Economics and Mechanisms Economics, economic theory, and mechanism design

Steve Jobs, 1955 – 2011

You changed the world for the better, Steve Jobs. Thank you and rest in peace.

Site status update

1. The Public Economics page is under construction and I will be filling out the other pages soon.
2. I have added to Links I Like (on the right) a new site, A Fine Theorem.
3. Regular weekly posts are starting this week.

Posting hiatus to end soon

A bit backed up by the semester's start and snow blizzards, but I intend to post more soon and also to expand the pages on mechanisms, public economics, and networks.

Mathematician Terence Tao on the influence of the Web on academia

Terence Tao has a prominent blog on mathematics. Yesterday's post encapsulates his observations on the influence of internet-based technology on all aspects of the academic profession from his perspective of a well-respected mathematician who is about to give a speech to the American Academy of Arts and Sciences. In fact, the post by Tao contains a draft of this speech. I highly recommend it.

Economists cannot predict

Chris Dillow has an interesting post on mechanisms and why economists cannot make good predictions. But first of all, he uses "mechanism" in a different way than I like to see it used. In my mind, a mechanism is as described in the Mechanisms page of this web site. Dillow follows Elster in using a more generic sense of the word: for him, a mechanism is a step-A-leads-to-step-B-to-step-C... story.

Economists have many mechanisms, in Elster's sense, that may be behind what we see happening. However, the typical stories that these "mechanisms" embody are only good for giving some insight on what happened after it has. There are always too many dormant "mechanisms" waiting to be activated, and we cannot predict what triggers their activation, so we cannot make predictions safely.

A commenter identified as "Mr Art" says, in reference to Dillow's post, that if a theory offers explanations but not predictions, it is not science. This is a tired criticism, hardly worth addressing, but I will try, briefly. A theory starts with some assumptions and then generates conclusions. You can test, in principle, whether these conclusions occurred or not while the assumptions held. This allows falsification of the theory, in principle. But who says that these conclusions have to do with the future, thereby making them predictions in the sense that Wall Street wants to have predictions?

I am reminded, for the Nth time, of the comment by, I believe, Kenneth Boulding (please correct me if I misremember) that economists predict because they are asked to, not because they can.

H/T to Mark Thoma for bringing me to the Dillow post.