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The Dangers of Thinking Like an Economist

55 points by mkr-hn 14y ago

freefrancisco 14y ago
So, those who want to give politicians the power to redistribute our money don't like the results of economic analysis, and now they are telling people to avoid thinking like economists because economics is wrong. Fascinating.
spindritf 14y ago
> This found its reductio in Bryan Caplan, who suggested that voters are rationally ignorant of politics because the costs outweigh the benefits, and so economists (who are obviously right about everything) should dictate public policy. You know, like in Chile. Allende was overthrown for his abuses of power after calls from the parliament and the supreme court. Economic policy was a complete afterthought. > Chicago School economists managed to persuade first legal theorists, and then those involved in the legal system itself, of the efficacy of their way of thinking, eventually forming the ‘law and economics’ ... Nor should it surprise you that the movement had a large degree of – ahem – ‘support’ from various moneyed interests. Sasha Volokh: Is Law and Economics a Right-Wing Plot? http://www.ustream.tv/recorded/28943137 http://www.ustream.tv/recorded/28943137 (the audio gets better)
- rafcavallaro 14y ago
  Allende was unacceptable to the US before he even became president, so the claim that he was deposed due to your so called "abuses of power" is absurd on its face - he can't possibly have a abused power before taking power. Declassified documents prove indisputably that the US plotted his removal before he even took office: "Recent documents declassified under the Clinton administration's Chile Declassification Project show that the United States government and the CIA sought the overthrow of Allende in 1970 immediately before he took office ("Project FUBELT"). Many documents regarding the U.S. intervention in Chile remain classified." from: http://en.wikipedia.org/wiki/Salvador_Allende http://en.wikipedia.org/wiki/Salvador_Allende
  - spindritf 14y ago
    > he can't possibly have a abused power before taking power He came into office in '70, and the coup was in '73. From the very link you posted: "29th President of Chile In office 4 November 1970 – 11 September 1973." What CIA planned doesn't take precedence over what actually happened.
    - wnight 14y ago
      Yes. By the time they enacted the plan they had an excuse, but they had planned to depose him before they had evidence.
  - guylhem 14y ago
    Was the whole supreme court of Chile on the CIA payroll, to declare the following UNANIMOUSLY: On May 26, 1973, the Supreme Court of Chile unanimously denounced the Allende government's disruption of the legality of the nation in its failure to uphold judicial decisions, because of its continual refusal to permit police execution of judicial decisions contrary to the government's own measures. Could it be possible that the CIA wanted to remove him as soon as he got elected AND that also and independently he abused power so much as to lead to this declaration by the supreme court? I tend to respect each country legislative body - especially at the higher level. More recently, even Zimbabwe supremes denounced the abuse until they resigned - see http://news.bbc.co.uk/2/hi/africa/1850771.stm http://news.bbc.co.uk/2/hi/africa/1850771.stm
- scarmig 14y ago
  Allende wildly overstepped his constitutional boundaries. But if he were really being removed merely because of those actions and not because of policy, it's certainly fairly odd that they immediately rounded up thousands of unionists, leftists, and other political undesirables and started putting bullets through the back of their skulls. Which you might also call abusing power.
enoch_r 14y ago
>This found its reductio in Bryan Caplan, who suggested that voters are rationally ignorant of politics because the costs outweigh the benefits, and so economists (who are obviously right about everything) should dictate public policy. You know, like in Chile. At his most extreme, Caplan proposed a weighted voting system, where higher education led to more votes. That's a far cry from "dictating public policy," and even further from the Chilean system, where some Chicago-school economists had moderate influence on a dictator's economic policies and essentially zero influence on other aspects of governance (i.e., whether people should be disappeared).
- guylhem 14y ago
  And to all the people who like to bash Chile and the Chicago School, there are other good things in Chile besides the startup program, just take a second to look at the GDP per capita growth : http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&ctype=l&met_y=ny_gdp_pcap_pp_kd#!ctype=l&strail=false&bcs=d&nselm=h&met_y=ny_gdp_pcap_pp_kd&scale_y=lin&ind_y=false&rdim=region&idim=region:LAC&idim=country:ARG:CHL:BRA&ifdim=region&hl=en_US&dl=en_US&ind=false http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&#... It started lower and below average, it's now at the #1 spot. [because it is well know Argentina is lying on its number since ~2008] On other development rankings, Chile also is in the top scores - like fighting against corruption. Maybe, just maybe, some good things were done, or it wouldn't work as well. Just saying that as someone who seriously consider Chile (along with India).
