Some neglected Gary Becker open access pieces

by on May 4, 2014 at 1:49 pm in Economics, History, Uncategorized | Permalink

Summarizing Becker’s contributions is like trying to summarize economics and it is not really possible.  I believe he has the best “30th best” paper of any economist, living or dead.

Here are a few Becker articles which are not even his best known work:

1. “Irrational Behavior and Economic Theory.”  Can the theorems of economics survive the assumption of irrational behavior? (hint: yes)

2. “Altruism, Egoism, and Genetic Fitness: Economics and Sociobiology.”  The title says it all, from 1976.

3. “A Note on Restaurant Pricing and Other Examples of Social Influence on Price.”  Why don’t successful restaurants just raise the prices for Saturday night seatings?

4. “The Quantity and Quality of Life and the Evolution of World Inequality” (with Philipson and Soares).  The causes and importance of converging lifespans.

5. “Competition and Democracy.”  From 1958, but most people still ignore this basic point about why government very often does not improve on market outcomes.

6. “The Challenge of Immigration: A Radical Solution.”  Auction off the right to enter this country.

Brian Albrecht May 4, 2014 at 1:55 pm

I know this is a time to remember Dr. Becker, but I would love to hear about papers 1-29.

Ray Lopez May 4, 2014 at 2:50 pm

Maybe papers 1-29 are gated? It happens often in academic publications, even those funded with public money.

tomrus May 4, 2014 at 1:58 pm

Can the theorems of economics survive the assumption of irrational behavior? (hint: no)

Fred May 4, 2014 at 5:15 pm

Roger that.

Chris S May 5, 2014 at 9:52 am

Can you address your rejection to specific points in Dr. Becker’s thesis? Or are you merely stating your priors.

ummm May 4, 2014 at 2:00 pm

This is somewhat off-topic, but I predict publishable research will move from static papers to wikis. Researchers will publish findings on wikis that can be updated to reflect new changes, be open to everyone to read (although not to edit), and be archived to show past edits and changes of the progression of knowledge.

Just another MR Commentor May 4, 2014 at 2:03 pm

I see humans in the future becoming basically a part of the internet and being able to instantly absorb and comprehend data. Thus I find the wiki hypothesis interesting but in the future we will move far past this. Any society that is sufficiently advanced to adopt Wiki publishing will also have the technology to digitize human beings.

Sam May 4, 2014 at 7:31 pm

This is ignoring the role and value of property rights, i.e. authorship. Just like owning a house, owning your paper motivated you to invest resources in it. Wikis and journal articles are compliments not substitutes. We need the journal medium to incentize research, while I see wikis as sort of synopsis of “what we know now”. At best, wikis will subsume the literature review section, and lead to more succinct papers.

Merijn Knibbe May 4, 2014 at 2:12 pm

The first article indeed states that we don’t need utility curves to ‘proof’ the downward sloping demand curve. Neat.

Ray Lopez May 4, 2014 at 2:49 pm

@ Merijn Knibbe–Becker paper #1 indeed is neat, but, as I suspected, is simply appears to prove that irrational behavior results in a downward sloping demand curve by saying that such “impulsive” behavior is randomly distributed, (see p. 6) and thus it will result in a downward sloping demand curve. But random irrational behavior is not the only type of behavior. For example, a “irrational herd” is also a type of behavior that is not random. For example, legions of lemming-like parents who want the latest Spiderman toy for their tot, and will pay any amount to get it.

Andy May 4, 2014 at 3:02 pm

You should have kept reading to #3 which is on demand systems with herd behavior.

Merijn Knibbe May 4, 2014 at 5:54 pm

The point is – it shows that we do not need utility curves and related nonsense for demand analysis. The budget line is enough.

samson May 4, 2014 at 7:09 pm

You are in dire need of learning about revealed preference analysis. Downward sloping demand does not require a utility- or preference-based foundation.

