17 ms·

Unsolved problems in economics

157 points by rfreytag 4y ago

sudden_dystopia 4y ago
Shorter list would be “solved problems in economics”. And how many economists pretend that expanding the money supply doesn’t increase inflation?
- kolbe 4y ago
  I don't know why you're getting downvoted. When I first took econ, we used a book by Gregory Mankiw that featured a list of 10 things that Economists generally agreed upon, and the percentage of Economists in some survey that agreed. I think the most agreed upon one was "people respond to incentives." And the second-most was "there's a short term inverse relationship between interest rates and unemployment." This was 20 years ago, and I think we're already at the point to where that second statement has been rendered obsolete. So, yeah, I think I agree that all that Economists have left is "people respond to incentives."
  - guerrilla 4y ago
    Which isn't really even economics but just psychology or even biology...
- MichaelDickens 4y ago
  This list [1] shows answers from the IGM Economic Experts Panel polls where economists agree most strongly. There are lots of questions where economists show a consensus or near-consensus. You could consider those to be solved problem. [1] https://github.com/Aransentin/IGMscrape/blob/master/results.md https://github.com/Aransentin/IGMscrape/blob/master/results....
- Hammershaft 4y ago
  > And how many economists pretend that expanding the money supply doesn’t increase inflation? A live demonstration of the Dunning-Kruger effect in action. The effect of change in money supply on overall inflation is mediated by the velocity of that money. If the money supply were doubled but banks & consumers sat on the cash, stowing it under their mattresses, then there's no inflationary pressure on products to be had. Conversely, if an asteroid were to strike us in a year, then regardless of if the money supply was shrinking, if people were spending their life savings in days then inflationary pressure would skyrocket.
- paulpauper 4y ago
  And how many economists pretend that expanding the money supply doesn’t increase inflation? Japan spent decades trying to create inflation to no avail. Despite trillions in spending from 2008-2020 inflation was very low, until finally spiking in 2021.
- jessaustin 4y ago
  Economists are less certain about what causes inflation all the time. The current blast of inflation has been linked to market consolidation (e.g. monopoly) by some more adventurous economists. We wish economists would agree that monopoly is bad by some measure...
bsedlm 4y ago
IMO, economics as a science is all about making up theories to 'scientifically' (but actually, just academically) justify whatever the ruling powers want to do. In a larger sense, academia and a big chunk of contemporary western "culture" is all about coming up with stories, narratives, explanations, mindsets (frameworks) to ignore the exploitation of humans as a resource for the sake of ill-defined (by design) notions of "the group" or "us all" when in fact the end result is a big hierarchical pyramid with little room at the top which requires lots and lots of desperate people at the bottom (by this point, the bottom is entire countries).
- deleted 4y ago
  [deleted]
- m12k 4y ago
  The problem is that economics as a field spans from sociology and mass-psychology (almost impossible reason about, fully quantify or prove anything in a scientific manner) to mathematics (easy to reason about, model and publish results - but at the risk of not actually modeling the real world). The incentives of the academic world nudges researchers toward the math side of the field, but the risk in that is that the field becomes disconnected from reality.
  - ur-whale 4y ago
    > the risk in that is that the field becomes disconnected from reality it's not a risk, it's a measurable fact.
    - slothtrop 4y ago
      What's the measure?
      - guerrilla 4y ago
        The fact that it doesn't make predictions any more reliably than astrology.
snidane 4y ago
Issues in real estate and land markets stand behind the biggest societal problems that the human population is experiencing in early 21th century. There is no economical school or theory which covers real estate and land markets. All contemporary economic issues, including the ones mentioned in the article, are problems which are easy to describe, not those which are important to society (McNamara fallacy). Economics as a discipline describes an idealized fictional human-like colony on Mars, locked in a greenhouse. It doesn't even attempt to describe humans living on Earth, so be careful how you interpret it.
- paddy_m 4y ago
  There absolutely is a whole area of study of the economics of housing and land use. https://en.wikipedia.org/wiki/Real_estate_economics https://en.wikipedia.org/wiki/Real_estate_economics . In the US we have chosen not to implement any of the recommended policies. There are whole blogs dedicated to the interaction between economics and the built environment https://marketurbanism.com/ https://marketurbanism.com/ My favorite novel policy for addressing land markets is the Land Value Tax. https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax
  - francisofascii 4y ago
    So would it be fair to say that land use is a "solved" economics problem, we just chose not to implement the proper policies that economists generally agree on.
    - jdasdf 4y ago
      Most economic problems are solved problems. The problem is that political priorities impact the actions taken to "solve" or even "identify" those problems. Though in a way, that too is an economic problem...
  - mortenlwk 4y ago
    A Land Value Tax of 100%, as part of Henry George's thinking, was the foundation of one of the oldest parties in Denmark. They had moderate success up until early 80's, and has been in government. My family was much involved in this, and I think it is a fine example of political influence on economic theory. At least here it was caught in between the classical political divide, as is not difficult to imagine from having as its primary position that "resources created by society should belong to society", 100% LVT and 0% tax on everything else. Both sides thought of them as opponents, and gradually georgist professors disappeared from academia