  - m0th87 14y ago
    Isn't the parent referring to Pinochet? He was ousted in 1990. I'm not sure how much you can attribute the modern Chilean economy to his work. He was also a brutal dictator, so you know, there's that...
    - Kudzu_Bob 14y ago
      Pinochet was not especially brutal, as dictators go. On his worst day he was far less homicidal than, say, Pol Pot or Idi Amin. Indeed, I can think of any number of democratically elected leaders with more blood on their hands, including several US Presidents.
skybrian 14y ago
Inefficiency can in itself cause injustice. For example, the cost and inefficiency of the court system discourages people from using it. This can lead to things like settling even when it's unfair. Or for a more spectacular example of inefficiency you could look at the court system in India. [1] For a positive example, look at small claims court in the U.S. A case decided in a few minutes might result in more errors, but an efficient court system, even if somewhat less accurate, could result in better outcomes on average. [1] http://en.wikipedia.org/wiki/Judiciary_of_India#Judicial_backlog http://en.wikipedia.org/wiki/Judiciary_of_India#Judicial_bac...
steveklabnik 14y ago
This blog is great, and the Twitter account is pretty awesome too. I don't always 100% agree with it, but I do find almost every post _interesting_, either something that's relevant to my own thoughts, something that makes me think a different way, or whatever. This post is one of the ones I wish I had read a few years ago. I basically now distrust any opinion that makes a claim to 'economics' without at least mentioning what particular brand of economic religion they adhere to. (I, of course, have my own as well...)
krugmansucks 14y ago
Ill believe you when you stop repeating Paul Krugman
iansimon 14y ago
> If there is a 1% chance the world will end unless we do x, we shouldn’t do a cost-benefit analysis. Instead, assuming x is feasible, we should simply do it. What is the chance the world will end even if we do x? What does feasible mean? Is killing 10% of the population feasible? Is this potential end of the world happening in a year, or in a thousand years? I'd go on, but this is starting to look a bit like a cost-benefit analysis.
bcoates 14y ago
It's an interesting read mostly because he links to a bunch of interesting sources but the ones I've read so far don't actually support his claims. "Knights, Knaves or Pawns?" barely touches on public choice theory at all, and public choice theory in turn isn't incompatible with welfare agency employees "being generally public spirited and less motivated by money than those in the private sector".
zmjones 14y ago
The funniest part was where he said politicians were not self-interested.
- nblaisdell 14y ago
  There certainly are those who are self-interested, but there are many more who really do care about the public good. You hear about the ones doing backdoor deals and shady stuff like that on the news because it makes a more interesting story than someone who goes to work each day trying to make their city a little nicer, or pay teachers a bit more, or cut down on crime, etc.
  - fyi80 14y ago
    > work each day trying to make their city a little nicer, or pay teachers a bit more, or cut down on crime, etc. These are examples of very local politicians, except maybe the last one. Interesting.
  - zmjones 14y ago
    You can't do much public good if you don't get re-elected. Since public opinion suggests people want more services and less taxes, something is going to have to give.
guylhem 14y ago
It stars well, then gets weird. "Is there some level of carbon tax at which we would forego every lake on earth rather than apply it?" Obviously, there isn't (+infinity), because of diminishing marginal returns. Everything is a tradeoff. That's basic economic theory, so yes it applies to the environment. And if you want to figure out how much people care about lakes and nature, you can use existing data about cities adding or removing parks - you'll see people like nature, but not so much as to pay +infinity tax. Because, you know, diminishing marginal returns - again.
aaron695 14y ago
> If there is a 1% chance the world will end unless we do x, we shouldn’t do a cost-benefit analysis. Instead, assuming x is feasible, we should simply do it. To me it's pretty simple this has a value and if doing the alternative is valued worse then no you don't do it. Everything has a value - smog, a lost lake, all lakes lost, death, extinction of animals, happiness. They can be hard to find but we can make approximations around probability curves. The real issue is when you start valuing things like the environment and life people turn off because they can't handle the fact a Starbucks coffee has a higher value than millions of the worlds humans. And while they blank this stuff out it makes change hard.