Chris S May 5, 2014 at 9:57 am

IIRC one of Becker’s traits was to look at seemingly irrational behavior and reframe it in ways that it is actually rational.

For instance, the rationality of addicts: sure they will be undoubtedly better off if they quit, so why don’t they? Short answer: compare the immediate pain of withdrawl/recovery to the period of better living past that. Discount to present.

Present value of the sum of the pain of quitting > present value of the sum of better life in the future. (Will you pay $1000 today so that in one year you will start to receive $1/day for life? What values of $today and $/day are breakeven?)

Martin May 4, 2014 at 2:50 pm

You should read Kirzner’s response and Becker’s reply.

Harry May 4, 2014 at 4:13 pm

The paper about how utility theory can withstand demonstrations of irrational behavior was published in 1962. This was 40 years before Kahneman won the Nobel prize for demonstrating systematic violations of the theory. Rabin won the John Bates Clark award for his demonstration of the failure of the concept of diminishing marginal utility to explain risk aversion. It is bizarre and almost unethical that Harbaugh forces his students to read this paper published when John F. Kennedy was still alive (does he also assign Rabin, Kahneman and Tversky, Thaler,Loewenstein and Laibson?)

Merijn Knibbe May 4, 2014 at 5:56 pm

It is *not* a paper about how utility theory can withstand demonstrations of irrational behavior. It is a paper which, implicitly shows that we do not need utility theory.

David Sucher May 4, 2014 at 4:59 pm

As to Becker’s restaurant paper, maybe I missed something since I just scanned (too much math for me to track) but I think he missed a bit of commonsense:

Becker didn’t ask the restaurant owners.

He asks a n interesting question but doesn’t appear to do the obvious: ask the business operator? Why not? They may not get the sophisticated answer of an economist. But he may get the real answer such a something simple as “Customers would get annoyed” or “Too complicated for staff” or “Looks like gouging” or even “Huh. Good idea.”

What am I missing?

Jayson Virissimo May 4, 2014 at 5:30 pm

For the economist, asking a business owner why they do such and such would seem to them akin to a biologist asking an organism why a particular trait or behavior is adaptive in their environment.

dearieme May 4, 2014 at 7:05 pm

Before you appoint someone to a post teaching surgery you normally ask that he have experience of the sawbones trade. But people get appointed to economics teaching posts without ever having run a business – or, often, even having worked in one. Is this an example of irrationality? What are its consequences?

Jar Jar Binks May 4, 2014 at 8:15 pm

It’s really a shame that social scientists are given appointments before experiencing the full continuum of human experiences, isn’t it?

dearieme May 5, 2014 at 10:12 am

It’s not that they lack a continuum, it’s that they typically lack anything much at all.

David Sucher May 4, 2014 at 9:09 pm

I know that you are making a slightly different point.

But to be clear — I am not saying that Becker should go work in a restaurant or buy one.

I was just wondering why Becker didn’t simply ASK (ya know, like a conversation) some restauranteurs why they do, what they do.

Benjamin Cole May 4, 2014 at 10:56 pm

David Sucher–

You are making a hell of a good point.

I often interview institutional real estate investors, and ask them about central banks, and even about forward guidance, The institutional investors say they pay zero attention to forward guidance as central banks can change their minds.

They choose to invest on recent past economic and business trends, and that is about it. Also, most institutional real estate investors are more or less compelled to invest. It is difficult to come back to the client, and say “We find nothing to invest in. But we want our fees.”

Yet we have screaming arguments in the blogs about the efficacy of “forward guidance.” For that matter, in any field, I have never heard anyone say they are going to invest based on central bank policies.

Curt F. May 4, 2014 at 10:24 pm

So you are saying that economists do not understand that business owners, unlike most organisms, are capable of communicating in spoken language? Because I’m fairly sure that biologists would ask their organisms lots of questions, if they could talk.

gbz May 4, 2014 at 11:22 pm

This is only a partially valid point. There are good reasons to talk to the organisms and also many very good reasons not to. No need for us to go into the meaninglessness of surveys and focus groups, but that’s what you are essentially arguing for, economics by focus groups.