huitzitziltzin 4y ago
Actual economics professor here. This is a partial list. Any specialist in any subfield of the discipline could list a large set of open problems. Nearly all have broader significance. In my own specialty (industrial organization) unsolved problems which would be of interest to readers here include optimal regulation of platforms and two-sided markets. Theory and empirics are difficult, so regulators are to some extent fumbling in the dark a bit. It is not at all clear how to regulate (for example) Amazon’s offering its own versions of products sold on its marketplace OR what the right tariff Apple should charge for access to the App Store is. Extremely confident claims that such behavior is permissible or should be forbidden are likely unsupported by any careful analysis one way or the other.
- lisper 4y ago
  Out of curiosity, how does one even begin to address such a question? Because it seems to me that the answer turns entirely on your choice of a quality metric, which is entirely subjective. If you are a consumer, you would come up with one answer, and if you are a shareholder you would come up with a different one. On what principled basis could one possibly resolve this?
  - tomrod 4y ago
    Not the OP. Designing a policy for minimization of dead weight loss in the economy (typically centered around consumer surplus), with preferential properties including time stability, enforceability, and fairness across implementees.
    - lisper 4y ago
      But "dead weight", "fairness", and the desirability of time stability (weighed against other considerations) are all judgement calls.
      - tomrod 4y ago
        No, they really aren't. - Lacking time stability means no one tomorrow has any incentive to stick to the policy, and means the policy is unlikely to succeed in its objectives. - Deadweight is lost efficiency - The only arguable one is "fairness", and to clarify I blunted the term to avoid the nuance of explaining Pareto optimality. But sure, we can also consider egalitarianism and other moral frameworks.
pdm55 4y ago
I'm presently reading, Linda Yeuh, "The Great Economists: How Their Ideas Can Help Us Today ". I like reading about economic ideas in a historical context, seeing what situations the economists were seeking to understand.
dr_dshiv 4y ago
Modern economics seems to treat all spending as valuable; there is no distinction between money spent on bridges vs Netflix vs education. Am I wrong about that? How to know the value add of a fiscal policy?
- ChadNauseam 4y ago
  Knowing the value add of fiscal policy, but economics does understand the difference between spending on bridges vs netflix vs education – spending on netflix only benefits netflix and the person doing the spending, while spending on a bridge benefits everyone who uses the bridge as well as everyone who benefits from people being able to use the bridge (for example businesses on one side of the bridge who benefit from people being able to drive from the other side and visit their business).
- yowlish 4y ago
  In the national accounts [0] spending on bridges shows up as investment, while Netflix is consumption Keynes' book General Theory breaks down GDP into components, of which consumption and investment are two Dynamic choices about consumption vs investment are at the core of macro models. In analysis of long term trends, the Solow growth model admits analysis of national savings rates. In the analysis of shorter term fluctuations, DSGE models explicitly address the household intertemporal consumption-savings question, seen in the Euler equation [0] https://en.m.wikipedia.org/wiki/National_accounts https://en.m.wikipedia.org/wiki/National_accounts
- marcosdumay 4y ago
  Yes, you are wrong about that. Modern economics isn't unanimous about this. Most theories will clearly distinguish a bridge from Netflix. And even that "valuable" word is problematic, modern economics thinks about events and consequences, while "valuable" is a subjective take on the consequences, that is outside of the subject (and are almost always mixed anyway).
msoad 4y ago
Doesn't "Equity premium puzzle"[0] tells us to barrow money to buy equities for infinite profits? [0] https://en.wikipedia.org/wiki/Equity_premium_puzzle https://en.wikipedia.org/wiki/Equity_premium_puzzle
- elEpHantiaSis 4y ago
  I dont understand this problem. Is it saying that government bonds pay less then the free market and then asking why? Why should that NOT be the case? Governments don't do anything productive, so why should there be an equal expected return compared to the private sector? I dont understand this problem.
  - guerrilla 4y ago
    > Governments don't do anything productive I don't know what you mean by this. It seems false. All states produce many goods and services, primarily security, but many others like health care and such.
    - elEpHantiaSis 4y ago
      I guess I wasn't really thinking outside my bubble, but generally around me I don't see much of the government getting involved with directly producing marketable goods. The government may equip a police force, but it doesn't produce the guns or vests or cars directly, and it doesn't liquidate its services. I mean, in general, we don't have to government do jobs that would be profitable, but rather the jobs that we believe are necessary regardless of profit. Schools don't turn any monetary gains, but we believe it's necessary for the betterment of our children. I therefore wouldn't expect the government to be turning large gains back afterwords. Feels like underperformance in that sense should be expected.
      - em500 4y ago
        The puzzle is not that the government should be as productive as the private sector. The first part of the puzzle is, given that historically equities have returned a lot more (5% to 8% annually, compounding in the long term), why is there still so much money invested in T-Bills (which is what makes their return low and enables the US gov to borrow cheaply). The classical answer is that stocks might return much more on average but are also much riskier / more volatile. Now the second part of puzzle is, that explanation only holds when investors in the aggregate are extremely risk-averse, much more so than how they are observed to behave in practice (such as in simple betting situations).
