Contemporary Austrian‐school economists reject neoclassical welfare theory for being founded on the benchmark of a perfectly competitive general equilibrium, and instead favor a formal theory deemed consistent with the notions of radical subjectivism and disequilibrium analysis. Roy Cordato advances a bold free‐market benchmark by which to formally assess social welfare, economic efficiency, and externalities issues. Like all formalist, a priori theory, however, Cordato's reformulation cannot meet its own standards, being theoretically and empirically flawed, and perhaps ideologically suspect.

In his book The Sensory Order, Hayek anticipates many of the central ideas behind what we now call the connectionist paradigm, and develops on this basis a theory of the workings of the human mind that extends the thinking of Hume and Mach. He shows that the idea of neural networks is can be applied not only in psychology and neurology but also in the sphere of economics. For the mind, from the perspective of The Sensory Order, is a dynamic, (...) relational affair that is in many respects analogous to a market process. The mind, as Hayek puts it, is a 'continuous stream of impulses, the significance of each and every contribution of which is determined by the place in the pattern of channels through which they flow' , so that the flow of representative neural impulses can be compared 'to a stock of capital being nourished by inputs and giving a continuous stream of outputs'. (shrink)

Economists tend to view ignorance as ?rational,? neglecting the possibility that ignorance is unintentional. This oversight is reflected in economists? model of ?information search,? which can be fruitfully contrasted with ?information browsing.? Information searches are designed to discover unknown knowns, whose value is calculable ex ante, such that this value justifies the cost of the search. In this model of human information acquisition, there is no primal or ?radical? ignorance that might prevent people from knowing which information to look for, (...) lacking omniscience. Unlike ignorance that is rationally chosen on the basis of an accurate cost/benefit calculation, radical ignorance can explain human error. An account of error as grounded in radical ignorance bypasses the need to appeal to irrationality in order to explain economic (and other) mistakes. (shrink)

The discipline of economics can benefit from a more explicit, systematic, and sustained concern with ontology; that is, with the philosophical analysis of the nature of the social world. Contrary to the argument advanced in these pages by Gerry Steele , critical-realist ontological analysis encourages fruitful economic research in a number of ways: by helping to identify research methods suitable for analyzing economic issues; by promoting the development of key substantive economic concepts; and by helping to reveal and resolve inconsistencies (...) in existing research. (shrink)

ABSTRACT What constitutes a Black Swan? And under what conditions may a Black Swan be expected to arise? As Nassim Taleb describes it, a Black Swan is an event that displays three key properties, the two most important of which are that: (1) it is not even imagined as a possibility prior to its occurrence; and (2) it is in some way significant in its impact. It follows that whether or not an event counts as a Black Swan depends on (...) the subjective imaginings of contemporaneous observers and their (usually implicit) criteria regarding what counts as a “significant impact.” Since there is nothing in determinism that precludes (1) and (2), Black Swans may occur even in a perfectly deterministic world. Nevertheless, if the world is indeed characterised by randomness, free will, emergence, and the like, then it is arguably more likely to throw forth events that display the above‐mentioned properties. The same goes for various specific features of an increasingly interconnected global economy, which allowed Taleb (paradoxically) to forecast what was, for most of us at least, the great Black Swan of 2008. (shrink)

Tyler Cowen's “New Austrian” theory of business cycles is based on risk analysis and the assumption of rational expectations. This contrasts with the Old Austrian view, which questions the feasibility of measuring economic risk. Despite Cowen's admirable eclecticism, the way he applies risk analysis to business cycles suffers from serious inconsistencies, and his use of rational expectations is mistaken in the face of economic complexity—a phenomenon that was accurately understood by the traditional Austrians.