Back when I was taught “intro econ” it was almost all just chalk drawings of theoritical graphs (beer vs hamburger, or beer vs price, or some such goof ball thing). Ie, intro to modern micro, and some macro, economics. Is this still the norm? What about in grad school?
I would think that decision making in cognitive psychology and the sociology of economics would have made some headway into the dismal science by now. At least I hope so…I’m fairly certain that historical institutionalism or field work is not going to fly yet in most graduate econ programs, but has anything changed since the days of what seemed like “econ as physics: 101”?
I just finished my first year of MBA school today. Our econ curriculum includes game theory, the questioning of the rational investor, differing risk levels of investors (which you infer by surveying them, believe it or not), the CAPM v. just picking 12% as the cost of capital, and other tweaks to the mean-variance maximizing assumptions that your guns and butter graphs assume.
It’s not crystal clear from your OP, but you probably know that the recent Nobel prize went to two economists, one hardcore numbers guy and one behavioral guy.
[aside]Economists do it with models.[/aside]
Disclaimer: My MBA will be in finance, not economics.
First off, economics is a very broad field. My personal background, apart from the standard macro and micro stuff, focused on urban economics and econometrics. Furthermore, just how economics is handled at a university will vary from school to school.
My experience was that there were separate intro to micro and intro to macro courses. The classic textbook graphs were still introduced, but only to understand the “point” behind them so that we could apply the lessons we learned to “real world” examples. The professors might introduce some advanced concepts through discussion, just so that we’d know there’s more to it than “supply equals demand” but would leave out any formal development of the theories, sort of just throwing concepts at us to get us to think. But there’s only so much you can get across to a class of 150 in one semester, especially when most of the students have not had any introduction at all in high school.
Undergrads would typically be required to take a few more advanced courses to more formally develop the stuff taught in micro and macro 101, and maybe be required to take introductions to international trade, labor theory, or other some such courses, but beyond that there were a lot of electives available covering a wide variety of topics: environmental economics, industrial organization, comparitive economic systems, public policy, price theory, and the list goes on.
The focus of graduate schools will vary quite a bit. For a lot of schools, the primary focus is on econometrics, and this was my experience. In addition, a particular school (or, professor) may decide that a certain school of thought needs to be discussed more, and you’ll do a LOT of reading.
Psychology and sociology? Sure, although it may not be introduced as such. You’ll see it chiefly in the more advanced courses… there was quite a bit of this sort of analysis in a course I once took in the economics of digital information. It really depends on just what sort of economist you want to become!
I guess the question is when do techniques of other fields strip away abit, or alot, some of the major assumptions of the micro/macro basis. For instance, historical institutions, rhetoric, psychology, etc. It seems that the major assumptions of econ are pretty much considered uncontroversial in the field, which is kind of hard to explain given few other sciences of behavior have that feature. Does this make sense?
Yes and no. Economists have not done a lot of exploring into some other fields – to their detriment. For an example of how misguided some otherwise very qualified economists can be on other fields take a look at this “fun lecture” on the The Economics of Insanity which seems to posit that the insane can induce hallucinations by preferential fiat.
Recently, economists have been moving into other fields, often, as I understand it, to try to verify the most basic assumptions. Here are some links you can explore. Additionally, a growing field of classroom “experonomics” has been slowly making an impact on both teaching methods and validating the basic assumptions. There is an online journal that you are free to access here. I strongly recommend you take a little time to visit this journal, along with the games page that is linked to on that page.
If there is one big reason why the basic assumptions of economics are so well accepted in the field, I would suggest that it is that they are so amazingly fundamental and intuitive. What you get as an undergrad are what Terry Pratchett, Ian Stewart, and Jack Cohen refer to as Lies To Children. Assuming you’re near a library, ask Interlibrary Loan to get you Mas Colell, et. al.'s Microeconomic Theory and take a few minutes to browse through it. It is one of the two basic Ph.D. micro texts (the other being by Hal Varian). Basically it’s math with a few words thrown for good measure. Even in a Master’s program, you would still be getting Lies For Children.
The basic economics of the neoclassical consumer model was developed, IIRC, by out of work physicists. Which is good, IMO, because that makes it rigorous. Economic schools such as the Austrian School basically seem to be saying, “Gosh, this is really hard to make into science, so let’s just give up and practice philosophy.” The neoclassical school says, “Yeah, it’s a bitch. Now buckle down and let’s make some headway.”
As an example of some of the experimental work that has been done, a very basic example, is on the assumption of rationality. What this means is that we assume that preferences are a binary relationship meaning “at least as good as”, and denote this as a fun curvy greater-than-or-equal-to symbol (I can’t find it on my character map). To be rational is to have at least as good as preference relations that are transitive and complete. This sort of preference relationship can be connected through a series of mathematical if and only if statements to an observable pattern of choice. What that means is that if that pattern of choice is observed, then it is necessarily true that the subject has rational preferences; and if the subject has rational preferences, then that pattern of choices will obtain.
Now we have a testable hypothesis. While the resulting experiments have shown the rationality assumption to be less than perfect, it’s my understanding that it is a pretty good approximation – one that is close enough to do useful work. This has been generally verified for humans, pigeons, and rats. See, for example, Landsburg’s Price Theory and Applications for a small discussion. Basically, economics has spent the last half- to three-quarters of a century building a very rigorous theory that now needs to be prunned and extended through experimental work.
I actually studied psych. as an undergrad. I was going to become either a cognitive or neural scientist. I went into econ. instead. The experimental method of psychology is what economists need to learn to practice. If psychologists don’t use economics much, I might suggest that it is mathematically out of their league. Also, I would suggest that there is a suprisingly small area of overlap. Economists and psychologists are quite often talking about two different things.