mrfusion 4y ago
The more interesting question would be what problems has economics solved?
- Mikeb85 4y ago
  Ask any bank or mega-corp who hires economists for 7 figures what problems they solve... Up-thread it was pointed out that Amazon hires many economists.
  - kolbe 4y ago
    I can't speak for Amazon, but in finance, employers are much more interested in the tools that Economists learned in the process of getting their degrees than they are in their economic forecasts.
    - Mikeb85 4y ago
      Well forecasting is a small part of macroeconomics. For lots of traders and firms it also doesn't really matter and if it does, it would be only one small team of many. Most of the stuff I learned that I've used in my career is related to things like consumer choice, price bundling and profit optimization, game theory, stats and econometrics.
- martincolorado 4y ago
  Roth and Shapely won the 2012 Nobel Prize for theoretic work that helped match donors with patients in need of organ transplants: https://www.npr.org/sections/health-shots/2015/06/11/412224854/how-an-economist-helped-patients-find-the-right-kidney-donor https://www.npr.org/sections/health-shots/2015/06/11/4122248...
- danielmarkbruce 4y ago
  If you add "Macro", then yeah, valid question.
  - colinmhayes 4y ago
jdasdf 4y ago
Most of these aren't really unsolved problems though, many have clear explanations, or are simply based on false assumptions (like the dividend puzzle). Sure, some of them are difficult to have clear empirical answers and quantification of the effect impact due to huge amounts of confounding variables, but that doesn't mean the explanation isn't clear and obvious.
Mikeb85 4y ago
> Dividend puzzle It's not a puzzle. When investors buy a stock that pays a dividend, they're looking mostly at yield. Dividend-yielding equities compete with fixed-income securities (bonds), not speculative equities. So dividend yielding stocks get bought up until the point where the yield is more or less the same as fixed-income securities. > Home bias in trade puzzle: It's not a mystery; most people are smart enough to know that when money stays in the community, everyone benefits. Even if the average consumer doesn't know this, enough experts do to push 'buy local' schemes. This is all else being equal of course.
Leader2light 4y ago
oa335 4y ago
One open problem not listed, probably under the "Financial Economics" heading: the closed end fund premium discount puzzle, referenced her https://scholar.harvard.edu/files/shleifer/files/investorsentiment.pdf https://scholar.harvard.edu/files/shleifer/files/investorsen...
orthecreedence 4y ago
Missing "externalities."
hackernewds 4y ago
And some of these might never be stalled. repeat after me, macroeconomics is not a hard science. There is no clear mechanism for experiment -> observation -> inference and every single new treatment has no previous precedent since conditions are changing.
maxwell 4y ago
https://twitter.com/_scaryh/status/804647101149966336 https://twitter.com/_scaryh/status/804647101149966336
Der_Einzige 4y ago
Notably, there is no reference to one of the heavy-hitters: https://en.wikipedia.org/wiki/Efficient-market_hypothesis https://en.wikipedia.org/wiki/Efficient-market_hypothesis
paulpauper 4y ago
Equity premium puzzle: The equity premium puzzle is thought to be one of the most important outstanding questions in neoclassical economics.[6] It is founded on the basis that over the last one hundred years or so the average real return to stocks in the US has been substantially higher than that of bonds. The puzzle lies in explaining the causes behind this equity premium. While there are a number of different theories regarding the puzzle, there still exists no definitive agreement on its cause.[7] So solved in this context means consensus, not as in something mathematically rigorous. I think this is the problem with a lot of these unsolved problems. When I think of something being solved, it means that it absolves doubts. Improved Black–Scholes and binomial options pricing models: The Black–Scholes model and the more general binomial options pricing models are a collection of equations that seek to model and price equity and call options. While the models are widely used, they have many significant limitations.[11] Chief among them are the model's inability to account for historical market movements[12] and their frequent overpricing of options, with the overpricing increasing with the time to maturity.[13] The development of a model that can properly account for the pricing of call options on an asset with stochastic volatility is considered an open problem in financial economics.[citation needed] This is already done. There are a plethora of models to account for everything. It's not an open problem. It's just messy mathematically and does not have the elegant solution like the Black Scholes option pricing model does.
dwighttk 4y ago
What is money?
jackcosgrove 4y ago
Looking at problems like the Backus–Kehoe–Kydland puzzle and the PPP Puzzle I see a reliance on the concept of shocks. If these shocks are treated as exogenous factors, that's a bit disappointing. Hopefully one day economics can be advanced enough to do away with the concept of exogeneity barring sunlight and asteroids.
missedthecue 4y ago
It seems to me that the answer to the equity premium puzzle is that while equities are market-priced determined, the interest rate is controlled by the central bank.
AtlasBarfed 4y ago
"a total and complete inability to prevent total environmental collapse" strangely isn't on the list
alpark3 4y ago
I'm confused about the dividend puzzle. I thought that dividends were really the only thing giving the stocks of high-performing companies concrete value. Wouldn't you naturally value high-dividend paying stocks more highly?
Robin_Message 4y ago
I didn't see "wage-price spiral" on that list. It's something that's definitely being trotted out at the moment to justify not giving raises despite rampant inflation, but it's far from a proven concept.

