Math Has Ruined Economics (Quantified)

You’re not rational and neither is anyone you know

In the Introduction, I gave a few quick examples of the many problems with “modern day” economics. These are only the tips of many icebergs, however. If you were ever suspicious of the field feeling like something just didn’t add-up or that the experts didn’t know what they were talking about, cheer-up. You may very well be onto something. Of course, you might be wrong, too. But, expertise about how the accepted models of economics work, doesn’t necessarily equate to expertise of how the world works.

Modern economics is usually built around something called the “Neoclassical model” developed throughout the 18th and 19th Centuries. This is a set of fundamental assumptions about the world and how it works. But, to understand how it came about, we need to go back further, when economics wasn’t its own field at all.

The core of Neoclassical economics has three assumptions:

1. People are rational actors (they make decisions rationally).
2. People optimize utility (functional and financial value) when making decisions (and companies do the same with profits).
3. People make these decisions, independently, on the basis of “perfect” knowledge of their choices (meaning, they have all the needed, relevant information and they know how to apply it).

We can dispense with the first, right out-of-hand, based om our own personal experience, since it’s clear that…