A.B.A.: Always Be Advising
By Bryan Caplan
I often annoy other economists by giving advice. “Economists are supposed to describe behavior, not change it,” they insist. But they couldn’t be more wrong. Economics is inherently advisory. Anytime an economist notices a discrepancy between (a) the world as it is, and (b) the world as people believe it to be, economics implies advice.
Suppose an economist knows that the true price of driving a mile is $.25. If X falsely believes that the price is $.23 per mile, the economist has every right to tell him, “You drive too much.” “Too much” by what standard? By whatever standards X happens to hold. On the other hand, if X falsely believes that the price is $.27 per mile, the economist has every right to tell him, “You drive too little.” “Too little” by what standard? By whatever standards X happens to hold.
The same applies if X under- or over-estimates the toxicity of cigarettes, the distance from Boston to New York, or the probability of getting tenure. If you over-estimate costs or under-estimate benefits, economics tells you to start doing more. If you under-estimate costs or over-estimate benefits, economics tells you to start doing less.
Notice the huge difference between economic advice and, say, medical advice. The typical doctor will tell you, “Cigarettes are bad for your health, so stop smoking.” For an economist to give smoking advice, in contrast, he needs to know more than the mere fact that smoking has a downside. He needs to discover a discrepancy between actual and perceived downsides. Do you under-estimate the health risks of smoking? Then economics tell you to smoke less. Do you over-estimate the health risks of smoking? Then economics tells you to smoke more. Unlike doctors, economists know how to give advice and respect pluralism at the same time.
Of course, a long list of caveats is implicit. If you’re making a discrete choice, you need to interpret “buy more” as “be more willing to buy” and “buy less” as “be less willing to buy.” If you simply don’t enjoy a product, you should to interpret “buy more” as “buy the same or more.” If some people over-estimate and others under-estimate, you need to give the two groups opposite advice. Etc. It’s OK to quibble, but the logic of what Patri Friedman calls “directional rationality” is hard to escape.
Bottom line: Once you discover a discrepancy between the world and it is and the world as people perceive it to be, economic science and economic advice are perfectly compatible. The only economists who should give no advice are the freakishly unperceptive souls who have failed to discover a single discrepancy between the world as it is and the world as people perceive it to be.