The parable of the great bean toss
by Yue Ming; Jonathan Warner
International Journal of Pluralism and Economics Education (IJPEE), Vol. 14, No. 3/4, 2023

Abstract: This fictional story shows how, in a world of perfectly rational agents, policymaking can become complicated, because of the role in which policy can be anticipated, where any expected change in policy will immediately be taken into account by the rational agents. In effect, it extends the Lucas critique to its logical conclusion. In the land of La Noitar live the Noitars, people who think alike. Their ruler strives to maximise the people's well-being by choosing the optimal economic policy through meticulously filling out a big chart. All goes well, until one day when the chosen policies start to lose their effectiveness. This happens because people react to the policies based on their expectations of what will happen. To cope with this, the ruler must incorporate the people's expectations in the calculations by expanding the chart. However, as the chart expands, people also re-adjust their expectations. As time goes by, policies become increasingly short-lived and ultimately work only when they are unexpected, surprising the people. In the end, policymaking relies completely on randomisation, and the ruler retires.

Online publication date: Mon, 13-May-2024

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