1. Journey beyond the stars
Probal Mojumder, Bsc. Economics (Hons.), 1st year
“Today’s brightest young economists are overgrowing their discipline’s traditional
boundaries”-The Economist
Throughout history the discipline of economics main frontier was to eradicate economic
crisis through active amendment of economic policies that primarily dealt with finance,
business and politics. Through progressive understanding of the scarcity optimizing
science towards maximizing subjective satisfaction of human beings, the social science of
economics have reached great heights within its traditional boundaries. Everywhere the
expressions of its success are visible in the society. The demand for professional
economist has been ever increasing in banks and bureaucracies. Evermore newspaper
pages and cable channels are devoted to articles about economics and finances.
As the discipline’s traditional boundaries get saturated, today’s best young academics
look further a field for their questions, providing inside, elegance and, in some cases, real
world relevance beyond their discipline’s traditional borders. The erosion of traditional
barriers within economics and the increased meshing with other disciplines is expressed
in works of eminent economists of our times…
Gary Becker, of University of Chicago, recipient of Bank of Sweden prize in Economic
Sciences in memory of Alfred Nobel, used economic tools to understand the behavior of
a family. He pioneered the use of economics in sociology.
“The O-ring Theory of Economic Development” – by Michael Kremer, of Massachusetts
Institute of Technology (MIT), suggest a new way for economist to look into the process
of economic developement. It says mistake in any one of a number of tasks can
dramatically reduce the value of the final product. It is in accordance with the
temperature sensitivity of O-rings in solid rocket boosters. The destruction of Challenger
space shuttle is an eminent example of malfunction in sensitive O-rings. The frame work
explains rise in income inequality to the fact that there are more small firms in poor
countries. Mr. Kremer also constructed models on elephant survival, AIDS transmition
and tax reforms.
Edward Glaeser, of Harvard University, developed and tested theoretical models on
‘Why cities exist?’; ‘What determines their size?’ and ‘Why some people go to church?’
Research on altruism between generations has been done by Casey Mulligan, of
University of Chicago. He found social factors like parent’s work ethics contribute far
more to inequality than financial constraints.
Economics and crime were meshed in research work of Steve Levitt, of University of
Chicago, who wrote a paper on relationship between imprisoning people and cutting
crime. By looking on how crime varied over the electoral cycle, he built model on
number of police officers and crime rate.
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2. The use of economics in empirical science has been made very creative by modern
technological enhancements like sophisticated software packages. For instance, Caroline
Hoxby, of University of Harvard, analyzed incentives in education system using
empirics.
Highly sophisticated theoretical work in Game Theory has been done by Glenn Ellison,
of MIT, one of the brightest theorists of his generation. Along with Judith Chevalier, he
researched on heard like behavior of young mutual fund managers, considering the fact
that they are fired more quickly than their aged counterparts.
While studying why people choose not to vote on particular items on a ballot sheet,
Wolfgang Pesendorter, of Princeton University, and Timothy Feddersen, of Kellogg
School of Business, came up with the concept of “Swing Voter’s Curse”, which is
analogous to the “Winner’s Curse” from economics of auction.
The school of Behavioral Economics is vastly expanding at a rapid pace. It takes in
account psychology while diluting the assumptions of self interested and rational
individuals which is considered the core of classical economics. Dick Thaler, who is the
pioneer in this field, incorporates quasi-rational phenomenon in formal mathematical
models. The worlds leading behavioral theorist, Mathew Rabin’s work on ‘fairness’ has
caused a considerable steer within the profession. David Laibson of Harvard, worked on
the psychology of saving and developed the idea of “Hyperbolic Discounting” (i.e.
individual have lower discount rate for events far into future than for closer times.)
Considering the present trend we can assume that a decade later it will be hard to
distinguish the empirical economists from the theorist and also economics from other
strands of social science. Contact with the rest of the social science could in time filter all
the way back to the heart of economics, providing new understanding of human and their
behavior, when formalized, could provide a new set of economic tools that surpasses
those of rational expectations. Today’s young researchers may not be changing much of
policies, but they are helping to revitalize economics as a whole.
Date – 17th November, 2005
Reference – Economics: Making sense of the modern economy; by – The Economist.
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