Arnold Kling

Chicago Slaps Back

Arnold Kling, Great Questions of Economics
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I continue to view the latest Nobel Prize in economics as being in conflict with the Chicago school. David Warsh has a long essay on Vernon Smith, including this quote on how Smith's first results were treated.

"A great discovery, right? Not quite, as it turned out," Smith later wrote. The paper was dismissed, and dismissed again. "At Chicago they already knew that markets work. Who needs evidence?"

Experimental economics still is not entirely embraced by freshwater economists. For example, Steven Landsburg has a cynical view about what is demonstrated by one experiment, in which people supposedly are willing to sacrifice money to give to someone else, provided that a third party matches the sacrifice.

There are only three explanations I can see for all this. One is that people just really enjoy moving other people's money around, independent of who those people are. Another is that people simply forget that there are no free lunches, and you can't give something away without making someone pay for it. Yet another is that people somehow care less about anonymous faceless taxpayers than about other anonymous faceless strangers. I'm not sure which of these explanations is right, but none of them does much to improve my faith in democracy.

Zimran Ahmed thinks that the results from the experiment are consistent with people supporting tariffs.

Discussion Question. Which explanation do you believe, or do you have another explanation for the experiment's results?

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