Bryan Caplan  

A.B.A.: Always Be Advising

How William Easterly Declared ... Amar Bhide on Bank Regulation...
I often annoy other economists by giving advice.  "Economists are supposed to describe behavior, not change it," they insist.  But they couldn't be more wrong.  Economics is inherently advisory.  Anytime an economist notices a discrepancy between (a) the world as it is, and (b) the world as people believe it to be, economics implies advice.

Suppose an economist knows that the true price of driving a mile is $.25.  If X falsely believes that the price is $.23 per mile, the economist has every right to tell him, "You drive too much."  "Too much" by what standard?  By whatever standards X happens to hold.  On the other hand, if X falsely believes that the price is $.27 per mile, the economist has every right to tell him, "You drive too little."  "Too little" by what standard?  By whatever standards X happens to hold. 

The same applies if X under- or over-estimates the toxicity of cigarettes, the distance from Boston to New York, or the probability of getting tenure.  If you over-estimate costs or under-estimate benefits, economics tells you to start doing more.  If you under-estimate costs or over-estimate benefits, economics tells you to start doing less.

Notice the huge difference between economic advice and, say, medical advice.  The typical doctor will tell you, "Cigarettes are bad for your health, so stop smoking."  For an economist to give smoking advice, in contrast, he needs to know more than the mere fact that smoking has a downside.  He needs to discover a discrepancy between actual and perceived downsides.  Do you under-estimate the health risks of smoking?  Then economics tell you to smoke less.  Do you over-estimate the health risks of smoking?  Then economics tells you to smoke more.  Unlike doctors, economists know how to give advice and respect pluralism at the same time.

Of course, a long list of caveats is implicit.  If you're making a discrete choice, you need to interpret "buy more" as "be more willing to buy" and "buy less" as "be less willing to buy."  If you simply don't enjoy a product, you should to interpret "buy more" as "buy the same or more."  If some people over-estimate and others under-estimate, you need to give the two groups opposite advice.  Etc.  It's OK to quibble, but the logic of what Patri Friedman calls "directional rationality" is hard to escape.
Bottom line: Once you discover a discrepancy between the world and it is and the world as people perceive it to be, economic science and economic advice are perfectly compatible.  The only economists who should give no advice are the freakishly unperceptive souls who have failed to discover a single discrepancy between the world as it is and the world as people perceive it to be.

Comments and Sharing

COMMENTS (12 to date)
nazgulnarsil writes:

This is one of the major reasons economists are loathed/ignored in many contexts IMO. Economists point out where our actions differ from our stated values and people glare/elbow you to shut up. Of course we aren't trying to maximize our *stated* values, what are you stupid? Pretty much Hanson's homo hypocritus hypothesis as far as I can tell.

Bob Murphy writes:

But they couldn't be more wrong.

Here's some more advice from an economist (me): People should stop using that phrase when they mean, "I disagree."

If Caplan's colleagues said, "2+2=5" or "Demand curves always and everywhere slope upward," then it would be appropriate to say, "They couldn't be more wrong."

steve writes:

I think nazguinarsil is correct. With the exception of businesses trying to make a profit, most actions are little more then emotional (revealed preference). Most everything else is just rationalization for doing what we want to do without really knowing why.

I do not mean to imply these choices are irrational just that very few decisions are made by following some train of conscious logic before hand. I hope my unconcious is rational.

CBBB writes:

Wait a minute Bryan, you have this backwards.
We're talking about economists here, right? Then don't you mean to say economists should offer advice when the the "world as people (economists) believe it to be differs" from the "world as it actually is"?

I mean that's the way it seems to go most of the time with economists.

CBBB writes:

[Comment removed pending confirmation of email address and for rudeness. Email the to request restoring your comment privileges. A valid email address is required to post comments on EconLog and EconTalk.--Econlib Ed.]

Philo writes:

I think you are distinguishing between beliefs and basic values. A person's behavior is determined by the combination of his beliefs with his basic values. In your telling, the economist is to offer the person advice if his behavior is based on a false belief; the economist is to offer nothing if the person's behavior results from beliefs that are all true, no matter what values he is using. The economist is to insist on true beliefs, but he has no standing to criticize basic values.

I say "basic values," because what pass for "values" usually result from a combination of beliefs with basic values. Basic values are not at all based on beliefs; they are *belief-independent*. A person may value holy water above ordinary water, but this will not count as a basic value, since it is based on the belief that holy water has certain natural powers that ordinary water lacks. If he realized that holy water has exactly the same natural powers as ordinary water, his over-valuation of the former would cease. (Of course, water that is *widely thought to be holy water* will still have greater value than water that is *widely thought to be ordinary*.)

But what, then, are the typical person's *basic* values, the values to which he would adhere no matter how he changed his beliefs? I think answering this question would make you less confident that these basic values are really immune from criticism by outsiders, such as the economist.

Scott G writes:

It doesn't matter who gives it, unwanted advice is what is annoying.

Do you want my advice?

Leo writes:


I think this an interesting reason to give advice however isn't it possible that there are some problems if our irrationality turns out to be useful for us?

For example suppose you are far to the left of the Democrats enough so that you prefer Democrats to Republicans by enough to make voting rational but not a massive amount. At election day the rational choice would always be to vote for the Democrats. However if you were irrational in the right way (eg spiteful not voting for the Democrats unless they have lurched further to the left than they would otherwise) then your views would be better represented than otherwise because the party would have to court your vote rather than just having you vote for them because they were better than the republicans. So irrationality can beat rationality.(this could have been solved with a commitment mechanism but we don't have one so this sort of irrational behaviour is better)

How do you know that some of the marginal improvements you suggest aren't going to destroy some of the benefits of certain types of irrationality.

Ricardo writes:

I agree that economists should aim to give advice based on economic theory (or data) if confronted with irrational behaviour.
But you implicitly assume that all economists behave like Econs and are thus free of biases and shortcuts in their thinking.

The Econ view of "the world as it is" should implicitly be rational, but due to, e.g., self-control issues and time-inconsistency many economists do not behave like Econs, and still give advice (which might be erroneous).

Phil writes:

Harold Winter discusses the implications of overestimating the cost of smoking in his book TRADE-OFFS. See Ch.5 Smoke If You Got 'Em. His father wants him to try to convince his sister to stop smoking. He writes: "According to some research on the economics of smoking, if anything she was smoking too little." There's serious stuff as well on "the social policy implications."

HB writes:

I disagree with your opinion that an economist must always have advise to offer if the world is not as he believes it must be.

In my limited experience, more often than not, the market is right rather than the economist - economists if anything must strive to not profer advise at every point when the real world diverges from their personal views but rather repeatedly question their models to the point that they have unshakeable conviction in their correctness. It is better to offer advise on fewer occasions and get things right than have a hastily formed opinion on everything and lose one's credibility.

roystgnr writes:

If I am making a perfectly rational decision based on some a priori valuations, and if you give me information that changes one or more of those relative values, then indeed you should expect me to reevaluate and perhaps change my decision, just as if you had given me advice.

The part where I get stuck at, though, is "perfectly rational decision". One bad input can spoil a whole chain of deductive reasoning and this looks like an often-bad assumption. If I'm already excessively discounting the value of breaking an addiction to cigarettes vs the cost of living through the initial cravings, for example, and you tell me "this data shows that you slightly overestimated the value of quitting", then whereas a rational person would say "I should smoke the same or more", fallable already-smoking-too-much me should say "I should still smoke less, just not necessarily as much less as previous data indicated."

Comments for this entry have been closed
Return to top