Free Market

[Utah]

"Market actors not selling food to a group because of the color of their skin. Irrational and not in their best interests."

Very interesting example. I'll need to spin that in head for awhile.

[Voltorb]

Utah, you are certainly correct concerning the free ride principle, which is why you must have government enforce the rules that are in effect to thwart any individual acting in his own best interest.

You are also correct in pointing out that the exact statement I have made has not technically been disproven. Is it okay to say that free markets assume that each individual acting in his own best interest is always in the best interest of the group. If this is true, then that particular statement has been disproven.

The rest of your statements make alot of sense, but I would like to point out, as a previous poster said, that free markets aren't really free. The U.S. has certainly imposed its fair share of tariffs and trade barriers throughout its history.

To put it quite simply, there isn't much the market can do about oil depletion. The best a free market could do would be to encourage more investment in alternative energy. Of course, the only market trigger for this is obscenely high oil prices triggered by too much demand and too little supply. By then, it would be too late. Society would at the very least suffer until replacements could be made. The coming oil crisis is not going to be solved by the free market.

[Utah]

No market is a 100% efficient. However, the higher the degree of efficiency the better the market runs.

"People continue to buy gas at the SA. Why? Didn't see the signs; habit; they like the coffee at SA better; the BP cashier is grumpy; etc. None of those things are rational, but they drive the economy."

None of these actions are irrational:
Didnt see the sign: simple lack of information
Like the coffee better: compensating additional benefit
the BP cashier is grumpy: countering negative consequence for the cheaper gas
Out of habit: compensating additional benefit of familiarity.

[Voltorb]

Adios, I was not responding directly to a statement made by Utah at the time, but instead to the question put forth by the original poster. I was trying to point out an assumption made by a free market (this may or may not be a free market assumption, I really don't know) and then point out that it is wrong.

As providing a specific example, I refer you to this link.

Games With Dominant Strategy Equilibrium

I figured that since John Nash basically revolutionized the way economists thought about economics, simply citing the example in the movie would be enough. Because I have no practical skill in economics, I cannot come up with a specific example involving market actors etc. The mathematical truth of the principle stated by Nash is evident to me, and being as such, it should be valid for many situations.

[Dr. Strangelove]

[ QUOTE ]
The free market does an outstanding job of serving the long term interests of its society. Just look at the long term rise in the standard of living in the U.S.

[/ QUOTE ]

A long term rise in standard of living is no argument for the American system. You can find considerable increases in the standard of living in all sorts of places, say Hitler's Germany or the Soviet Union, or China.


You note that the environment is one area where the "free market" does not do so well.

The free market does not do a good job of factoring costs that are absorbed by the public, such as air or water pollution. For example, a product that would be unprofitable to produce if environmental cleanup and decreases in surrounding property values were accounted for is produced anyway.


I would also note that the free market is quite effete when it comes to the development of technology and basic research, a segment that could fall under the heading "long term planning." The development of the computer was clearly something business has benefited from, but it was too great a task for any one private entity to stomach at the time. The same is true of the internet, aeronautics, satellites; basically anything developed under the pentagon system.

[InchoateHand]

I think the example of "Market actors not selling food to a group because of the color of their skin" is an example of multi-dimensional interests--interests which are exceedingly difficult to quantify in raw financial terms.

Not selling food to a disparaged group is obviously not in the best financial interests in two senses--in the short term, they don't make that profit. In the long term, the disparaged group is forced out of the marketplace by death, curtailing potential future profits as well.

The problem is, the individuals operating on this "irrational" basis have very vested interests in not selling food to a particular group---identitarian concerns, notions of self and collective worth, demarcations of in/out groups, etc. ad nauseam. Thats the problem with "strong" rational choice, and where "rational choice lite" seems to be a good approach for contextualizing the vacuum that a "free" market presupposes.

[andyfox]

Irrational behavior "occurs" when economists' definition of rationality is poor. Econonomists claim people want to maximize their happiness. But many people choose a solid, steady existence to maximum profit, especially when striving for it risks ruin. It's a perfectly rational decision, but economists see it as irrational.

[Il_Mostro]

[ QUOTE ]
Players bet the bubble because because, even knowing it is a bubble, the players still feel it will go higher.

[/ QUOTE ]
Well, yes, some "players" do that. But I would say that most people just go with the flow. Since we have had a bubble every 20 years or so for a long time, and it's still a lot of people that lose a lot of money everytime, I would not say they are rational.

maybe this comes down to a difference in definition on rational.

[ QUOTE ]

Now, you might argue that they are incorrect about some underlying principles. However, that is a completely different thing.

[/ QUOTE ]
I don't understand what you mean here. If this is a commentdon my "exponential growth again" remark I find it strange. If you call that to be " incorrect about some underlying principles" I would say you are wrong, that is not an underlying principle at all, and everyone should be able to understand it cannot go on, yet a lot of people lose money every time.

[andyfox]

"None of those things are rational"

Of course they are. They are only irrational to economists who see man as a purely economic animal. There's nothing irrational about spending a few cents more per gallon for gas because the coffee is better at the more expensive gas station.

[Dead]

[ QUOTE ]
Market actors not selling food to a group because of the color of their skin. Irrational and not in their best interests.

[/ QUOTE ]

Rare though. In fact, during the 1950s, some whites-only Southern restaurants served African-Americans even though it was against state law. They couldn't afford not to.