157 points by rfreytag 4y ago

Shorter list would be “solved problems in economics”. And how many economists pretend that expanding the money supply doesn’t increase inflation?

kolbe 4y ago
I don't know why you're getting downvoted. When I first took econ, we used a book by Gregory Mankiw that featured a list of 10 things that Economists generally agreed upon, and the percentage of Economists in some survey that agreed. I think the most agreed upon one was "people respond to incentives." And the second-most was "there's a short term inverse relationship between interest rates and unemployment." This was 20 years ago, and I think we're already at the point to where that second statement has been rendered obsolete. So, yeah, I think I agree that all that Economists have left is "people respond to incentives."
- guerrilla 4y ago
  Which isn't really even economics but just psychology or even biology...
MichaelDickens 4y ago
This list [1] shows answers from the IGM Economic Experts Panel polls where economists agree most strongly. There are lots of questions where economists show a consensus or near-consensus. You could consider those to be solved problem. [1] https://github.com/Aransentin/IGMscrape/blob/master/results.md https://github.com/Aransentin/IGMscrape/blob/master/results....
Hammershaft 4y ago
> And how many economists pretend that expanding the money supply doesn’t increase inflation? A live demonstration of the Dunning-Kruger effect in action. The effect of change in money supply on overall inflation is mediated by the velocity of that money. If the money supply were doubled but banks & consumers sat on the cash, stowing it under their mattresses, then there's no inflationary pressure on products to be had. Conversely, if an asteroid were to strike us in a year, then regardless of if the money supply was shrinking, if people were spending their life savings in days then inflationary pressure would skyrocket.
paulpauper 4y ago
And how many economists pretend that expanding the money supply doesn’t increase inflation? Japan spent decades trying to create inflation to no avail. Despite trillions in spending from 2008-2020 inflation was very low, until finally spiking in 2021.
jessaustin 4y ago
Economists are less certain about what causes inflation all the time. The current blast of inflation has been linked to market consolidation (e.g. monopoly) by some more adventurous economists. We wish economists would agree that monopoly is bad by some measure...