tgflynn 14y ago
What is the opportunity cost of me writing this blog post? ... I could also be sleeping, cooking, at the pub, or any number of things, but weighing up the various trade offs and benefits of these actions ‘like an economist’ is simply not possible. And yet somehow the author's brain does make these decisions, mostly subconsciously. It seems like a big part of the author's criticism of "economic thinking" is that it oversimplifies reality. The conscious human brain simply does not have the capacity to consider all of the possible inputs and outcomes of problems in a system as complex as the world economy. Human consciousness seems to be a very low-bandwidth single-threaded process while the amount of information processing occurring in the brain which we are not consciously aware of is immense. This may explain why when it comes to complex systems naive common sense often seems to work better than the careful analytic thinking that has been so successful in simpler fields such as physics and engineering.
brianchu 14y ago
> Furthermore, even if the probabilities were known, what matters is not just the weighted relative costs and benefits, but the potential for absolute disaster. If there is a 1% chance the world will end unless we do x, we shouldn’t do a cost-benefit analysis. Instead, assuming x is feasible, we should simply do it. This is extraordinarily dangerous thinking. The "One Percent Doctrine" [1] is and was a huge driver behind the rationale for all the national security and counter-terrorism efforts in the post September 11th era - former Vice President Cheney is recounted as saying "If there's a 1% chance that Pakistani scientists are helping al-Qaeda build or develop a nuclear weapon, we have to treat it as a certainty in terms of our response." That very same logic was likely extended to Iraq - if there is a 1% chance Saddam is building WMDs, we must invade (it helps that the Bush Administration believed the chance was far greater than 1%). Another problem with this 1% kind of thinking is that it's not even clear if many of the kinds of events that are purported to end the world would actually end the world - global warming won't cause human extinction; it will just cause hundreds of millions, if not a billion, deaths (through disease, flooding, displacement); the same applies for nuclear holocast. [1] http://en.wikipedia.org/wiki/The_One_Percent_Doctrine http://en.wikipedia.org/wiki/The_One_Percent_Doctrine EDIT: I realized the irony is that you could call this the "Dangers of Thinking Like a Politician."
- JumpCrisscross 14y ago
  People should learn economics, not prance around saying things they think an economist would say. This blog post constructs a straw man of the latter and than attacks it, paradoxically, as the latter.
- AnthonyMouse 14y ago
  It's even worse than that, because the example being used to condemn cost/benefit analysis actually reinforces it. If you have a 1% chance of destroying the world, you're pretty much going to want to avoid taking that chance in almost every case according to a cost/benefit analysis, since 1% times the trillion trillion dollars that the world is worth to us will end up being more valuable than any alternative. The exception is when the next best alternative is even worse, i.e. a much higher probability of something only slightly less catastrophic. On the other hand, suppose the calculated probability is not 1%. Suppose the alleged world-ending calamity is that the Flying Spaghetti Monster is going to be displeased and set fire to all of reality if you don't pay me a billion dollars. The probability of that actually happening is not 1%. It isn't 1% of 1%. It's close to, but not exactly, 0%. Is the argument that you should still pay me a billion dollars? After all, the risk if you don't is that the world will end. I accept payment as cashier's checks or wire transfer.
LolWolf 14y ago
No economist, not even a mathematical finance major thinks about a cost-benefit analysis when considering something more complicated and more chaotic (e.g. everything else in life) than purchasing options or other such cases. This really does nothing to talk about Economists, as [brianchu] points out, it should be more along the lines of "Dangers of Thinking Like a Politician."
zeteo 14y ago
I'm no big fan of die-hard economic thinking. (I don't think many have been since the Great Irish Famine.) But the arguments in this article are weak and do disservice to actual criticism. > Is there some level of carbon tax at which we would forego every lake on earth rather than apply it? Of course. If the neo-nazi party had an infallible way to preserve all lakes on Earth for a mere 99% of our income, I think we'll all pass up the opportunity. (Don't tell me it's not a carbon tax. You do breathe out CO₂.) >If there is a 1% chance the world will end unless we do x, we shouldn’t do a cost-benefit analysis. Instead, assuming x is feasible, we should simply do it. Unless paying x leaves us unable to deal with a 2% threat. Really, by this logic we should just follow the fantasies of whoever comes up with the most catastrophic scenario - no matter the likelihood. Cthulhu rising from the deep, anyone?
