Sunday, August 05, 2007

Sunday dollars+sense: Are heartless people drawn to the study of economics, or does the study of economics make people heartless?

What makes economists different to other people? Last week I mentioned that students studying economics were more likely than other students to approve of avoiding tax.

That survey left open the question of whether it was the study of economics that had made those students greedy and arguably amoral, or whether they were always that way and more greedy people were more likely to choose economics as a subject.

It is still an open question, but other, similarly disturbing evidence suggests that it might be the act of studying economics that does it.

Economist Ariel Rubinstein got together students studying economics as well as mathematics, law, philosophy and Master of Business Administration students, told them to imagine they were running a company and presented with scenarios that gave the option of sacking workers.

They were told the sackings would be legal and that there was no “right” answer...

The more people they sacked, the greater would be the company’s profit, up to a point. But crucially they were told the company would still make a profit even if they sacked no one.

The students studying economics were the most likely to sack the profit-maximising number of workers. But even among them more than half chose to sack fewer workers.

Around three quarters of the law students chose to sack fewer workers than needed for top profits, as did more than 80 per cent of the philosophy students. In fact the trainee philosophers were so concerned about keeping workers that one third of them chose to sack not a single person.

What suggests that it is the studying that makes economics students this way rather than the type of people they already were?

Two things. One is that the students studying for a Master of Business Administration, who might have had similar interests to students studying economics, were far less likely to go in for mass sackings. MBA courses are different. They use more real-world examples, fewer formulas.

The other is that Rubinstein presented the question to some of the students as a mathematical formula rather than as a table expressed in words.

The vast majority of every group of students presented with the problem as a formula “solved it” and decided to sack the profit-maximising number of workers.

Much of economics is taught through formulas. It could be that that is doing the damage, making the economists taught that way one step removed from the real world.

Ariel Rubinstein, Dilemmas of An Economic Theorist, Econometric Society Presidential Address, 2004 (School of Economics, Tel Aviv University and Department of Economics, New York University.)

Hat Tip:
Harry Clarke.