Friday, January 8, 2010

Economics and the meaning of life

Funny article in the Wall Street Journal (I never thought I would write those words) on 'cheapskate economists'. Most of it is examples of economists' geekiness and unhealthy interest in making small savings in their everyday lives. But the following passage is quite interesting:

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Ms. Stevenson and Justin Wolfers (above, ndr), also of the Wharton School, gave a friend $150 to hire movers instead of helping him themselves. Harvard University economist David Laibson pays to have a driver pick up his sister from the airport rather than driving himself.
Stanford University economist Robert Hall, incoming president of the American Economic Association, values his time so highly that his wife, economist Susan Woodward, occasionally puts her foot down. "Bob doesn't see why we can't just hire people to trim the Christmas tree," she says. "I tell him that's not what it's supposed to be about.">>

This is where economics falls down in its attempts to understand broader social dynamics: we are social animals (or at least, most of us are), and putting up the Christmas tree with our nearest and dearest is precisely the kind of thing that makes life satisfying (although I have to admit that in my case I tend to sit and watch complacently while my partner and daughter do it). I think most of us would return Stevenson and Wolfers' gesture by not returning their calls in future - doing stuff together is what most of us regard as a healthy chunk of our 'utility' (what would be the point of a 5 star Michelin meal consumed in solitude?), and people who would rather pay than help out are probably worth avoiding.

All of this doesn't matter if you're not forced to hang out with economists (and I must stress, some of my best friends etc etc). But the assumptions behind this behaviour also end up underpinning predictive and normative models of social dynamics, which can inform policy decisions. These policy decisions constrain behaviour, undermining the social ties that people value. It's one thing for models to be wrong (most of us would help our friends move house, rather than giving them cash). It's quite another if we are forced by institutions to behave as the models prescribe (eg by moving far from our family and friends to take a job).