Econ­o­mist’s work will be foun­da­tion for oth­ers

Times Colonist - - Comment -

Re: “Econ­o­mist ‘dis­cov­ered’ what we all know,” let­ter, Oct. 14.

The cri­tique of Richard Thaler’s re­cent No­bel prize some­what misses a key point about eco­nom­ics (and “sci­ence” for that mat­ter) — that it is not chiefly con­cerned with “dis­cov­er­ing” some uni­ver­sal truths, as is some­times claimed (some­what du­bi­ously) on be­half of physics and chem­istry.

It is about con­struct­ing the most re­li­able mod­els pos­si­ble, mod­els that can be used to make the best pos­si­ble fore­casts, and hence ground ac­tion­able de­ci­sions. In eco­nom­ics, this re­lates to dif­fi­cult but crit­i­cal mat­ters such as: to­tal fed­eral gov­ern­ment rev­enue to be ex­pected in 2018-19, or fu­ture im­pacts on lo­cal eco­nomic ac­tiv­ity of a change in tax struc­ture, or in cen­tral bank rates, or due to bridge con­struc­tion, etc.

What Thaler has done is il­lus­trate one way to in­cor­po­rate com­plex con­sid­er­a­tions such as “sys­tem­atic hu­man bi­ases” and “mis­judg­ments” into such fore­cast­ing mod­els.

The let­ter is cor­rect in the lim­ited sense that we can only hope that (per­haps in less than 20 years) some group will fol­low up by show­ing how to con­struct prag­mat­i­cally us­able eco­nomic fore­cast­ing mod­els that will in­cor­po­rate some of the other so­cial re­search and “non-eco­nomic” vari­ables he men­tions. How­ever, it is highly likely that any such mod­els will build on Thaler’s work, which is why he won the prize in eco­nomic sciences (which has also been won by other econ­o­mists, such as Paul Krug­man, who can hardly be ac­cused of pro­vid­ing “apolo­gia for those ben­e­fit­ing from the cur­rent eco­nomic sys­tem”).

Bob Adams Brent­wood Bay

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