Are The Big Four Econ Errors Biases?

My colleague Bryan Caplan has devoted many years to uncovering how the beliefs of ordinary people differ from the beliefs of economists, even after correcting for economists’ differing incomes and ideologies.  In 2004, Caplan summarized his findings as the public having four big biases:  an anti-foreign bias, a make-work bias, an anti-market bias, and a pessimistic bias.    Arnold Kling quotes Caplan as saying:


One of the first things that stands out is anti-foreign bias. When they contemplate economic interaction with foreigners, the general public gets unreasonably negative…

A second major pattern in the public’s economic illiteracy is make-work bias…In the long-run, blaming technology for unemployment is just silly. As the mechanization of agriculture beautifully illustrates, when machines replace people in one line of work, they switch to another…

a blanket anti-market bias…In the minds of public, prices apparently go up when businesses suddenly start to feel greedier. Economists, in contrast, expect businesses to be greedy year-in, year-out; but depending on market conditions, greed may call for prices to go up, go down, or stay the same…

A final catch-all category of economic illiteracy may be called pessimistic bias. Conventional wisdom has it that conditions are going from bad to worse. Most Americans think that real income has been falling for decades, most new jobs are low-paying, and doubt whether the next generation will have a higher standard of living. Economists think that this conventional wisdom is dead wrong.

Caplan calls these biases, but I would rather call them correlated errors, if they were due mainly to people being ignorant about economics.  (To me, an error is an estimate differing from truth, a bias is a cheaply avoidable error.)  It is not clear, however, that ignorance is the main cause here.

Consider how differently the public treats physics and economics.   Physicists can say that this week they think the universe has eleven dimensions, three of which are purple, and two of which are twisted clockwise, and reporters will quote them unskeptically, saying "Isn’t that cool!"   But if economists say, as they have for centuries, that a minimum wage raises unemployment, reporters treat them skeptically and feel they need to find a contrary quote to "balance" their story.   

I see the same pattern with my students – they’ll easily believe physics claims, but are very reluctant to entertain standard economics claims.  They come to class with strong incorrect preconceptions about the social world.  As Caplan emphasizes, the publics’ problem with economics is not the things they don’t know, it is the things they know that ain’t so; they act not ignorant but cocksure of error. 

The reasons for this resistance are not entirely clear, but one plausible theory is that people want to believe certain things about the social world, regardless of whether those things are true.   For example, we want to believe foreigners are out to get us, as this makes us seem more loyal to non-foreigners.   If this theory is correct, then these four big errors are four big biases.

Addendum: Don Boudreaux at Cafe Hayek gives a relevant quote from Frank Knight, and Paul Krugman considers why non-economists "so consistently balk at the concept of comparative advantage."

Further Addendum:  This post produced a lot of controversy, which I tried to respond the following Tuesday.

 

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  • http://amethodnotaposition.blogspot.com Matthew

    “They come to class with strong incorrect preconceptions about the social world. As Caplan emphasizes, the publics’ problem with economics is not the things they don’t know, it is the things they know that ain’t so; they act not ignorant but cocksure of error.”

    Being cocksure of error is not a phenomenon limited only to economics students. . .

    http://amethodnotaposition.blogspot.com/2005/10/how-to-become-crackpot.html

  • http://econlog.econlib.org/archives/2006/11/difference_in_d.html EconLog

    Difference in Deference

    Over at Overcoming Bias, Robin Hanson amusingly contrasts the abject deference the public gives to physicists with the stubborn defiance…

  • http://pdf23ds.net pdf23ds

    “that a minimum wage raises unemployment”

    I don’t mean to dispute your “big four” claim, but this one, at least, is contradicted by some data[1].

    While searching for that, I found this: LizardBreath of Unfogged has some interesting thoughts[2] on why economics, in her view, is less rigorous than physics. Perhaps her reasoning is what drives many economics students to be more skeptical of its claims than they are of physics.

    [1] http://obsidianwings.blogs.com/obsidian_wings/2006/11/raising_the_min.html
    [2] http://www.unfogged.com/archives/week_2006_11_12.html#005794

  • http://www.hedweb.com/bgcharlton Bruce G Charlton

    What an excellent point!