bsedlm 4y ago

IMO, economics as a science is all about making up theories to 'scientifically' (but actually, just academically) justify whatever the ruling powers want to do. In a larger sense, academia and a big chunk of contemporary western "culture" is all about coming up with stories, narratives, explanations, mindsets (frameworks) to ignore the exploitation of humans as a resource for the sake of ill-defined (by design) notions of "the group" or "us all" when in fact the end result is a big hierarchical pyramid with little room at the top which requires lots and lots of desperate people at the bottom (by this point, the bottom is entire countries).

deleted 4y ago
[deleted]
m12k 4y ago
The problem is that economics as a field spans from sociology and mass-psychology (almost impossible reason about, fully quantify or prove anything in a scientific manner) to mathematics (easy to reason about, model and publish results - but at the risk of not actually modeling the real world). The incentives of the academic world nudges researchers toward the math side of the field, but the risk in that is that the field becomes disconnected from reality.
- ur-whale 4y ago
  > the risk in that is that the field becomes disconnected from reality it's not a risk, it's a measurable fact.
  - slothtrop 4y ago
    What's the measure?
    - guerrilla 4y ago
      The fact that it doesn't make predictions any more reliably than astrology.

snidane 4y ago

Issues in real estate and land markets stand behind the biggest societal problems that the human population is experiencing in early 21th century. There is no economical school or theory which covers real estate and land markets. All contemporary economic issues, including the ones mentioned in the article, are problems which are easy to describe, not those which are important to society (McNamara fallacy). Economics as a discipline describes an idealized fictional human-like colony on Mars, locked in a greenhouse. It doesn't even attempt to describe humans living on Earth, so be careful how you interpret it.

paddy_m 4y ago
There absolutely is a whole area of study of the economics of housing and land use. https://en.wikipedia.org/wiki/Real_estate_economics https://en.wikipedia.org/wiki/Real_estate_economics . In the US we have chosen not to implement any of the recommended policies. There are whole blogs dedicated to the interaction between economics and the built environment https://marketurbanism.com/ https://marketurbanism.com/ My favorite novel policy for addressing land markets is the Land Value Tax. https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax
- francisofascii 4y ago
  So would it be fair to say that land use is a "solved" economics problem, we just chose not to implement the proper policies that economists generally agree on.
  - jdasdf 4y ago
    Most economic problems are solved problems. The problem is that political priorities impact the actions taken to "solve" or even "identify" those problems. Though in a way, that too is an economic problem...
- mortenlwk 4y ago
  A Land Value Tax of 100%, as part of Henry George's thinking, was the foundation of one of the oldest parties in Denmark. They had moderate success up until early 80's, and has been in government. My family was much involved in this, and I think it is a fine example of political influence on economic theory. At least here it was caught in between the classical political divide, as is not difficult to imagine from having as its primary position that "resources created by society should belong to society", 100% LVT and 0% tax on everything else. Both sides thought of them as opponents, and gradually georgist professors disappeared from academia

huitzitziltzin 4y ago

Actual economics professor here. This is a partial list. Any specialist in any subfield of the discipline could list a large set of open problems. Nearly all have broader significance. In my own specialty (industrial organization) unsolved problems which would be of interest to readers here include optimal regulation of platforms and two-sided markets. Theory and empirics are difficult, so regulators are to some extent fumbling in the dark a bit. It is not at all clear how to regulate (for example) Amazon’s offering its own versions of products sold on its marketplace OR what the right tariff Apple should charge for access to the App Store is. Extremely confident claims that such behavior is permissible or should be forbidden are likely unsupported by any careful analysis one way or the other.

lisper 4y ago
Out of curiosity, how does one even begin to address such a question? Because it seems to me that the answer turns entirely on your choice of a quality metric, which is entirely subjective. If you are a consumer, you would come up with one answer, and if you are a shareholder you would come up with a different one. On what principled basis could one possibly resolve this?
- tomrod 4y ago
  Not the OP. Designing a policy for minimization of dead weight loss in the economy (typically centered around consumer surplus), with preferential properties including time stability, enforceability, and fairness across implementees.
  - lisper 4y ago
    But "dead weight", "fairness", and the desirability of time stability (weighed against other considerations) are all judgement calls.
    - tomrod 4y ago
      No, they really aren't. - Lacking time stability means no one tomorrow has any incentive to stick to the policy, and means the policy is unlikely to succeed in its objectives. - Deadweight is lost efficiency - The only arguable one is "fairness", and to clarify I blunted the term to avoid the nuance of explaining Pareto optimality. But sure, we can also consider egalitarianism and other moral frameworks.

pdm55 4y ago

I'm presently reading, Linda Yeuh, "The Great Economists: How Their Ideas Can Help Us Today ". I like reading about economic ideas in a historical context, seeing what situations the economists were seeking to understand.

dr_dshiv 4y ago

Modern economics seems to treat all spending as valuable; there is no distinction between money spent on bridges vs Netflix vs education. Am I wrong about that? How to know the value add of a fiscal policy?