Chris S May 5, 2014 at 9:59 am

Sure, but what would be the quality of answers?

David Sucher May 5, 2014 at 11:30 am

You find out the quality of the answers when you heard them.

Are you suggesting that restauranteurs couldn’t offer intelligent answers? If so, then you ought to get out and talk to non-academics.

Chris S May 5, 2014 at 11:33 am

I am suggesting the restauranteurs may have reasons like “that would be rude” or “no one does that” which do not get to the why.

PS I am not an academic. Neither, however, am I a restauranteur.

Ronald Coase May 5, 2014 at 8:18 am

Jason, I disagree.

Rahul May 5, 2014 at 1:44 am

How are we so sure he didn’t ask?

David Sucher May 5, 2014 at 11:35 am

@Rahul.

Becker personalizes the paper with a nice friendly style. Read it.

Becker refers to a similar question that he had asked a class at Columbia but didn’t get satisfactory answers.

So based on his style, I tentatively assume that if Becker asked restauranteurs he would have told us.

David Sucher May 4, 2014 at 5:21 pm

In fact it can be seen as close-to insulting that Becker didn’t ask the people who make the decision.

He goes on about what he thinks is happening but never asks the decision-makers. OBVIOUSLY, he might ask them and get unsophisticated or dumb answers and discount them and offer his own externally-based explanation.

Is that typical in economics? Did Becker ask but got no answers that made sense?

Imagine a sociologist studying why women get involved with abusive men; and then writing a paper suggesting some theory about their daddies — but never ever asking the women? It would be weird.

Merijn Knibbe May 4, 2014 at 6:00 pm

Read this, about Diederik Stapel, who committed scientific fraud by making up things. http://www.nytimes.com/2013/04/28/magazine/diederik-stapels-audacious-academic-fraud.html?pagewanted=all&_r=0

Guys like Becker did and do this all the time.

Jar Jar Binks May 4, 2014 at 6:09 pm

-1

David Sucher May 4, 2014 at 9:13 pm

Not quite how I track fraud to my suggestion that, (at least as background to understand how a business functions,) that it might be smart to talk to the people who own and operate subject business.

gbz May 4, 2014 at 11:31 pm

One, you can’t do economics by focus groups. Two, even businesses don’t set their prices by asking their customer’s what they would pay for their services, for rather obvious reasons. For largely the same reason, you would be a pretty bad economist if you asked your subjects why they do something. That said, it won’t hurt to ask just to know. But its unlikely to be much use.

David Sucher May 4, 2014 at 11:41 pm

GBZ, that is just too odd for me to track.

1.

For one thing I said NOTHING about focus groups. I said “Go ask a restauranteur why you do what you do.” Total difference.

And wait a second: Becker explicitly wanted to know why restauranteurs do certain things. Becker was not asking about the theory. He wanted a practical answer but his way of getting to that answer was by an external theory rather than by asking.

2.

As to restauranteurs not knowing their business. Nonsense. How do you think they stay in business if they don’t know their numbers? Of course they know their costs and market dynamics. They may make mistakes but conversation is obviously a place to start if one is trying to understand an industry. Or talk to their accountants.

Sorry, but sheesh. :)

Turpentine May 4, 2014 at 10:47 pm

“Is that typical in economics?”

Sadly, it very much is.

Dismalist May 4, 2014 at 7:23 pm

Some comments above suggest asking business people about what they do. There was a famous exchange in the AER of !946 or 1947 or so, about profit maximizing behavior on the part of such people. IIRC correctly, business types tended to say: What, me maximize profits? I would never do a venial thing like that! No, I just figure out a markup on my costs.

