Are there objective-criteria for criticizing people's "market behavior"?


Are there objective-criteria for criticizing people's "market behavior"?

That is, is there a set of criteria that one can objectively refer to as measuring, whether the "contribution" of a member is fair or not?

Sometimes it's argued that "markets" supercede the logic of any particular subject, because the market action per se measures "needs and wants" of larger groups, more broadly than any particular subject.

However, since markets can also seen to contain irrational behavior, then this calls for a need to rationalize about "correct market behavior". However, it's still possible that "correct market behavior" is subjective, even though this is a sad arrangement, because then it motivates "everything", such as slave labor.


Posted 2018-11-06T11:16:00.720

Reputation: 2 666

1"However, it's still possible that "correct market behavior" is subjective..." Market behavior does not happen in a vacuum, but against a political and cultural milieu: slave labor for instance was deprecated because public opinion turned against it. - It is precisely the (inter)subjective market behavior that makes it valuable to measure "needs and wants of larger groups". Any attempt at enforcing "correct" behavior would destroy its utility in that regard. – christo183 – 2018-11-06T12:18:37.923

@chirsto183 Is public opinion not still subjective, although in groups? Also, what if the "needs and wants of larger groups" are irrational / lead to irrational outcomes, such as waste, depleting of material resources, social inequality? – mavavilj – 2018-11-06T14:43:35.723

@christo183 This presupposes that there are some stable and indwelling "needs and wants" of groups to be measured. Manipulability of human behavior suggests otherwise, those things are not so much measured quantities as fictions manufactured by the "measuring" process itself, think e.g. of commodity fetishism. And if so the "enforcing" is in principle no different. One can certainly argue that regulated market is "better" because market self-regulation assurances are based on the classical assumptions about agents' rationality, which, to put it mildly, are false. – Conifold – 2018-11-06T21:01:42.443

@mavavilj Of course "needs and wants of larger groups are irrational / lead to irrational outcomes". Those issues you raised are all around us. But what other means are there to efficiently "measure" the public; a "measure" that would be completely warped by (over)regulation. And it may still be found that "irrational" behaviour was fueled by market manipulation, for instance: widescale promotion of consumerism or dissemination of false information (1950's tobaco industry). - also see reply to Conifold – christo183 – 2018-11-07T04:55:50.183

@Conifold (see reply to mavavilj) Regulation to a sufficient extent will change public behavior rather than be changed by it. In such a market the force of law stifles the entrepreneurial and innovative disposition. With market manipulation on the other hand nefarious conspiracies can be uncovered, corrections can be made. The force of law promotes healthy market conditions. An under regulated market would be too vulnerable, so it's more about how the force of law is balanced. – christo183 – 2018-11-07T04:57:54.437

@christo183 The distinctions between "over" and "under", regulation and manipulation, healthy and not, etc., seem to be circular. The OP is asking about some procedure with independent credentials that suggests "optimal" behavior (assuming people can agree on optimality criteria), then we can perhaps judge how much regulation is healthy. Even accepting the "measurement" metaphor (which is highly dubious), it may turn out that public behavior does need to be changed for "optimality", and significantly, say, due to ecological or some other constraints. – Conifold – 2018-11-07T19:41:40.350

Of course you are right, market behaviour is riddled with circular reasoning, recursive strategies etc. It is precisely for this reason that I suggest market dynamics as the most efficient measure of public sentiment. After all, market forces did not reflect ecological concern until public awareness reached an appreciable level. – christo183 – 2018-11-07T20:16:51.220

@christo183 Isn't it suboptimal to mediate serious concerns through the awareness of (largely uninformed) public? If that is all "market forces" are capable of doing their worth would seem to be rather limited. I suspect that its utility has more to do with homeostatic regulation of behavior than with measuring "public sentiment", which is for most intents and purposes moot. – Conifold – 2018-11-07T22:45:30.020


It is worth noting here that we are in the midst of a paradigm shift regarding how public sentiment influences the market: From the old paradigm the primary 'market force' with respect to 'public opinion' is 'buying behavior' (voting with your wallet). - Of course 'market forces' was not designed to measure anything, rather they evolved in service of (public) buying behavior. The utility as a measure, is a happy accident; and without doubt suboptimal it that role, since the market lags public behavior.

– christo183 – 2018-11-08T08:34:17.197



I will try to focus on answering the direct question in the first sentence. We may use game theory to criticise the market behaviour of a participant. Consider a market that consists only of item a and item b. We develop a model to describe the utility of item a and item b to the participant. If we want to "criticise" a choice or series of choices they've made, like trading x count of A for y count of B, we now have to consider the alternatives to these choices and the expected gain/loss in utility of these choices. We now have a grounded means of calculating the optimisation of their market behaviour, of how rational the participant's behaviour is.

Now for the muddy water, answering the less direct, how "fair" is/are the contribution(s) of a participant [to an economy]. Calculate utility as stated above. The value of Utility gained and its distance from the utility gained by the system to which the participant contributed could be a reasonable basis for defining "fair" if your definition of fair is to both not profit or lose value from the interaction. Example (edited): My wife makes coffee and cleans the cups and we both drink coffee: unfair, I take more utility than the other participants of the system. My wife makes coffee and I clean the cups we both drink coffee: reasonably fair, I take utility roughly equal to that of other participants.

