The visible hand in economics

Is economics not transparent enough?

Posted on: August 22, 2008

Is economics not transparent enough?

I ask this question after reading this awesome post from the Freakonomics post (ht Antidismal) (Disclaimer: It is really only awesome if you are into economics ๐Ÿ˜› ). Specifically, these two points that are often raised in presentations:

23. The motivation of the agents in this theory is so narrowly egotistic that it cannot possibly explain the behavior of real people.
24. The flabby economic actor in this impressionistic model should be replaced by the utility-maximizing individual.

Now as you might notice – these two criticisms contradict ๐Ÿ™‚ .

Over time I have stated that one of the advantages of mainstream economics is that the assumptions it makes are transparent.ย  However, if us economists can’t agree on the appropriate characterisation of an economic actor (and thereby we adjust our characterisation in an ad hoc manner), how can the results of our economic models be transparent (as what determines the fundamental “rational agent” is unclear)?

Discuss ๐Ÿ™‚ (I will try to come up with an answer when I wake up ๐Ÿ˜‰ )

8 Responses to "Is economics not transparent enough?"

28. The speaker apparently believes that there is still one free lunch.

wins imo

“Perhaps this suggests a methodological narrowness to neoclassical economics. But equally, it is the clarity of the framework that gives economic analysis its power.”

second place, or third.

“second place, or third.”

I have to admit that I enjoyed that quote as well.

I made this post as I was just wondering if anyone had anything to say about transparency (given that some people feel that even though economics is explicit about its assumptions, it is still not transparent). However, there are no comments from anyone that thinks that yet ๐Ÿ˜›

Paper should be edible, nutritious. Inks used for printing or writing should have delicious flavors. Magazines or newspapers read at breakfast should be eaten for lunch. Instead of throwing one’s mail in the waste-basket, it should be saved for the dinner guests.JohnCageJohn Cage, M, Writings 1967 – 1972

Thanks Kissinger. Wise words there from a brave mortal-combating 5-year old, taken before his time to everyones detriment, to be sure.

“Thanks Kissinger. Wise words there from a brave mortal-combating 5-year old, taken before his time to everyones detriment, to be sure.”

Love the sarcasm – you can tell it is now past 3pm on a Friday afternoon ๐Ÿ˜›

“It’s not a science it’s…[forgot the rest]”….> Frog.

There is a simple answer, have a model where some agents are rational and some agents are impressionistic, then it is just a matter of calibrating the percentage of each until we match reality! ๐Ÿ˜› Isn’t that what the mainstream inflation expectations and consumption models are all about?

“Isnโ€™t that what the mainstream inflation expectations and consumption models are all about?”

Indeed and that raises the question:

“However, if us economists canโ€™t agree on the appropriate characterisation of an economic actor (and thereby we adjust our characterisation in an ad hoc manner), how can the results of our economic models be transparent (as what determines the fundamental โ€œrational agentโ€ is unclear)?”

– I would term a lot of modern inflation expectations and consumption models as ad hoc.

As a result, is our set of value judgments actually as transparent as we say it is?

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