Counter-Intuitive Econ

A guest post by Alexander Craig

I recently declared that “Economics is Counter-Emotional, Not Counter-Intuitive.” Alexander Craig, econ professor at St. Mary’s College and my former student, sent me this thoughtful critique. Reprinted with his permission.

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I want to defend the idea that economics has some counter-intuitive propositions to offer. It does depend on what “intuitive” means, though. I think it’s fair to say that something is intuitive if someone without formal training in the area can think it through on their own. If it takes an economist re-framing the issue to show the answer makes sense, it’s not necessarily intuitive. In other words, economics can be made intuitive, but it takes effort and skill.

Here’s one proposition I think is counter-intuitive for most people: adding housing for rent at above-average prices can lower the average price of housing in a city. There’s an easy way to make this intuitive. Rephrase it as “Adding housing for rich people makes other housing available for poor people.” You could also say “Making landlords face steeper competition incentivizes them to lower rents.” I just don’t think the average person will immediately see that those propositions are as tightly interrelated as they really are.

Tom Strong, science hero/Coasean bargainer.

As I’m sure you know, Elmendorf, Nall, and Oklobdzija found people have economically nonsensical views about housing economics and that their beliefs are mostly “non-attitudes” that aren’t consistent over time. They also found people change their beliefs when given an intuitive explanation like housing as a game of musical chairs. That doesn’t sound to me like people are just being emotional about it! Emotional attachment to a certain way of thinking would look like confirmation bias or under-updating in light of countervailing evidence. This looks to me like people just don’t think about housing markets very carefully and rely on faulty intuitions. Admittedly, those authors also found that people change their stated policy preferences more when given normative stories that directly address their moral concerns about developers, which could be taken as an emotional reaction. However, I think it’s also pretty rational to change your normative views when someone directly addresses something about them! It could easily be that people are lazy and intuitive about their descriptive beliefs but emotional and ideological about their normative beliefs. That doesn’t even strike me as necessarily a bad thing.

I think we’d agree that one of the biggest benefits of an economics education is simply being disabused of popular narratives that rely on lazy thinking, like imagining market profits predominantly come from taking advantage of others or that businesses with rising costs will choose to “make up the losses” by expanding volume. We agree, in other words, on the importance of rational irrationality. I think where we diverge is that I believe people aren’t relying on mere emotional attachment to a certain implicit descriptive model of the world. The implications for our normative beliefs sound to me like your model would lead us to tell people to just be less emotional (slim chance!) whereas I think economists need to inject more sound economic thinking into our popular narratives. Less Rainbow Fish, more Tom Strong, perhaps?

Alex

P.S. If basic economic thinking were so intuitive, surely it wouldn’t be in our intro courses? It would be unnecessary to teach, so surely we’d just move what was unintuitive in the advanced courses and put it in Principles!