Thought Experiments and Storytelling

Experiments As economists and economics educators are painfully aware, our discipline does not lend itself well to the conduct of experiments like our colleagues are able to do in the natural sciences. It’s not impossible; it’s just difficult. Economists suffer from a bit of “physics envy” Thought Experiments and Storytelling by Richard Gosselin 2

Thought Experiments Of course it doesn’t prevent us from trying but we all know that in the end we face the classic problem of the participant being aware of being observed. Naturally, this makes us suspicious of what we see. What we can do though is to conduct “thought experiments”. Thought Experiments and Storytelling by Richard Gosselin 3

Tactics Versus Strategies – Problems Versus Exercises We should want students to be explorers. What is an explorer? He or she is the one who is lost. If he’s not lost then he can’t be an explorer since he already knows where he is going. “Sticking your butt out” – counterintuitive mountain climbing advice. Great analogy which helps students look for the not-so-obvious explanations for economic phenomena. “Sawing the giraffe” – an outrageous solution given by a middle school student on how to weigh a giraffe. Thought Experiments and Storytelling by Richard Gosselin 4

So What are Thought Experiments? Thought experiments have the virtue of not having to worry about participants and observers. Why conduct a thought experiment? Thought Experiments and Storytelling by Richard Gosselin 5

Thought Experiments Given the structure of a potential experiment, it may or may not be possible to actually perform it, and, in the case that it is possible for it to be performed, there need be no intention of any kind to actually perform the experiment in question. Thought Experiments and Storytelling by Richard Gosselin 6

What is the Goal? The common goal of any thought experiment is to explore the potential consequences of the principle in question. Galileo did this in his famous work “Dialogue Concerning the Two Chief World Systems” Thought Experiments and Storytelling by Richard Gosselin 7

Galileo’s Dialogue What he did was to create an artificial or hypothetical dialogue between two fictional characters and arrived at his hypothesis by deduction. In other words, he told a story. Thought Experiments and Storytelling by Richard Gosselin 8

Good Enough for Galileo Storytelling, unlike traditional lecturing doesn’t have to rely on the lecturer alone. The story can actually involve the audience members as well. In our profession that means our students. Through the process of Socratic questioning we can tease out the answers to some important and fundamental economic questions that we want our students to think about. Thought Experiments and Storytelling by Richard Gosselin 9

Galileo’s Thought Experiment Salviati. If then we take two bodies whose natural speeds are different, it is clear that on uniting the two, the more rapid one will be partly retarded by the slower, and the slower will be somewhat in this opinion? Simplicio. You are unquestionably right. Salviati. But if this is true, and if a large stone moves with a speed of, say, eight while a smaller moves with a speed of four, then when they are united, the system hastened by the swifter. Do you not agree with me will move with a speed less than eight; but the two stones when tied together make a stone larger than that which before moved with a speed of eight. Hence the heavier body moves with less speed than the lighter; an effect which is contrary to your supposition. Thus you see how, from your assumption that the heavier body moves more rapidly than the lighter one, I infer that the heavier body moves more slowly. Thought Experiments and Storytelling by Richard Gosselin 10

Less Telling and Less Showing A real good economics story involves less telling, less showing and more discovering. In a way it is a method of discovering the truth poetically. It’s sort of the opposite of of Mr. Grandgrind in Dickens’ Hard Times whose utilitarianism is satirized. The facts, and only the facts. Thought Experiments and Storytelling by Richard Gosselin 11

Examples – Short Ones The Black Box – “The End of Scarcity” Health Care – 1950’s prices – Yipee! – Greg Mankiw The “Ten Cent Miracle Pill” – similar to Greg Mankiw’s parable but with a twist. Flying on Standby – opportunity cost and sunk cost The Demographic Quiz – a demonstration of the principle of heuristics. Thought Experiments and Storytelling by Richard Gosselin 12

Examples – Longer Ones “Who Wants to be a Millionaire” – explores the concept of the wisdom of crowds principle. Also can be used to explain bubbles. The Grocery Manager’s Shopping Cart – explores the weaknesses of the simple CPI. The Babysitting Co-Op – recessions and monetary policy (Paul Krugman) Thought Experiments and Storytelling by Richard Gosselin 13

Examples – Longer Ones Warehouse Receipts - Murray Rothbard on Money Creation and the concept of bailment. Explores the pitfalls and moral dimensions of fractional reserve banking. The Strange Case of Pure Competition – lessons from a Nobel Prize winner. (Joseph Stiglitz). Questions the whole assumption of pure competition and casts doubt that there is actually a supply curve at all. See his Nobel address. Thought Experiments and Storytelling by Richard Gosselin 14

Examples – Longer Ones Income Inequality – The Easterlin Paradox He found that within a given country people with higher incomes were more likely to report being happy. However, in international comparisons, the average reported level of happiness did not vary much with national income per person, at least for countries with income sufficient to meet basic needs. The $100 bill Auction – a lesson in rationality which helps students understand that there is more to rational behavior than meets the eye. Can be discussed as an actual experiment or used as a thought experiment. Thought Experiments and Storytelling by Richard Gosselin 15

Examples Interdependent utility – the Ultimatum game and the Dictator game. Both games are discussed by Scott Huettel who studies neuroscience at Duke University. Ebay – great company whose service helps illustrate the importance of trust in a market- based economy. Thought Experiments and Storytelling by Richard Gosselin 16