- comicjk 14y ago
  > by this logic we should just follow the fantasies of whoever comes up with the most catastrophic scenario - no matter the likelihood. This is called "Pascal's Mugging." http://lesswrong.com/lw/kd/pascals_mugging_tiny_probabilities_of_vast/ http://lesswrong.com/lw/kd/pascals_mugging_tiny_probabilitie...
rayiner 14y ago
The dig at Chicago School Law & Economics was off-base. L&E wasn't some attempt to subvert the justice system by "moneyed interests." It was an attempt to put parts of the legal framework on a rational economic footing. At it's best, it gave justifications for things in the law we always believed but didn't have a formal way to talk about. He does make some good points re: environmental laws. We overestimate how well we understand probabilities, and worse, humans generally tend to diminish the weight of uncertain benefits in the face of certain costs, by a factor greater than what the underlying probabilities warrant. Global warming is a perfect example. Even if you believe that there is not consensus on whether there is anthropogenic global warming, does that mean the rational thing to do is spend $0 combatting the possibility? Of course not, not unless you think the probability is 0%. On the other hand, putting environmental law on a firm economic basis has also been a boon. Speaking in terms of negative externalities and cost shifting instead of "hippie treehugger values" has salvaged the movement even during a time of a hard political shift to the right in the U.S.
colemorrison 14y ago
Hmm, this is ridiculous. Every person who goes through a serious education in economics knows of the fallacies that you can arrive at by only "thinking" with complete, dry rationality. In fact we have two terms for it: Positive Economics: "What is" Normative Economics: "What ought to be" The majority of focus stays inside of positive economics because the "What is" analysis leads to a much higher amount objective results. It keeps the fucking "opinion" out of it (or at least attempts to at a much greater degree). Case and points: 1. All economists are aware of going down the dead-dry rational rabbit hole; In fact, he points this out in the last paragraph by quoting one of the greatest ones. 2. Most fields lack the level of objectivity and mathematical proofing that economics contains; Bringing that power over to other fields is beneficial. 3. Making a blanket statement that all economists approach things in a blanket statement manner, in and of itself makes this article ridiculous. Someone start a blog called "Learning Economics." The only people who oppose it so heavily are often the ones who don't understand it enough.
rz2k 14y ago
Perhaps magical thinking serves a psychological purpose when managing stress during the early stages of entrepreneurship and long odds of success. However, this ode to eschewing analytical thought, and going with "what we know" or whatever alternative it is proposing is an embarrassment. It is an epistemologic absurdity, since, if we simply "know" anything, we have to question provenance of that knowledge. Our unscientific random biases and assumptions may be as likely to be right as they are wrong, but analytical thinking improves upon them, especially at the multiple perspectives and scales for appreciating outcomes as allowed by economic analysis. Critical thinking does require more effort than going with your gut, but that extra effort is justified when the improvements are great. Anyway, the post kind of disproves its own point, since the straw men it uses are low-effort applications of heuristics rather than economic analysis. The author seems to believe that economics is a discipline defining a specific set of aphorisms that can be universally applied to any situation. Perhaps there's a joke in there somewhere about learning a more rigorous version of economics before you can "unlearn" it or even advocate the virtues of "unlearning" it. Presently, it resembles the work of people who claim that science can't explain how bees fly or other similar nonsense as justification for reveling in ignorance. Incidentally, though it isn't really central to the subject of the article, the quote about sociology is out of date, since modern sociology involves a fair deal of modelling and mathematics.
davidw 14y ago
Actual interesting criticism of economics by Charlie Munger: http://www.tilsonfunds.com/MungerUCSBspeech.pdf http://www.tilsonfunds.com/MungerUCSBspeech.pdf
macco 14y ago
There is no problem in thinking like an economist. There is danger in thinking, we could use this knowledge to predict everything. Thinking like an economist, helps people to make better decisions - in a lot of cases.