    Something similar applies to biology (my title is Reader in Evolutionary Psychiatry) where a vast proportion of the population are happy to deny or fundamentally-critique the central theory of biology – evolution by natural selection – with only the most superficial and inaccurate knowledge of what they are denying.

    Having said that – I have myself, as a younger man, been guilty of precisely this kind of economics-denial you describe, and armoured against learning better by various types of political theory (Fabian or Galbraithian economics, anarchism etc.)

    It works by assuming bad intentions in the people that you disagree-with, which makes it essential to ignore what they say.

  • http://profile.typekey.com/jhertzli/ Joseph Hertzlinger

    Lots of people are disrespectful of physicists. We can start with anti-nuclear-power activists and continue through young-Earth creationists, astrologers, people who think that quantum mechanics means psychic powers work…

  • Rob Spear

    It doesn’t matter to the general public whether reality as 11, 42, or 97.5 dimensions. It makes no difference whatsoever. The primary good that most modern physics provides to the people is basically light entertainment. People may “believe” physics claims, but not to the extent that they would fight for them.

    Economics is fundamentally different, as being wrong with economic practice causes real chaos and real misery. Economics is an important part of the political process, and politics, except perhaps under despots, is inherently contentious. Also, Economics has a history during the 20th century of being very very wrong – Keynes still seems to have a hold on a lot of public economists.

  • http://cafehayek.typepad.com/hayek/2006/11/hanson_caplan_k.html Cafe Hayek

    Hanson, Caplan,

    Bryan Caplan links to Robin Hanson’s comparison of the abject deference the public gives to physicists with the stubborn defiance the public gives to economists. Robin is right-on. His comments called to my mind this passage from Chapter I, Part

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    Rob, yes, a fundamental difference is that we care more about economics. But I don’t think it is fair to call Keynes “very very wrong;” he improved on the previous situation, but then others have improved on him.

    Joseph, yes, but surely far fewer people disrespect physics.

    Bruce, glad you have come around – what finally pierced your armor?

    Pdf, yes, the data is not all clearly on one side of that issue.

  • Bruce G Charlton

    Robin, you ask what ‘pierced my armor’ and made me take proper economics seriously.

    It was somewhat gradual – noting the similarities between natural selection and markets was an early step. For example the use of economics made by my friend Matt Ridley in his book The Origins of Virtue (Matt used to be science editor for the Economist). This made me look hard at Ricardo and comparative advantage, for example.

    But the single most important factor was meeting my current main academic collaborator (Peter Andras) in about 2000, and discovering that someone whom I thought both clever and wise regarded economics as a science.

    Once I started reading economics as a science (rather than reading it with moral disapproval, as a rationale for partisan politics, which is how I had previously regarded it – a view which seemed amply confirmed by what passes for Health Economics in the UK) then I became more and more excited by its intellectual qualities.

    Economics now strikes me as the most vibrant and revolutionary science of which I am aware – far more intellectually dynamic than biology/ biomedicine, for example – which seems to me on the verge of collapse.

  • http://areasonableman.com/ Gil

    I think that the reason we see this imperviousness to evidence and argument (not sure if it qualifies as bias, as I’m not sure how cheaply avoidable it is) with respect to economics more than physics, is that it’s more likely to be bound tightly with people’s sense of identity.

    I think there are many more people with major aspects of their identity attached to the wisdom of economic intervention or the truth of Creation, than with a particular interpretation of quantum phenomena.

  • http://amethodnotaposition.blogspot.com Matthew

    “people who think that quantum mechanics means psychic powers work…”

    Surely the scientific approach is to test hypotheses rather than make ex cathedra pronouncements on what is possible and what is not based on some theoretical framework. . .

  • Patri Friedman

    why economics, in her view, is less rigorous than physics. Perhaps her reasoning is what drives many economics students to be more skeptical of its claims than they are of physics.

