I looked into this. The economists have really screwed up here.
Basically, Expected Utility Theory (EUT) is wrong. It happens to give the right result by coincidence when you set the fudge factor U to log(wealth), which all economists do without any justification.
Well EUT is corrected using the fudge factor, other parts of economics built using it are not.
The nobel prize winning Prospect theory, when you correct the maths, dissolves away into nothing. The theory says people deviate away from the expected rational answer due to psychological reasons. It turns out people use the rational answer, the maths in Prospect theory is just wrong.
Additionally, the famous St. Petersburg paradox isn't a paradox and has an exact answer.
This is a pretty big blow for economics and the economists on social media aren't actually being mature about it.
Basically, Expected Utility Theory (EUT) is wrong. It happens to give the right result by coincidence when you set the fudge factor U to log(wealth), which all economists do without any justification.
Well EUT is corrected using the fudge factor, other parts of economics built using it are not.
The nobel prize winning Prospect theory, when you correct the maths, dissolves away into nothing. The theory says people deviate away from the expected rational answer due to psychological reasons. It turns out people use the rational answer, the maths in Prospect theory is just wrong.
Additionally, the famous St. Petersburg paradox isn't a paradox and has an exact answer.
This is a pretty big blow for economics and the economists on social media aren't actually being mature about it.