It was my understanding that preferences are often not logical. Consider: you’ll cross town to save $10 on sweater (same item in two different stores), but you won’t cross town to save $10 on a new truck. People should treat a dollar as a dollar, if rational, but they don’t. Isn’t that a major problem?
“Logical” has got nothing to do with it. Rationality is defined precisely; how does that behavior violate rationality? It may seem weird to value discounts on percentages rather than absolute values, and in a “personal budgeting” sense it may be outright stupid, but it is not obvious to me that it implies that (at least as good as) preferences aren’t transitive or complete.
As an example, we may think that taking up voilent crime as a career, which implies with near certaintity that substantial jail time will be involved (suppose you have a .05 chance of getting caught for any given robbery and then suppose you have to do one a week to live, you can expect to make it through your first year as a criminal with only a 7% chance of avoiding jail if your .95 chance of freedom for each crime is independent of the rest), is a pretty stupid thing to do. But that doesn’t imply that violent criminals are irrational in an economic sense. For example, if an übergang comes along and extorts a percentage from each mugging, I wouldn’t expect the criminal to respond any different from an accountant whose income tax was just raised (assuming that we can hold everything else constant, of course).
Things that seem irrational are often not, or at least they have perfectly reasonable explanations using the rationality assumption. Check out Landsburg’s book The Armchair Economist. It’s a short one designed for the lay audience. I don’t know the explanation, if there is one, for the puzzle you’ve asked.
A very good question. Yes, there is a host of evidence that at least some people at least some of the time do not behave according to the axioms of consumer theory. Expected utility theory fares even worse. Behavioural and experimental economists investigate these sorts of things and find that people’s rationality is “bounded”. Theorists who think about information gathering and processing as costly are not very surprised by this. Your example is very similar to those put forward by people like Tversky (although since we are in GQ we should perhaps refrain from debating whether the example is really irrational).
Economists have responded to this in a number of different ways:[ul][li]The results are false. People really are rational, they’re just maximising something we can’t pick up in the lab. These “hard core” types define what a person does as utility maximising.[]The results don’t matter because people are mostly rational most of the time. Outside cunningly-designed lab tests people behave near enough to fully rational such that it doesn’t matter. Building models always involves making simplifying (and thus false) assumptions. Assuming rational behaviour is good enough.[]People vary in their degree of rationality. The more rational people make the most of profit opportunities afforded them by their less rational siblings. They arbitrage the markets so that all price signals are correct. This means that in equilibrium all agents act as if they were rational, so it’s harmless enough to model the economy as though they were.[]Silly theorists take homo economicus seriously. Applied economists believe demand curves slope downwards. They don’t believe any of the other stuff: it is theory that is useful only in finding parameters and coefficients for our models. Those models are not supposed to be anything more than crude approximations of an insanely complex world. We use theory to build quantitative stories which can then be tested. []Supposing people know their limitations, perhaps institutions, rules of behaviour, and norms are a response to imperfect rationality.[]Economics as a discipline is based on “bowdlerised 19th century physics”. The cost of information pricks huge hole in the conceit of rigour in economic theory.[]Rationality is a lovely simple assumption. If you want to assume something different, go ahead. It is unlikely that assuming something else as simple is going to be any good. Assuming something more complex is going to be hard, and economics is hard enough anyway. [/ul][/li]Apart from the first, I have some sympathy for all these views. The last isn’t too good either - it smacks of “I’m looking for my keys under the wrong lamp-post because the light’s better”.
The Landsburg boook is just the kind of problem I am hoping econ can get around. And , sorry, but I don’t follow your example at all on the criminal life, and you comments on a dollar not always being treated as a dollar.
I think Hawthorne is answering my question. Thank you.
There are many, many types of economists. There are economists who do small-scale experimental economics (Vernon Smith won the Nobel Prize for this last year.) There are economists who do statistical analysis of real-world business data. There are economists who study the economics of institutions. There are economists who study the economy using game theory. There are economists who study the economy using evolutionary theory. There are economists who study the economics of information. There are economists who do field work in African villages; there are economists who work for huge corporations; there are economists that work for activist groups fighting poverty. There are economists that are right-wing historical institutionalists and economists that are left-wing historical institutionalists. And, yes, there are theoretical economists that treat economics as mathematical exercise.
Of course, what you were taught in Econ 101 was a simplified caricature of this immense field. (This is true of introductory courses in all disciplines–if not, then it must be a pretty shallow discipline!) The same is true of first year graduate econ classes, because they’re devoted to re-teaching you what you learned in Econ 101 but in a more rigorous (i.e. mathematical) form. But those are just the foundation classes: the really interesting stuff is what comes later, in the different applied classes.
I get what you’re saying Wumpus, but the question is: why just micro in intro econ, when there’s all this other fascinating stuff you mention? When I took intro courses in any behavioral/social science I was exposed to opposing views on most issues. Eg, marxists vs functionalist; pluralist vs elite vs regime theory; cognition vs behaviorism vs psychoanalytical. See what I mean? Econ, at least at my college, left all the controversy and theory to upper level “theory” classes, and promoted micro as the field in intro classes.
Its quite likely that the stuff your learning in microec is still going to be relevant 20, 30 years down the track. Its quite likely that pluralism vs elite vs regime change is going to be radically overturned by some brand new insight before your out of uni.
Also, micro ec is going to be a lot more relevant to a lot more people.
Sorry Shalmanese, but pluralism vs elite vs regime theory debate has been going strong for many decades and is very relevant to ohhh, let’s say … DEMOCRACY?
