Tag Archives: Economics

Because I was there when the economics department of my university got an IBM 360, I was very much caught up in the excitement of combining powerful computers with economic research. Unfortunately, I lost interest in econometrics almost as soon as I understood how it was done. My thinking went through four stages: 1.Holy shit! Do you see what you can do with a computer’s help. 2.Learning computer modeling puts you in a small class where only other members of the caste can truly...

Robert Lucas — an economist pretending to know We are storytellers, operating much of the time in worlds of make believe. We do not find that the realm of imagination and ideas is an alternative to, or retreat from, practical reality. On the contrary, it is the only way we have found to think seriously about reality. In a way, there is nothing more to this method than maintaining the conviction … that imagination and ideas matter … there is no practical alternative” Robert Lucas...

Phelps’ smackdown on Lucas’ rational expectations The tiny little problem that there is no hard empirical evidence that verifies rational expectations models doesn’t usually bother its protagonists too much. Rational expectations überpriest Thomas Sargent has defended the epistemological status of the rational expectations hypothesis arguing that since it “focuses on outcomes and does not pretend to have behavioral content,” it has proved to be “a powerful tool for making precise...

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Bayesian rationality — a version of probabilistic irrationalism (wonkish) The initial choice of a prior probability distribution is not regulated in any way. The probabilities, called subjective or personal probabilities, reflect personal degrees of belief. From a Bayesian philosopher’s point of view, any prior distribution is as good as any other. Of course, from a Bayesian decision maker’s point of view, his own beliefs, as expressed in his prior distribution, may be better than any...

Neoclassical economics — purchasing validity at the cost of empirical content The fact that the economics profession was caught unawares in the long build- up to the 2007 worldwide financial crisis and substantially underestimated its dimensions once it started to unfold can be attributed to two factors … first, the lack of an empirical motivation in the essential modelling assumptions, combined with questionable ceteris paribus assumptions; and second, a blatant disregard for the complete...

Denmark’s euro problem Denmark has combined high taxes and strong social benefits (free college, heavily subsidized child care, and more) with strong employment and high productivity. It shows that strong welfare states can work. But it is worth noting that Denmark has had a fairly bad run since the global financial crisis, with a severe slump and a very weak recovery. In fact, real GDP per capita is about as far below pre-crisis levels as that of Portugal or Spain, although with much less...

Jeffrey Sachs — studying neoclassical economics make students less ‘pro-social’ Students trained in egoistic game theory, notably in university courses in neoclassical economics, are less likely to cooperate in laboratory settings. There is now a large literature on the lower levels of pro-sociality of economics students compared with non-economics students … The findings of low pro-sociality among economics students are robust; the interpretation, however, has differed between those who...

Yesterday, I attended a panel discussion on the "Sharing Economy" at the Battle of Ideas. Benita Matovska, who describes herself as "chief sharer" of the comparison website Compare & Share, enthused about how the Sharing Economy would build communities, transform capitalism and restore the planet. "It's all about trust," she said.No it isn't. It's all about money.Here's what Matovska herself says on the Compare & Share website. I was trying to book a family holiday in Morocco - when...

Why experimental economics is no real alternative to neoclassical economics One obvious interpretation is that Model-Platonism implies that economic models are Platonic, if they take the form of thought-experiments, which use idealized conceptions of certain objects or entities (Platonic archetypes). This clearly sounds like a pretty familiar procedure, although the rationale for the thought-experimental character of economic models (if they are conceived as such) has been transformed over...