Limits of Psychology

In the stock market and otherwise, people will try to apply psychology and classify different behavior as having this or that meaning. This school of thought is known as behaviorist and it contrasts with classical approaches, not just in finance but in many fields such as economics and the law. There are real limits to behavioral approaches, primarily in that by attributing meaning to a specific behavior instead of the rational process of the actor, we have no way of aggregating across individuals. If you are rational and I am rational, we should behave similarly when faced with the same system. For example, if we are mentally ill and receiving treatment, and both of us are rational, we should both value our health over any individual dalliance or romantic relationship, seeing as that type of thing is viewed as not rational. If we are rational, what are we optimizing? Our health? Yes, but what represents the health is the asset value of the productivity that we would have given a health value. There, we see asset value has a great deal of meaning, and it isn’t just that some people care about money and others don’t. The asset value of all the productivity I can produce is what I optimize is I’m rational, subject to restrictions on my health, and this asset value then is meaningful in that it is my works.

Then there is the question of happiness from faith, for example, if I find someone who is my soul mate, it may be optimal to pursue that person as a side project love interest to my works, and maybe there is some cross-optimization? There actually isn’t, short of fundamentalism, as faith is just about making you happy, and the temples and cathedrals that channel faith also arise from works. It costs money to run a church. So the mix between faith and works is separate from the optimization that just produces as much assets as possible. It is healthy to look for as much money as possible. It just may not be healthy if you are not motivated by your own productivity but instead by looking for gold that is along the path so to speak as that type of arbitrage does not really exist for any individual person. So it’s not that we give up our loved ones for money, when we optimize the asset value of productivity to funnel to our works and faith, but that these loved ones who would not have fit in never had a long-term role at your enterprise that is your life, and if you held onto her, you would be buying something you cannot afford, or more simply put, be asking her to buy something she cannot afford to her ruin. Both are the same in the end. How does this tragic situation arise? From the tragedy of the commons. As nobody takes care of the common parks considering their use, and as a result, these love affairs are like love between a gentleman and Boston Common, in the end, if he succeeds, he can donate to the park, and not feel as though no one would have taken care of her, if he did not. In short, when public enterprise like public health insurance meets the private sphere, it is always the public sphere that loses, so when she says she cannot afford you, you may take her seriously.

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