Abstract
I discuss economists’ views of what they do, and the particular roles of models and theory. The focus is on theory’s role in the design of social and economic systems—past, present, and future.
External faculty member at the Santa Fe Institute, and a fellow of CIFAR. I gratefully acknowledge financial support under NSF grant SES-1629446. I thank Salvador Barbera, Gabe Carroll, Ashley Piggins, and Ariel Rubinstein for helpful comments.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
This list is an expanded and different take from one offered by Beatrice Cherrier in her Blog: “From physicists to engineers to meds to plumbers: Esther Duflo rediscovering the lost art of economics @ASSA2017”. Posted on January 7, 2017. But you will see that the inspiration for this list comes directly from hers. See also Backhouse and Cherrier (2017) for more discussion of the changes in the study of economics over time.
- 2.
Samuelson’s views on nuances of the economics as a science, and cautions concerning the view, can be glimpsed in this excerpt from an interview of Samuelson by Paul Solman of the PBS News Hour, published December 24, 2009 (“Samuelson on Whether Economics Is a Science”).
“SAMUELSON: Economics is not an exact science, it’s a combination of an art and elements of science. And that’s almost the first and last lesson to be learned about economics: that in my judgment, we are not converging toward exactitude, but we’re improving our data bases and our ways of reasoning about them.
SOLMAN: I asked [philosopher] Nelson Goodman this question once, and Nelson Goodman said economics is as much of a science as physics. I said, well, how could that be? He said: Physics can explain how a leaf falls from a tree and everything that happens to it, but it can’t tell you where the leaf’s going to land. Economics is the same.
SAMUELSON: I think that it’s more important for an economist to be wise and sophisticated in scientific method than it is for a physicist because with controlled laboratory experiments possible, they practically guide you, you couldn’t go astray. Whereas in economics, by dogma and misunderstanding, you can go very sadly astray.”
There are many others who have thought about and discussed economics as a science and the role of models and economic theory, from John Stuart Mill to Milton Friedman (see, for instance Hausman 1989, as well as Davidson 2012).
- 3.
- 4.
Ashly Piggns pointed me to a predecessor of this view, due to John Maynard Keynes (the younger): “If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid.” “The Future”, Chap. 5, Essays in Persuasion (1931).
- 5.
The first network data collection of such a scale was the Add Health data set in the mid 1990s, but involved enormous grants and was a unique project. Now such data gathering is feasible for many teams of researchers at manageable cost levels—as tablets and other technological advances make gathering and entering data easier.
- 6.
One can argue that an alternative is to simply go out and design new experiments to test every hypothesis. However, it can become prohibitively expensive to design an experiment to test every alternative hypothesis, while existing data can yield many insights and help point out which experiments are worth running. Moreover, modeling can be a useful tool in the design of many experiments, especially as hypotheses are becoming increasing subtle and nuanced. Ultimately, some combination of theory, empirics, and experimentation, is the answer.
- 7.
Here, I am lumping several things together, including: models of bounded rationality with some limits or constraints on computation or memory (e.g., see the discussion in Simon 1982; Rubinstein 1998; Mullainathan and Thaler 2000), models that build upon some observed behavioral bias or psychological primitive (e.g., see the discussion in Camerer and Loewenstein 2004; Fudenberg 2006; DellaVigna 2009), and modeling individual preferences that depend on comparisons to others and their welfare (e.g., see the discussion in Cooper and Kagel 2016). Although these are quite distinct in motivation and methodology, they all are expand modeling beyond the classical paradigm that was based on a specific and unlimited definition of rationality.
- 8.
See Jackson (2019) for an overview.
- 9.
There is one area of theory which has long been ripe for expansive use in design and plumbing: social choice theory. Although one might think of Arrow’s Theorem as a fable, it quite clearly provides testable implications on imperfections in collective decision making. Given how much research has followed on voting systems and mechanism design more generally, it is actually surprising that more social choice theorists have not been involved in the design of voting systems and legislatures around the world. But it seems inevitable.
- 10.
There are other areas of theory that are being pushed by plumbing that I have not discussed here. For instance, designing institutions and mechanisms that are robust and operate in a variety of environments and circumstances. See for instance, the discussion in other contributions to this volume, e.g., Carroll (2019).
