Can feelings be modelled?
Karl at Modeled Behavior responds to Richard Posner (I am surprised to hear Posner emphasising psychology - I thought he was talking about Richard Thaler at first): I am not sure exactly what Posner means by psychology. I have never been optimistic about feelings as an economics model. Perhaps people spend more when they feel better but how do we get a consistent measure of feelings and even more to the point how does policy consistently effect them. What I do think makes a difference is expectations . Expectations do fit nicely into macroeconomic models because they bear a simple relationship to real events. Macro models mostly deal with visible events such as monetary transactions. And an expectation is just an event, translated in time and perhaps given a probability weighting. But we do model things in economics that are not that simple. The most obvious example: preferences . Preferences are very complex - just think of all the factors that impacted on your choice of what dinne...