ChadNauseam 4y ago
Knowing the value add of fiscal policy, but economics does understand the difference between spending on bridges vs netflix vs education – spending on netflix only benefits netflix and the person doing the spending, while spending on a bridge benefits everyone who uses the bridge as well as everyone who benefits from people being able to use the bridge (for example businesses on one side of the bridge who benefit from people being able to drive from the other side and visit their business).
yowlish 4y ago
In the national accounts [0] spending on bridges shows up as investment, while Netflix is consumption Keynes' book General Theory breaks down GDP into components, of which consumption and investment are two Dynamic choices about consumption vs investment are at the core of macro models. In analysis of long term trends, the Solow growth model admits analysis of national savings rates. In the analysis of shorter term fluctuations, DSGE models explicitly address the household intertemporal consumption-savings question, seen in the Euler equation [0] https://en.m.wikipedia.org/wiki/National_accounts https://en.m.wikipedia.org/wiki/National_accounts
marcosdumay 4y ago
Yes, you are wrong about that. Modern economics isn't unanimous about this. Most theories will clearly distinguish a bridge from Netflix. And even that "valuable" word is problematic, modern economics thinks about events and consequences, while "valuable" is a subjective take on the consequences, that is outside of the subject (and are almost always mixed anyway).

msoad 4y ago

Doesn't "Equity premium puzzle"[0] tells us to barrow money to buy equities for infinite profits? [0] https://en.wikipedia.org/wiki/Equity_premium_puzzle https://en.wikipedia.org/wiki/Equity_premium_puzzle

elEpHantiaSis 4y ago
I dont understand this problem. Is it saying that government bonds pay less then the free market and then asking why? Why should that NOT be the case? Governments don't do anything productive, so why should there be an equal expected return compared to the private sector? I dont understand this problem.
- guerrilla 4y ago
  > Governments don't do anything productive I don't know what you mean by this. It seems false. All states produce many goods and services, primarily security, but many others like health care and such.
  - elEpHantiaSis 4y ago
    I guess I wasn't really thinking outside my bubble, but generally around me I don't see much of the government getting involved with directly producing marketable goods. The government may equip a police force, but it doesn't produce the guns or vests or cars directly, and it doesn't liquidate its services. I mean, in general, we don't have to government do jobs that would be profitable, but rather the jobs that we believe are necessary regardless of profit. Schools don't turn any monetary gains, but we believe it's necessary for the betterment of our children. I therefore wouldn't expect the government to be turning large gains back afterwords. Feels like underperformance in that sense should be expected.
    - em500 4y ago
      The puzzle is not that the government should be as productive as the private sector. The first part of the puzzle is, given that historically equities have returned a lot more (5% to 8% annually, compounding in the long term), why is there still so much money invested in T-Bills (which is what makes their return low and enables the US gov to borrow cheaply). The classical answer is that stocks might return much more on average but are also much riskier / more volatile. Now the second part of puzzle is, that explanation only holds when investors in the aggregate are extremely risk-averse, much more so than how they are observed to behave in practice (such as in simple betting situations).

mrfusion 4y ago

The more interesting question would be what problems has economics solved?

Mikeb85 4y ago
Ask any bank or mega-corp who hires economists for 7 figures what problems they solve... Up-thread it was pointed out that Amazon hires many economists.
- kolbe 4y ago
  I can't speak for Amazon, but in finance, employers are much more interested in the tools that Economists learned in the process of getting their degrees than they are in their economic forecasts.
  - Mikeb85 4y ago
    Well forecasting is a small part of macroeconomics. For lots of traders and firms it also doesn't really matter and if it does, it would be only one small team of many. Most of the stuff I learned that I've used in my career is related to things like consumer choice, price bundling and profit optimization, game theory, stats and econometrics.
martincolorado 4y ago
Roth and Shapely won the 2012 Nobel Prize for theoretic work that helped match donors with patients in need of organ transplants: https://www.npr.org/sections/health-shots/2015/06/11/412224854/how-an-economist-helped-patients-find-the-right-kidney-donor https://www.npr.org/sections/health-shots/2015/06/11/4122248...
danielmarkbruce 4y ago
If you add "Macro", then yeah, valid question.
- colinmhayes 4y ago

jdasdf 4y ago

Most of these aren't really unsolved problems though, many have clear explanations, or are simply based on false assumptions (like the dividend puzzle). Sure, some of them are difficult to have clear empirical answers and quantification of the effect impact due to huge amounts of confounding variables, but that doesn't mean the explanation isn't clear and obvious.

Mikeb85 4y ago

> Dividend puzzle It's not a puzzle. When investors buy a stock that pays a dividend, they're looking mostly at yield. Dividend-yielding equities compete with fixed-income securities (bonds), not speculative equities. So dividend yielding stocks get bought up until the point where the yield is more or less the same as fixed-income securities. > Home bias in trade puzzle: It's not a mystery; most people are smart enough to know that when money stays in the community, everyone benefits. Even if the average consumer doesn't know this, enough experts do to push 'buy local' schemes. This is all else being equal of course.

Leader2light 4y ago

oa335 4y ago

One open problem not listed, probably under the "Financial Economics" heading: the closed end fund premium discount puzzle, referenced her https://scholar.harvard.edu/files/shleifer/files/investorsentiment.pdf https://scholar.harvard.edu/files/shleifer/files/investorsen...

orthecreedence 4y ago

Missing "externalities."

hackernewds 4y ago

And some of these might never be stalled. repeat after me, macroeconomics is not a hard science. There is no clear mechanism for experiment -> observation -> inference and every single new treatment has no previous precedent since conditions are changing.

maxwell 4y ago

https://twitter.com/_scaryh/status/804647101149966336 https://twitter.com/_scaryh/status/804647101149966336

Der_Einzige 4y ago

Notably, there is no reference to one of the heavy-hitters: https://en.wikipedia.org/wiki/Efficient-market_hypothesis https://en.wikipedia.org/wiki/Efficient-market_hypothesis

paulpauper 4y ago

Equity premium puzzle: The equity premium puzzle is thought to be one of the most important outstanding questions in neoclassical economics.[6] It is founded on the basis that over the last one hundred years or so the average real return to stocks in the US has been substantially higher than that of bonds. The puzzle lies in explaining the causes behind this equity premium. While there are a number of different theories regarding the puzzle, there still exists no definitive agreement on its cause.[7] So solved in this context means consensus, not as in something mathematically rigorous. I think this is the problem with a lot of these unsolved problems. When I think of something being solved, it means that it absolves doubts. Improved Black–Scholes and binomial options pricing models: The Black–Scholes model and the more general binomial options pricing models are a collection of equations that seek to model and price equity and call options. While the models are widely used, they have many significant limitations.[11] Chief among them are the model's inability to account for historical market movements[12] and their frequent overpricing of options, with the overpricing increasing with the time to maturity.[13] The development of a model that can properly account for the pricing of call options on an asset with stochastic volatility is considered an open problem in financial economics.[citation needed] This is already done. There are a plethora of models to account for everything. It's not an open problem. It's just messy mathematically and does not have the elegant solution like the Black Scholes option pricing model does.

dwighttk 4y ago

What is money?

jackcosgrove 4y ago

Looking at problems like the Backus–Kehoe–Kydland puzzle and the PPP Puzzle I see a reliance on the concept of shocks. If these shocks are treated as exogenous factors, that's a bit disappointing. Hopefully one day economics can be advanced enough to do away with the concept of exogeneity barring sunlight and asteroids.

missedthecue 4y ago

It seems to me that the answer to the equity premium puzzle is that while equities are market-priced determined, the interest rate is controlled by the central bank.

AtlasBarfed 4y ago

"a total and complete inability to prevent total environmental collapse" strangely isn't on the list

alpark3 4y ago

I'm confused about the dividend puzzle. I thought that dividends were really the only thing giving the stocks of high-performing companies concrete value. Wouldn't you naturally value high-dividend paying stocks more highly?

Robin_Message 4y ago

I didn't see "wage-price spiral" on that list. It's something that's definitely being trotted out at the moment to justify not giving raises despite rampant inflation, but it's far from a proven concept.