A world of irony and self-fulfilling prophecy

Economics is about values, and values are about economics. 

When I say I value something, I mean that it is important to me, more important than something else. When faced with a choice I would choose the valued thing over some other thing. That is equally true of pizzas and ideas. When I’m hungry, I part with a few slips of green paper to get a pizza: the pizza is more valuable to me than the green paper. If I say “I live for my family” that means that, given the opportunity of a high-powered job in a different city, I would turn it down if I believed it would disrupt my family life. 

Economics is the systematic study of what people value: An economist observes the tradeoffs people make and concludes something about what they value, individually or in aggregate. 

But economists don’t just observe from an external, privileged vantage point, like a biologist observing what goes on in a Petri dish. And not only because economists are economic actors themselves. We learn what is valuable from each other. We influence each other’s values. The more aware we are of what tradeoffs other people are making the more we shape our own choices accordingly, whether to conform to social expectations or to rebel against them. As the economist reports out her findings to the world she shapes the world she observes.  

This is all the more true when it comes to the values that govern our choices about the rules of the game, the game of exchanging and sharing resources with each other to achieve our goals. Economists observe the game and its rules, but their observations influence how we perceive the game and what values we bring to it. That reshapes the game.

When economists build a model on the assumption that more of something is always better – that having six scoops of ice cream is always better than having just five, even if only marginally so – then that assumption creeps into our belief system through a thousand different channels. University professors pass that idea on to their students, who become teachers, journalists, legislative aides, parents, who pass that simple idea on in turn. The self-reinforcing loop embeds the idea deeply in our culture. Then behavioral economists can go out into the field and survey what people believe and find confirmation for the model they learned in Econ 101.

Never mind that the eight scoop makes you vomit and the 13th can put you off ice cream for a lifetime.

Do economists make markets? Yes, they do. And their observations shape the values they observe. Economics is world of irony and self-fulfilling prophecy. 

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