Category Archives: Methodology

The Trolley Car Approach to Public Policy

Scott Alexander has an article at Slate Star Codex discussing the use of edge cases in moral philosophy:

There’s a tradition at least as old as Kant of investigating philosophical dilemmas by appealing to our intuitions about extreme cases. Kant, remember, proposed that it was always wrong to lie. A contemporary of his, Benjamin Constant, made the following objection: suppose a murderer is at the door and wants to know where your friend is so he can murder her. If you say nothing, the murderer will get angry and kill you; if you tell the truth he will find and kill your friend; if you lie, he will go on a wild goose chase and give you time to call the police. Lying doesn’t sound so immoral now, does it?

This is a great way of doing philosophy, but reading it, I realized I had heard it before. I’ve heard this sort of argument in the context of policy debates.

Here’s a particularly striking example (h/t to Jason Brennan):


Unlike the case of the door-to-door murderer, which is a deliberately fanciful way of examining a broader moral truth, this is a policy proposal made on the basis of a fanciful scenario. The argumentation goes like this:

  1. In an unlikely scenario, economic system A would allow bad outcome X
  2. Therefore, abolish A (and substitute it with another system, such as B)

There are a lot of errors packed into this line of thinking. What if bad outcome X happens under both systems? What if changing systems just substitutes bad outcome Y for X? What this fails to do is compare the relevant alternatives. Is the implicit claim that under socialism, nobody would ever starve? Millions of Soviet citizens beg to differ. Continue reading The Trolley Car Approach to Public Policy

Economics and the Cognitive Minefield

What sounds more difficult to you, figuring out supply and demand, or accurately measuring the Earth’s circumference? It must be supply and demand, because Eratosthenes figured out the other one two thousand years before anyone really managed any progress on that supply-and-demand stuff.

So now that we’ve established that supply and demand is much harder than accurately measuring the Earth’s circumference, we should ask ourselves why it is so. If you don’t know how Eratosthenes managed it, try thinking for a moment about how you might go about accurately measuring the Earth’s circumference with only the tools available in Ancient Egypt. Hint: you can compute the circumference of a sphere with the arc length and angle between two points. Continue reading Economics and the Cognitive Minefield

The Meta-Economics of Mathiness

The perennial debate about “mathiness” in economics has returned, this time sparked by a Paul Romer article in the AER P&P.

The arguments largely focus around the usefulness of mathematics for various applications. These are the technical arguments of practitioners. I’d like to abstract from these arguments and look at the issue as an economist.

The economics labour market is very competitive. Researchers need to demonstrate their quality to compete for the top academic jobs. Now, why should we expect this competition to produce anything besides the optimal research methods? Let’s apply some economics to this problem. Continue reading The Meta-Economics of Mathiness

Is a Small Amount of Money More Valuable to a Low Income Person than to a High Income Person?

I answered this question over at Quora. Just about all the other answers were wrong, so I thought I’d set things straight.

No. Value is not a quantity. It cannot be compared across individuals, so we cannot say that $50 is more valuable to person A than to person B.

To understand value, you must understand action. To act is to select one thing and set aside another. Thus, an ability to evaluate one thing over another is a necessary prerequisite to action, one that all mentally functioning humans possess. Valuation is always a comparison between two alternatives. It is a comparison made in the mind of an acting human.

Because the high income person and the low income person are different individuals, their valuations cannot be compared. We could say something like, “the low income person values an hour of his time less than $50, while the high income person values an hour of his time more than $50.” But this does not mean the low income person values $50 more than the high income person does in any absolute sense, because an hour of time is not the same to different individuals.

Some people have said that the answer is yes because marginal utility decreases with quantity. This is a misinterpretation. It is true that people tend to value additional units of a stock of interchangeable consumer goods less with each additional unit. This is because a person will use the first unit of the good to satisfy his highest unmet need, the second unit to satisfy his second highest unmet need, the third unit to satisfy his third highest unmet need, and so on. Thus, marginal utility does decrease with quantity. But it only meaningfully decreases with respect to other goods! If I have five dumplings, I might value an additional dumpling more than a battery, but if I have six or more dumplings I might value the battery more than an additional dumpling.

While I value things less with each additional unit, we can’t take this to mean my valuation of my total wealth must decrease as I grow wealthier. Total wealth comprises everything, leaving nothing to compare it against, so valuation is meaningless.

Continue reading Is a Small Amount of Money More Valuable to a Low Income Person than to a High Income Person?

About Those Monotonic Transformations…

Well, this is awkward. You told us that utility was strictly ordinal, that utility functions were unique up to a monotonic transformation. But whenever there’s a problem that requires them to be cardinal in some sense, you just revert right back to cardinality, don’t you? Remember how interpersonal comparisons of utility were supposed to be impossible? You made them anyways. You were never committed to the idea of ordinal utility. You just told us that to make us think we were safe. You lied to us.

In my newest post on Mises Canada, I critique expected utility theory on the grounds that it depends on cardinal utilities. Go read it and report back.

The Austrian Cult and Mathematical Economics with Ash Navabi

In this episode, Ash Navabi discusses whether the Austrian School of Economics is a cult and the value of mathematics in economic theory. Ash is an economics student at Ryerson University.

Ash wrote an article responding to recent criticisms of the Austrian school by Keynesian bloggers Noah Smith and Paul Krugman. Krugman approvingly referenced Smith’s attacks on the “hermetic system that is Austrians.” Just a week later he made the following telling comment about the economics mainstream:

“And modern academic economics is very much an interlocking set of old-boy networks; to some extent this has become even more true since the decline of the journals, with most discourse taking place via working papers long before formal publication. I used to refer to the international trade circuit as the floating crap game — the same 30 or 40 people meeting in conferences all over the world, reading and citing each others’ work; it’s the same in each sub-field. And to some extent it’s inevitable: there’s so much stuff out there, and you have to filter somehow, so you mainly read stuff by people you know and people they tell you are worth reading.”

Ash was quick to point out that, by the logic of the people who deride Austrian economists as “cultish” because they interact mainly with one another, each of the “old-boy networks” Paul Krugman refers to (that is, each sub-field of mainstream economics) must also be a cult. Continue reading The Austrian Cult and Mathematical Economics with Ash Navabi

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