Thaler is right and markets are perfect

It looks like after Richard Thaler won this year’s Nobel prize for economy, Milton Friedman’s neoclassical economics is finally proven to be wrong. What a relief for all that never red neither Von Mises, Hayek, Friedman nor Thaler. It is so easy to understand behavioral economics as a theory that replaced so deeply and universally hated neoclassical economics. Such misleading conclusion is even easier to reach since Thaler himself, especially in his famous Misbehaving (2015), negatively refers to unsupported rationalistic premise of neoclassicals.

But wait a minute! But exactly because neoclassic never enter the sphere of psychology and behavior, one can in principle not criticize them for taking market agents in any psychological sense. They do not care. They do not scrutinize agents and their behaviors as Thaler does. For what they try to explain it does not matter weather agents are black or white, rational or spiritual, dumb or wise, and so on. They never said that agents are rational, but only that markets behave rationally. Should markets not behave rationally, Thaler could not explain them. Since one cannot explain anything but rationally! We cannot understand limbic brains that represent the core of Thaler investigations, but rationally.

I understood Thaler position against neoclassic as predictable positioning of one great mind amongst others. One has to point out his points of difference like any other product on any other market even though we know that Colgate toothpaste is a toothpaste like any other. On highly competitive and saturated markets products do not differentiate very much so products tend to magnify small differences as much as possible.

But let me point one more dangerous attack on neoclassic. Friedman for instance is blamed as naive adaptionist ( ). From only slightly different point of view as that one of Thaler, the assumption of markets as perfect is rejected.

Well! If you assume market as being driven by forces that come in relation only through values that are convertible to money, then this criticism of neoclassical economics is surely valid. But who says that there are only such forces influencing market?

If we accept that “publics”, that are not related to money/value propositions but to other/value propositions (reflected through issues), are equally part of markets as much as sellers and buyers, then we can see that such markets are in fact in perfect complex equilibrium.

For instance: when we see that the state is not only collecting taxes but as well a resource of nonmaterial value propositions, we have to accept that states influence markets with non-fiscal values. Then states are equal market partners as there are individuals. In one moment they are buyers of goods, then an employee and later a member of a initiative fighting against certain values of certain stakeholders.

Understanding market as a place that is not influenced by issues, publics and other stuff that does not come into play in the simple act of buying and selling, is very wrong. On the other hand, markets taken in their full complexity are perfect (in perfect equilibrium) insomuch as any other complex being.

Andrej Drapal