Adam Smith and Behavioral Economics

Assumptions of Adam Smith, later proved by psychologists and economists. 

"The overweening conceit which the greater part of men have of their own abilities is an ancient evil remarked by the philosophers and moralists of all ages. Their absurd presumption in their own good fortune has been less taken notice of...The chance of gain is by every man more or less overvalued, and the chance of loss is by most men undervalued, and by scarce any man, who is in tolerable health and spirits, valued more than it is worth." Wealth of Nations I.10.29–31 (1776)

"Pain, I have already had occasion to observe, is, in almost all cases, a more pungent sensation than the opposite and correspondent pleasure." The Theory of Moral Sentiments, III, ii.

"The pleasure which we are to enjoy ten years hence, interests us so little in comparison with that which we may enjoy to-day, the passion which the first excites, is naturally so weak in comparison with that violent emotion which the second is apt to give occasion to, that the one could never be any balance to the other, unless it was supported by the sense of propriety.” “The spectator,” in contrast, “does not feel the solicitations of our present appetites. To him the pleasure which we are to enjoy a week hence, or a year hence, is just as interesting as that which we are to enjoy this moment” (Theory of Moral Sentiments IV, ii).


Ashraf, Camerer, Loewenstein (2005) Adam Smith, Behavioral Economist. Journal of Economic Perspectives—Volume 19, Number 3—Summer 2005—Pages 131–145


The Russian historian, Mikhail N. Pokrovsky (1868-1932) said that:
History is politics projected into the past

What's pleasing in prose?

Good advise for writing

"nothing can permanently please, which does not contain in itself the reason why it is so, and not otherwise."

Samuel Taylor Coleridge, Biographia Literaria (1817)

What use is liberty?

Marcus Duronius, tribune of the plebs, said (cited by Valerius Maximums)  

... quid opus libertate, si volentibus luxu perire non licet?

  • "For what signifies liberty, if we are not permitted to ruin ourselves by luxury if we think fit?" Rollin
  • "what use is liberty if we are not allowed to go to perdition with luxury as we want to?" Shackleton-Bailey
And this got him expelled from the senate by the censors  M. Antonius (65) and L. Valerius Flaccus (97 BC). 

Wir müssen wissen – wir werden wissen

 Emil du Bois-Reymond about "we don't know, we will not know"

Gegenüber den Räthseln der Körperwelt ist der Naturforscher längst gewöhnt, mit männlicher Entsagung sein 'Ignoramus' auszusprechen. Im Rückblick auf die durchlaufene siegreiche Bahn trägt ihn dabei das stille Bewusstsein, dass, wo er jetzt nicht weiss, er wenigstens unter Umständen wissen könnte, und der- einst vielleicht wissen wird. Gegenüber dem Räthsel aber, was Materie und Kraft seien, und wie sie zu denken vermögen, muss er ein für allemal zu dem viel schwerer abzugebenden Wahrspruch sich ent- schliessen: 


Über die grenzen des Naturerkennens : die sieben Welträthsel, Leipzig, 1852, p.45ff

But David Hilbert, opposed this view:

We must not believe those, who today, with philosophical bearing and deliberative tone, prophesy the fall of culture and accept the ignorabimus. For us there is no ignorabimus, and in my opinion none whatever in natural science. In opposition to the foolish ignorabimus our slogan shall be Wir müssen wissen – wir werden wissen ("We must know — we will know.")

Hillel said: 

Say not of a thing which cannot be understood that in the end it will be understood 

(The Father According to Rabbi Nathan p. 117)

Which the commentators explained as:

Rambam: "Do not have your words require a distant explanation and extra examination and [only] then will the listener understand them."

Bartenura: "Do not say something that cannot be heard, for in the end it will be heard": That is to say, do not let your words be unclear, such that it is impossible to understand them immediately and at first perusal; and [do not] rely on that if the listener wants to look into them, in the end, he will understand them. As this will bring people to err from your words, lest they err and come to heresy because of you. Another explanation: Do not reveal your secret, even [saying it aloud] only to yourself, as in the end it will be heard, "since the birds of the sky make the voice travel." And the [correct] textual variant according to this explanation is, "for in the end it will be heard." But Rashi had the variant, "Do not say, 'something that can be heard, in the end it will be heard.'" And [according to this,] it is speaking about the words of Torah: Do not say about a Torah teaching that you can hear now, that you will hear it in the end (later), but rather extend your ears and hear it immediately.

English Explanation of Mishnah Bartenura: a person should make his words clear from the outset, and not speak or write in an unclear manner. Although in the end the matter might be cleared up, in the meanwhile the listener might make mistakes.