55 points by mkr-hn 14y ago

So, those who want to give politicians the power to redistribute our money don't like the results of economic analysis, and now they are telling people to avoid thinking like economists because economics is wrong. Fascinating.

spindritf 14y ago

> This found its reductio in Bryan Caplan, who suggested that voters are rationally ignorant of politics because the costs outweigh the benefits, and so economists (who are obviously right about everything) should dictate public policy. You know, like in Chile. Allende was overthrown for his abuses of power after calls from the parliament and the supreme court. Economic policy was a complete afterthought. > Chicago School economists managed to persuade first legal theorists, and then those involved in the legal system itself, of the efficacy of their way of thinking, eventually forming the ‘law and economics’ ... Nor should it surprise you that the movement had a large degree of – ahem – ‘support’ from various moneyed interests. Sasha Volokh: Is Law and Economics a Right-Wing Plot? http://www.ustream.tv/recorded/28943137 http://www.ustream.tv/recorded/28943137 (the audio gets better)

rafcavallaro 14y ago
Allende was unacceptable to the US before he even became president, so the claim that he was deposed due to your so called "abuses of power" is absurd on its face - he can't possibly have a abused power before taking power. Declassified documents prove indisputably that the US plotted his removal before he even took office: "Recent documents declassified under the Clinton administration's Chile Declassification Project show that the United States government and the CIA sought the overthrow of Allende in 1970 immediately before he took office ("Project FUBELT"). Many documents regarding the U.S. intervention in Chile remain classified." from: http://en.wikipedia.org/wiki/Salvador_Allende http://en.wikipedia.org/wiki/Salvador_Allende
- spindritf 14y ago
  > he can't possibly have a abused power before taking power He came into office in '70, and the coup was in '73. From the very link you posted: "29th President of Chile In office 4 November 1970 – 11 September 1973." What CIA planned doesn't take precedence over what actually happened.
  - wnight 14y ago
    Yes. By the time they enacted the plan they had an excuse, but they had planned to depose him before they had evidence.
- guylhem 14y ago
  Was the whole supreme court of Chile on the CIA payroll, to declare the following UNANIMOUSLY: On May 26, 1973, the Supreme Court of Chile unanimously denounced the Allende government's disruption of the legality of the nation in its failure to uphold judicial decisions, because of its continual refusal to permit police execution of judicial decisions contrary to the government's own measures. Could it be possible that the CIA wanted to remove him as soon as he got elected AND that also and independently he abused power so much as to lead to this declaration by the supreme court? I tend to respect each country legislative body - especially at the higher level. More recently, even Zimbabwe supremes denounced the abuse until they resigned - see http://news.bbc.co.uk/2/hi/africa/1850771.stm http://news.bbc.co.uk/2/hi/africa/1850771.stm
scarmig 14y ago
Allende wildly overstepped his constitutional boundaries. But if he were really being removed merely because of those actions and not because of policy, it's certainly fairly odd that they immediately rounded up thousands of unionists, leftists, and other political undesirables and started putting bullets through the back of their skulls. Which you might also call abusing power.

enoch_r 14y ago

>This found its reductio in Bryan Caplan, who suggested that voters are rationally ignorant of politics because the costs outweigh the benefits, and so economists (who are obviously right about everything) should dictate public policy. You know, like in Chile. At his most extreme, Caplan proposed a weighted voting system, where higher education led to more votes. That's a far cry from "dictating public policy," and even further from the Chilean system, where some Chicago-school economists had moderate influence on a dictator's economic policies and essentially zero influence on other aspects of governance (i.e., whether people should be disappeared).