    I think this is an important point, and it is the interaction between the politicized nature of economics and its lack of rigour that causes there to be so many divergent yet confident beliefs. As Bryan (and others) point out, when the cost of holding a wrong opinion is low, people will choose opinions based on warm fuzzies rather than correctness. And when the empirical evidence is mixed (minimum wage is a great example), there are a variety of available opinions with at least some support in fact to choose from. And the empirical evidence is mixed because economics is less rigorous, because (among other things) you can’t easily set up controlled, blinded macroeconomic experiments.

    Given the combination of desire to believe false things and some practical difficulty in discerning the truth, bias seems unsurprising to me. It seems much stranger to me when people have erroneous economic beliefs that negatively affect their lives – say, that managed mutual funds are a good investment, or that paying a realtor a percentage of the gross sale is a good incentive scheme.

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    Patri, yes, agreed, it is more puzzling “when people have erroneous economic beliefs that negatively affect their lives.”

  • ChrisA

    The general public believes these biases as they are repeatedly used by politicians to justify the politician’s jobs (I will protect you) and by manufacturers who wish to restrict competition. So, all though you can have an eminent economist say that the US should reduce steel import tariffs and as this will be a net benefit to the US public, up will pop a very articulate lobbyist from US steel to argue the opposite and the public, without examining the arguments, conclude that the matter is not settled. Free trade in particular is hard to get across because the benefits are widely spread but the costs are focussed, making hiring of lobbyists etc a lot easier for the anti-crowd.

  • Eric Schliesser

    Actually, I am not entirely convinced the ‘public’ is silly in its distrust of Economists who often ignore real world costs or who merely acknowledge the messy details of the world by saying things like ‘the winners can compensate the losers,’ or (to make a point Robin’s colleague, David Levy, likes to make) employ aggregate models that disguise big differences between the average and the median. Economists are also very fond of distinguishing between normative and positive claims while often refusing to acknowledge the normative presuppositions of their models (or how ‘family,’ ‘unemployment’ etc are operationalized).
    Don’t get me wrong; the public is often ill informed, but economists are also often amazingly blind (and falsely smug) about their own subject matter. (Don’t get me started on econometric handling of data.)

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    Eric, yes, the estimates that economists give have error. But surely it is less error than the random things the public believes without consulting economists. And in order to justify how differently the public treats physics and economics, the public would have to have a good reason to think there is much less error when physicists tell them the universe has eleven dimensions, three of which are purple, etc.

  • http://www.businessweek.com/the_thread/economicsunbound/archives/2006/11/robin_hanson_ad.html Economics Unbound

    Robin Hanson Advocates Journalistic Malpractice

    Robin Hanson (who I generally like) writes: Consider how differently the public treats physics and economics. Physicists can say that this week they think the universe has eleven dimensions, three of which are purple, and two of which are twisted…

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    Michael Mandel and I just had an enlightened conversation on physics vs. economics reporting over at BusinessWeek Online: http://www.businessweek.com/the_thread/economicsunbound/archives/2006/11/robin_hanson_ad.html

  • http://www.washingtonmonthly.com/archives/individual/2006_12/010328.php Political Animal

    Economics vs. Physics Cage Match

    ECONOMICS vs. PHYSICS CAGE MATCH….Robin Hanson complains about the media’s treatment of the economics profession:Consider how differently the public treats physics and economics. Physicists can say that this week they think the universe has eleven di…

  • Urinated State of America

    “But if economists say, as they have for centuries, that a minimum wage raises unemployment, reporters treat them skeptically and feel they need to find a contrary quote to “balance” their story.”

    Well, given the results of the Card study on the minimum wage in the Philadelphia area, and other corroborating studies, in that case they’d be right too.

    Better example, please.

  • http://mattweiner.net/blog Matt Weiner

    I agree with Urinated State. If you want the media to report the findings of economics unskeptically, then you shouldn’t start with an example that’s contradicted by a lot of empirical evidence. In fact, given that this theoretical result of economics is contradicted by a lot of empirical evidence, this gives good reason to think that the media shouldn’t report the findings of economics unskeptically; or that you need a better criterion for what counts as a finding of economics.

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    There are now forty comments on this post at: http://www.washingtonmonthly.com/archives/individual/2006_12/010328.php
    I’ll ask here the same question I ask there:

    Does anyone know any economist who says that our best estimate of the net effect of a minimum wage is to *raise* employment, as opposed to estimating a zero or negative effect?