Well, there you go: Those answers are not even untrue; they’re merely completely unhelpful. Economics attempts to explain behavior; we individuals tend to justify our own behavior.

Becker pioneered the attempt at explanation in areas not then considered part of economics. Well, Becker taught us they are amenable to analysis by the same tools as used to analyze profit maximizing behavior, err, calculating the proper markup. :-)

liberalarts May 4, 2014 at 8:02 pm

+1

Ho May 4, 2014 at 9:54 pm

“He was perhaps the greatest living economist”.
Nonsense. Professor Cowen.
Future research of neuroeconomics, social psychology. sociology etc, will refute most, if not all, of Becker’s theories and policy recommandation.

gbz May 4, 2014 at 11:25 pm

Really? Why?

Perseus May 4, 2014 at 11:38 pm

Sociology?!?

Tarrou May 5, 2014 at 8:17 am

This is meaningless. Freud, James and Skinner were all the greatest living psychologists of their day, even though virtually everything they ever did has been subsequently demolished. Just because theory corrects over time does not diminish the contributions made previously.

Thor May 5, 2014 at 10:40 am

You posted this twice in this thread without giving me the slightly bit of confidence in your position because you don’t explain anything or provide an argument, let alone a link or a book title.

Benjamin Cole May 4, 2014 at 10:50 pm

#6 Immigration Auction.

This is an interesting idea.

Another one is an American Foreign Legion, 10 years of service and citizenship granted, but no pension or VA benefits ever. A lot cheaper for taxpayers, and we get men and woman into our labor force at prime age, when they exit the military.

Jag Bhalla May 5, 2014 at 4:26 pm

Your list includes Beckers attempt to use (and beat) E.O. Wilson’s ideas from evolution.
Do you know of any connections between Becker & Richard Dawkins work?

Barkley Rosser May 6, 2014 at 11:15 am

I have the greatest respect for the late Gary Becker both as an innovative and influential and intellectually consistent scholar, as well as a gentleman of the old school who could disagree without being disagreeable and was always completely respectful of and friendly towards those with whom he disagreed on intellectual matters. I did not know him well, but while we disagreed on many things (I have edited journals emphasizing behavioral economics, and despite Justin Wolfers’ claim that Becker was the first behavioral economist, Herb Simon was, Wolfers knows that Becker himself would not have been happy with such a designation), I always found him to be completely professional and personable in all my dealings with him. He was a model of proper academic and intellectual inquiry and discourse, and he will be missed.

Barkley Rosser May 6, 2014 at 11:22 am

That said, I found the 1962 paper you linked to on “Irrational Behavior and Economic Theory,” Tyler, to be surprisingly weak. In the end he comes down to the claim that downward-sloping demand curves are ubiquitous for both households and firms due to budget constraints, even in the face of apparently irrational behavior, such as impulse buying. Amazingly he did not even recognize the theoretical possibility of Giffen goods, which have since been shown to actually exist (rice in China, probably some other goods as well), and I know that Stigler always claimed (incorrectly) that there were no Giffen goods, period. So, he was simply wrong on that one. Furthermore, if one is simply looking at markets crudely, we see lots of phenomena that look on the surface like Giffen goods, particularly speculative bubbles, when we see prices of goods rising andn people buying more of them (and vice versa), which look on the surface like failures of the ubiquity of downward-sloping demand curves. Of course, Becker probably dismissed bubbles on “survivalist” grounds following Milton Friedman, who argued they could not happen in forex markets (sorry, Uncle Miltie, but wrong). As it is, bubbles can be reconciled with a rarity of Giffen goods by arguing that what one is seeing is outward shifting demand curves, although these outward shifts very likely reflect some form of irrational expectations.

So, in the end, I find Becker’s argument in this paper to be surprsingly weak, although I suspect that his views on this matter became better informed and more sophisticated during the succeeding half century. And, again, disagreement with him does not remotely imply any disrespect for him as a person or a scholar.

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