Read: Economic Fables

Fables in economics have a long tradition, and they are not dead. Ariel Rubinstein’s Economic Fables, however, are not exactly what most may think after reading the title.

Rubinstein is very pessimistic about the real world applicability of economic theory. Or rather, he is very much aware of its limits. Hence, his fables are not the stories we tell to motivate or explain the implications of an economic model. He unveils the mathematical models, the exact mathematical representations of simple and complex relationships, of inter-dependencies, of cause and effect, as fables. He cautions against them. Their elegance too often hides the very strong assumptions needed for their elegance. The simple solutions, implied recommendations crucially depend on these assumptions. Thus, they are nice exercises in logical thinking devoid of real world relevance, of no avail for solving the real world problems.

As much as I like Rubinstein’s narrative, his part autobiography part economic methodology introduction and critique, I feel that he is too pessimistic. Microeconomic theory, the theory of games can be and is useful, can lead to valid real world recommendations even if people behave only “as if.” Of course, answers to some questions depend on the assumptions; think about welfare economics for instance. Prediction in (economic) games depend on what the individuals’ utility really is. Here the assumption of the narrow minded purely selfish money maximizing decision maker may often be wrong. OK, so re-think your assumptions, engage in retro-classical modelling and join the neo-classical repair shop, or, be bold and drop utility maximization altogether. Either way, I can recommend to spend some time with “Economic Fables.”

A little addendum. The book is freely available on the web and can be ordered as a softcover (print on demand) or pdf or other ebook format from OpenBook Publishers. Despite owning an e-reader or the free web access (there is also an accompanying website) I decided to order the softcover.

Why? I like the [m|v]ission of OpenBook Publishers and just wondered about the quality of their print on demand books. While the type setting (done with TeX, even using some micro-typographic refinements) and the general layout, format and binding is fine I did not like the paper. It’s the right weight for a softcover but it is a very bright white. This makes the text harder to read in bright environments (like the ones you’ll find outside during the summer). I would prefer I slightly less white paper… Hence, I guess next time I’ll go with one of the electronic formats.