaign for Real Economics <camrec@mmu.ac.uk>
    Date: Fri, 28 Apr 2000 12:02:13 +0100
    Subject: CAMREC: Thought: rationality is more flexibility than optimality
    

    Dear Colleagues,

    There are many characterisations of rationality. Perhaps the most
    fundermental is thought processes that are good at achieving an entity's
    goal(s). The most fundermental goal of many entities (animals, species,
    families, firms, etc) is survival.

    In terms or achieving survival an ability to adapt adequately to new
    situations is often more important than being able to optimise behaviour
    in familiar ones. If the environment is in any sort of state of
    self-organised criticality, so that changes of indefinite size will
    occur unpredictably, then longer-term survival will depend on adapting
    to unpredicted novel and radical changes rather than on the ability to
    do well in the periods between these crises.

    Thus rationality is better characterised by flexibility than optimality
    (especially in the long term).

    The caveats are (1) if the environment is in a such a stable state that
    flexibility is reducndant (2) if the periods of doing well in stable
    periods is used to store resources for times of crises and (3) if the
    period of doing well is used to increase the ability to be flexible. (1)
    is rare for many entities (especially economic entities) (2) is often
    limited since storage is costly and detracts from short-term success and
    there is often little incentive to implement (3) when things are going
    well in stable conditions (as Bill Gates is supposed to have said "You
    don't learn anything from success").

    I think part of the reason that people overestimate the importance of
    optimality is that entities will often use indicators as "proxies" for
    danger. This is beacuse it is useless waiting for extinction before
    trying to avoid it. By this reading attention to indicators (such as
    profit, cash flow, share price etc.) is often more used to indicate
    danger than as a goal for optimisation.

    Regards.

    ---------------------------------------------------
    Bruce Edmonds
    Centre for Policy Modelling
    Manchester Metropolitan University
    Aytoun Building, Aytoun Street, Manchester M1 3GH, UK.
    Tel. +161 247 6479 Fax. +161 247 6802
    http://www.cpm.mmu.ac.uk/~bruce



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