Wednesday, August 22, 2012

The future of Economics

A couple of days ago in Big Think there was an interesting post with the views of 'Eight of the world's top young economists' on where the field is or should be heading.

Here are some quotes which may make you curious to read the full post:

NICHOLAS BLOOM, 39 years old at Stanford

'…Why are developing countries poor?  In terms of impact on mankind globally, this strikes me as probably the biggest and most important current economic question.  I think the answer is complex and linked to a combination of factors around history, geography, luck, etc.  I am personally working on management practices: people in developing countries are poor because wages are low, and wages are low because firms are very unproductive, and firms seem to be unproductive in large part because of bad management.  An Indian worker makes in one week what an average U.S. worker makes in a half a day.  One big factor seems to be that factories in India are frankly very badly managed: equipment is not looked after, materials are wasted, theft is common because inventory is not monitored, defects keep occurring, etc…'

RAJ CHETTY 32 years old at Harvard

'…Many economists are concerned with two broad questions: how can we increase the rate of economic growth and overall well-being, and how can we reduce the rate of poverty?  Countless policies—taxation, education, healthcare, etc.—have been implemented in an effort to achieve those objectives.  One of our biggest challenges is to distill each policy’s unique impact so that we can understand which ones actually work and which ones do not. '

XAVIER GABAIX, 40 years old at NYU

'…The most central open question in economic theory, as I see it, is how to model realistic economic agents.  Traditionally, economists have relied on the rational-actor model, but it is clear that it is just a rough caricature.  It has been greatly enriched by behavioral economics in the past 30 years.  Still, we are far from a unified, versatile, believable alternative to the rational-actor model.  I am hopeful, though, that this might be overcome—in part because of progress in the sister disciplines (psychology and neuroscience) and basic modeling, and also because empirical anomalies are forcing the economic profession to be more open-minded.  Contributions by computer scientists and physicists will help inject new perspectives into economics.

The largest concrete questions in economics are, arguably, how to increase growth—particularly in developing countries—and how to avoid economic disasters and financial crises…'

Peter Leeson, 32 years old at George Mason University

'…My candidate for the biggest unanswered question in economics is the status of the rationality postulate: the decision to analyze actors as utility maximizers with consistent preferences.  If we view economics as an “engine” for understanding the world, the rationality postulate was that engine in nearly all of economics until quite recently.  The rise of behavioral economics has challenged the usefulness and, in a more subtle but radical way, the legitimacy of the rationality engine.'

Glen Weyl, 27 years old at the University of Chicago

'…In his famous 1945 article, “The Use of Knowledge in Society,” F. A. Hayek argued that despite their inequity and inefficiency, free markets were necessary in order to allow the incorporation of information held by dispersed individuals into social decisions.  No central planner could hope to collect and process all the information necessary for social decisions; only markets allowed and provided the incentives for disaggregated information processing.  Yet, increasingly, information technology is leading individuals to delegate their most “private” decisions to automated processing systems.  Choices of movies, one of the last realms of taste one would have guessed could be delegated to centralized expertise, are increasingly shaped by services like Netflix’s recommender system..'

Justin Wolfers, 39 at UPenn

'…Economics is in the midst of a massive and radical change.  It used to be that we had little data, and no computing power, so the role of economic theory was to “fill in” for where facts were missing.  Today, every interaction we have in our lives leaves behind a trail of data.  Whatever question you are interested in answering, the data to analyze it exists on someone’s hard drive, somewhere…'

Poverty and development issues, the limitations of rationality, huge disaggregated data sets and vast computing power.....

No comments: