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As we all know, snark always comes before a fall. Mea culpa
One snarked and, inevitably, fell
Take that, Marx!
The key point of this section is that all sensory encoding is reference dependent: nowhere in the nervous system are the objective value of consumable rewards encoded. This means that models that require encoding of objective stimulus magnitudes cannot accurately describe how humans behave. That is a simple and irrefutable fact.
I take this to be proof that Marx's labour theory of value is wrong and Smith's theory of use value is right. Our nervous system simply does not store anything as an absolute value. Everything is always a relative value. Furthermore, all storage is as a subjective, not an objective, value.
Thus we have no method of considering even how much labour went into the production of something, so therefore we cannot possibly be considering that when we assign a value to it. But we can, and do, assign values by our own subjective opinions and relative to things that we have valued before.
Of course, it's still open to us all to argue that it should be the labour encapsulated in something that produces our valuation of it, but that's not the way humans actually work.
Some of the things that are assumed in some areas of economics turn out not to be true: rationality of economic actors for example. Rationality here means consistent, not that we all behave like Mr Spock. We are rational actors in things that we do often. If we prefer apples to bananas and bananas to citrus, then we do indeed prefer apples to citrus, which is what that assumption of rationality means. Again, the free-market models which assume rationality are assuming this form of it, not that we are all calculatedly logical. But there's significant areas of life where we are not rational – they tend to be those parts of life that we don't have much experience with.
This is not surprising when we think of how we learn: through experience, of course. That has useful implications for regulation: we don't need to worry very much about jams and toothpaste because they're something we'll quickly get up to speed upon. But we only buy pensions once in a lifetime and mortgages a handful of times at most. So in those areas there should perhaps be more regulation and control of choices to make sure that our relative lack of rationality isn't taken advantage of.
Some of this is all beginning to sound a little like Kahneman and Tversky and behavioural economics. Which, given that they're from that psychological side – the third discipline, after economics and neuroscience, which is informing this neuroeconomics – isn't all that much of a surprise.
From my point of view as a rabid free marketeer, the most interesting points being made are that, yes, there are areas where simplistic Econ 101 arguments seem to be a perfectly reasonable description of human behaviour. And similarly, to those who are not rabid free marketeers, the interest will be in the proofs that some areas of life aren't so simply explained. The most interesting end result of this new science, although it may be a few decades before we really get there, is going to be the aid it will give in defining which is which: which areas of life can we leave with markets and competition and which shouldn't we?
My apologies to Professor Glimcher's royalty account, but at $40 I would recommend Foundations of Neuroeconomic Analysis only for those really, really, interested in the subject, or perhaps as something to get from the library. But my takeaway from all of this was that we're getting much closer to being able to establish some parts of economics as “real science”, in the sense that we're beginning to understand how humans make decisions and which systems of decision making are applied to what areas of life and experience. For which: Hurrah!
And the really important lesson here is that snark comes before the fall, but the embarrassment of being corrected leads to knowledge. Until, at least, the next time that Worstall is Worstall. ®