Sex, Drugs and Economics

Friday, 16 May 2025

This week in research #75

Here's what caught my eye in research over the past week:

Gavresi, Litina, and Tsiachtsiras (open access) look at how motorway and railroad length impacts interpersonal and political trust, and find that infrastructure enhances trust by promoting mobility and exposure to new people and ideas, as well as by elevating political trust as the government is perceived as more reliable and effective
Arai and Okazawa (open access) find that being the first contestant is favourable in a Japanese television comedy show
Adamson and Fitzsimmons (open access) construct and analyse a database of warfare around the Mediterranean from 600 to 30 BCE, and find that there was no democratic peace among Ancient Greek city-states and mixed results, both inside and outside of Greece, about how war relates to state power
Zhou et al. review the last 17 years of research on the impact of artificial intelligence on the labour market

Wednesday, 14 May 2025

An interesting paper about the first 50 years of Nobel Prize winners in economics

The first Nobel Prize in economics was awarded in 1969, to Ragnar Frisch and Jan Tinbergen. The fiftieth prize was awarded in 2018, to William Nordhaus and Paul Romer. In total up to that point, there had been 91 Nobel laureates in economics. This 2019 article by Allen Sanderson (University of Chicago) and John Siegfried (Vanderbilt University), published in the journal The American Economist (ungated version here), reviews those first fifty awards. In addition to summarising the topics, Sanderson and Siegfried collate a lot of interesting factoids, starting with the origins of the award:

The 1895 will of Swedish scientist Alfred Nobel specified that his estate be used to create annual awards in five categories—physics, chemistry, physiology or medicine, literature, and peace—to recognize individuals whose contributions have conferred “the greatest benefit on mankind.” Nobel Prizes in these five fields were first awarded in 1901...

In 1968, Sweden’s central bank, to celebrate its 300th anniversary and also to champion its independence from the Swedish government and tout the scientific nature of its work, made a donation to the Nobel Foundation to establish a sixth Prize, the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel...

Sanderson and Siegfried summarise the backgrounds of the laureates, which are mostly unsurprising (a lot of top universities, and a lot of economics and mathematics), although:

Some notable surprises include Middle Tennessee State Teachers College... (James Buchanan) and South Dakota State University (T. W. Schultz).

And apparently, Eugene Fama's undergraduate degree was in romance languages! Sanderson and Siegfried also note that:

Economics joins literature and peace as the Nobel fields that have generated the most controversy. First, as a well-known quip has it, “economics is the only field in which two people can share a Nobel Prize for saying opposing things.” The 1972 Prizes awarded to Myrdal and Hayek spring to mind, as would the 2013 awards to Fama and Shiller...

I have often been tempted to create an assessment for my ECONS102 class to name and justify the best economist (living or dead, but eligible when living) never to have won a Nobel Prize. Sanderson and Siegfried provide their own list of economists who died before the economics Nobel Prize existed (but after Nobel Prizes were first awarded in 1901), which includes Leon Walras (who died in 1910), Vilfredo Pareto (1923), Alfred Marshall (1924), Thorstein Veblen (1929), John Bates Clark (1938), John Commons (1945), John Maynard Keynes (1946), Irving Fisher (1947), Joseph Schumpeter (1950), John von Neumann (1957), Arthur Pigou (1959), and Karl Polanyi (1964). That seems like a reasonable list to me.

Sanderson and Siegfried also provide a further list of economists who died after 1969 but never received a Nobel Prize, but could have done, which includes Frank Knight (died in 1972), Alvin Hansen (1975), Oskar Morgenstern (1977), Joan Robinson (1983), Piero Sraffa (1983), Fischer Black (1995), Amos Tversky (1996), Zvi Griliches (1999), Sherwin Rosen (2001), John Muth (2005), J.K. Galbraith (2006), Anna Schwartz (2012), and Martin Shubik (2018). Sanderson and Siegfried then add:

To this list, one could certainly add more of their contemporaries, for example (in alphabetical order), Anthony Atkinson (2017), William Baumol (2017), Harold Demsetz (2019), Evsey Domar (1997), Rudiger Dornbusch (2002), Henry Roy Forbes Harrod (1978), Harold Hotelling (1973), Nicholas Kaldor (1986), Jacob Mincer (2006), Hyman Minsky (1996), and Ludwig von Mises (1973), among many others.

I would agree with many of those from both lists, especially Robinson, Baumol, Demsetz, and Hotelling. It is worth noting that Fischer Black would almost certainly have shared the 1997 Nobel Prize with Myron Scholes (and Robert Merton), while Amos Tversky would almost certainly have shared the 2002 Nobel Prize with Daniel Kahneman (and Vernon Smith). There have also been surprising near misses in each direction, one of which was William Vickrey, who died three days after the award was announced (and therefore some months before the award ceremony). The other notable near miss was where:

Polish macroeconomist Michal Kalecki was nominated for the Nobel Prize in 1970 but died in April of that year...

Sanderson and Siegfried wisely steered clear of suggesting potential future winners (after 2018 when their sample ends). Nevertheless, the article is a great summary of the first 50 years of the Nobel Prize in economics, and well worth a read.

Sunday, 11 May 2025

Why study economics? US graduate earnings edition...

One of the factors that should affect student decision-making is post-graduation income. Having invested a lot of time and effort (and money) in studying, that investment needs to pay off in some way. Higher lifetime income may not be the benefit of studying, but it is an important one. And so, majors that offer higher incomes might be more attractive.

The good news for economics graduates is that economics consistently rates as one of the majors that offers the biggest return on investment (whether measured in terms of lifetime earnings, or in terms of earnings X years after graduation). There is plenty of evidence to support this (browse through some of the links at the end of this post for some examples). The latest evidence, in the context of recent graduates from the US comes from this blog post by Marisol Cuellar Mejia and Hans Johnson. They looked at recent graduates, aged 22 to 27 years, using data from the American Community Survey. Their findings are neatly summarised in this figure (for the interactive graphic version, go to the blog post):

Notice that economics graduates are the third-highest earners within that age group among the 'top ten majors', behind computer science and nursing, ahead of business and management, and far ahead of sociology or psychology. The median earnings of an economics graduate in that age group was US$73,000 per year. Extending out to other majors beyond the 'top 10', economics is also behind engineering (electrical engineering, computer engineering, and mechanical engineering), and equal with finance (although the highest earners with finance majors earn more than the highest earners with economics majors).

Of course, there are some limitations to the data, and some fields (medicine, law) require graduate degrees in the US, so they aren't captured for comparison. However, it is clear that economics can be a rewarding career in monetary terms. And as a bonus, economics offers really interesting jobs as well (see some of the links at the end of this post).

[HT: Susan Olivia]

Book review: Gut Feelings

The ideal of a perfectly rational decision-maker, making their decisions based on all of the available information, is an impossible ideal. No decision-maker would ever be able to make a decision, as there would always be more information to collect, more aspects of the decision to weigh up, and new alternatives that become available. The reason that people can make decisions at all is because we are not perfectly rational decision-makers. A whole field of behavioural economics has risen around showing the various ways that heuristics (rules of thumb) and biases affect real-world decision-makers. These heuristics and biases are ways that real-world decision-makers unconsciously deal with excess information in decision-making.

In a 2007 book I just finished reading, entitled Gut Feelings, Gerd Gigerenzer focuses on a class of heuristics that he labels intuitions, or gut feelings. In the book, Gigerenzer invites us:

...on a journey into a largely unknown land of rationality, populated by people just like us, who are partially ignorant, whose time is limited and whose future is uncertain.

Gigerenzer positions the book as an antidote of sorts to a general perception in economics (and other social sciences) that decision-makers make decisions in a conscious and thoughtful way. Gigerenzer prefers that we consider decision-making to be a complex and adaptive process, affected by context and the environment, and where unconscious decision-making, which can only be rationalised after the fact, comes to the fore. He notes that:

Generations of students in the social sciences have been exposed to entertaining lectures that point out how dumb everyone else is, constantly wandering off the path of logic and getting lost in the fog of intuition. Yet logical norms are blind to content and culture, ignoring evolved capacities and environmental structure. Often what looks like a reasoning error from a purely logical perspective turns out to be a highly intelligent social judgment in the real world. Good intuitions must go beyond the information given, and therefore, beyond logic.

Gigerenzer presents a large number of examples of decision-making where intuitive answers prove to be better, or at least as good as, the outcome of more considered logical decisions. He collects these together as different heuristics like the 'gaze heuristic' (we reveal our preferences by things we look at for longer), or 'fast and frugal trees' (which collapse complex decision-making trees to a sequential decision based on a hierarchy of aspects of the alternatives). It is a compelling story. However, it falls into the same trap that a lot of behavioural economics does. Although Gigerenzer is able to provide a large number of specific (and to some extent idiosyncratic) examples of cases where intuition proves to be effective, he is unable to provide guidance on when our intuition should be followed, and when it might steer us astray. Gigerenzer seems to steer the reader away from even considering that intuition might be wrong, writing in the concluding section that:

The quality of intuition lies in the intelligence of the unconscious: the ability to know without thinking which rule to rely on in which situation.

I like to think that I have good intuition, in some situations. Certainly not in all situations, and that is what I worry about. When is my intuition causing errors in decision making. In saying this, I am drawing on the next book I am reading, Noise by Kahneman, Sibony, and Sunstein (and which I will post a review on soon). My early takeaway from the latter book is just how 'noisy' and error-prone decision-making is, and it seems to me that understanding the circumstances under which intuition is prone to error would be helpful in deciding whether to stick with the intuitive answer, or consider our decisions a little more fully.

The latter sections of Gigerenzer's book show how the ideas apply to moral behaviour and social instincts. These sections were interesting, but I felt like they were someone distant from the overall narrative. However, the book overall is interesting, even if it was not as closely aligned with behavioural economics as I expected it to be. And even though it is now somewhat dated, it still provides a prompt for some thoughtful reflection on how we make decisions.