Arnold Kling  

Theory X and Theory Y

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Nick Rowe writes,


Then theory Y suddenly appears. Theory Y is new, and has lots of unexplored areas that you have the skills to work on. You don't believe in theory Y, but you could make a useful contribution to theory Y in your research...

If you are an ambitious economist, especially an ambitious young economist who needs a thesis topic or publications, you would have a very strong incentive to do your research on theory Y. Even if you weren't ambitious, and just needed something to work on to stay busy, or needed to publish anything to stay respectable, you would have an incentive to work on theory Y.

In the late 1970's, rational expectations was theory Y. As a young graduate student, I did not think that this theory was going to answer any important questions in macro, so I refused to join the fad.

I have never held a tenure-track position in any economics department. I had my dissertation completed when I went on the job market. Several of my colleagues had barely started, but since they were doing rational expectations they got respectable job offers.

If it were not for the Internet (a phenomenon that was not in my imagination in 1980), my visibility in economics would be exactly zero. So the pre-Internet moral of my story would be that you have to suck it up and do research in areas that you think are garbage, unless you want to be self-marginalizing.

Having said all that, my bitterness toward academic economics and its fads has limits. Had I been successful in academia, I would not have had non-academic experience. And I would have much worse understanding about how business works in the real world. I would have less economic insight.


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CATEGORIES: Economic Methods



COMMENTS (10 to date)
dWj writes:

I'm a first year graduate student. Insofar as theory X stuff and theory Y stuff are entirely nonoverlapping, my plan is to work mostly on Y, with some X, early in my career, with a gradual shift assuming I do achieve some kind of respectability and, eventually, tenure.

To some extent, one can sometimes recognize projects that fall somewhere in between: not entirely-wrongheaded, and fairly professionally valuable. I'm willing to make trade-offs. Of course, eventually I'll probably either become entirely co-opted or will have my youthful idealism crushed, but I'm not so pragmatic as to accept that fact just yet.

Eric Falkenstein writes:

I don't think RE is really a theory, rather a point of consistency within some theory (asset pricing, macro modeling). I doubt many actually did work on RE, but rather, used this assumption because the alternative--some ad hoc adaptive expectation--was less defensible.

Nick Rowe writes:

What was your theory X, Arnold?

I sometimes wonder if some grad students don't even think about what they believe. They just want a topic. It's not that they set aside their beliefs to find a topic; it's that they don't have any to set aside. Am I too cynical? Or is that the right air of scientific detachment?

Arnold Kling writes:

Theory X at the time was general disequilibrium theory. The challenge was to explain sticky prices, which was the topic of my dissertation. I thought I came up with an interesting solution to an important problem. But I didn't use Euler equations and phase diagrams, so it was worth zero on the job market.

Tom West writes:

Isn't this just the market at work?

I'm not certain how this is any different from a writer who's true love is to create Greek Tragedies in traditional style, but ends up writing sitcoms in Hollywood.

The target market is different (other academics in your field instead of the general populace), but in the end, the same iron law applies. If your potential customers don't value your output (for whatever reason), it's time to change your output or find a new market.

Then again, when one's tastes differ from the market's, it's pretty much human nature to consider the market to be "wrong".

Norman writes:

I think this is pretty similar to Cowen and Tabarrok's paper on the labor market for artists. I tend to think worker preferences over type of work is a neglected aspect of most labor market models.

I am currently on the job market with a model and empirical techniques that I believe in pretty strongly, but I'm not sure anyone else will. We'll see how using my theory X works out.

Jack writes:

Dr. Kling: Were business schools as captured by RE as economics depts? They tend to hire economists who are more applied and empirical, and perhaps would be more interested in theory X.

Jacob Oost writes:

Dr. Kling, rational expectations theory seems to be one of those things that has a jillion different definitions based on who you ask. As a result, I, as an amateur, don't know much about it even after having read about it. Is there some article or something on the web you can point to so I can read an objective interpretation of what it's all about? And if you're feeling extra nice, could you explain what it is you don't like about it?

Nick Rowe writes:

Jacob: Here's a link to an old post of mine, that contains links to 2 posts by Arnold, where we had a good exchange about RE. It may be what you are looking for.
http://worthwhile.typepad.com/worthwhile_canadian_initi/2010/07/rational-vs-adaptive-expectations-a-false-dichotomy.html

Neil Pelkey writes:

Attacking what works is the M.O. for most academic disciplines outside of engineering. Nonsense theories that fall by the wayside are likely to rise again as the shame of their failure is quickly forgotten. Death is not an absorbing state for stupid ideas unfortunately.

Isn't the "academic job market" where prices are fuzzy, transaction costs enormous, information partial at best, and the goal of the decision process to violate all of the conditions of Arrow's paradox?

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