Heavy Lifting - thoughts and web finds by an economist
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Monday, January 24, 2005

One major difference between economics and physics?

If asked, I would answer the lack of certainty in economics. I don't mean in the context of "risk vs. uncertainty," but in the context of what physicists call "constants," such as the "speed of light in vacuum." Physicists know these constants and they stand the test of time. In economics, we have very few constants and even those often seem vulnerable.

I am not sure if economics would be easier or harder if we had more constants. One of my professors in graduate school assured me there were "72 principles of economics." I have never been able to list them all, nor did he ever offer them to me, and therefore it might have been his way to make me think about economics (other economists whom I ask have never heard the statement, but that is a limited sample).

However, even if the 72 principles existed and were relatively constant that would represent about a fourth of the "physics constants" in this list. Moreover, on the list of 72 I am sure there would several contradicting "principles" which is an intolerable situation in physics.

Therefore, the number of constants in economics is probably significantly less than 72, although these constants may be as powerful as some physics constants. "Constants" such as "qui bono" or "incentives matter" are powerful, if not exact, concepts that assist in explaining the world around us.

I have been thinking about this after watching the television show "Numbers" last night after the football game. The concept is interesting: John Nash in "A Beautiful Mind" meets C.S.I. The mathematician in the show generates an "equation" that predicts where a criminal lives as opposed to where the criminal will strike next. It is a reasonable approach to the problem, after all the criminal probably spends more time at home than anywhere else.

It was not clear whether the approach was deterministic or stochastic. From the dialogue it seemed stochastic ("96% chance he lives in this neighborhood", etc) but from what little math we were allowed to see, it was unclear what was going on.

I don't think the show will have legs because how many different equations can the mathematician come up with? My thought is that if human behavior allowed for the same constants they have in physics, perhaps the physicists would replace us economists (and detectives, for that matter), but I am not dreading imminent replacement.

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