Econ grad student here (and someone else converted away from Austrian econ in part from Caplan’s article + debate with Block). Most of economics just chugs right along with the standard rationality (instrumental rationality, not epistemic) assumptions. Not because economists actually believe humans are rational—well some do, but I digress—but largely because we can actually get answers to real world problems out of the rationality assumptions, and sometimes (though not always) these answers correspond to reality. In short, rationality is a model and economists treat it as such—it’s false, but it’s an often useful approximation of reality. The same goes for always assuming we’re in equilibrium. The trick is finding when and where the approximation isn’t good enough and what your criteria for “good enough” is.
Now, this doesn’t mean mainstream economists aren’t interested in cogsci rationality. An entire subfield of economics—Behavioral Economics—rose up in tandem with the rise of the cogsci approach to studying human decision making. In fact, Kahneman won the nobel prize in economics. AFAICT there’s a large market for economic research that applies behavioral economics to problems typically studied in classical, rational agent settings. The problem isn’t the demand side—I think economists would love to see a fully general theory of general equilibrium with more plausible agents—it’s the supply side: getting answers out of models with non-rational agents is a difficult task. It’s already hard enough with rational agents for models to be anywhere near realistic—in macro models with micro foundations, we often assume all agents are identical and all firms are identical. This may seem terribly unrealistic, but often there’s some other complication in the model that makes it hard enough to find solutions. Adding heterogenous firms and agents is an extra complication that may not add anything illuminating to the model. So, many economists treat the rationality assumptions which are fundamental to neoclassical economics similarly. If the rationality of agents within their model is tangential to the point they’re trying to make (which may only be known empirically), they’ll choose the easier assumption to work with. There are fields where the frailty of human rationality seems centrally important, and those are the fields where you’re most likely to see nonstandard rationality assumptions. Behavioral Finance is an example of one of these.
The biggest thing I would say is, don’t think in terms of “schools” of economic thought. Think in terms of models and tools. Most good ideas are eventually assimilated into the “neoclassical” economic toolkit in some form or another. And besides, thinking in terms of schools of thought is a good way to unintentionally mind-kill yourself.
As far as textbooks go, most higher level (intermediate micro and above) will present models without making any claims about when they’re a good approximation and when they aren’t. Oftentimes this is because the models being presented are actually just stepping stones to the more realistic and more complicated models economists are actually using. This is generally good, though I wish there were more empirical evidence presented. Any edition of Microeconomic Analysis by Varian will give you a good intermediate level (requires some calculus) rundown of standard micro theory. Think of it as taking standard economic intuitions (to economists—even austrians) and writing down equations that describe them so that we can talk about them precisely. I’d steer clear of any non-graduate level macro textbooks. The macro we teach undergrads is not the macro practicing macroeconomists actually believe. (Even on the graduate level, there isn’t a generally accepted class of models that economist agree on, so it might not be that useful to study modern macro). If your mathematical background is stronger, Mas-Colell, Whinston and Green’s Microeconomic Theory is a standard first year graduate micro text that’s densely packed with a lot of material. Simon and Blume’s Mathematics for Economists is the standard math primer used to prepare students for the class Mas-Colell is typically used in, if you’re unsure about your math background.
Wow! That was extraordinary helpful. My only regret is that I have but one upvote to give.
You’re right about the unintentional self-mindkilling from focusing of schools of thought. It’s obvious to me in hindsight.
It might just be a leftover from my Austrian days, but I am thoroughly skeptical of any macroeconomic model. A red flag for me is when I read that macro models aren’t generally reducible to micro models. The only reason I’m reading a macro textbook is that my school requires intro to macro as a prerequisite to intro to micro. And I was thinking of studying introductory macro so I have a decent hand on it when I have to take it in school.
Reading the first 100 pages of Mankiw’s Principles of Macroeconomics hasn’t been too terrible. Though so far I think it has basically been micro disguised as macro. But based on what you’re saying, I think it might be better to stop reading it for now. I’ll just learn it when I take it in school.
My math background is okay, but not fantastic. I took some calculus my senior year of high school and got up to integration. For my freshman year of university, I’m taking Calc 1 in the fall and Calc 2 in the spring. Mathematics is likely my primary major, so I think I’ll read Mathematics for Economists and then move onto Varian.
Thank you very much for the suggested books, advice, and insight.
