The two images of economics: why the fun disappears when difficult questions are at stake?

Abstract

The image of economics got somewhat puzzling after the crisis of 2008. Many economists now doubt that economics is able to provide answers to some of its core questions. The crisis was not so fun for economics. However, this not so fun image of economics is not the only image in the eyes of the general public. When one looks at economics-made-fun (EMF) books (e.g. Freakonomics, The Undercover Economist, etc.), economics seems to be an explanatory science which is able to provide interesting, unconventional, entertaining and enlightening explanations for almost every aspect of our lives. Isn't there a great contradiction between these two images of economics? Not necessarily. The present paper explicates why. Nevertheless, the paper also shows that EMF books run the risk of creating a false sense of understanding and explains how one should read the basic insights provided by EMF books to remove this risk. The paper contrasts the EMF version of the explanation of the effects of mandatory seat belt laws with actual research concerning the subject to illustrate its arguments.

Keywords:

• incentives
• models
• explanations
• seat-belt regulation
• economics made fun
• philosophy of economics

Acknowledgements

I thank Jack Vromen, John Davis and Wade Hands for their helpful comments and suggestions.

Notes

1. However, note that the precise meaning of the ‘incentives matter’ principle is not always clear in EMF books. See Vromen (this issue) for an extended discussion of the ambiguities involved in using and interpreting the incentives matter principle. Vromen also discusses the kind of incentives (monetary, moral, social, etc.) that economists seem to use in their explanations and the difficulties that stem from the fact that different kinds of incentives are rarely appropriately identified. For the purposes of the present paper, we may safely assume that for some given theoretical model, the ‘incentives matter’ principle is clear. In the context of the present paper, the problem of identifying incentives arise when one wishes to use economic models in order to explain real-world complex phenomena – as will be seen in my discussion of the seat belt example.

2. To be fair, Hirshleifer et al. (2005) is much more careful than Landsburg in presenting this argument.

3. The NASCAR case could be considered as a controlled field experiment where Peltzman's basic insights are tested.