Economic predictions from a theory of mind
Mark Thoma reports Robert Shiller's article on the psychology of the asset bubble and bust , and asks " how to implement this forecasting technique - one based upon a theory of the mind ". I have been working in this area for some time and can suggest the following as a possible framework. I don't know if Shiller has something like this in mind - I suspect not - but I do think it will be a step in the direction that he calls for. Note that this is not yet a fully developed model, but a proposal for how such a model might look. While standard economic theory deals with a set of goods , I propose instead that there are a set of concepts in the world. We can imagine some of these as corresponding directly to traditional goods - for example the concept of a loaf of bread or an economics PhD . These concepts are mental constructs and not physical ones; they represent the relationship of a person in this model to the ideas of bread or PhDs. Next, let us define concepts w...