June 8, 2006

The new frontiers of economics

I have been half-involved in a debate over at Marginal Revolution on the new and essential areas in economics:

By "new," restrict yourselves to 1990 and afterwards. I see mid-1980s as the end of a great era in economic theorizing. Take game theory, principal-agent theory, and the economics of information, and apply them to everything, for better or worse. This was an exciting, indeed intoxicating, time to learn economics. While applications continue, we have run out of new ideas on those fronts. Experimental economics is completely Nobel-worthy, but it is now over forty years old. What are the next breakthroughs or the breakthroughs which have just been made? Comments are open...
I had the pleasure of taking a class taught by one of Chicago's newest hires this quarter, John List, who has been one of the major innovators of a new subfield of experimental economics (which is basically what it sounds like, setting up economic scenarios with a bunch of participants, varying your treatments, randomizing the rest so that you are essentially holding everything else constant) called field experimentation. This new subfield is pretty simple, all List does is run similar experiments, but instead of doing them in the lab (which for experimental economics typically just a classroom with undergraduates who come for a $10 show up fee) List runs them in a variety of naturally occurring settings (or the field). So instead of auctioning off fictitious goods in a class room to see if neo-classical price theory is right, List runs similar experiments but at a baseball card show, and then he does the same thing at the baseball card show, but without anyone even knowing he is watching them trade the baseball cards. This is an extremely effective way of overcoming the drawbacks inherent in the lab, namely experimenter demand effects, framing effects, etc.Even if you aren't terribly into theory testing, which is primarily what List has focused on, Dean Karlan, at Yale has used the concept of field experimentation to test ways of relieving third-world poverty. Anyways, for me, this is an extremely interesting area of economics. Also, the other contenders for the new and exciting fields of economics are completely unproven, like neuro and behavioral economics, which makes them interesting ideas that might pan out a couple of decades down the line, but certainly not essential for future economists (at least in my opinion).