guylhem 14y ago
And to all the people who like to bash Chile and the Chicago School, there are other good things in Chile besides the startup program, just take a second to look at the GDP per capita growth : http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&ctype=l&met_y=ny_gdp_pcap_pp_kd#!ctype=l&strail=false&bcs=d&nselm=h&met_y=ny_gdp_pcap_pp_kd&scale_y=lin&ind_y=false&rdim=region&idim=region:LAC&idim=country:ARG:CHL:BRA&ifdim=region&hl=en_US&dl=en_US&ind=false http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&#... It started lower and below average, it's now at the #1 spot. [because it is well know Argentina is lying on its number since ~2008] On other development rankings, Chile also is in the top scores - like fighting against corruption. Maybe, just maybe, some good things were done, or it wouldn't work as well. Just saying that as someone who seriously consider Chile (along with India).
- m0th87 14y ago
  Isn't the parent referring to Pinochet? He was ousted in 1990. I'm not sure how much you can attribute the modern Chilean economy to his work. He was also a brutal dictator, so you know, there's that...
  - Kudzu_Bob 14y ago
    Pinochet was not especially brutal, as dictators go. On his worst day he was far less homicidal than, say, Pol Pot or Idi Amin. Indeed, I can think of any number of democratically elected leaders with more blood on their hands, including several US Presidents.

skybrian 14y ago

Inefficiency can in itself cause injustice. For example, the cost and inefficiency of the court system discourages people from using it. This can lead to things like settling even when it's unfair. Or for a more spectacular example of inefficiency you could look at the court system in India. [1] For a positive example, look at small claims court in the U.S. A case decided in a few minutes might result in more errors, but an efficient court system, even if somewhat less accurate, could result in better outcomes on average. [1] http://en.wikipedia.org/wiki/Judiciary_of_India#Judicial_backlog http://en.wikipedia.org/wiki/Judiciary_of_India#Judicial_bac...

steveklabnik 14y ago

This blog is great, and the Twitter account is pretty awesome too. I don't always 100% agree with it, but I do find almost every post _interesting_, either something that's relevant to my own thoughts, something that makes me think a different way, or whatever. This post is one of the ones I wish I had read a few years ago. I basically now distrust any opinion that makes a claim to 'economics' without at least mentioning what particular brand of economic religion they adhere to. (I, of course, have my own as well...)

krugmansucks 14y ago

Ill believe you when you stop repeating Paul Krugman

iansimon 14y ago

> If there is a 1% chance the world will end unless we do x, we shouldn’t do a cost-benefit analysis. Instead, assuming x is feasible, we should simply do it. What is the chance the world will end even if we do x? What does feasible mean? Is killing 10% of the population feasible? Is this potential end of the world happening in a year, or in a thousand years? I'd go on, but this is starting to look a bit like a cost-benefit analysis.

bcoates 14y ago

It's an interesting read mostly because he links to a bunch of interesting sources but the ones I've read so far don't actually support his claims. "Knights, Knaves or Pawns?" barely touches on public choice theory at all, and public choice theory in turn isn't incompatible with welfare agency employees "being generally public spirited and less motivated by money than those in the private sector".

zmjones 14y ago

The funniest part was where he said politicians were not self-interested.

nblaisdell 14y ago
There certainly are those who are self-interested, but there are many more who really do care about the public good. You hear about the ones doing backdoor deals and shady stuff like that on the news because it makes a more interesting story than someone who goes to work each day trying to make their city a little nicer, or pay teachers a bit more, or cut down on crime, etc.
- fyi80 14y ago
  > work each day trying to make their city a little nicer, or pay teachers a bit more, or cut down on crime, etc. These are examples of very local politicians, except maybe the last one. Interesting.
- zmjones 14y ago
  You can't do much public good if you don't get re-elected. Since public opinion suggests people want more services and less taxes, something is going to have to give.

guylhem 14y ago

It stars well, then gets weird. "Is there some level of carbon tax at which we would forego every lake on earth rather than apply it?" Obviously, there isn't (+infinity), because of diminishing marginal returns. Everything is a tradeoff. That's basic economic theory, so yes it applies to the environment. And if you want to figure out how much people care about lakes and nature, you can use existing data about cities adding or removing parks - you'll see people like nature, but not so much as to pay +infinity tax. Because, you know, diminishing marginal returns - again.

aaron695 14y ago

> If there is a 1% chance the world will end unless we do x, we shouldn’t do a cost-benefit analysis. Instead, assuming x is feasible, we should simply do it. To me it's pretty simple this has a value and if doing the alternative is valued worse then no you don't do it. Everything has a value - smog, a lost lake, all lakes lost, death, extinction of animals, happiness. They can be hard to find but we can make approximations around probability curves. The real issue is when you start valuing things like the environment and life people turn off because they can't handle the fact a Starbucks coffee has a higher value than millions of the worlds humans. And while they blank this stuff out it makes change hard.

