Rather than summarizing these chapters yet again, I thought it would be more fruitful to discuss some of the questions I had while reading. Feel free to add your own questions and comments; hopefully we can get a good discussion going.
The biggest question I had while reading these two chapters concerned subjective probability. On page 23, Mises makes it clear that individuals are capable of acting in accordance with (objective) probabilities.
Sometimes we succeed in acquiring a partial knowledge so that we are able to say: in 70 per cent of all cases A results in B, in the remaining cases in C, or even in D, E, F, and so on. In order to substitute for this fragmentary information more precise information it would be necessary to break up A into its elements. As long as this is not achieved, we must acquiesce in what is called a statistical law. But this does not affect the praxeological meaning of causality. Total or partial ignorance in some areas does not demolish the category of causality.Then, on page 37, he explains that an individual's beliefs about reality matter.
A peasant eager to get a rich crop may—according to the content of his ideas—choose various methods. He may perform some magical rites, he may embark upon a pilgrimage, he may offer a candle to the image of his patron saint, or he may employ more and better fertilizer. But whatever he does, it is always action, i.e., the employment of means for the attainment of ends. Magic is in a broader sense a variety of technology. Exorcism is a deliberate purposeful action based on a world view which most of our contemporaries condemn as superstitious and therefore as inappropriate. But the concept of action does not imply that the action is guided by a correct theory and a technology promising success and that it attains the end aimed at. It only implies that the performer of the action believes that the means applied will produce the desired effect.If individuals are capable of using probabilities and their perception of reality (which is not necessarily equivalent to reality) is the driving force behind purposeful action, why doesn't it follow that their perception of the probability of a given event is more important than the actual probability that the event occurs? Or, put differently, if individuals can be systematically biased about "theory" and "technology," why can't they be systematically biased with respect to the outcomes they anticipate?
Bryan Caplan makes a strong case for subjective probability. Walter Block counters; as does Jorg Guido Hulsmann. Caplan responds.
Next week, we will cover chapters 3-7 (again, roughly 70 pages). Happy reading!