Questioning Assumptions of Competitive Markets

• John Vandivier

Actors are rational:

  1. transitivity
  2. completeness
  3. nonsatiation
  4. convexity
    1. There is few to no such thing as an economic 'good' or a 'bad.' There are things, which are almost always relatively and contextually each.
  5. exogeneity
Market conditions are such:
  1. d
What really matters:
  1. Cooperation, competition, domination. We need a competitive market.
 

reference the old article which said watch for this one. OR Questioning all basic assumptions: Completeness, Nonsatiation, Transitivity, Convexity, Exogeneity. Completeness -> Arbitrary completenes, up to perfectly incomplete (probibalistic) Nonsatiation -> Arbitrary satiation, up to perfect satiability. Transitivity -> Minimal transitivity. There must be at least one set of circumstances in which trans holds. (ie, freeze time, for a particular agent, etc). OR constant probability of transitivity. (unnamed assumptions) Smooth preferences. Functional (pass vert line test) preferences. {left and right shoes} Convexity -> average good convex, but some comparisons non-convex: absolute preference, perfect substitutes, ever increasing MRS? Bananas of imperfect ripeness (a little too much, a little too little). Concave goods? Instable chemicals or sorted political items - you would rather have more of one kind than a mixed basket. exogeneity -> Imperfect endogeneity/Sufficient exogeneity, etc.

assumption that goods exist.

are subjective and objective utility correlated? "frozen subjective utility" = quasi-objective. With respect to some static frame of reference. -> Yes they are, depending on how we define objective utility: We even have a mechanism: empathy/sympathy, but does the mechanism work in relation to God, the perfect frame of reference (yes, but it's a bit different.)

intertemporal choices violate basic assumptions:

  1. Preferences may change over time to violate transitivity.
  2. Preferences may change over time such that a good becomes a bad, violating concavity
  3. certainty or completeness doesn't exist over time.
can't use calculus bc continuity functional assumption is violated: consumers demand real goods and real goods are not available infinitesimally. There are acknowledged problems of discrete units.

yet market is robust to all of these assumption violations: markets work independent of all of these silly extraneous assumptions. For example, people behave in market fashion even over time which should be the least accepted due to huge violations of assumptions.

Present expectations of future values may help solve intertemporal violations, but these expecations are uncertain. probabalistic modelling is ideal. Present moments, vectors, or directions of instantaneous velocity can use current/past info to predict the future without probability, but these calcs don't account for unexpected changes and also calculus is in violation of the discontinuous, discrete, primarily ordinal nature of real preference data.