Academically respectable, but still relevant? Photo: Tanya Lake
Is it possible the discipline of economics is becoming so mathematical it's in the process of disappearing up its own fundament?
While you're thinking about that, let me take the opportunity to ask you a quiz question (it's a holiday weekend, after all).
You've won a free ticket to see an Eric Clapton concert (which has no resale value). Bob Dylan is performing on the same night and is your next-best alternative activity. Tickets to see Dylan cost $40. On any given day, you'd be willing to pay up to $50 to see Dylan. Assume there are no other costs of seeing either performer.
So what is the ''opportunity cost'' of seeing Clapton? Is it $0, $10, $40 or $50? Take your time (especially if you fancy yourself as an economist).
The opportunity cost of a decision is the value (benefit) of the next-best alternative. So the right answer is $10. When you go to the Clapton concert you forgo the $50 of benefit you would have received from going to the Dylan concert.
But that's the gross benefit. You also forgo the $40 of cost, so the net benefit you forgo is $10.
If you didn't get the right answer, don't feel too bad. When two economists at Georgia State University, Paul Ferraro and Laura Taylor, asked that question of almost 200 economists attending a professional conference, almost 80 per cent got the wrong answer.
The answers they gave were spread across the four possible answers, with more than a quarter saying $50, apparently believing it was only the ''willingness to pay'' of $50 that was relevant.
The next most popular answer was $40, apparently because people thought the cost of a Dylan ticket must also have been the opportunity cost. Those who answered $0 must have concluded there could be no opportunity cost if the Clapton concert was free.
This left fewer than 22 per cent of respondents getting the right answer. And if that (along with your own failure to get it right) doesn't shock you, it should.
Opportunity cost is probably the most fundamental concept in economics. One introductory textbook lists it along with ''marginalism'' and ''efficient markets'' as three of economics' most fundamental concepts. Opp cost seems a pathetically simple concept, but non-economists keep forgetting to consider it - meaning they don't always make the best decisions about how to spend the limited time and money available to them.
And it seems the concept isn't as simple as we assume. If about 80 per cent of non-economists got the question wrong, that would be a pity, but not too surprising. But the respondents to the survey were, in the authors' words, ''among the most well-trained economists on the planet''. Two-thirds of the respondents had PhDs, with the remainder studying for their PhD. What's more, more than 60 per cent of them had actually taught introductory economics courses. Those who'd taught the course were no more likely to get the right answer than those who hadn't, nor were those who'd attended one of America's top-30 graduate schools, nor those who'd graduated before 1996 rather than after it.
The only significant differences were in the economists' field of specialisation. Only the tiny number specialising in micro-economic theory got a halfway respectable score, followed well back by those doing applied micro. Worst were those doing macro or international economics. The first reason for concern is what these results say about the quality of the teaching of economics at postgraduate level.
After surveying students in seven top-ranking US graduate programs in 1987, David Colander, a leading researcher of the economics profession, concluded the programs emphasised mathematics to the detriment of empirical content and economic reasoning.
A commission on graduate education in economics in 1991 found that it generated ''too many idiot savants, skilled in technique but innocent of real economic issues''. This survey suggests little improvement since then.
Does it matter for economic research if economists can't identify opportunity cost? ''Obviously,'' the authors say, ''it matters for PhD economists who take jobs in the private or government sectors, in which opportunity costs are the fodder of daily decisions …
''Theoretical research rarely requires that an individual calculate an opportunity cost in the form of a word problem. Empirical research tends to focus more on appropriate techniques to make inferences about parameter values in models.
''But can economists be relevant in the world of ideas and policy if we cannot answer simple … opportunity cost questions?''
But whatever the failings of post-graduate teaching, there's also failure at the undergraduate level. The authors say the concept of opportunity cost is usually covered in the first week of introductory undergraduate classes and often deemed so straightforward as to not require further teaching time.
A Nobel laureate complained that ''the watered-down encyclopaedia which constitutes the present course in beginning college economics does not teach the student how to think on economic questions. The brief exposure to each of a vast array of techniques and problems leaves the student with no basic economic logic with which to analyse the economic questions he will face as a citizen.'' That was George Stigler, writing as long ago as 1963.
The authors say that ''if we are not able to instil in our students a deep and intuitive understanding of one of the most fundamental ideas that the discipline has to offer [and the idea whose frequent application could do most good in peoples' private and public lives] then we wonder what we can claim as our value-added to the college curriculum''.
It makes me wonder whether, in its preoccupation with using maths to make itself more ''rigorous'' and thus academically respectable, economics has lost its way.