  • Joel W

    “Will any economist listening speak up and declare themselves as claiming that our best estimate of the total effect of a minimum wage is to raise employment?”

    Professor Hanson, here you are not distinguishing between a point-estimate and a confidence interval. If you ask an economist about their best estimate for a parameter that is allowed to vary continuously, they should also tell you that their best estimate is correct with probability 0. For this reason, confidence intervals are a more accurate measure.

    If your probability distribution over various outcomes is continuous (this is of course an assumption- there’s no reason why it has to be this way), then a confidence interval that includes 0 should have essentially the same confidence-level as an identical confidence interval that includes some very small number greater than 0. So if a “continuous economist” has a 95% confidence interval for the effects of an increase in the minimum wage on unemployment and that confidence interval includes 0, then the economist’s estimate is consistent with an interval of slightly greater confidence level that includes some number slightly greater than 0.

    Of course, slightly greater than 0, slightly less than 0, and 0 are all approximately the same, which goes to show that the sign itself isn’t that important when the magnitude is small. Going back to your question, I think economists would all agree that their personal 95% confidence level does not consist entirely of positive numbers. But I am sure that there are also economists who would claim that their personal 95% confidence interval does not consist entirely of negative numbers.

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    Joel, point-estimates and confidence intervals are both valid ways to describe beliefs. You say “I am sure that there are also economists who would claim that their personal 95% confidence interval does not consist entirely of negative numbers”; I’d like to hear from such a person.

  • http://profile.typekey.com/MosesWine/ J Pierpont Flathead

    Does anyone know any economist who says that our best estimate of the net effect of a minimum wage is to *raise* employment, as opposed to estimating a zero or negative effect?

    Q1: In an ideal world of Econ 101, what is the effect of minimum wage on employment?

    Q2: How does the world we live in differ from that ideal world?
    Q2a: In what econ courses are these differences discussed?

    Q3: Is it likely that the real world net effect is opposite to the ideal world net effect?

    Q4: How many students never hear of friction in Physics 101 or leave Physics thinking that a body in motion tends to stay in motion in the real world?

    Q5: Why do economists teach Econ 101 this way?

  • pgl

    Aren’t you elevating the “law of demand” to the same level as the “law of gravity”? Of course, neither proposition happens to a “law” in the legal sense.

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    Pgl, I compared econ coverage to eleven dimension speculations, not to the law of gravity.

  • Rheinhard

    Sir, speaking as someone trained in physics, I can also state your comparison sucks because there is far from universal agreement on the whole “number of dimensions” thing either. A lot of these “sexy physics” speculations are the province of string theory which, while having lots of cool math, has yet to produce a single testable experimental prediction. Until it does so, there are many physicists, including myself, who take that attitude of “let’s wait and see.” However this group doesn’t get as much air time because asking “How the hell do we test this?” doesn’t make for cool CGI graphics on the Discovery Channel.

    Come to think of it it’s really only in this sense that the comparison is apt: a lot of advanced economics seems to consist of a bunch of really slick math which convinces Washington and Wall Street types that this must all be really real, who then go off to build real trading systems based on it and nearly collapse world economies when the predictions turn out to be overblown.

    When you saw you compare econ to the law of gravity, it is also worth noting that Newtonian conceptions of absolute space and time and “action at a distance” were proved wrong with the development of relativity. However the effects of relativity have almost no bearing on the experiences of everyday people, which are still more than adequately described by the classical Newtonian view. And the eleven-dimensional string theory world is so far even beyond that as to be practically a fairy tale. A lot of high-end economics strikes me as rather similar to this.

    And in this regard, it is well that economics is regarded in a bit lower class than physics. Until you can figure out how to do CONTROLLED experiments in economics, most of the assertions that are most strongly put forth in the public arena concerning bread and butter issues affecting the everyday man are at best mild statistical likelihoods far from God-given truth. And since, in the eyes of most of the public, this stuff is trotted out in order to explain to the proles why they deserve their lot in life, they can be excused for being at least a little untrustworthy. After all, weren’t many of these same economic experts absolutely certain that the Dow would break 36000 in late 1999 and only econo-Luddite morons would think otherwise?