Ikar Tosafot Yom Tov: "Rambam does not explain it [this way], but rather that simple words should not be very distant and confound speech. As [Rambam] says [that] your words should not require a far-fetched explanation."


Julius Caesar


Marble of Julius Caesar by Nicolas Coustou (H. 2.42 m; W. 0.96 m; D. 0.96 m). Louvre. Tuileries gardens in 1722.

Borges Labyrinth - drawn by hand


Jorge Luis Borges, Historia de los dos Reyes y de los dos Laberintos.

Qui observat ventum non seminat


Qui observat ventum non seminat; et qui considerat nubes numquam metet. Ecl 11:4

Rashi says:

And he who looks to the clouds. He observes the clouds, and when he sees them darkening, he is afraid to harvest on account of the rains; he will never harvest because he is always fearful [of the rains].


Utility Theory and wealth management:

mane semina sementem tuam et vespere ne cesset manus tua quia nescis quid magis oriatur hoc an illud et si utrumque simul melius erit. Ecl. 11:6


Unconquerable laws of necessity

Sed invictae leges necessitudinis pectus alioquin procul amentia remotum prodigia ista iusta aestimatione perpendere passae non sunt. Libri novem factorum Dictorumque memorablium, v.1
But the unconquerable laws of necessity did not suffer Pompey's mind, otherwise far removed from folly, to weigh these prodigies in just assessment.

Ex verbis sensum sequamur

Ex verbis sensum sequamur, et ex sensu rationem intelligamus, et ex ratione veritatem apprehendamus. 

In Matthias Flacius, Catalogus de Testium Veritatis, iv, 151 

(Hilarius Pictaviensis, De Trinit. Lib. 5)

From the words let us follow the sense, and from the sense discern the reasons, and from the reasons learn the truth. (my translation).

Personal characteristics of effective political actors



Robert W. Allen, Dan L. Madison, Lyman W. Porter, Patricia A. Renwick, Bronston T. Mayes (1979) Organizational Politics: Tactics and Characteristics of Its Actors. California Management Review, Volume: 22 issue: 1, page(s): 77-83. 

The past is clay - All yesterdays , a dream

El pasado es arcilla que el presente

labra a su antojo. Interminablemente.


Todos los ayeres, un sueño

Los conjurados (1985)

On the authority of Science - Cohen

On the authority of Science:

"To be sure, the vast majority of people who are untrained can accept the results of science only on authority. But there is obviously an important difference between an establishment that is open and invites every one to come, study its methods, and suggest improvement, and one that regards the questioning of credentials as due to wickedness of heart..." 

Morris R. Cohen, Reason and Nature.

Social Entropy - Jefferson

The natural progress of things is for liberty to yield, and government to gain ground.


The "Man of System" & the "Man of Humanity and Benevolence"

A good citizen and the policy experts, as are called today, were a subject of analysis by Adam Smith (The Theory of Moral Sentiments, VI, II):

First, the good citizen:
The man whose public spirit is prompted altogether by humanity and benevolence, will respect the established powers and privileges even of individuals, and still more those of the great orders and societies, into which the state is divided. Though he should consider some of them as in some measure abusive, he will content himself with moderating, what he often cannot annihilate without great violence. When he cannot conquer the rooted prejudices of the people by reason and persuasion, he will not attempt to subdue them by force... He will accommodate, as well as he can, his public arrangements to the confirmed habits and prejudices of the people; and will remedy as well as he can, the inconveniencies which may flow from the want of those regulations which the people are averse to submit to. When he cannot establish the right, he will not disdain to ameliorate the wrong; but like Solon, when he cannot establish the best system of laws, he will endeavour to establish the best that the people can bear.
Policy experts, as are called today, were a subject of analysis by Adam Smith (The Theory of Moral Sentiments, VI, II):
The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.

Some general, and even systematical, idea of the perfection of policy and law, may no doubt be necessary for directing the views of the statesman. But to insist upon establishing, and upon establishing all at once, and in spite of all opposition, every thing which that idea may seem to require, must often be the highest degree of arrogance. It is to erect his own judgment into the supreme standard of right and wrong. It is to fancy himself the only wise and worthy man in the commonwealth, and that his fellow-citizens should accommodate themselves to him and not he to them. It is upon this account, that of all political speculators, sovereign princes are by far the most dangerous. This arrogance is perfectly familiar to them. They entertain no doubt of the immense superiority of their own judgment

A wolf by the ears

Tiberius said:

Cunctandi causa erat metus undique imminentium discriminum, ut saepe lupum se auribus tenere diceret.

