Economists may think we have the biggest shovels, but does that mean we can build the best castles?
When I first read
Freakonomics, I was captivated. I was an undergraduate economics major who already delighted in describing things to my family in terms of "opportunity cost," "marginal utility," and "widgets." I was enthralled with the idea of applying economic concepts and techniques to puzzles that had nothing to do with firms, finance, or fiscal policy. This, I realized, was what I wanted to do with my life: a) apply the study of incentives and game theory from economics to households, businesses, and individuals in the real world; b) use econometric techniques to understand questions in development and policy. It was only later, after furthering my study of economics, and reading and critiquing countless articles doing similar things, that I realized the difference between statements a and b. Economics is fundamentally about understanding scarcity, incentives, decisions, and tradeoffs. Econometrics has become a useful technique for studying how these forces have played out in the real world. Econometrics is a tool. Economics is a science. Yes, the tools of econometrics can be applied in many different settings. The question is, do economists have a competitive advantage in doing so?
