Homo economicus

It is sometimes suggested that learning economics is easier if you come to the subject thinking like “homo economicus”. For example, if you’ve always believed that efficiency matters more than equity, the theory goes, you may find it easier to get the hang of basic macro and micro.

On the mid-term test for my Economics and Public Policy course at MBS, I included the following question.

“Australian policymakers should focus on reducing poverty, but not worry about inequality”. Do you agree or disagree? Give two reasons for your answer.

We had had a robust debate in class about poverty and inequality, and almost everyone got full marks for this particular question. What was interesting was to see how answers to this question related to the overall grades.

  • 69% agreed (ie. they thought the government should not worry about inequality). Their average mark on the test was 60/75.
  • 31% disagreed (they thought the government should worry about inequality). Their average mark on the test was 58/75.

The difference between the two groups’ grades wasn’t statistically significant, but it was still interesting to see that it was in the expected direction – those who care more about inequality seemed to be finding economics a smidgin harder.

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10 Responses to Homo economicus

  1. Sacha says:

    Hi Andrew,

    Perhaps it’s the lateness of the hour, but I’m not sure of what the question meant. Did you mean “Australian policymakers should focus on reducing poverty, AND not worry about inequality” ?

    If people disagreed, were they disagreeing with the notion of what policymakers should or shouldn’t do (as in, it’s not the role of policymakers to be concerned with these things etc), or were they saying that focus should be on reducing poverty AND also worrying about inequality, or were they saying that policymakers should be concerned about other things?

    Maybe I’m reading too much into it!

  2. Joshua Gans says:

    Let’s see …

    1. The idea that governments should NOT WORRY about inequality is extreme. At the very least, it needs to worry about it when individuals or groups have ‘positional’ utility and so inequality is an issue for the potential for crime. [Note this applies to domestic as well as global inequality]

    2. You can’t have a serious poverty program unless you have come to grips with the causes of inequality.

    1. Poverty is the key and should be the focus. Therefore, NOT WORRYING about inequality allows a more direct route to the core problem.

    2. You can’t have a serious povery program if you are worrying at all about inequality as the cure for poverty will involve redistribution and redistribution will impact on inequality. [That is, the question didn’t say whether we should be worried about too much or too little inequality although it did place weight on reducing poverty].

  3. Patrick says:

    Er, I’m guessing that students actually mentioned the problem with defining poverty, and the apparent correlation between inequality and prosperity.

    As to the ‘expected outcomes’, well, clearly, if you think like a marxist, you won’t do well at any serious studies 🙂

  4. Sinclair Davidson says:

    What mark would “Completly disagree. Governments should enforce law and order, maintain sound money, and ensure national security” get?

  5. Sinclair Davidson says:

    Sorry. Left out reasons. Imagine a couple of sentences from Hayek on information costs and Buchanan on government failure.

  6. Benjamin O'Donnell says:

    What about an answer that says the question is positing false dichotomy?

    What we see as “poverty” is always relative to the wealth of others. An Australian family living on A$20,000 a year looks impoverished; but the same purchasing power in, say, Pakistan would probably look lower middle-class.

    The apparant dichotomy between inequality and “poverty” is really a choice between differing concerns about inequality. People who are concerned about poverty are concerned to make sure the bottom does not get too far away from the middle. People concerned about “inequality” tend to be concerned about variance in general – that neither the bottom nor the top get too far from the middle.

    So the question is really “Should we focus on getting the bottom closer to the middle or should we focus on keeping the overall variance low?”

  7. those who care more about inequality seemed to be finding economics a smidgin harder. can expect to be marked down by lecturers

  8. Andrew Leigh says:

    FXH, thanks for focusing on the point of the story (even if you did allege gross impropriety on my part….).

  9. oh no not alleging gross, or even refined, impropriety at all.

    But surely one could expect that economics lecturers (and economics courses) by training, if not nature, will be both conciously and inherently, biased toward economics thinking such as having a higher regard for efficiency thinking than equity thinking.

  10. Pingback: catallaxy » Blog Archive » Inequality of what?

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