Friday, January 2, 2009

New 'kids' on the block

This one is for my (IB) kids planning to do economics later in college. It is a list of very young economists who, according to The Economist, seem most promising. Who are they?

Jesse Shapiro of the University of Chicago
Roland Fryer of Harvard
Esther Duflo of MIT
Amy Finkelstein of MIT
Raj Chetty of Harvard
Iván Werning of MIT
Xavier Gabaix of New York University
Marc Melitz of Princeton University

Well, VasH, make sure you sign up for Dr. Shapiro's courses!!

Concerning Ms. Esther Dufflo, I would like to quote the following, as (supposedly) you (Candidates 2009) are immersed in the study of development related issues:

Esther Duflo of the Massachusetts Institute of Technology (MIT) received more recommendations than any other economist. With her colleague, Abhijit Banerjee, Ms Duflo have remade development economics, nudging it away from its concern with policies, towards a preoccupation with projects.

They study economic development as seen from the field, clinic or school, rather than the finance ministry. They might be called the “peace corps” of economists, bringing the blessing of their investigative technique to the neglected villages of India or the denuded farms of western Kenya.

Ms Duflo has made her name carrying out randomised trials of development projects, such as fertiliser subsidies and school recruitment. In these trials, people are randomly assigned to a “treatment” group, which benefits from the project, and a “control” group, which does not. By comparing the average outcome of each group, she can establish whether the project worked and precisely how well.

In one study, Ms Duflo and her colleagues showed that mothers in the Indian state of Rajasthan are three times as likely to have their children vaccinated if they are rewarded with a kilogram of daal (lentils) at the immunisation camp. The result is useful to aid workers, but puzzling to economists: why should such a modest incentive (worth less than 50 cents) make such a big difference? Immunisation can save a child’s life; a bag of lentils should not sway the mother’s decision either way.

Randomised trials “give you the chance to be surprised”, Ms Duflo says. Had they arrived at this result using some other method, she and her colleagues would have assumed they had made a mistake. But randomisation removes such doubts, showing that it was indeed the lentils that made the difference. The result cannot be dismissed; it must be explained.

The approach has its critics. A randomised trial can prove that a remedy works, without necessarily showing why. It may not do much to illuminate the mechanism between the lever the experimenters pull and the results they measure. This makes it harder to predict how other people would respond to the remedy or how the same people would respond to an alternative. And even if the trial works on average, that does not mean it will work for any particular individual.

The randomistas, as Ms Duflo and her comrades are called, liken their studies to the clinical trials that prove the efficacy of new drugs. But the ultimate ambition of economics is for something more akin to anatomy. Researchers hope to dissect the underlying physiology of an economic problem, revealing how the leg bone is connected to the thigh bone. With a full anatomy of behaviour—what economists call a structural model—they can determine if a policy or project will work even before it has been attempted.

The early anatomists of the human body suffered from a shortage of fresh cadavers to work on. Medical students would trek long distances to watch a dissection performed. Economists often find themselves in a similar predicament. Short of good empirical meat, they have to rely on elaborate theory and guesswork to fill in what they cannot observe.

The full article can be found here and I would advise you to read it. I was made aware of it thanks to Levitt's (he had made the list!) blog, Freakonomics

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