----------------- HES POSTING ----------------- [Posted on behalf of Tony Brewer. -- RBE] From: Tony Brewer <[log in to unmask]> Subject: Re: HES: QUERY -- neoclassical knowledge What is this 'perfect knowledge' assumption that is under discussion? That is intended as a serious question. Perhaps someone could try to answer it. But here are a few sceptical thoughts. I do not believe that a clearly defined perfect knowledge assumption popped into existence in the early twentieth century and remained unchanged thereafter, nor do I believe that this mythical assumption is the property of a single school of economists. I asked in my previous post - perfect knowledge of what? Surely we should distinguish (at least) between full information about contemporaneous conditions and perfect foresight about the future. People have constructed perfect foresight models, but I don't believe anyone has ever thought they captured everything important, still less that they were descriptively true. For example, Marshall's short-run/long-run apparatus implicitly deals with the effects of unanticipated changes, and is thus inconsistent with perfect foresight. The rational expectations revolution of the late twentieth century did much to clarify what was involved in assumptions about expectations of future events - we cannot unlearn what was learned from that episode. Until then, I suspect, mainstream economists mostly worked with only two assumtions about foresight - either perfect foresight or complete myopia (as, for example, in cobweb models). They shifted back and forward between them according to the problem under discussion, which may have been a perfectly sensible thing to do with the methods available to them. What happened in the early twentieth century, I think, is that an implicit assumption was made much more explicit as a result of formalization. Marshall (as we have heard), criticised the assumption of perfect knowledge, but full information about contemporaneous events seems to me to be implicit in the whole of his framework. If demand and supply depend on price, then agents have to be assumed to know what the price is, else how could they react to it? And so on. Marshall's style involved hidden mathematics with strong simplifying assumptions, wrapped up in a cocoon of reassuring words designed to avoid frightening his readers. As I argued before, classical profit rate equalization requires strong assumptions about perfect knowledge of future profit opportunities. Tony Brewer ([log in to unmask]) University of Bristol ------------ FOOTER TO HES POSTING ------------ For information, send the message "info HES" to [log in to unmask]