— Suetonius, De Vita Caesarum, Lib.III Tiberius, 25

Before him, Terentius:

Auribus teneo lupum, nam neque quomodo a me amittam invenio neque uti retineam scio.

— Terentius, Phormio 506

Before Terentius, Solomon:

Sicut qui apprehendit auribus canem, sic qui transit impatiens et commiscetur rixae alterius.

— Prov. 26:17

hitherto unconquered difficulties

James Clerk Maxwell - Wikipedia 

"...hitherto unconquered difficulties..."


First things First - Pirkei Avot

Seven traits characterize an uncultured (golem) person, and seven a sage. A sage:

(5) deals with first things first, and last things last;

Pirkei Avot, 5.7.(5)

Bartenura on Pirkei Avot 5:7:6

and he speaks to the first [point] first: And so did we find with the Holy One, blessed be He; since Moshe said to Him (Numbers 3:11), "'Who am I that I should go to Pharaoh'" - that is the first - "'and that I should bring out the Children of Israel'" - behold, the second. And the Holy One, blessed be He, answered about the first (Numbers 3:12), "'Since I will be with you'"; and about the second, "'in your bringing the people out from Egypt, you will serve God.'"

Rabbeinu Yonah on Pirkei Avot 5:7:7

and he speaks to the first [point] first and the last [point] last: And its explanation is not that he should answer about the first thing first, and about the last question last. Rather that if the first question is clarified by the last thing, he should elucidate that first, and then elucidate the first; so as to understand and clarify his answer and [so] that the thing will be assimilable for his listener. And that is why it is called first, [even if] it is last - because it precedes it [logically] and the first thing is clarified by it. And if the matter is the opposite, it is called last. And about this is it said, "to the first [point] first and the last [point] last." And this is from great wisdom and understanding of things. And the golem does not know from all of these [things].

Rambam on Pirkei Avot 5:7:1

And the third virtue is that he organizes his study and puts first what is fitting to put first and puts later what is fitting to put later. As this approach is very helpful in study. And that is his saying, "he speaks to the first [point] first and the last [point] last.

Measure what can be measured

Measure what can be measured. Incorrectly attributed to Galileo:

Cournot wrote:

La vraie physique a été fondée le jour où Galilée, rejetant des spéculations depuis si longtemps stériles, a conçu l’idée […] de préciser la forme générale à donner aux expériences, en leur assignant pour objet immédiat la mesure de tout ce qui peut être mesurable dans les phénomènes naturels. (Cournot De l’origine et des limites de la correspondance entre l’algèbre et la géométrie. Paris/Algier: Hachette, p. 375)


True physics was founded the day when Galileo, rejecting the long sterile speculations, conceived the idea […] of specifying the general form to be given to experiments, assigning them as their immediate object the measure of all that can be be measurable in natural phenomena.

Similar to the more famous dictum by Kelvin:

In physical science a first essential step in the direction of learning any subject is to find principles of numerical reckoning and methods for practicably measuring some quality connected with it. I often say that when you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely, in your thoughts, advanced to the stage of science, whatever the matter may be.


  • Andreas Kleinert Der messende Luchs: Zwei verbreitete Fehler in der Galilei-Literatur. (
  • Kelvin, ELECTRICAL UNITS OF MEASUREMENT. A Lecture delivered at the Institution of Civil Engineers on May 3, 1883" (

Borges - the virtues of other writers

"como todo escritor, medía las virtudes de los otros por lo ejecutado por ellos y pedía que los otros lo midieran por lo que vislumbraba o planeaba. Todos los libros que había dado a la estampa le infundían un complejo arrepentimiento."

El milagro secreto (Artificios, 1944; Ficciones, 1944)

"like every writer, he measured the virtues of other writers by their performance and asked that they measured him by what he conjectured or planned.  All of the books he had given to the press infused him a complex repentance."

We live in deeds, not years - Philip J. Bailey

We live in deeds, not years; in thoughts, not breaths; 
In feelings, not in figures on a dial. 
We should count time by heart-throbs. He most lives 
Who thinks most, feels the noblest, acts the best. 
And he whose heart beats quickest lives the longest: 
Lives in one hour more than in years do some 
Whose fat blood sleeps as it slips along their veins. 
Life's but a means unto an end; that end, 
Beginning, mean, and end to all things—God. 
The dead have all the glory of the world.