References
Backhouse, R. E., & Cherrier, B. (2017). The age of the applied economist: The transformation of economics since the 1970s. History of Political Economy, 49, 1–33.
Banerjee, A., Chandrasekhar, A., Duflo, E., & Jackson, M. O. (2013). Diffusion of microfinance. Science, 341 (26 July 2013). https://doi.org/10.1126/science.1236498.
Banerjee, A., Chandrasekhar, A., Duflo, E., & Jackson, M. O. (2015). Using Gossips to Spread Information: Theory and Evidence from Two Randomized Controlled Trials, forthcoming: the Review of Economic Studies.
Camerer, C. F., & Loewenstein, G. (2004). Behavioral economics: Past, present, future. In C. F. Camerer, G. Loewenstein, & M. Rabin (Eds.), Advances in behavioral economics. Princeton: Princeton University Press.
Carroll, G. (2019). Design for weakly structured environments. The future of economic design.
Cooper, D. J., & Kagel, J. H. (2016). Other-regarding preferences. The handbook of experimental economics, Volume 2: The handbook of experimental economics (p. 217).
Davidson, P. (2012). Is economics a science? Should economics be rigorous?" Real-World Economics Review, 59, 58–66.
DellaVigna, S. (2009). Psychology and economics: Evidence from the field. Journal of Economic Literature, 47, 315–372.
Duflo, E. (2017). The Economist as Plumber. Technical report. National Bureau of Economic Research.
Fudenberg, D. (2006). Advancing beyond advances in behavioral economics. Journal of Economic Literature, 44, 2.
Hamermesh, D. S. (2013). Six decades of top economics publishing: Who and how? Journal of Economic Literature, 51, 162–172.
Hausman, D. M. (1989). Economic methodology in a nutshell. The Journal of Economic Perspectives, 3, 115–127.
Hurwicz, L. (1972). On informationally decentralized systems. Decision and Organization, 297–336.
Hurwicz, L. (1973). The design of mechanisms for resource allocation. The American Economic Review, 63, 1–30.
Jackson, M. O. (2001). A crash course in implementation theory. Social Choice and Welfare, 18, 655–708.
Jackson, M. O. (2013). Matching, auctions, and market design, Parts appear in economic engineering and the design of matching markets: the contributions of Alvin E. Roth. The Scandinavian Journal of Economics115(3), 619–639. https://doi.org/10.2139/ssrn.2263502.
Jackson, M. O. (2014). Mechanism theory. In U. Derigs (Ed.), appeared in The encyclopedia of life support systems. Oxford, UK: EOLSS Publishers (2003). https://ssrn.com/abstract=2542983.
Jackson, M. O. (2019). The human network. New York: Pantheon Books.
Keynes, J. N. (1904). The scope and method of political economy. Macmillan.
Kominers, S. D., Teytelboym, A., & Crawford, V. P. (2017). An invitation to market design. Oxford Review of Economic Policy, 33, 541–571.
Mullainathan, S., & Thaler, R. H. (2000). Behavioral Economics. Technical report. National Bureau of Economic Research.
Roth, A. E. (2002). The economist as engineer: Game theory, experimentation, and computation as tools for design economics. Econometrica, 70, 1341–1378.
Rubinstein, A. (1998). Modeling bounded rationality. Cambridge: MIT Press.
Rubinstein, A. (2005). Discussion of ‘Behavioral Economics’. In R. Blundell, W. Newey, & T. Persson (Eds.), Advances in economics and econometrics, theory and applications: Ninth world congress of the econometric society (pp. 246–254).
Rubinstein, A. (2012). Economic fables. Open Book Publishers.
Simon, H. A. (1982). Models of bounded rationality: Empirically grounded economic reason (Vol. 3). Cambridge: MIT Press.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2019 Springer Nature Switzerland AG
About this chapter
Cite this chapter
Jackson, M.O. (2019). The Role of Theory in an Age of Design and Big Data. In: Laslier, JF., Moulin, H., Sanver, M., Zwicker, W. (eds) The Future of Economic Design. Studies in Economic Design. Springer, Cham. https://doi.org/10.1007/978-3-030-18050-8_72
Download citation
DOI: https://doi.org/10.1007/978-3-030-18050-8_72
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-030-18049-2
Online ISBN: 978-3-030-18050-8
eBook Packages: Economics and FinanceEconomics and Finance (R0)