Matt Nolan

Common sense, economics, and beliefs

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I see Scott Sumner has come out saying that we shouldn’t necessarily judge economic outcomes on whether they meet a “common sense” test, giving the example of an individual looking at social security.  Bryan Caplan has criticised this, claiming the common sense is the foundation of all reason and stating that in the example Scott gives by stating the Scott is only making the argument by making the assumptions sound more plausible.

I’m not going to come down the middle in this, I’m going to disagree with both of them.  The focus on an individual decision regarding something that effects only the individual (superannuation) misses the point of common sense beliefs – and isn’t the best way for Scott to make his claim regarding the difference between “truth” and “plausibility”.  Remember, beliefs include our beliefs about others – and how this corresponds to (and can be valued as) aggregate action.

I’ve written about common sense and economics before. To quote wikipedia.

“Common sense is a basic ability to perceive, understand, and judge things which is shared by (“common to”) nearly all people, and can be reasonably expected of nearly all people without any need for debate”

As a result, common sense is a theory of belief formation – not just beliefs regarding your own actions, but beliefs regarding the actions of those around you.

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Matt Nolan

Can physicists please look at a basic textbook before releasing these things

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FFS, this is probably the worst example of a physicist treating economists like idiots, and saying something both meaningless and already known, that I’ve seen for a while (via Marginal Revolution). Read more

Matt Nolan

Thinking about what ‘economics’ is

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I am trying to gradually clarify my perception of what economics is.  Here are some cliff notes from a recent discussion I had:

Economists try to answer questions about “the allocation of resources given scarcity”.  Every question is quite specific and different, economics education involves learning a broad set of skills that allow us to tackle questions.  To do this economists use models.  Models embody a set of assumptions, assumptions that create an “artificial world” that we can deduce conclusions from given these assumptions.  We then use data, robustness testing, and rhetorical debate to help us inductively infer conclusions about the real world question we are asking from these artificial worlds.

As a result, economics is a discipline that can discuss a wide range of social questions that range from deterministic statements, to prediction, to description, to exploration – but the answers provided are always conditional on the question asked, and the assumptions we have made for answering that specific question.

Further details can be found in these (in order):

  1. What is economics in the most general sense.
  2. On economics as method.
  3. On assumptions – and again on assumptions.
  4. What does it mean to have many models?
  5. Economics and science – careful with the prediction call.
  6. Before railing against economics – what economists do.

If you know of any literature I should peek at to help inform myself on the status of the accumulation of knowledge and method in the discipline (as there is A LOT of improvement I can do in my understanding here) I would really appreciate it.

Matt Nolan

Before railing against economics, read this

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I had trouble getting out of bed this morning, so to help get me going I decided to read an essay about economics.  And I ran back into a treat of an essay I think we should all read.  This is Modern Economics and its Critics, 1:  by Partha Dasgupta.

His focus is explicitly on what economists actually “do”, noting that economists tend to focus on small questions we can actually go someway to answering – and that economists through economics, in no way, try to derive sweeping universal rules for society.  Furthermore, the focus of economists, and the assumptions economists make, are a product of their times and the questions that “matter”.

My favourite quote though:

I said earlier that modern economics treats people with respect; it does not regard them as mere dupes and foils of Business and Government.

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Matt Nolan

What does it mean to have “many models”

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Dani Rodrik has been arguing that the mistake many economists, and non-economists, make is to look for “one right model” – when in truth economics is a form of craft, where you have a multitude of models and need to know what is appropriate in different circumstances (ht Economist’s View).

To anyone who has studied microeconomics, or applied microeconomics, to any level this wouldn’t be surprising.  Furthermore, it would be seen as the common view of many economists.  This may seem incredibly weird to non-economists – especially since many economists and non-economists share the view that there is an ‘objective reality’, and therefore this single reality seems like it should be described by one ‘super model’.  But let me explain.

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Matt Nolan

Quote of the day: Uskali Maki on economics

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From the prelude to ‘Fact and Fiction in Economics‘ comes the following gem by Maki:

“Is economics a respectful and useful reality-oriented discipline or just an intellectual game that economists play in their sandbox filled with toy models?”

Variants of these questions fly around all the time. Why are economists making unrealistic assumptions? Why won’t they just assage to “common sense” about the situation? Why are they making the ‘wrong’ choice in some trade-off between looking at the real world and narrative and/or mathmatical beauty?

These questions sound appealing, but in many ways they are often misspecified – not pointless, but without enough content to actually be answerable. As Maki says:

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