Moral Fabric of American Citizenry - James Madison

With regards the moral fabric of the citizenry, James Madison, 4th president of the republic, stated his view:

I go on this great republican principle, that the people will have virtue and intelligence to select men of virtue and wisdom. Is there no virtue among us? If there be not, we are in a wretched situation. No theoretical checks—no form of government can render us secure. To suppose that any form of government will secure liberty or happiness without any virtue in the people, is a chimerical idea. If there be sufficient virtue and intelligence in the community, it will be exercised in the selection of these men. So that we do not depend on their virtue, or put confidence in our rulers, but in the people who are to choose them.

Judicial Powers of the National Government, [20 June] 1788


Schools of Economic Thought



Differences between men's intellects?

Thesis 1: Men are equal in intellectual abilities (British Moral Philosophers)

Adam Smith (Wealth of Nations, book 1, Chap. 2)

The difference of natural talents in different men is, in reality, much less than we are aware of; and the very different genius which appears to distinguish men of different professions, 

when grown up to maturity, is not upon many occasions so much the cause as the effect of the division of labour. The difference between the most dissimilar characters, between a philosopher and a common street porter, for example, seems to arise not so much from nature as from habit, custom, and education. When they came into the world, and for the first six or eight years of their existence, they were, perhaps, very much alike, and neither their parents nor playfellows could perceive any remarkable difference. About that age, or soon after, they come to be employed in very different occupations. The difference of talents comes then to be taken notice of, and widens by degrees, till at last the vanity of the philosopher is willing to acknowledge scarce any resemblance... By nature a philosopher is not in genius and disposition half so different from a street porter, as a mastiff is from a greyhound, or a greyhound from a spaniel, or this last from a shepherd's dog.

David Hume (Of the Original Contract 1752) nearly equal all men are in their bodily force, and even in their mental powers and faculties, till cultivated by education;

Thesis 2: Men are not equal in intellectual abilities (Enlightenment Philosophers)

John Locke (An Essay Concerning Human Understanding. book 4: chap 20, sec. 5)

affirm that there is a greater distance between some men and others in this respect than between some men and some beasts

Denis Diderot

He has not seen the insurmountable barrier that separates a man destined by nature for a given function, from a man who only brings to that function industry, interest and attention.


The Sages taught: One who eats in the marketplace is comparable to a dog, as he disrespects himself through his lack of embarrassment over eating in public. And some say he is even disqualified from bearing witness.

Talmud, Kiddushin 40b


Rousseau: Our minds have been corrupted in proportion as the arts and sciences have improved

 Jean-Jacques Rousseau (painted portrait).jpg

Where there is no effect, it is idle to look for a cause: but here the effect is certain and the depravity actual; our minds have been corrupted in proportion as the arts and sciences have improved. Will it be said, that this is a misfortune peculiar to the present age? No, gentlemen, the evils resulting from our vain curiosity are as old as the world. The daily ebb and flow of the tides are not more regularly influenced by the moon, than the morals of a people by the progress of the arts and sciences. As their light has risen above our horizon, virtue has taken flight, and the same phenomenon has been constantly observed in all times and places... 

Take Greece, once peopled by heroes, who twice vanquished Asia. Letters, as yet in their infancy, had not corrupted the disposition of its inhabitants; but the progress of the sciences soon produced a dissoluteness of manners, and the imposition of the Macedonian yoke...

It was not till the days of Ennius and Terence that Rome, founded by a shepherd, and made illustrious by peasants, began to degenerate...


Rousseau, J. The Social Contract and Discourses (1761):

Praise of Alacrity

qui observat ventum non seminat et qui considerat nubes numquam metet 

Freedman's Paradox

An interesting definition:
"In situations where limited knowledge of a system exists and the ratio of data points to variables is small, variable selection methods can often be misleading. Freedman (Am Stat 37:152-155, 1983) demonstrated how common it is to select completely unrelated variables as highly 'significant' when the number of data points is similar in magnitude to the number of variables.
Lukacs, Burnham, and Anderson (2010).


Freedman, D. A. (1983). A Note on Screening Regression Equations. The American Statistician, 37(2), 152-155.

Variations of the Observer Error

observer error: An error of observation or measurement due to failure of the observer to identify, measure accurately, or interpret some aspect of the phenomena that are being observed. This can have many reasons and causes, including careless or hasty measurements, faulty instruments, erroneous or illogical interpretation, and/or any of many possible sources of bias. It erodes the credibility of science when it occurs. Oxford Reference

Lucas critique argues that it is naive to try to predict the effects of a change in economic policy entirely on the basis of relationships observed in historical data, especially highly aggregated historical data. (Wiki).

