A planet organized by humans economics

Published on October 19th, 2012 | by Simi

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I was skeptical but now I’m convinced: Math matters

“But once I learned the skills, I changed my mind. I can’t overstate how much it made me a better economist. The ability to think mathematically made me much smarter. I could hold my own in seminars because the equations clarified my thoughts and enabled me to spot logical inconsistencies in other people’s arguments.”

 

Allison Schrager is an economist and works for Dimensional Fund Advisors where she develops private pension account investment strategies. These views do not reflect Dimensional.

To be a successful economist, you need lots of math. The Nobel Prize in economics went to Lloyd Shapley, whose PhD is in math, and Alvin Roth, whose research includes many equations. Before the Oct. 15 announcement, Quartz’s Ritchie King marveled at how quantitative economics has become. Yet I often hear rants like this (usually from non-economists) suggesting math is ruining economics. The argument goes something like this: Equations over-simplify human behavior. Or, as in this case, that economics should have fewer equations so everyone can understand and criticize it.

I don’t know enough math to understand a theoretical physics paper. I find physics interesting and experience gravity, but I have no business telling physicists how to do their work. The scope of economic, academic research is to push the knowledge frontier forward and, from this, offer policy solutions, not appeal to lay people.

Regarding over-simplification, I’d argue the opposite. Economic models are stylized abstractions of reality; designing them is an art and a science. I once had a professor who’d compare economic models to maps. If you include every tree and back road, the map is intractable. The same is true for economic models. You choose what’s important to include in order to understand how certain factors relate to each other. Even then, the math gets very complicated. Equations help economists see subtle points, higher order effects, changes in incentives, and how their ideas relate to earlier work. It also helps them to test their theories on data.

Great economists like Paul Krugman and Greg Mankiw (on the same side for once) each eloquently defended the role of mathematics in economic research. Before I went to graduate school, I was skeptical of how much math economists used. I also quoted Alfred Marshall and cited Adam Smith as examples. I tried to read papers in top journals and believed I understood them from the introduction.

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