Monday, March 9, 2009
Animal Spirits, Knowledge and Psychology
Why do we make mistakes in economic calculations? What do we mean by animal spirits? Are these a cause or a result? In psychology as a cause theory, it is not that people don't learn from the past, but rather, learn too well from the recent past, and not well enough from the distant past, that outside of their experience, and end up repeating the mistakes of their forebearers. There does seem to be a disconnect between what we think we learn and reality though, that what we may learn may be false or incomplete such that we always have new lessons to learn as well as some we need to unlearn. In that, it is less of psychology as irrational emotionality than as bounded rationality limited by the truthfulness of our conceptions. Thus it seems both knowledge and psychology play a part in our mistakes.