Tuesday, 31 January 2017

Thomas Schelling on equilibrium

I've been reading Thomas Schelling's book "Micromotives and Macrobehaviour". Usually I would wait and write a review (which I will later), but in this case I wanted to share a quote from the book now rather than wait. Schelling was an excellent writer (as many others noted at the time of his death - see here for some links), and this bit on equilibrium is important, particularly given that economics is often criticised for the focus on equilibrium outcomes (that may never arrive):
The point to make here is that there is nothing particularly attractive about an equilibrium. An equilibrium is simply a result. It is what is there after something has settled down, if something ever does settle down. The idea of equilibrium is an acknowledgement that there are adjustment processes; and unless one is particularly interested in how dust settles, one can simplify analysis by concentrating on what happens after the dust has settled...
There may be many things wrong with "equilibrium analysis", including the possibility that it oversimplifies by neglecting processes of adjustment, or exaggerates the prevalence of equilibrium by neglecting shifts in the parameters that determine the equilibrium. But nobody should resist "equilibrium analysis" for fear that, if he acknowledges that something is in equilibrium, he will have acknowledged that something is all right. The body of a hanged man is in equilibrium when it finally stops swinging, but nobody is going to insist that the man is all right. An unnecessary source of distrust of economic analysis is the assumption that when an economist discusses equilibrium he is expressing approval. I believe that assumption is usually - not always, but usually - a mistake.
Well said. More on Schelling's book to come in a future book review post.

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