If you’re going to attack Varian, I’d suggest not focusing on Mathematics for Economists too much. Make sure you understand basic constrained maximization using the lagrangian and then you’re ready for Varian. Anything else he does that seems weird you can pick up as needed. Constrained maximization is usually taught in Calc 3 AFAIK, but I don’t think it’s too difficult if you can handle Calc 1.
A red flag for me is when I read that macro models aren’t generally reducible to micro models.
This shouldn’t be as much of a red flag as it is to most people. Is it a red flag when micro models don’t reduce to plausible theories of psychology? Not if it isn’t worth the effort of doing micro with said theories. Similarly, there’s a trade-off between microeconomic foundations in macro models and actually getting answers out of the models. Often the microeconomic foundations themselves aren’t even plausible to begin with. It still might be a red flag based on the details of the tradeoff at the margin, but I’m not sure it’s that clear.
I was just reviewing Mathematics for Economists. While a lot of it sounds fascinating, it’s probably not what I need at the moment. Too much of it is over my head. So on second thought, I’ll probably just review the first half of Calc 1, learn the second half, and tackle Varian.
On the topic of macro reducing to micro, point taken. I appreciate the clarification.
Good idea. I wouldn’t worry about complicated integrals if you’re just preparing for Varian. You’ll need integration, but I don’t recall anything too complicated. It’s mainly the differential calculus that you’ll need.
Debating with Block would turn any rationalist off of Austrian econ. No one got it comletely right except Mises himself. Actually not even him, but he was usually extremely rational and rigorous in his approach—more than any other economist I know of—albeit often poorly communicated.
In any case, any non-ideologically motivated rationalist worth their salt ought to be able to piece together a decent understanding of the epistemological issues by reading the first 200 pages of Human Action.
No one got it comletely right except Mises himself. Actually not even him
Um… and you—alone among the ignorant masses—realize and know all this because...? Sorry, but I don’t have a high prior on your authority in the discipline.
Actually not even him, but he was usually extremely rational and rigorous in his approach—more than any other economist I know of—albeit often poorly communicated.
Interestingly, this is pretty much what I used to say about Marx when I was a Marxist.
My point was to indicate that not all people who put stock in the “Austrian school” accept post-Misesians as competent intepreters. I meant, essentially: Mises had it right, but read his original work (not later Austrians) and you’ll be able to tell whether I’m right.
Econ grad student here (and someone else converted away from Austrian econ in part from Caplan’s article + debate with Block). Most of economics just chugs right along with the standard rationality (instrumental rationality, not epistemic) assumptions. Not because economists actually believe humans are rational—well some do, but I digress—but largely because we can actually get answers to real world problems out of the rationality assumptions, and sometimes (though not always) these answers correspond to reality. In short, rationality is a model and economists treat it as such—it’s false, but it’s an often useful approximation of reality. The same goes for always assuming we’re in equilibrium. The trick is finding when and where the approximation isn’t good enough and what your criteria for “good enough” is.
Now, this doesn’t mean mainstream economists aren’t interested in cogsci rationality. An entire subfield of economics—Behavioral Economics—rose up in tandem with the rise of the cogsci approach to studying human decision making. In fact, Kahneman won the nobel prize in economics. AFAICT there’s a large market for economic research that applies behavioral economics to problems typically studied in classical, rational agent settings. The problem isn’t the demand side—I think economists would love to see a fully general theory of general equilibrium with more plausible agents—it’s the supply side: getting answers out of models with non-rational agents is a difficult task. It’s already hard enough with rational agents for models to be anywhere near realistic—in macro models with micro foundations, we often assume all agents are identical and all firms are identical. This may seem terribly unrealistic, but often there’s some other complication in the model that makes it hard enough to find solutions. Adding heterogenous firms and agents is an extra complication that may not add anything illuminating to the model. So, many economists treat the rationality assumptions which are fundamental to neoclassical economics similarly. If the rationality of agents within their model is tangential to the point they’re trying to make (which may only be known empirically), they’ll choose the easier assumption to work with. There are fields where the frailty of human rationality seems centrally important, and those are the fields where you’re most likely to see nonstandard rationality assumptions. Behavioral Finance is an example of one of these.
The biggest thing I would say is, don’t think in terms of “schools” of economic thought. Think in terms of models and tools. Most good ideas are eventually assimilated into the “neoclassical” economic toolkit in some form or another. And besides, thinking in terms of schools of thought is a good way to unintentionally mind-kill yourself.
