Thursday, March 30, 2006

Economists & social conscience

Does studying economics damage your social conscience? Is the damage greater if you mathematise social reality?

Ariel Rubinstein's, A Sceptic's Comment on the Study of Economics, looks at whether economics students respond more 'toughly' to a firm's difficulties when the economy is experiencing high unemployment, by sacking workers, than would four groups of students from other disciplines (mathematics, law, philosophy and those doing an MBA). Does an economics education imply you are more likely to target profits than worker welfare? What levels of dissonance arise with respect to how you would expect others to resolve the situation? Do you become 'nastier' if you analyse things using maths formulae?

The alternatives available in terms of sackings are presented as a table showing how profits are related to various worker layoffs. For the mathematically adapt, the same info is presented as a a math formula. In both cases maximum profits were obtained with an intermediate level of sacking but losses would not be incurred even if no-one was laid off. The study was repeated with readers of a business newspaper and with Harvard PhD students.

The idea was to see the weight different groups would attach to pursuing profitability and the extent of concern they would show towards the workforce. The paper follows recent studies asking if studying economics makes you selfish and uncooperative. Among the main results:

1. Economists would sack more workers and go for higher profits.
2. Given a maths formula, rather than the table, all groups who use the formula sack more.
3. Most believe real managers would be tougher than they were, with least dissonance among economists. Highest dissonance arose when a formula was used.
4. Oh yeah, and women are more compassionate than men.

There are several points one Rubinstein draws from this:

'If you believe that the manager of a company is obliged morally or legally to maximise profits, then you should be pleased by the success of economics in educating its students. However, you might be disturbed by the fact that so many economics students did not show any tendency to maximise profits. ....even the Harvard PhD students differed in their prediction of what a real manager would do.

Alternatively, you might approach the results with the idea that a manager is committed not only to maximising profits but also to taking into account the welfare of his workers, particularly when the economy is in recession and unemployment is high...Under these circumstances, striving to maximise profits
regardless of the consequences appears to be 'ethically problematic'.

(while) ...a major drawback of the survey is its inability to determine clearly whether differences are due to selection bias or are the result of indoctrination..... even if the economics profession attracts certain types of people, the results still suggest that something is wrong in the way we relate to students in our undergraduate programmes. It appears that the MBA programme is more successful in producing students with more balanced views.

(If) ....the choice was presented as a mathematical formula, a vast majority of the subjects in all disciplines...maximised profits though many of them were aware of the existence of a trade-off (evident from the fact that many of those who chose 100 said that they believe that a real vice president would fire less than the number required to maximise profits). This appears to support the intuition that presenting a problem mathematically, as we often do in economics, conceals the real-life complexity of the situation (my emphasis).

.....we need to re-evaluate the use of mathematical exercises which lead students to focus on the task of maximisation rather than on real economic problems. In the best case, these mathematical exercises simply make the study of economics less interesting; in the worst case, they contribute to the shaping of a rather unpleasant 'economic man'."
There are complex framing issues here. But it seems plausible to me that (self-selection of nasty people aside) economists might make more profit-oriented decisions than non-economists. And I always do get a twinge of unease when the unemployed are treated as a 'variable' in a Phillips curve. Mathematics is an important skill in economics (and social science generally) but it should help determine sensible outcomes not blind people to possible harmful social consequences of their decisions.

Rubinstein comments on his study here (an absolute gem of a paper!) and the article is also discussed over at Andrew Leigh's blog here.

No comments: