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Does studying economics make you happier?
Nikos Sp, a loyal MR reader, asks:
...ignoring the effect of becoming an economist on your material welfare, do you believe that the economist's mindset is conducive to a happy life - or does a knowledge of economics lead to a life of misery?
Nikos already has an answer, and yes he defends economics:
Here's why:
1. I cherish my consumer surplus. I value most of the stuff I buy way more than what I have to pay for them; vanilla ice cream makes me happy beyond belief, and the same is true for the music of Dream Theater and the (soon to be purchased) Apple iphone. And what am I asked to pay for them? Peanuts.
2. I cherish my producer surplus. I am getting paid way, way more than the salary that would make me indifferent between supplying labour and staying at home.
3. I never have regrets: I did the best I could given the information available to me at the time. Judging I could have done better using information I acquired at a later date makes as much sense as regretting the existence of gravity. On a related topic, I understand the irrelevance of sunk costs.
4. While I do care for my welfare in relative terms, my welfare in absolute terms looms large in my utility function - and, boy, look how its value has been growing.
5. The selfishness of my fellow human beings does not make me anxious or depressed. Adam Smith (or was it Mandeville?) taught me that humans, selfish as they are, can make happy societies. And perhaps more to the point, they can make me happy.
Just think, consumer surplus from your consumer surplus. Only the fixed point theorem prevents him from reaching pure bliss. Most generally, (good) economics insulates people from expecting the impossible, and that does make for greater happiness and contentment. Do you all agree?
Posted by Tyler Cowen on October 26, 2007 at 07:12 AM in Economics | Permalink
Comments
Damn fixed point theorem. It's the only thing I hate more than gravity.
Posted by: Richard at Oct 26, 2007 8:28:45 AM
given the information available to me at the time
That particular point has been brought up in our house, and it has helped my (non-economist-reading) wife a lot...I even heard her telling a friend of hers that she shouldn't regret the decision she made because she made the best choice "with the information she had at the time" (her words).
I felt a little happiness bubble up inside me at that.
Posted by: shawn at Oct 26, 2007 8:29:54 AM
The benefits Nikos cites sound for the most part like they could have been derived equally well from the contemplation of philosophy or study of religion.
Posted by: at Oct 26, 2007 8:31:44 AM
Studying economics makes me happier because it provides hope- the potential is unlimited. However, it also make me despair- observing the vast chasm between the potential and the actual and watching policy makers repeatedly drive our future over a cliff as if economics and economic evidence did not exist.
Posted by: Tom Kelly at Oct 26, 2007 8:35:07 AM
I did the best I could given the information available to me at the time.
This is less and less true in the modern world. We have a surfeit of information, we are surrounded by data smog. Available information tends to infinity.
In many situations, it will be a given that you had access to all the information you needed. What you will regret is failing to do sufficient datamining and timely thoughtful analysis.
Posted by: at Oct 26, 2007 8:41:54 AM
I am fairly confident that I would be significantly happier if I had never switched my major to economics in college. I certainly would be more ignorant if I had opted to stay with government, but at least it would have been a blissful ignorance.
Perhaps my sentiment is related to having gone to Mason where a strong emphasis is placed on destroying your soul. Well, not really. However, an econ course load at Mason does place heavy emphasis on and open your eyes to the fact that politicians are no less corruptible than anyone else (and probably more so), voters prefer terrible policies (and far too often act on those preferences) and government does more harm than good (especially when it makes a big show about how much they are helping) all of which (and so many more examples exist) are a tremendous departure from the life-view a public school education creates.
Posted by: Kiel Stone at Oct 26, 2007 9:03:31 AM
Yes. However, I am still human. That is to say that, understanding the
reality of tradeoffs and opportunity costs, I still struggle with
accepting that reality. I want to do A, B, and C but realize that if
I do B I can't do A and C. In short I struggle, like many humans struggle,\
with accepting that I am not God. Understanding prevents futile thinking
which contributes to unhappiness... so yea, I suppose understanding economics
is conducive to greater happiness.
Posted by: Martin Kennedy at Oct 26, 2007 9:10:06 AM
If Nikos thinks that econ teaches that one should never have regrets, he is trapped in an impoverished economics.