As far as textbooks go, most higher level (intermediate micro and above) will present models without making any claims about when they’re a good approximation and when they aren’t. Oftentimes this is because the models being presented are actually just stepping stones to the more realistic and more complicated models economists are actually using. This is generally good, though I wish there were more empirical evidence presented. Any edition of Microeconomic Analysis by Varian will give you a good intermediate level (requires some calculus) rundown of standard micro theory. Think of it as taking standard economic intuitions (to economists—even austrians) and writing down equations that describe them so that we can talk about them precisely. I’d steer clear of any non-graduate level macro textbooks. The macro we teach undergrads is not the macro practicing macroeconomists actually believe. (Even on the graduate level, there isn’t a generally accepted class of models that economist agree on, so it might not be that useful to study modern macro). If your mathematical background is stronger, Mas-Colell, Whinston and Green’s Microeconomic Theory is a standard first year graduate micro text that’s densely packed with a lot of material. Simon and Blume’s Mathematics for Economists is the standard math primer used to prepare students for the class Mas-Colell is typically used in, if you’re unsure about your math background.
Edit: Holy mother of grammar!
Wow! That was extraordinary helpful. My only regret is that I have but one upvote to give.
You’re right about the unintentional self-mindkilling from focusing of schools of thought. It’s obvious to me in hindsight.
It might just be a leftover from my Austrian days, but I am thoroughly skeptical of any macroeconomic model. A red flag for me is when I read that macro models aren’t generally reducible to micro models. The only reason I’m reading a macro textbook is that my school requires intro to macro as a prerequisite to intro to micro. And I was thinking of studying introductory macro so I have a decent hand on it when I have to take it in school.
Reading the first 100 pages of Mankiw’s Principles of Macroeconomics hasn’t been too terrible. Though so far I think it has basically been micro disguised as macro. But based on what you’re saying, I think it might be better to stop reading it for now. I’ll just learn it when I take it in school.
My math background is okay, but not fantastic. I took some calculus my senior year of high school and got up to integration. For my freshman year of university, I’m taking Calc 1 in the fall and Calc 2 in the spring. Mathematics is likely my primary major, so I think I’ll read Mathematics for Economists and then move onto Varian.
Thank you very much for the suggested books, advice, and insight.
No problem!
If you’re going to attack Varian, I’d suggest not focusing on Mathematics for Economists too much. Make sure you understand basic constrained maximization using the lagrangian and then you’re ready for Varian. Anything else he does that seems weird you can pick up as needed. Constrained maximization is usually taught in Calc 3 AFAIK, but I don’t think it’s too difficult if you can handle Calc 1.
This shouldn’t be as much of a red flag as it is to most people. Is it a red flag when micro models don’t reduce to plausible theories of psychology? Not if it isn’t worth the effort of doing micro with said theories. Similarly, there’s a trade-off between microeconomic foundations in macro models and actually getting answers out of the models. Often the microeconomic foundations themselves aren’t even plausible to begin with. It still might be a red flag based on the details of the tradeoff at the margin, but I’m not sure it’s that clear.
I was just reviewing Mathematics for Economists. While a lot of it sounds fascinating, it’s probably not what I need at the moment. Too much of it is over my head. So on second thought, I’ll probably just review the first half of Calc 1, learn the second half, and tackle Varian.
On the topic of macro reducing to micro, point taken. I appreciate the clarification.
Good idea. I wouldn’t worry about complicated integrals if you’re just preparing for Varian. You’ll need integration, but I don’t recall anything too complicated. It’s mainly the differential calculus that you’ll need.
Debating with Block would turn any rationalist off of Austrian econ. No one got it comletely right except Mises himself. Actually not even him, but he was usually extremely rational and rigorous in his approach—more than any other economist I know of—albeit often poorly communicated.
In any case, any non-ideologically motivated rationalist worth their salt ought to be able to piece together a decent understanding of the epistemological issues by reading the first 200 pages of Human Action.
Um… and you—alone among the ignorant masses—realize and know all this because...? Sorry, but I don’t have a high prior on your authority in the discipline.
I would have prefaced that with “in my opinion,” but I thought that was obvious. (What else would it be?)
Interestingly, this is pretty much what I used to say about Marx when I was a Marxist.
My point was to indicate that not all people who put stock in the “Austrian school” accept post-Misesians as competent intepreters. I meant, essentially: Mises had it right, but read his original work (not later Austrians) and you’ll be able to tell whether I’m right.
Is your nick from those times? Or a memory of them?
Slightly. Of course, the word has been used by many.