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AI, Economics, and The Human Element in Decision-Making
A Discussion of Yuengert’s “The Space Between Choice and Our Models of It”
Economist Andrew Yuengert addresses the limitations inherent in our economic models of rational consumer choice. He is not saying the models are bad or wrong to use, but a conscious acknowledgment of what is and is not included in them is going to make policy recommendations better.
He starts with a joke that captures his main point.
Two men in a hot-air balloon have lost their bearings in a cloudbank. The mist clears long enough for the men to see another man on the ground. They ask him where they are, and he tells them, “you’re up in the air,” whereupon one of the balloonists say, “that man must be an economist. What he told us is undeniably true but utterly useless.” (p. 165)
The rational choice model produces the demand curve, which works well as a model of the market, while at the same time is “utterly useless” at explaining how consumers make decisions.
What does that mean?
First, the rational choice model is essentially an optimization problem. Yuengert is not against that. He is simply saying there are unmeasurable factors that impact the consumer before you get to the optimization issue. That is what he means by “the space between.”