You can always say that having had more info would have been just too costly, but you can't always say that seeing or taking stock in a better interpretation was. Or, at any rate, you shouldn't.
Regret, self-reproach, and error are fundamental in economics.
Unfortunately, Kirzner's handling of the ideas is too categorical, too 100%, but his substance is right in "by and large" weakenings of the claims.
Posted by: Daniel Klein at Oct 26, 2007 9:14:13 AM
I agree that "economics" make me happier, and the ideas he mentions ARE economics.
What I think makes a lot of people unhappy is the increasing volume of "high-brow" mumbo jumbo that one sees in the top-tier economic journals that has no connection to observational reality. For example a recent issue of the JPE has an article that has clone replacing people who match in matrimony "forever" after an initial encounter at a bars; one of the undiscussed implications of the cloning assumption, together with the assumption that matches last forever, is that the population expands without bound (of course in this model there is no budget constraint to preclude this). This stuff is NOT economics; it is what Friedman warned about in his methodology of econ. article "mathematics masquerading as economics." It appears that, in this (fortunately, unlike in most things), he was like John the Baptist: a voice in the wilderness.
Posted by: indiana jim at Oct 26, 2007 9:46:14 AM
"All the information I had at the time" is a tricky tool. Used judiciously, it can alleviate guilt and allow forward progress. Used regularly, and it becomes a crutch, an excuse for sloppy thinking and laziness.
Usually, when I'm faced with an important decision, I'll look at the facts, make an analysis/decision, and then go through a mental effort to think of how it might fail, or turn out to be the wrong decision. Most of the time, a couple of easy-to-avoid issues/questions rise to the top. I deal with those, and then I revisit my decision.
Posted by: jb at Oct 26, 2007 10:35:26 AM
While others complain about gasoline prices I think to myself, "I would pay twice as much if I had too". I wonder at capitalism. All these people working to bring me things its wonderful.
Posted by: Floccina at Oct 26, 2007 10:37:10 AM
"No regrets" is a big one for me. It's helped me accept lost jobs, relationships, opportunities of many types. It addresses the "wish I'd saved those baseball cards" moments. I'd also add the VERy useful idea that there are tradeoffs. I am not good at making those decisions, but at least I know I have to.
I disagree that all these points could arise under religion. Most religions put faith in a higher being, both as a source of solutions (Please help me) and a punishment (I am sinner/going to hell). That paradigm tends to put us in "helpless" mode, and those who are powerless can be unhappy. (I realize there is a value of "putting it in god's hands" or Inshallah, but economists should be able to handle that idea as well, i.e., "market forces, etc)
There are (at least) two problems with economics: pursuing an optimal outcome can take too much time for little result (i.e., forgetting to apply MB>MC to the search pattern); treating others and acting self-interested (in an autistic way) can also be bad -- people are nicer than homo economicus, and we miss many opportunities if we assume otherwise.
Posted by: David Zetland at Oct 26, 2007 10:55:49 AM
acknowledging sunk costs makes me happy, acknowledging opportunity costs makes me a little paranoid.
Posted by: Nate at Oct 26, 2007 10:58:53 AM
I won't go further and discuss the assumptions, but this describes pretty much my mindset. And I found out that not only makes me happier (or at least convinces myself reasonably enough of it) but also makes my wife considerably angry, even miserable, of the strange reasons I keep providing her for what I do (no, I'm not being over-indulgent when I'm eating the chocolate pie, honey, I just decided I had a higher value eating it now than in the future).
Posted by: Terence Reis at Oct 26, 2007 12:02:58 PM
I think it is useful (and happiness-inducing) to know some economics. Considering how low the average knowledge is, it doesn't take much. Sunk costs, opportunity costs, remembering to price things in constant dollars - all of these are extremely useful ideas.
The "best information I had at the time" is also useful, as long (as pointed out above) it isn't used as an easy way out. You can arrive at a similar place through philosophy, though - I'm thinking of the Stoic distinction between things that are in your power and things that aren't. Used honestly, and not as a cop-out, this eliminates futile regrets in much the same way. (And no, my wife doesn't understand it one bit!)
Posted by: Derek Lowe at Oct 26, 2007 12:12:19 PM
Learning some basic economics has ultimately made me happier. Among other things, there's just something heartwarming about an intellectual discipline built on a deep respect for letting everyone be happy in their own way.