    • http://daedalus2u.blogspot.com/ daedalus2u

      Wow, how prescient, and you wrote this in 2006? In 2008 they nearly did collapse world economies and they are about to do it again by trying to balance the budget on the backs of the poor and wage earners.

      They really do believe the “raise the minimum wage and unemployment goes up” idea. That is why they are so opposed to letting Obama reduce payroll taxes. If wage earners get more take home income, that is just like raising wages and so it just has to cause more unemployment.

  • pgl

    Physics covers many issues – as does economics. Does our host expect there to be uniform agreement among the learned on every issue in economics?

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    Rheinhard, my colleague Vernon Smith won the Nobel Prize a few years ago for helping to start the practice of lab experiments in economics. Thousands of us do them now.

  • http://profile.typekey.com/halfinney/ Hal Finney

    Here’s some data from an article in the online Berkeley publication, The Economists’ Voice. The article, “Do Economists Agree on Anything? Yes!” by Robert Whaples of Wake Forest University describes a survey of randomly selected PhD members from the American Economic Association.

    http://www.bepress.com/ev/vol3/iss9/art1/

    The results on minimum wage were somewhat surprising to me. There is quite a bit of disagreement about whether the minimum wage is good or bad. (Note that this is a broader question than the one Robin asked, whether it increases unemployment.)

    “The efficacy of the minimum wage continues to divide economists… almost half (46.8%) have concluded that the federal minimum wage should be *eliminated*, while a slightly smaller number (37.7%) favor increasing it.”

  • http://www.gregransom.com/prestopundit/ PrestoPundit

    Let’s start by being honest. The “science” of economics is a conceptual and theoretical mess — economists don’t know and can’t persuasively explain how or why anyone should consider what they do is “science” or even produces sound knowledge. “Macroeconomics” is the biggest mess of all — no consensus and no compatibility with what economists believe when they are teaching “micro”. The problems and fallacious “methodology” found in “micro” is itself an embarrassment.

    Until economics and the economists get their house in order, why should anyone take their pronouncements on policy on blind faith?

  • Joel W

    After thinking about it, I don’t think that the inclusion of 0 in a confidence interval is particularly important (although under monopsony and other second-best situations economic theory predicts that the minimum wage would increase employment, so even a fully positive confidence interval isn’t a crazy thing for an economist to believe in the abstract). In particular, an informative statistic about an economist’s belief in the effects of a minimum wage increase would be something like “The economist’s expectation of the number of jobs that will be lost if the minimum wage is increased by $2″. That would very likely be a negative number. But how negative of a number would it be? That question is the important one.

    To say that “an increase in the minimum wage by $2 would be expected to raise unemployment” is not to say that such an increase would be meaningful. If economists know with a high degree of certainty that some but very few jobs would be lost, then the correct thing to do would be to say that “the minimum wage increase would increase unemployment by a very small amount”. To say “the minimum wage increase would increase unemployment” alone is to imply that the increase in unemployment is meaningful.

  • radish

    I doubt that economics is actually treated differently from the sort of strictly-theoretical physics you’re referring to, but in any case there is most definitely a legitimate explanatory difference between economics and most of physics. And I submit that it’s easiest to explain in terms of market forces.

    Economists aren’t motivated to do falsification, because none of their competitors can do it either. Scientists who are able to falsify, and be confident that their hypothesis really has been falsified, tend to do so (after a suitable period of kicking and screaming). If they don’t then someone else will. But some scientists — e.g. sociologists, economists, even ecologists — are largely out in the cold experimentally, and at a terrible disadvantage observationally. In order to falsify a hypo you have to make it reasonably narrow (mini-variate?). But there are a whole range of reasons why a mini-variate hypo can’t be confidently falsified using observations of complex systems (initial conditions, choosing the right controls and variables, repeatability, etc). Hey, if nobody else can falsify your hypo then why should you? So instead of falsifying, you try to confirm. And what do you get when you try to confirm things? Why confirmation bias of course.

