Economists Do It With Models

Warning: “graphic” content…

Bookmark and Share
Just For Fun: Econs Versus Humans, In Cartoon Form…

December 18th, 2010 · 12 Comments
Behavioral Econ · Just For Fun

In Nudge: Improving Decisions About Health, Wealth, and Happiness, Richard Thaler and Cass Sunstein make the distinction between “Econs,” those perfectly rational, perfectly self-interested mythical economic beings, and “Humans,” those, well…humans. Humans have capacity for altruism and are swayed by pesky things like choice framing, the potential for immediate gratification, and so on. Here are some more examples, in pictorial form:

From Saturday Morning Breakfast Cereal:

There are two misconceptions here, and I think that one is more obvious than the other. The first one has to do with the last panel- Dear Zach Weiner: economists are (for the most part) not investment bankers, nor are we CEOs, etc. etc. In fact, economists get criticized for models that look at overall economic welfare and ignore the distribution of wealth, so it’s more than a little unfair to portray us in this way. Clearly we would only want the jobs/artifacts trade if our valuation of the artifacts was greater than the money lost by the laid-off people. Duh.

The second, less obvious, misconception is that “humans” wouldn’t pull the stunt in the second panel. In general, you’d be surprised at how good people are at figuring out how to “game the system.” As a counterpoint, I provide the following setup: A few weeks ago, I discovered that there are coupons available online for the parking garage by my office. The coupon is kind of awesome, since it reduces the cost of parking from $20 to only $8. However, there are two conditions on the coupon- first, that I have to print and sign one of the coupons each time I use it, and second, that I pay for the parking with a credit card. Why might this be the case? Apparently the garage had problems with parking attendants having people pay full price, ringing in the sale at the discounted price, and pocketing the difference. If people are willing and able to implement the parking garage scheme, then the extension cord doesn’t seem at all out of the realm of possibility.

Tags: Behavioral Econ · Just For Fun

12 responses so far ↓

  • 1 Russ Nelson // Dec 18, 2010 at 5:22 pm

    I hate strawman criticism. Even WORSE, I hate ignorant strawman criticism. That’s where people just make up shit they think other people believe, and then say HAHA, what FOOLS they are to BELIEVE this! It says a lot more about Zach’s ignorance than it says anything about economics.

    Note: I don’t count anybody believing in the existence of Econs as being a real economist.

  • 2 Ben // Dec 18, 2010 at 5:40 pm

    I’ve always had the same criticism of economics… everything is based on people making choices with perfect logic. In real life, outside the economics classroom, most people are far too stupid or unthinking to make perfectly rational decisions. Their choices can be manipulated to an extraordinary degree. Asymmetric information at every turn.

    When I brought up the mostly irrational real world to my bestest econ professor, his reply was “well there’s nothing else [than perfectly rational choice-making] we can base all this upon!” Of course, he probably hadn’t put as much thought into choice framing as Sunstein / Thaler.

    In other news, I’m not sure Cass Sunstein is necessarily concerned with whether Russ Nelson considers him to be a “real” economist or not. For that matter, neither are Richard Posner or Ron Paul or Peter Schiff.

    It’s been a long time since libertarians required their economists to have a Ph.D., so I don’t see why the opposition can’t be have non-Ph.D. economists as well.

  • 3 Russell Nelson // Dec 18, 2010 at 11:56 pm

    Yeeks! And that was your best economics professor’s answer?? Clearly not concerned about how his theories perform when tested against people. I don’t even want to hear your worst professor’s answer.

  • 4 Ben // Dec 19, 2010 at 12:33 am

    Yes! Sunstein is unique in that regard and deserves a great deal of credit for concerning himself with how theories work when tested against people (just as you say) instead of designing more models of impeccable rationality as most other economists tend to do.

    And here I thought you didn’t like the man’s point about humans vs. Econs. 😉

  • 5 Steve Landgraf // Dec 28, 2010 at 2:54 pm

    I think that SMBC’s criticism of Homo Economicus is a straw man in that the rational Econs are not meant to be descriptive of ACTUAL human behavior but are constructs that allow economists to model behavior AS IF people are perfectly rational. If you included every little irrational nuance in your model, it would be impractical and unwieldy.

    The assumptions (perfect rational behavior) of the model aren’t what’s being tested, but the predictions that the model makes. If the abstract, unrealistic model makes predictions that conform with empirical evidence, then it’s a “good” model. If it doesn’t, then it should be modified. Anyone who is familiar with Friedman’s “Methodology of Positive Economics” knows what I’m talking about.

  • 6 Punditus Maximus // Jan 3, 2011 at 1:05 pm

    The nice thing about this comic is that there are two jokes in it:

    1) Homo Economicus is a ridiculous idea. Not all contracts are honored, and parents love their children, not abstract notions of their children. Finally, most people are at least somewhat altruistic and have some kind of cap on their desired consumption, however unrealistic.

    2) This unrealism may or may not translate into poor prediction. One of the more interesting facets of micro is that it really has almost no predictive capacity outside of aggregates. That is, the “rational consumer” and “rational producer” are totally supplanted by people who act more like the thermodynamic results in stochastic calculus than individual rational people. And Real Business Cycle theory is either trivial or wrong.

    The thing is, you can find (1) funny even if you don’t believe (2). That is, even if you think “Homo Economicus” is a shorthand that does lead to good theory, the silliness that comes from taking it too seriously is still funny.

  • 7 Sport Headphones Wireless // Nov 30, 2011 at 1:03 pm

    Hello truth be told there, I discovered ones own site by way of Google and yahoo while looking for an important comparable matter, ones own web site came together, the application seems great. I’ve bookmarked the application inside google and yahoo social book marking.

  • 8 Leo Morgan // Jun 19, 2012 at 2:32 pm

    You’ve analyzed the cartoon as if it were a serious treatise, and found enough errors to make it laughable.
    Making it laughable was his goal from the beginning.

  • 9 Plantar Fasiitis Shoes // Apr 1, 2014 at 3:15 am

    It’s going to be finish of mine day, however before finish I
    am reading this enormous piece of writing to improve my experience.

  • 10 Principles of Token Validation | TGS Partners // May 5, 2014 at 6:11 pm

    […] we would all be Econs, using language with perfect property at all times, we would probably call this phase […]

  • 11 HERD » If only humans weren’t so….human! // Aug 26, 2015 at 4:44 am

    […] Instead, let’s just complain that humans aren’t utility calculating robots – what the Nudge gang call “Econs” […]

  • 12 Are THESE Robots Better for Women? - Flow Financial Planning // Oct 31, 2016 at 2:09 am

    […] Thaler, the father of Behavioral Economics, you can see that Gen1 roboadvisors are designed for “Econs” (the term coined by Thaler to describe the unrealistically hyper-logical, unemotional personage […]

Leave a Comment