Chapter 21 - Thinking like a modern economist. After reading this chapter, you should be able to: Differentiate traditional economic building blocks from behavioral economic building blocks, explain what heuristic models are and how traditional and behavioral heuristic economic models differ, distinguish an empirical model from a formal model and list some formal models used by modern economists. | Economics is what economists do. ―Jacob Viner Thinking Like a Modern Economist Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 1 Chapter Goals Differentiate traditional economic building blocks from behavioral economic building blocks Distinguish an empirical model from a formal model and list some formal models used by modern economists Explain what heuristic models are and how traditional and behavioral heuristic economic models differ Discuss how modern economics and traditional economics differ in their policy prescriptions 2 The Nature of Economists’ Models Economists are differentiated from other scientists because they use different: Building blocks (the assumptions of a model) Structures for models (the form it takes – verbal, graphical, or algebraic) 3 The Nature of Economists’ Models Models can be mathematical or heuristic which are models that are expressed informally in words Modern economists are economists who are willing to use a wider range of models than did earlier economists Modern economists use more of an inductive, as opposed to deductive, approach to modeling Models can be made from physical components or as computer simulations 4 Scientific and Engineering models Applied-policy or engineering models are designed to provide insight into policy issues Other models fall somewhere in between, there is no firm line distinguishing science from engineering Scientific models are models primarily designed to provide understanding of what is happening for the sake of understanding 5 Behavioral and Traditional Economists Traditional economists are economists who study the logical implications of rationality and self-interest in relatively simple algebraic or graphical models such as the supply and demand model Behavioral economics is a microeconomic analysis that uses a broader set of building blocks than rationality and self-interest 6 Behavioral Models Difficult to Test Behavioral economics depends on the . | Economics is what economists do. ―Jacob Viner Thinking Like a Modern Economist Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 1 Chapter Goals Differentiate traditional economic building blocks from behavioral economic building blocks Distinguish an empirical model from a formal model and list some formal models used by modern economists Explain what heuristic models are and how traditional and behavioral heuristic economic models differ Discuss how modern economics and traditional economics differ in their policy prescriptions 2 The Nature of Economists’ Models Economists are differentiated from other scientists because they use different: Building blocks (the assumptions of a model) Structures for models (the form it takes – verbal, graphical, or algebraic) 3 The Nature of Economists’ Models Models can be mathematical or heuristic which are models that are expressed informally in words Modern economists are economists who are willing to use