Hope this helps


Posted 2018-11-06T11:16:00.720

Reputation: 117

Would you have any reference(s) that would give the reader more information? This would also strengthen your answer. Welcome to this SE! – Frank Hubeny – 2018-11-07T15:27:47.237

No! Both of you profit from the interaction! Both of you do marginally more than half the effort necessary to get the full benefit of coffee! – elliot svensson – 2018-11-07T16:13:18.303

Thank you Frank, the warm is appreciated. I will think about adding references that would be more direct to the question at hand, I was wary of just adding Neumann's theory of games and economic behaviour or Adam Smith's wealth of nations, or any of my old textbooks as I do not have immediate access and do not remember page numbers and did not want to immediately overwhelm the reader. I will think on it and see about adding something. – ActionEconomy – 2018-11-07T16:40:26.167

In response to Elliot, when I wrote that example I felt that this kind of comment was coming but decided that being concise would save both the reader and myself time. My choice might now be criticised... I should have said that the utility on either side of the interaction should have been close to equal. My intent was to say that neither of us gain at the other's expense, I've been working mostly with small zero sum games lately and that mental model creeped in to my answer. I will edit accordingly! – ActionEconomy – 2018-11-07T16:42:07.340

Thanks so much for the well-informed response, @ActionEconomy. Would you like me to delete the comment? – elliot svensson – 2018-11-07T21:36:36.913

No problem! I appreciate the offer to, but it's fine, I'd rather let someone have the opportunity to learn from the mistake/distinction I made/needed to make. Thank you for bringing up the issue – ActionEconomy – 2018-11-07T22:05:41.423


It seems clear to me that it was not external forces, but normal market forces, that drove the market into depression in the 1930s and popped the housing and tulip bubbles. If we think these events were bad, then we need better normative guidance than pure market behavior to avoid them.

I think that the tulip and housing bubbles would not have popped without the naive investment by the second and third generation of investors, who did not realize that "home values always rise" is false. So perhaps a theory of correct market behavior would add the condition of fully-informed consent upon the market conditions of free action and self-interest.

Regarding slave labor and other forms of oppression, clearly if the putative slave were participating in the market then he or she would not consent to the slavery-transaction... the rationality of the slave market is contingent on excluding those specific individuals from market entitlements.

elliot svensson

Posted 2018-11-06T11:16:00.720

Reputation: 4 000

I wasn't around for the tulip bubble, but the housing bubble would have popped. Or are you saying it wouldn't have happened? I believe that if financial institutions hadn't planned as if the prices would always go up, it would have been a much less disruptive bubble. – David Thornley – 2018-11-07T21:26:11.177

I hadn't identified institutions' naivete about prices always rising as the cause (or rather, as a "missed opportunity to prevent disaster") but the naivete among the investing public, specifically those who hadn't already made all their profit by the time 2008 rolled around. – elliot svensson – 2018-11-07T21:33:38.967

@DavidThornley, would you say that a rational market would not have popped? I'm saying that's only true so far as the rational market also knows everything. – elliot svensson – 2018-11-07T21:34:34.407

@eliotsvensson A rational market would not have popped. A market composed of rational people could have. After all, buying real estate, up to the point of the pop, was at least a reasonable risk. (Writing bad mortgages and selling them on was a rational thing to do for individual mortgage agents.) Unfortunately, we really don't have a good way to make a rational organization without losing a whole lot of creativity and individualism. – David Thornley – 2018-11-08T01:57:56.437

@eliotsvensson Also, I have an unfair advantage when it comes to knowing about mortgage institutions. I was working for GMAC-RFC (the home mortgage arm of General Motors) implementing financial models at the time. To be honest, the financial models had effectively no empirical evidence of the effects of seriously underwater mortgages. – David Thornley – 2018-11-08T02:00:34.883

@DavidThornley, I still sense that your notion of a rational market includes an all-knowing rationality, which I posit ought to be specified rather than assumed. – elliot svensson – 2018-11-08T14:55:51.917


It is not necessarily true that markets contain irrational behavior. If the basic theory underlying economics is sound, there is a real force of actual utility that drives it, and that force has a logic of its own. But utility includes subconscious biological forces, social desires and other computations that are hidden from the conscious actor.

It may be true that expressing a given kind of power has a real unconscious biological advantage, or that people unconsciously believe that it has such value. Then action based upon display of that power is not irrational, it is just based on hidden variables. If such behavior is driven by the competition inherent in genetic, biological and social imperatives of individuals, it is, at root driven by a sort of computation meant to leverage the power of information, and it cannot be anything other than a logical bet given all the information that comes into it.

If this notion of absolute utility is, in fact not real, then the overall phenomenon of markets remains inexplicable. They are clearly not driven by conscious decisions, but they are also subject to manipulations that seem to follow real rules.

There is no relationship between what is rational at this level and what is ethical. So I think there is a relatively deep nonsequitur in your question. What is rational, in terms of absolute survival, may be for me to kill a large number of people, so that the planet survives, and our lives are better, but that would still be immoral. Slave labor is rational in market terms if the social costs of violence and fear are subsidized. That does not mean it is 'correct' in any more general sense.


Posted 2018-11-06T11:16:00.720


"utility includes subconscious biological forces, social desires and other computations that are hidden from the conscious actor.", which I would some say are "irrational", because they are "not in refer to rational", but e.g. feeling or "soft rationalization". E.g. buying stuff that one doesn't really need. – mavavilj – 2018-11-06T19:07:25.730

@mavavilj It depends upon what you consider rationality. If it predicts better success on the level of the species, or of the evolutionary trend, is it still irrational? There is, for some domains, a distinction between non-rational (or subconsciously rational) and irrational, much like the distinction between amoral and immoral. – None – 2018-11-06T21:38:23.587