Lies that economics is built on
October 18, 2014 1 Comment
Peter Dorman is one of those rare economists that it is always a pleasure to read. Here his critical eye is focussed on economists’ infatuation with homogeneity and averages:
You may feel a gnawing discomfort with the way economists use statistical techniques. Ostensibly they focus on the difference between people, countries or whatever the units of observation happen to be, but they nevertheless seem to treat the population of cases as interchangeable—as homogenous on some fundamental level. As if people were replicants.
You are right, and this brief talk is about why and how you’re right, and what this implies for the questions people bring to statistical analysis and the methods they use.
Our point of departure will be a simple multiple regression model of the form
y = β0 + β1 x1 + β2 x2 + …. + ε
where y is an outcome variable, x1 is an explanatory variable…
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About Damian Merciar
Hang on a tickle. The economist and their toolbox isn’t to blame. I get the point, but all economists have access to models which try to explain what can be measured, in more sophisticated ways than the writer suggests, and are all bounded by statistical significance. The real blame game is in the transition from a model to the “truth” – it’s what people DO with the outcome, not the fact that someone tried to make some sense of the world!