tgflynn 14y ago

What is the opportunity cost of me writing this blog post? ... I could also be sleeping, cooking, at the pub, or any number of things, but weighing up the various trade offs and benefits of these actions ‘like an economist’ is simply not possible. And yet somehow the author's brain does make these decisions, mostly subconsciously. It seems like a big part of the author's criticism of "economic thinking" is that it oversimplifies reality. The conscious human brain simply does not have the capacity to consider all of the possible inputs and outcomes of problems in a system as complex as the world economy. Human consciousness seems to be a very low-bandwidth single-threaded process while the amount of information processing occurring in the brain which we are not consciously aware of is immense. This may explain why when it comes to complex systems naive common sense often seems to work better than the careful analytic thinking that has been so successful in simpler fields such as physics and engineering.

brianchu 14y ago

> Furthermore, even if the probabilities were known, what matters is not just the weighted relative costs and benefits, but the potential for absolute disaster. If there is a 1% chance the world will end unless we do x, we shouldn’t do a cost-benefit analysis. Instead, assuming x is feasible, we should simply do it. This is extraordinarily dangerous thinking. The "One Percent Doctrine" [1] is and was a huge driver behind the rationale for all the national security and counter-terrorism efforts in the post September 11th era - former Vice President Cheney is recounted as saying "If there's a 1% chance that Pakistani scientists are helping al-Qaeda build or develop a nuclear weapon, we have to treat it as a certainty in terms of our response." That very same logic was likely extended to Iraq - if there is a 1% chance Saddam is building WMDs, we must invade (it helps that the Bush Administration believed the chance was far greater than 1%). Another problem with this 1% kind of thinking is that it's not even clear if many of the kinds of events that are purported to end the world would actually end the world - global warming won't cause human extinction; it will just cause hundreds of millions, if not a billion, deaths (through disease, flooding, displacement); the same applies for nuclear holocast. [1] http://en.wikipedia.org/wiki/The_One_Percent_Doctrine http://en.wikipedia.org/wiki/The_One_Percent_Doctrine EDIT: I realized the irony is that you could call this the "Dangers of Thinking Like a Politician."

JumpCrisscross 14y ago
People should learn economics, not prance around saying things they think an economist would say. This blog post constructs a straw man of the latter and than attacks it, paradoxically, as the latter.
AnthonyMouse 14y ago
It's even worse than that, because the example being used to condemn cost/benefit analysis actually reinforces it. If you have a 1% chance of destroying the world, you're pretty much going to want to avoid taking that chance in almost every case according to a cost/benefit analysis, since 1% times the trillion trillion dollars that the world is worth to us will end up being more valuable than any alternative. The exception is when the next best alternative is even worse, i.e. a much higher probability of something only slightly less catastrophic. On the other hand, suppose the calculated probability is not 1%. Suppose the alleged world-ending calamity is that the Flying Spaghetti Monster is going to be displeased and set fire to all of reality if you don't pay me a billion dollars. The probability of that actually happening is not 1%. It isn't 1% of 1%. It's close to, but not exactly, 0%. Is the argument that you should still pay me a billion dollars? After all, the risk if you don't is that the world will end. I accept payment as cashier's checks or wire transfer.

LolWolf 14y ago

No economist, not even a mathematical finance major thinks about a cost-benefit analysis when considering something more complicated and more chaotic (e.g. everything else in life) than purchasing options or other such cases. This really does nothing to talk about Economists, as [brianchu] points out, it should be more along the lines of "Dangers of Thinking Like a Politician."

zeteo 14y ago

I'm no big fan of die-hard economic thinking. (I don't think many have been since the Great Irish Famine.) But the arguments in this article are weak and do disservice to actual criticism. > Is there some level of carbon tax at which we would forego every lake on earth rather than apply it? Of course. If the neo-nazi party had an infallible way to preserve all lakes on Earth for a mere 99% of our income, I think we'll all pass up the opportunity. (Don't tell me it's not a carbon tax. You do breathe out CO₂.) >If there is a 1% chance the world will end unless we do x, we shouldn’t do a cost-benefit analysis. Instead, assuming x is feasible, we should simply do it. Unless paying x leaves us unable to deal with a 2% threat. Really, by this logic we should just follow the fantasies of whoever comes up with the most catastrophic scenario - no matter the likelihood. Cthulhu rising from the deep, anyone?