Lucas critique (version 2): "Any statistical relationship will break down when used for policy purposes". Danielsson's corollary: A financial risk model breaks down when used for regulatory purposes.

Campbell's law: "The more any quantitative social indicator is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to monitor."

Goodhart's Law: "Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes." (Wiki)

Calculated Risk - Machiavelli

Né creda mai alcuno stato potere pigliare partiti sicuri, anzi pensi di avere a prenderli tutti dubbi; perché si trova questo nell’ordine delle cose, che mai non si cerca di fuggire un inconveniente che non si incorra in un altro. Tuttavia la prudenza consiste nel saper riconoscere le qualità degli inconvenienti, e nel pigliare il meno tristo per buono.
Different translations
Translation 1: Indeed, it had better recognize that it will always have to choose between risks, for that is the order of things. We never flee one peril without falling into another. Prudence lies in knowing how to distinguish between degrees of danger and in choosing the least danger as the best. (Donno transl.)

Translation 2: Never let any Government imagine that it can choose perfectly safe courses; rather let it expect to have to take very doubtful ones, because it is found in ordinary affairs that one never seeks to avoid one trouble without running into another; but prudence consists in knowing how to distinguish the character of troubles, and for choice to take the lesser evil.

Translation 3: No government should ever think that it can choose perfectly safe courses of action. Every government should expect to have to run risks, because in the ordinary course of events one never tries to avoid one trouble without running into another. Prudence consists in knowing how to weigh up troubles and choose the lesser ones.

Translation 4: In general, a ruler must never imagine that any decision he takes is safe; on the contrary he should reckon that any decision is potentially dangerous. It is in the nature of things that every time you try to avoid one danger you run into another. Good sense consists in being able to assess the dangers and choose the lesser of various evils.
The Prince, XXI

The past is a foreign country

The past is a foreign country; they do things differently there.” ― L.P. Hartley,

Objectives always in sight

"Keep your important objectives always up, paramount in sight."

All Hands to the Pumps!

All Hands to the Pumps
Henry Scott Tuke
Around 1888


"Keep your mind thinking on what's really important"

Reason teacheth and experience evidenceth

Reason teacheth and experience evidenceth in Miller, P. (1939) New England Mind, p. 7

Operational concepts of Evidence

The philosopher P. Achinstein (Speculation, p. 16ff) developed a helpful concept of evidence. Four concepts are presented: potential, veridical, ES, and subjective.
(A) Some fact e is potential evidence that a hypothesis h holds, iff the probability of there being an explanatory connection between e and h, p(E(e,h)|e) > 1/2. (with e := true, e ⊬ h). 
* Notes to potential evidence
  • the inequality probably means that p(E) ≠ 1/2, i.e. not indifferent or know-nothing situation,  because it'd be nice to have a 0% or 100%.
  • The "explanatory connection" between e and h seems to be given by an additional list of assumptions (p. 194-195) which include correlations grounded in empirical data, etc.
  • The "explanatory connection" E(e,h)|e explained in terms of a threshold probability of 50%, is maybe related to a statistical type of explanation (i.e. a la Wesley Salmon)?

Portraits of Collingwood

Image result for robin collingwood
Image result for robin collingwood philosophyImage result for robin collingwoodImage result for robin collingwoodImage result for robin collingwood philosophy

Felix qui potuit rerum cognoscere causas

Felix qui potuit rerum cognoscere causas, atque metus omnis et inexorabile fatum subiecit pedibus strepitumque Acherontis avari.

"How blest the sage whose soul can pierce each cause
Of changeful Nature and her wondrous laws;
Who tramples fear beneath his foot, and braves
Fate and stern Death, and hell's resounding waves!"
⁠Sotheby's translation.

Dichoso aquel, que con valor notable
las causas de las cosas supo claro,
que todo miedo, y hado inexorable
pisa, y el Reyno de Aqueronate avaro;
Christoval de Mesa's translation (1618)

Quan bienaventurado es el que pudo
Conocer los secretos de las cosas,
Y que ni al hado teme, ni amenazas,
Ni de Aqueronte avaro se da un pelo;
Juan de Guzman's translation (1586)

!Feliz aquel que las ocultas causas
Penetro de Natura, y sin cuidarse
De lo que traigan los futuros dias,
Cual polvo vano los temores tristes
Huella, y los ecos de Aqueronte avaro!
F. de Hidalgo y M. A. Caro's translation  (1897)

¡Feliz aquel a quien fue dado conocer
las causas de las cosas, y hollar bajo
su planta los vanos temores y el inexorable
hado y el estrépito del avaro Aqueronte!
Ochoa's translation (1869)