Posted by: Windypundit at Oct 26, 2007 12:17:46 PM
I agree that I am much happier knowing a little bit about economics than not. But after just getting back from a drive to a fast food place to pick up some lunch for myself and a couple coworkers, I have to say that knowing economics enhances some frustration.
Here's what I mean:
Everyone on the road has their own motives, but we generally expect the roads to be safe and the travel time to be quick. We have established rules of the road as well as long-established customs that are used to keep things safe and quick. And so I look at driving as a matter of signalling and pattern coordination. I become amazed at how many people through sheer ignorance or stupidity make for suboptimal driving conditions for everyone.
And so on my quick 15-minute trip, I was encountered by a person that swerved into my lane without a turn signal which caused me to slam on the breaks. I had someone drive 10 miles an hour slower than traffic for seemingly no reason at all. While making a left-hand turn, two people going the other way did not use their turn signals to make a right, which forced me to wait an additional minute or sitting in the turn lane. And don't get me started on the parking lot.
Would I have been annoyed without knowing economics? Probably. But knowing a little bit about it accentuated the aggravation.
Posted by: JH at Oct 26, 2007 12:23:34 PM
Being a macroeconomics kind of guy, and seeing people spout the same economically bad nonsense on the streets again and again, I can't help but feel depressed at how quickly everything good I have can be stripped away in a decade if these people ever get more influence, or how royally screwed certain parts of the world are.
Posted by: Robert Olson at Oct 26, 2007 12:29:39 PM
Being technical again, but offhand I do not see a necessary reason
why any fixed point theorem necessarily keeps one from being at one's
bliss point. Well, of course, to be on one's bliss point it needs to
be inside one's budget constraint. But, if one is inside one's budget
constraint, one is violating Walras' Law, which is usually used to insure
easy application of a fixed point theorem for proving the existence of a
competitive general equilibrium. However, it is OK if one's bliss point
just happens to lie on one's budget constraint. But, of course, such a
case is measure zero, and therefore only infinitesimally likely, although
not utterly impossible.
Posted by: Barkley Rosser at Oct 26, 2007 12:46:53 PM
Before I studied economics I assumed that there were experts that understood everything that I did not. I was disillusioned when I found out that economists still have not agreed on the answers to basic questions, like why capitalist economies have business cycles. I was happier with my illusions.
Posted by: joan at Oct 26, 2007 12:47:22 PM
Re: Floccina
Good point, I too would pay double for gas-because it's worth it. I often frustrate my friends when I mock their complaining by saying "Why don't you just take the bus?"
Another great thing about sunk costs: when I try new (fill in blank with just about anything) that I don't like or that I don't find very good, I just throw it away, this happens especially with food.
Posted by: Le.American at Oct 26, 2007 1:37:33 PM
Whatever. I am happy when I study econs.
Posted by: Chewxy at Oct 26, 2007 2:00:40 PM
Economics would have made me happy if ecology hadn't sent me into a clinical depression.
Posted by: Lee A. Arnold at Oct 26, 2007 2:49:33 PM
I have often found my Economics background to be detrimental when it comes to forming expectations in corporate america. the assumption that decision will be rational have often led me to under-expect. Rules are bent left right and center and that does not work too well with the econ model. I work in financial services, ware housing. Can I get a witness.
Posted by: omodudu at Oct 26, 2007 3:09:33 PM
WAIT! Economics makes us happier because it imposes a rational self on our true self. And we fool ourselves into thinking that because the rational self is "ok", we are happy.
Not entirely.
I personally study fairness and jealousy in negotiations. I find (and this finding has been already reported in similar contexts) that consumer surplus matters, but if my neighbour got a better deal, I am no happy. If the surplus from work is positive, good. But if my neighbour makes more money with less work ... AAARRRGGGHH. Same the other way around: something bad happens, but someone else is worse off and you feel ok.
So, by using the economic argument, we tell ourselves: take it easy, your surplus is still positive, be content.
My point: we are not happier. By using economic arguments (or learning economics, as the post puts it) we are replacing happiness. We are **altering** the idea of happiness. We are forcing ourselves into the happiness of the rational agent.
I hope you like this idea, even if you disagree with it.
Posted by: londenio at Oct 26, 2007 3:16:00 PM
