Thursday, May 29, 2008

Experimental verification of foundations of economics

This Guardian profile of Dan Ariely has a section that's just too delicious (via Brayden King, whose post also has an interesting comments thread):

Do mainstream economists really approach shopping and life with such clear and cold eyes? Listen to the story of Oz Brownlee, late professor at the University of Minnesota. One Friday, he and a colleague stopped to buy some steaks. Finding a long queue, they offered cash to the person in front to swap places. The shopper was dumbstruck - which the academics took as a bargaining ploy, so they raised the price. As news spread down the line, other customers turned hostile. The Minnesota department of economics alumni newsletter goes on: "Attempts to explain that they were ... trying to ascertain whether there was a mutually beneficial trade of time for money that might improve their welfare and that of the next person in line without disadvantaging others met with little success." The economists left without any steak.

Brownlee's mistake was to put into practice something that worked only in theory. That, Ariely and other critics say, is the point: conventional economics tries to make the man fit the model, rather than the other way around.

Update: The story, "perhaps apocryphal", is recounted in this obituary of Oz Brownlee (pdf).