Accession Number : ADA264222
Title : Undecidability in Macroeconomics (Preliminary Draft).
Descriptive Note : Special tech.,
Corporate Author : CORNELL UNIV ITHACA NY DEPT OF COMPUTER SCIENCE
Personal Author(s) : Chandra, Siddharth ; Chandra, Tushar D
Report Date : Apr 1993
Pagination or Media Count : 40
Abstract : In this paper we study the difficulty of solving problems in economics. For this purpose, we adopt the notion of undecidability from recursion theory. We show that certain problems in economics are undecidable, i. e., cannot be solved by a Turing Machine, a device that is at least as powerful as any computational device that can be constructed. In particular, we prove that even in finite closed economies subject to a variable initial condition, in which a social planner knows the behavior of every agent in the economy, certain important social planning problems are undecidable. Thus, it may be impossible to make effective policy decisions. Philosophically, this result formally brings into question the Rational Expectations Hypothesis which assumes that each agent is able to determine what it should do if it wishes to maximize its utility. We show that even when an optimal rational forecast exists for each agent (based on the information currently available to it), agents may lack the ability to make these forecasts. For example, Lucas describes economic models as 'mechanical, artificial world(s), populated by .... interacting robots'. Since any mechanical robot can be at most as computationally powerful as a Turing Machine, such economies are vulnerable to the phenomenon of undecidability.
Descriptors : *PROBLEM SOLVING , *MACROECONOMICS , *ECONOMIC MODELS , POLICIES , ECONOMICS , THEORY , PLANNING , BEHAVIOR , MACHINES , VARIABLES , MATHEMATICAL LOGIC , ROBOTS
Subject Categories : Economics and Cost Analysis
Distribution Statement : APPROVED FOR PUBLIC RELEASE