Here's Alan Greenspan on the economic models used by the Fed and the banking community that "justified" the deep exposure of some financial institutions in subprime mortgage instruments:
"The models used by the finance industry to determine risk and measure economic strength are too simple to fully account for human responses. We cannot hope to anticipate the specifics of future crises with any degree of confidence."
http://money.cnn.com/2008/03/17/news/economy/greenspan/index.htm?postversion=2008031707
Translation: the rational models of utility and discounting activities are outdated because they fail to capture rapid and wide variations in response to risk and uncertainty.
Similarly, comparative effectiveness research, complete with QALYs and the assumption that standardizing care will lead to lower costs and optimal health are essentially ersatz consumer welfare models based again on the "rational actor" view of economics. There is more variability in healthcare because valuations and value do not correspond to particular price but rather to individual perceptions of risk and uncertainty that are part and parcel of the effort to treat and prevent disease. The simple models developed to predict and shape human responses in the healthcare system will anticipate changes or outcomes with any accuracy. Nor have they.
We have come a long way from when the RAND experiment was conducted.
"The models used by the finance industry to determine risk and measure economic strength are too simple to fully account for human responses. We cannot hope to anticipate the specifics of future crises with any degree of confidence."
http://money.cnn.com/2008/03/17/news/economy/greenspan/index.htm?postversion=2008031707
Translation: the rational models of utility and discounting activities are outdated because they fail to capture rapid and wide variations in response to risk and uncertainty.
Similarly, comparative effectiveness research, complete with QALYs and the assumption that standardizing care will lead to lower costs and optimal health are essentially ersatz consumer welfare models based again on the "rational actor" view of economics. There is more variability in healthcare because valuations and value do not correspond to particular price but rather to individual perceptions of risk and uncertainty that are part and parcel of the effort to treat and prevent disease. The simple models developed to predict and shape human responses in the healthcare system will anticipate changes or outcomes with any accuracy. Nor have they.
We have come a long way from when the RAND experiment was conducted.