    Meanwhile, as others have mentioned above, economists, sociologists and the like make propositions which, in addition to being difficult to falsify, intersect very obviously with daily life. They’re not stuck trying to convince their peers and perhaps an occasional politician or CEO; they can make a perfectly good living convincing anybody who has some disposable income, or even exclusively targeting politicians.

    Vernon Smith and “experimental” economics are very much the exception rather than the rule. The bottom line is that if Art Laffer were a physicist he’d never have got past the cocktail napkin stage, let alone gotten funding for a multibillion dollar confirmation-oriented experiment.

  • http://profile.typekey.com/trespam/ T.R.Elliott

    Hanson says: “My colleague Bryan Caplan has devoted many years to uncovering how the beliefs of ordinary people differ from the beliefs of economists”

    My response: I’m glad you used the plural in “beliefs,” because that is one essence of the problem: on a host of economic questions, economists have beliefs in the plural. Professional economists (and the many non-professionals who play economists as TV talking heads) try to portray, at a high level, economics as a coherent belief system. A closer look usually shows as much confusion as coherence. Hence the ability to put two top-notch economists, face to face, on television, both arguing past each other, rarely agreeing.

    If anything, economics does not receive enough criticism in the main stream media.

    Hanson says: “Consider how differently the public treats physics and economics. Physicists can say that this week they think the universe has eleven dimensions, three of which are purple, and two of which are twisted clockwise, and reporters will quote them unskeptically, saying “Isn’t that cool!” But if economists say, as they have for centuries, that a minimum wage raises unemployment, reporters treat them skeptically and feel they need to find a contrary quote to “balance” their story.”

    My response: I disagree. The public treats physics with respect because they’ve shown their theories sound enough to blow up a large country’s economy with a single bomb. The public doesn’t treat economists with respect because their theories aren’t sound enough to stop an economy from blowing up. Big difference.

    Hanson says: ‘I see the same pattern with my students – they’ll easily believe physics claims, but are very reluctant to entertain standard economics claims. They come to class with strong incorrect preconceptions about the social world.”

    My response: I disagree. I can’t speak for the public at large. But my own opinion: It’s because economic theory is littered with inconsistencies and ambiguous results.

    Hanson says: “The reasons for this resistance are not entirely clear, but one plausible theory is that people want to believe certain things about the social world, regardless of whether those things are true.”

    My response: I disagree. Educated people want evidence. There are not a few people with physics, mathematics, and engineering backgrounds like my own who look at economics with interest but are also aghast at the level of ideology. I sometimes find it difficult to tell whether economics is a social science or a rhetorical one: the theories of economics, while often ambiguous, are the staple of political language. Could it be that the sophists who were the bane of Socrates have returned as Economists? I sometimes wonder.

  • Urinated State of America

    “Does anyone know any economist who says that our best estimate of the net effect of a minimum wage is to *raise* employment, as opposed to estimating a zero or negative effect?”

    Well, there’s Duncan Black (PhD economics)

    “Look, unless you believe that the labor market is accurately characterized as perfectly competitive then not only is it the case that the minimum wage doesn’t necessarily, reduce employment, it’s actually quite possible that small increases in the minimum wage will increase it. To the extent that firms have market power, and there’s plenty of reason do think they do, the impact of small minimum wage increases can potentially be either “paradoxically” to increase employment or to just basically be a wash.”

    Or you could take it up with the 650 economists, including 5 Nobel laurates and 6 past presidents of the American Economic Association who’ve signed a petition for the increase of the minimum wage. Evidently they’re not too bothered about the dead-weight losses. So it’s inappropriate to complain about the press reporting a controversy, when, umm, there is a controversy: the conventional wisdom that a minimum wage hurts the low income population that it is intended to help is no longer the automatic default position of all economically literate folk.

    Now, can you repost with a better example?

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    Urinated, “quite possible that” is not at all the same as “our best estimate is,” and the petition you mention did not claim that minimum wages increase employment.

