Levitt’s Been Thunderstruck: Is Economics on the Highway to Hell?

A couple of months ago, Robert Oxoby of the University of Calgary posted a joke paper comparing AC/DC’s original lead signer, Bon Scott, with his successor, Brian Johnson. The paper presented the results of an experiment in which test subjects responded less “rationally” to financial incentives in an “ultimatum game” when listening to Scott’s “It’s a Long Way to the Top” than when listening to Johnson’s “Shoot to Thrill”.

Last week, Steven Levitt (author of Freakonomics and winner of the John Bates Clark Medal) slagged the paper without seeming to understand that it was a spoof. Levitt wrote of Oxoby, “I hope for this guy’s sake he has tenure.”

Much commentary has focussed on the awkwardness of this situation for Oxoby and the absence of an apology from Levitt. What interests me is that Levitt and a bunch of other economists failed to recognize the paper as satire. I am fairly certain that almost anyone from outside the economics profession would have taken it as a joke. Levitt and others did not because Oxoby’s paper – complete with references, graphs, and university letterhead – is a brilliant parody of what has become the mainstay of academic economics. The scholarly journals are full of short, blandly written articles that provide mathematically precise responses to very narrowly defined questions of dubious relevance. Indeed, such weak competition is part of the reason that PEF sessions were so well-attended at this year’s Canadian Economics Association meetings.

Partly due to Levitt’s influence, academic economists have begun to focus on spicy but often trivial topics. One impertinent commentator on the Freakonomics blog wrote that Oxoby’s paper “is not much dumber than Levitt’s research.” This episode confirms some of what Noam Scheiber had observed in The New Republic:

How was it that these students, who had arrived at the country’s premier economics department intending to solve the world’s most intractable problems–poverty, inequality, unemployment–had ended up facing off in what sometimes felt like an academic parlor game?

. . .

By the ’80s, however, the data-crunchers had come down with a crisis of confidence. In one famous episode, the eminent economist H. Gregg Lewis reviewed several studies on unions. What he found was alarming: Some papers reported that unions strongly increased wages; others reported exactly the opposite. The difference, in most cases, was simply the assumptions the authors had made.

. . .

Economists had long aspired to science. Suddenly they faced a harrowing thought: What if they were no better at pinning down truth than the average critical studies major?

Having glimpsed this nihilistic vision, many economists ran screaming in the opposite direction. They concluded that the path to knowledge lay in solid answers to modest questions. Henceforth, the emphasis would be on “clean identification,” on sorting out what caused what.

The early practitioners of this approach–Angrist, Krueger, Card–had well-earned reputations as crafty researchers. But, by and large, all three men used their creativity to chip away at important questions. It was only in the late ’90s that the signs of overreach became apparent. To some professors at top departments, clean identification became a fetish. . . . If you’re wedded to these techniques, eventually they lead you in obscure directions. “People think about the question less than the method,” says Berkeley professor Raj Chetty, one of the most sought-after Harvard graduates in recent years (and a notable exception to this trend). “They’re not thinking: What important question should I answer?’ So you get weird papers, like sanitation facilities in Native American reservations.” Many young economists began shunning big questions altogether.

. . .

Levitt debuted a new kind of paper: an investigation into offbeat phenomena from daily life. One of the earliest examples pondered the strategies soccer players employ when taking penalty kicks. Another paper studied corruption in sumo-wrestling tournaments as a window onto the power of incentives. Not long after, Levitt conducted an exhaustive inquiry into “Weakest Link,” a game show

. . .

Chicago had never been an ideal place to do empirical work. Nobel Prize-winning theorists like Gary Becker and Robert Lucas disliked dirtying their hands with data. It is sometimes said that healthy departments have a straightforward division of labor: The theorists generate predictions, and their colleagues test them with data. Alas, this process can be a drag for the people being scrutinized. It’s much more fun to generate pie-in-the-sky predictions when you don’t have some killjoy looking over your shoulder. Which is why, from the perspective of the theorists, the ideal colleague may be someone less fastidious. Someone who studies the offbeat and clever, not the discipline’s central questions. Someone who, you might say, looks less like Jim Heckman and more like Steve Levitt. “Rigorous theory and bullshit empirical work can co-exist,” Heckman sighs. “It leaves the rigorous theorists to make up the numbers they want.”

. . .

One growth industry in recent years has been what you might call the lookie-here paper: a small-scale setting for observing some broad principle of economics. Many of these papers deal with sexy topics like corruption and, well, sex.

. . .

One of the statements Levitt has become famous for since Freakonomics is his observation that “economics is a science with excellent tools for gaining answers but a serious shortage of interesting questions.”

The full article, which Levitt took badly, is available through the following links: page 1, page 2, and page 3.

The fixation on high-powered mathematics has pushed many academic economists away from big questions that this methodology cannot answer toward trivial questions that it can. This trend has gone so far that a significant segment of the academy perceived Oxoby’s paper as a poor attempt at real scholarship rather than as a joke.

Like Scheiber, I am somewhat ambivalent. I enjoyed reading Freakonomics and admire Levitt’s cleverness. More than many other academic economists, Levitt applies his craft to real-world phenomena and writes in an accessible manner. Some of his work is genuinely relevant to public policy.

However, we should not be content with a discipline in which one group of scholars reinforces the neoclassical orthodoxy while the more independent-minded ones research silly topics that do not challenge this orthodoxy. Ultimately, conflicting findings about the effect of unions on wages are more valuable than conclusive findings about game shows or sumo wrestling. To Oxoby’s credit, my impression is that his real research questions the perfect economic rationality generally assumed by neoclassical theorists.

A pluralistic vision of economics leaves plenty of room for clever approaches to zany topics. However, economics should be regarded not only as a “science” that conducts robust studies of small questions, but also as a “social science” that fosters debate on the bigger questions. By promoting this broader mandate, the PEF and our blog are striving to help get economics “Back in Black.”