A similar discussion of public goods and building incentives for public goods (including that bugaboo– Intellectual Property) from an *intelligent* Austrian perspective would be much appreciated. I’ve noticed a number of authors on Mises have gone so far as to deny there are public goods (or claim everything is, therefore it doesn’t matter) or that finding mechanisms to support them is a good idea. It’s just silliness: you can not support state activity and still recognize your non-Austrian colleagues have formalized a *major* problem. Help resolve the problem and you’ll make real impact.

“Acting according to habit is a desirable consumer good.”

This fact of human behavior explains why determinism sometimes makes sense, and why deterministic schema seem to work for a time before falling apart.

And while I’m at it: a valid extension of game theory might very well be the “Poverty-Trap Game,” a Prisoner’s-Dilemma-type game which encourages poor people to stay in their place through an opportunity cost for picking oneself up. I’m surprised that the game theorists haven’t made the connection before.

The subject matter of the most recent Nobel Prize seems out there and of little relevance to daily life, but in a sense it shows just how inapt central planning is. Austrians should not reject all that is going on in mainstream economics for their is much thought and useful work to be found in it.

Thank you for your extremely thorough and scholarly analysis. It helps non-economists like me when you put everything in such facilitative language.

Another argument which could be put forth is that although “mechanism design,” would perhaps create better quality goods and services – there is no true way to implement mechanism design on a federal level without running into problems. And a free-market is already providing us with immense innovation, and so as the ol’ adage says “if it aint broke, don’t fix it.”

Abu Hatem.

No word as to whether the “auctions” are equivalent to sheriff’s auctions, come to think of it…

It should also be remembered that the auction with two bidders is not a two-person game but a three-person game. One of the players is the seller.

Excellent point! I often compare the economy to the weather. Look at what a mess climatologists have made with their faulty models instigating GW hysteria. The results for similar models of the economy will be similarly disastrous.

Person: “Actually, machines can learn.”

As someone who has worked with data mining and machine learning programs for several years, I think the idea that they can learn is mostly hype. Machine learning algorithms a not very different from traditional statistics. You still have to have dependent and independent variables. Even sophisticated neural networks programs, which can re-create complex patterns, often do a worse job modeling data than plain old statistical regression. Machine learning programs don’t learn any more than regression learns. If you have a dependent variable and some independent predictors, machine learning programs can tell you how the predictor variables are related to the response (dependent variable) and can handle some nonlinearity, but that’s about it. Without a dependent variable, all you can do with machine learning programs is cluster analysis; not very exciting.

Also, machine learning programs fall victim to all of the problems of regular statistics, such as misspecification, multicollinearity, but especially false correlations. In other words, just like regular statistics, machine learning models are no better than the theory behind them.

In addition, machine learning programs haven’t been developed to handle multiple equations yet, as far as I know, and that is necessary for most economic modeling.

Central planning got a huge boost with econometrics, which gave planners the false confidence that they could perfectly models economies. In many cases, machine learning programs are no improvement at all over econometrics.

It seems to neglect marginal prices in the determination of how one can truly comprehend the worth of an object in terms to their own preferences.

I write down a bid for $50, it apparently indicates that I value the chance of winning and keeping $150 over the painting and the chance of losing it.

It seems to indicate a general tendency to assume, as opposed to calculating the rational designs within the market, only indicated by actions and not simple guesses as to what one would have done under other circumstances.

I generally do not appreciate Pareto-efficiency as much as most do.

That was my first reaction as well.

As Hayek constantly reminded people, no one is smart enough to ensure Pareto efficiency, not even a computer with mechanism design equations.

So true. If the global economy is a “mechanism,” it’s so mind-bogglingly complex that no amount of design could possibly optimize it.

To optimize such a system through design would be like guessing the correct lottery numbers every time, every week, for 600 million billion years.

The economy is even more complex than the weather, and that’s saying a lot!

I’m also fed up with this Pareto efficient nonsense. As Hayek constantly reminded people, no one is smart enough to ensure Pareto efficiency, not even a computer with mechanism design equations. Pareto efficiency can only be achieved if one assumes that they know for a fact the subjective values of every person in the economy, and that is impossible.