Thursday, July 21, 2011

Why economists are confusing

Andrew Gelman explains how economists give contradictory arguments:
Pop economists (or, at least, pop micro-economists) are often making one of two arguments:

1. People are rational and respond to incentives. Behavior that looks irrational is actually completely rational once you think like an economist.

2. People are irrational and they need economists, with their open minds, to show them how to be rational and efficient.
He gives this example, from a economist Emily Oster:
anthropologists, sociologists, and public-health officials . . . believe that cultural differences--differences in how entire groups of people think and act--account for broader social and regional trends. AIDS became a disaster in Africa, the thinking goes, because Africans didn't know how to deal with it.

Economists like me [Oster] don't trust that argument. We assume everyone is fundamentally alike; we believe circumstances, not culture, drive people's decisions, including decisions about sex and disease.
He nails it. Economists know all about incentives, but when they start talking about who is or is not rational, they are confusing.

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