ECON 398 for next Tuesday and Thursday

Tuesday

http://people.hss.caltech.edu/~camerer/JEPadamsmith.pdf

and for Thursday

http://lupus.econ.duke.edu/ecoteach/undergrad/manual.pdf

Comments

[Patrick McCarron]

The article mentions that Smith claims that the pleasures we anticipate from consumption far outweigh the pleasure we actually get from it. This makes me wonder: is this good for the economy? The exaggerated expected utility could cause us to buy more and consume more, something that is good for the economy. But if "people ruin themselves by laying out money on trinkets of frivolous utility" because of the expected pleasure, you could be left with an inflated economy of debtors. My main question is whether the disparity between expected pleasure of consumption and actual pleasure of consumption is good or bad for an economy.

[Kasey Cannon]

The very last line of the article stood out most to me: "Adam Smith's world is not inhabited by dispassionate rational purely self interested agents, but rather by multidimensional and realistic human beings." When people think of Adam Smith, invisible hand most likely comes to mind. However, as this article discusses, people are not rational and are driven by an internal struggle between their "passions" and their "impartial spectator." Due to these observations, I question our economic models and the laws and policies that derive from them. Rather than assuming that people are rational and self-interested as we do in the standard economic models, wouldn't it make more sense to apply models in which individuals are irrational and behave the way in which Smith describes?

[Madison Smith]

"Despite the claims of neoclassical economists, markets are far from perfect. Adam Smith’s “invisible hand”—the idea that if free markets are allowed to operate without interference, they will self-correct and benefit all member of society has proven arthritic when it comes to addressing all segments of the economy. Market failures abound."

Found in my Social Entrepreneurship reading for today, and a few days ago I wouldn't have given it much thought, but after reading this piece, it is interesting to reflect on just how many times Smith's invisible hand is referenced as something more than he actually meant it to be.

[Kasey Cannon]

"Model-building, especially in its early stages, involves the evolution of ignorance as well as knowledge." When reading this sentence, it reminded me of several economics courses I have taken here at W&L. On several occasions, professors have started off a class by saying, "So you know that assumption that you made in your previous class, well that is completely wrong and we will be making a new assumption in this class." This paper also made me wonder if there are any other alternatives to the simple modeling in economics, but as the author points out, "the problem is that there is no alternative to models." As demonstrated in the history of development economics, creating controlled, "silly" models is a very easy way for people to grasp the complexity of the real world.