Rational Action and Systemic Response: Using Time to Integrate Subjective and Objective Probabilities

Abstract

Macro theories explore the properties of an economic system in its entirety, in contrast to the focus of micro theories on parts of that system. Where most macro theories reduce an economy to a representative agent, we follow Wagner (2012, 2020) in treating a macro economy as an ecology of plans. An ecology of plans contains two distinct analytical objects: the ecology as an entirety and the individual entities that constitute that ecology. To reduce the ecology to a representative or average agent is to create a category mistake by giving the ecology the property of rationality that it cannot possibly have. To avoid this mistake, we work with both subjective and objective probability concepts. Individual action is set within the purview of a theory of subjective probability. The ecological system is treated as a mechanism that can be described in terms of objective probability. There is, moreover, a significant interval of time that separates the initiation of individual plans from the subsequent market evaluation of those plans.

Keywords: ecology of plans; category mistake; subjective probability; objective probability; real vs. notional time; reason vs. rationality; ecological rationality

JEL Classification: B41, C00, D51, D84