The Changing Face of Economics: Conversations with Cutting Edge Economists

Introduction

Introduction  This book is about the economics profession or, more precisely, the process by which economic thinking changes. We believe that this process is important because economics is currently at a turning point: it is moving away from a strict adherence to the holy trinity—rationality, greed, and equilibrium—to a more eclectic trinity of purposeful behavior, enlightened self-interest, and sustainability . The change is ongoing and has many dimensions, most of which have not coalesced to a level that has reached the lay public. But anyone involved in economic research recognizes the change, although it is not clear how all the new pieces will ultimately ‹t together. This book tries to give the reader some sense about what the changes are and the process through which they are in›uencing the profession. The changes are not new; in fact they have been going on for decades. What is new is that we are now arriving at the point where the changes are recognizable to individuals outside the profession. Thus, we are seeing more and more articles in the popular press on aspects of the new economics—behavioral economics, agent-based modeling , evolutionary game theory, and experimental economics.  The Story We Tell The story we tell here is of economists who have been, or who are currently, involved in this change. It is a story of how they have pushed and tested the boundaries of the profession in ways that eventually change how standard economics is done. To understand our story, it is helpful to think of the profession as a complex system. Complex systems cannot be understood from assumed ‹rst principles ; they can only be understood through the process of change that underlies them. In the same way, the economics profession can best be understood by the process of change that characterizes it. Most previous studies of the economics profession have tended to take a static view of the profession as an unchanging entity in equilibrium. That’s not the way we see it: we see it as a dynamic, constantly changing entity, seldom in any state that could reasonably be called a steady state equilibrium. We see the economics profession as a selfreproducing , evolving, complex system of interacting individuals and institutions that is continually testing and reinterpreting old ideas, developing new ones, and trying to relate those ideas to a changing reality. Most of it is done locally, with individuals working in their small area, with little concern about the global changes taking place. But globally the sum of those local changes represents a major change in what economics is. Getting a handle on such a dynamic entity and conveying its essence to others often requires giving it static classi‹cations and organizing it into distinct periods. Historians of economic thought must do this to provide structure for their consideration of past economists. But these classi‹cations are crutches, not characterizations of reality. They are imposed by the observer and are not necessarily part of the essence of the profession at any point in time. Any static classi‹cation hides the dynamic change occurring underneath it. For this reason the classi‹cations used by historians of thought, such as classical or neoclassical, while useful and perhaps even necessary , are nevertheless con‹ning and miss important dimensions of the profession. Our focus on dynamic changes in the profession explains our interest in work at the edge of economics.1 It is innovative and successful work at the edges of the profession that signals the future direction of change in economics and how the profession eventually comes to be viewed and understood by its elite. The very concept of an edge of the profession is designed to suggest a profession in which there are multiple views held within it, and this goes against the standard classi‹cations of economics. Those standard classi‹cations convey a sense of the profession as a single set of ideas. In our view, that is wrong; it is much more useful to characterize the economics profession as evolving, made up of diverse economists who hold an evolving set of ideas. The profession is loosely held together by a the changing face of economics 2 shared approach to economic problems, but it is seldom static or ‹xed in its views. Standard classi‹cations tend to miss the diversity that exists within the profession, as well as the many new ideas that are being tried...