  • Jason

    Consider how differently the public treats physics and economics. Physicists can say that this week they think the universe has eleven dimensions, three of which are purple, and two of which are twisted clockwise, and reporters will quote them unskeptically, saying “Isn’t that cool!” But if economists say, as they have for centuries, that a minimum wage raises unemployment, reporters treat them skeptically and feel they need to find a contrary quote to “balance” their story.

    This is because physics is a science, and economics is not.

  • T.R. Elliott

    Jason says: “This is because physics is a science, and economics is not.”

    I don’t see it like that. I see both as sciences. Economics is a social science. There is nothing at all bad about it. Economics provides an important conceptual language that we all must use in order to consider the many tradeoffs society faces. My complaint has long been that individuals use the slighest noisy evidence–or lack thereof–to argue policies. They become prescriptive, instead of descriptive. They are no longer acting as economists. They are acting as policy makers, or ideologists. That is my issue.

    I’ve looked at the issue of minimum wage, for example. The evidence is ambiguous that raising the minimum wage a bit causes any increased unemployment. There is contrary evidence to say that raising the minimum wage is a net positive.

    When an individual says otherwise, they are not acting as an economist. They are acting making a moral statement.

  • Joel W

    Professor Hanson- even though the petition mentioned did not claim that minimum wages increase employment, it does claim that the effects of the minimum wage on unemployment are likely to be very small to zero. The magnitude is what counts, not the sign. Given enough data, you will discover that almost every relationship is statistically different from 0. However, that does not imply that every relationship is meaningfully different from 0.

    This gets back to the idea that an effect that you believe with a high degree of confidence is very small and negative is much better described by “approximately zero” than “negative”, though “negative but very small” is the most accurate description.

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    Joel, I am primarily responding to complaints that I misrepresented economists by claiming a consensus that “a minimum wage raises unemployment.” For that dispute the sign is the main issue. I did not discuss whether a minimum wage is a good idea or not.

  • http://cosmicvariance.com/2006/12/05/economics-vs-physics-love-off/ Cosmic Variance

    Economics vs. Physics Love-Off

    Who gets more love, economists or physicists? Robin Hanson stamps his foot in frustration at the lack of respect economists receive, in a nicely self-undermining blurb (via Ezra Klein):
    Consider how differently the public treats physics and economic…

  • Joel W

    Professor Hanson: Fair enough. The sign of the change in unemployment from a $2 an hour minimum wage increase isn’t an issue that most people care about, compared to the magnitude. As Ezra Klein points out, people care about pronouncements by economists that are going to affect their lives. Perhaps the people who care the most about signs without magnitudes are graduate students working through comparative statics problems…

  • Wells.

    I’d like to hear professor hanson’s response to Flathead.

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    Wells and Flathead, in every economics course I discuss ad naseum differences between simple supply and demand and the real world. You would hear the most about employment in a labor economics course. Friction is a very simple concept, appropriate for a 101 course; it is hardly a exhaustive list of all things wrong with simple physics models.

  • conchis

    Isn’t this perfectly rational Bayesianism? People come to economics with stronger priors than they do to physics. Given that, it seems unsurprising that they update their beliefs more slowly for the former than the latter.

  • http://putfile.com/lollerkeet lollerkeet

    (Crossposted from http://blog.sciam.com/index.php?title=which_is_more_plausible_string_theory_or&more=1&c=1&tb=1&pb=1&ref=rss)

    Physicists have more credibility. Physics is a science. The pronouncements of physicists are testable and falsifiable.

    Economics as it stands today is little more than an extension and justification of big business. Economics more closely resembles creationism than science. The fact thabt creationists have been maintaining the same line for years does not make them more credible – it does the opposite.

    • Randy

      Perhaps Daniel Kaplan’s book is missing a 5th bias: the ad-hominum bias.  Those who don’t understand economics are prone to launch ad-hominum attacks on those who do.  As Socrates said, “When the debate is lost, slander becomes the tool of the loser.”

  • http://www.tradediversion.net/archives/2007/01/nyt_the_us_is_l.html Trade Diversion

    NYT: “The U.S. Is Losing Market Share. So What?”

    Prosperity and economic logic contend with a bit of hysteria and xenophobia: The United States is losing market share in the global economy, and that is not necessarily a bad thing… Ultimately, the decline of economic pre-eminence may be more damagin…

  • Jain

    Bryan Caplan has found that it is easy to explain people by claiming they are irrational. Easy, but unproductive. It is difficult to find economic answers to questions if one assumes that the agents are acting against their own best interests. I do not claim that economics has all of the answers, but shouldn’t we continue to try to explain these phenomona under the assumption of rationality? How about this. In each case, the people making these arguments are acting in their own best interest. Sure, none of these policies are in the long-run interest of the country, but who, outside of university faculty, have the job security that allows them to put the long run (i.e. infinite horizon, overlapping generations, etc.) ahead of the short run. In the short run, politically, most people must fight to make sure the human capital they spent decades accumulating maintains its value. This leads to anti-foreign, make-work, and anti-market bias. The pessimistic bias is defensive. Politically, it is always good to give others the impression you are willing to fight to keep what you have. The best way to convince people of this is to tell them how bad things are. It seems that people are rational (and not biased), but Caplan is urging them to put their own best interests aside and push for programs that will help economic growth and future generations. If they acted accordingly, what economic model would explain that behavior? I think, it is then that we would have to put our economics aside and look for explanations based in irrationality.

  • ezra abrams

    Foreign Bias
    Since economist, in general, benefit from foreign competition (cheap TVs, cheap food from chile, etc) and they don’t get competiton for their jobs, perhpas it is the economists who are biased.

    make work
    the day computers start teaching econ courses, and economists get laid off, economists will find deep theoretical reasons why technology is bad

    Markets
    do you really believe tht companies don’t collude ? If you do, I have a bridge in brooklyn i can sell you cheap

    Pessimistic Bias
    is actually correct, in a lot of ways.

    • Randy

      Economic sophistry at its worst!
      Foreign bias:  I suppose only economists benefit from cheap foreign competition.  I suppose therefore that everything from the food you eat to the clothes you wear to the car you drive to the gas in your car to the roof over your head at home and at the office, all of it was made or grown with raw materials exclusively produced and manufactured in the USA.  Nothing from China or India or Africa or Australia or Europe or anywhere else for that matter.  There’s an old addage that when goods don’t cross borders, armies will.  Trade prevents war.

      Make work:  The road to true prosperity is to take everybody who is unemployed and pay them 100 dollars an hour to dig a hole and fill it back up again.

      Markets:  And overcharging is price-gouging and undercharging is unfair competition, right?  So what is the right price?  And who decides it?  And if companies do collude, what is to stop somebody else from creating a better product or service and charging a lower price?  But you are right: companies do collude.  With politicians.  And that is called corporatism or fascism.  Ideally, businesses (large, small, and everything in-between) should receive no special favors from government.

      Pessimistic Bias:  You offer a statement without supporting evidence.  Would you prefer to get into a DeLorean with a flux capacitor and make a one-way trip to 100 years ago, or to 1000 years ago?  If not, than clearly the pessimistic bias is false.

  • Pingback: Overcoming Bias : From Eternity To Here

  • Randy

    I believe people have strong opinions regarding economics because economics involves money, jobs, peoples’ livelihoods.  And those are highly emotionally-charged subjects.  Another reason is because economic theory involves the seen and the unseen.  It is easy to see the seen (make-work), but difficult to see the unseen (jobs that would have been created had the money not been taxed away to create government make-work).  Often the truth in economics is counter-intuitive.  Yet the same can be said about astronomy.  It is counter-intuitive to think that the earth revolves around the sun, and not the other way around.  After all, if you sit in a chair from sunrise to sunset, you didn’t go anywhere, but the sun did!  Yet we all accept modern astronomical theory because it is taught to us at an early age.  Economic theory is not taught to us at an early age, hence most people’s conception of economics is akin to a caveman’s conception of astronomy.  Once you understand economic theory, the truth is as plain as day.  The best summary of economics I’ve ever encountered is a single sentence by Henry Hazlitt: “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”  All four biases are due to looking only at the short-term deleterious consequences of change on specific groups, without regard to the long term beneficial effects of change on all groups.