comicjk 14y ago
> by this logic we should just follow the fantasies of whoever comes up with the most catastrophic scenario - no matter the likelihood. This is called "Pascal's Mugging." http://lesswrong.com/lw/kd/pascals_mugging_tiny_probabilities_of_vast/ http://lesswrong.com/lw/kd/pascals_mugging_tiny_probabilitie...

rayiner 14y ago

The dig at Chicago School Law & Economics was off-base. L&E wasn't some attempt to subvert the justice system by "moneyed interests." It was an attempt to put parts of the legal framework on a rational economic footing. At it's best, it gave justifications for things in the law we always believed but didn't have a formal way to talk about. He does make some good points re: environmental laws. We overestimate how well we understand probabilities, and worse, humans generally tend to diminish the weight of uncertain benefits in the face of certain costs, by a factor greater than what the underlying probabilities warrant. Global warming is a perfect example. Even if you believe that there is not consensus on whether there is anthropogenic global warming, does that mean the rational thing to do is spend $0 combatting the possibility? Of course not, not unless you think the probability is 0%. On the other hand, putting environmental law on a firm economic basis has also been a boon. Speaking in terms of negative externalities and cost shifting instead of "hippie treehugger values" has salvaged the movement even during a time of a hard political shift to the right in the U.S.

colemorrison 14y ago

Hmm, this is ridiculous. Every person who goes through a serious education in economics knows of the fallacies that you can arrive at by only "thinking" with complete, dry rationality. In fact we have two terms for it: Positive Economics: "What is" Normative Economics: "What ought to be" The majority of focus stays inside of positive economics because the "What is" analysis leads to a much higher amount objective results. It keeps the fucking "opinion" out of it (or at least attempts to at a much greater degree). Case and points: 1. All economists are aware of going down the dead-dry rational rabbit hole; In fact, he points this out in the last paragraph by quoting one of the greatest ones. 2. Most fields lack the level of objectivity and mathematical proofing that economics contains; Bringing that power over to other fields is beneficial. 3. Making a blanket statement that all economists approach things in a blanket statement manner, in and of itself makes this article ridiculous. Someone start a blog called "Learning Economics." The only people who oppose it so heavily are often the ones who don't understand it enough.

rz2k 14y ago

Perhaps magical thinking serves a psychological purpose when managing stress during the early stages of entrepreneurship and long odds of success. However, this ode to eschewing analytical thought, and going with "what we know" or whatever alternative it is proposing is an embarrassment. It is an epistemologic absurdity, since, if we simply "know" anything, we have to question provenance of that knowledge. Our unscientific random biases and assumptions may be as likely to be right as they are wrong, but analytical thinking improves upon them, especially at the multiple perspectives and scales for appreciating outcomes as allowed by economic analysis. Critical thinking does require more effort than going with your gut, but that extra effort is justified when the improvements are great. Anyway, the post kind of disproves its own point, since the straw men it uses are low-effort applications of heuristics rather than economic analysis. The author seems to believe that economics is a discipline defining a specific set of aphorisms that can be universally applied to any situation. Perhaps there's a joke in there somewhere about learning a more rigorous version of economics before you can "unlearn" it or even advocate the virtues of "unlearning" it. Presently, it resembles the work of people who claim that science can't explain how bees fly or other similar nonsense as justification for reveling in ignorance. Incidentally, though it isn't really central to the subject of the article, the quote about sociology is out of date, since modern sociology involves a fair deal of modelling and mathematics.

davidw 14y ago

Actual interesting criticism of economics by Charlie Munger: http://www.tilsonfunds.com/MungerUCSBspeech.pdf http://www.tilsonfunds.com/MungerUCSBspeech.pdf

macco 14y ago

There is no problem in thinking like an economist. There is danger in thinking, we could use this knowledge to predict everything. Thinking like an economist, helps people to make better decisions - in a lot of cases.