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Hulk wants smash Andrew Gelman

Andrew Gelman is once again on the warpath against microeconomics. Actually this latest post doesn’t bother so much as his last one on the subject… Although I would continue to point out to him, for example, that aiming his fire on decision theory and utility more generally is exactly the wrong place to shoot.

(To make a long story short the utility theory is merely descriptive–to a good approximation it’ll describe any behavior that you would observe–but that this is itself the weakness of the theory which cannot in itself tell us how people will behave (to do that we need know the form utility must take)–which is to say that the theory is entirely contentless as a behavioral model. Yet it is still useful because it allows us to deal with behavior systematically.)

In this latest post, AG says in particular that economists make roughly two kinds of statements:

  1. People are rational and respond to incentives
  2. People are irrational and need economists help

On point one, I would note that rationality and incentives have little in common, at least in the strict microeconomic sense. Either we, by definition assume that incentives represent the marginal gain in utility (for taking some action) in which case we have already presumed that they are rational (which is to say this statement is redundant). Or we assume that “incentives” are some… things… in the world which I can observe and use to predict behavior, in which case I am simply making a statement about the particular form that utility ought to take. In this case, there is no reason a priori in standard economic theory for the person to behave in a manner consistent with that utility (my behavioral assumptions were by definition built into the incentives I posited and those assumptions may be wrong).

One point two, though, I think I am in at least some agreement with him. Economists really do say things like this and Andrew is not the only one bothered by it. What’s worse is how this tendency to assume we know better than everyone else interacts with the strong libertarian bias in economics. At the end of the day too many economists sound too much like Cato interns.

In fairness, though, I would argue that libertarian thinking is just really bad economics (this argument itself could fill a book), especially of the Randian variety (which is even worse morally). Government and politics are hard to model in the standard microeconomic framework (in part because the utility theory doesn’t aggregate well) and that means the benefits that governments confer to the broader society are hard to gauge. Given this, all too many libertarians enter the field, thinking that thorough versing in economics will help them further their ideology, and all too many non-libertarians eventually become fed-up with the culture as it exists in economics departments–I know I have this problem!

So what to do? Well, there are no perfect answers. My solution (at least in part) was to break down the libertarian bias of the field by becoming one of them.

As for whether people really do need economists, let me just say that yes I believe that people are “irrational” in the sense that they need economists help, and economists can help. Not because we are more “rational” than anyone else, but because we study the problem of resource allocation under conditions of scarcity and we really have learned a lot about that very important problem.

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