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Monday, March 26, 2007

Playing the Economics 101 Card

Let me see if I can help out in the dispute over using "Economics 101" in debates:

Economics 101, by Felix Salmon: I think we should implement a new corollary to Godwin's Law – call it McArdle's Law, after this blog entry at Free Exchange – saying that any time someone mentions "Economics 101" in a debate, they've automatically lost. The point of the Free Exchange blog is that people who criticize arguments as being "Economics 101" are generally on the wrong side of the argument. But then again, people who praise arguments as being "Economics 101" are generally equally wrongheaded...

This relates to the use of theoretical models, so think of a different kind of model, one we are all familiar with, a map.

A map showing only major arterials is like Economics 101 - it is a bare boned sketch showing only the major roads. A detailed map of a major city, say San Francisco for illustration, is like a more advanced course - it has all the major arterials and considerably more detail as well.

Which model should you use, the Economics 101 style bare-boned map showing only major roads, or the very detailed map showing each and every road and perhaps other details as well?

It depends upon the question being asked. If I want to know how to get from Los Angeles to San Francisco, if that is the question, the bare-boned map that highlights I5 and other major roads is much more useful than a map showing every road that exists between the two cities. And I probably don't need the map to show me where bus stops are, parks, underground pipes and electrical wires, population densities, or the many, many other things it would be possible to show on the map. Such detail gets in the way and obscures the path between the two cities, i.e. it makes the answer harder to find. A map showing only the major roads, or better yet just the detail I need to get from one city to the other, is best for this task.

But if I ask a different question, e.g. how to get from my house to a friend's house in the heart of the city, just showing the major roads won't do at all. I need sufficient detail to allow me to navigate smaller streets. I need a much more detailed model.

And if I ask yet a different question, e.g. how hard would it be to walk or ride a bike, then I may want to include elevations on the map, i.e. contour lines, to allow me to determine the difficulty of traversing the distance, maybe other things as well, e.g. foot and bike paths, not just roads for cars.

There is no one model to use to answer questions. A model should be detailed enough to capture all the major influences relative to the question one is trying to answer, but detail beyond that just gets in the way. A model is not an attempt to reflect every possible detail of the real world, that is far too complicated a task.

A model is an attempt to isolate and highlight the specific factors that relate to the question you are trying to answer so that we can understand why a particular phenomena exists, and how various actions might affect the outcome. Thus, for some questions, Economics 101 is all that is needed, but for other questions it won't be adequate at all.

But we shouldn't rule out the use of Economics 101 type models on a per se basis just because they are simple to use, for some questions such models are quite useful precisely because of their simplicity and transparency. Complication in and of itself is not a virtue.

    Posted by on Monday, March 26, 2007 at 01:32 PM in Economics, Methodology | Permalink  TrackBack (0)  Comments (19)


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