In response to some comments, I’ve written a little bit about the representative agent assumption in Dynamic Stochastic General Equilibrium Models. I argue that, given the underlying DSGE assumptions, you won’t get very much extra by including heterogeneous agents.

But, I intend to say in the “Where next” section, it seems likely that heterogeneous and boundedly rational individuals, interacting in imperfect and incomplete markets will generate ’emergent’ macro outcomes that are not obvious from the micro foundations. Of course, this is going to be a prospectus for a theory, not the theory itself.

In the meantime, comments on my snippet would be much appreciated.

Update Looking at the responses, I think just about everyone has missed the point, which suggests that maybe I didn’t make it very well.

I’m not saying that heterogeneity doesn’t matter, but that introducing (tractable) heterogeneity into a DSGE model isn’t likely to yield radically different predictions about macroeconomic outcomes. If that’s correct, then if you think DSGE models work well (for some evaluative procedure), you can be relaxed about using representative agents. And if you don’t think DSGE models work well, the representative agent assumption isn’t the problem, or at least it isn’t the only problem.

Since my statement of the situation didn’t help much, I’ll present it as a question instead. Can anyone point me to a DSGE-style model that derives strongly non-classical results from the introduction of heterogeneity? Or, failing that, does anyone have a convincing argument that such results should emerge?

I’m aware of course that, in general, anything can happen with aggregation across heterogeneous agents, so I’m not much interested in arguments for agnosticism starting from that point. End update

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“Gideon Rachman”:http://blogs.ft.com/rachmanblog/2009/10/the-goldstone-report-and-international-law/

I thought the FT leader on the Goldstone report got it about right. The report on Israel’s assault on Gaza is a serious bit of work and it’s fairly desperate to try to discredit it by calling its author a “self-hating Jew”. The bigger problem lies with the UN Human Rights Council … And lying behind that, is a still bigger problem with the very idea of impartial international law. … I asked whether international law really deserved the same status as domestic law? After all, the very basis of justice in a nation-state is equality before the law – anybody who commits a murder should be arrested and prosecuted, no matter how powerful they are. But this basic principle does not apply in the international arena. Almost all the people hauled before the ICC have been African leaders; and the UN special tribunal on the former Yugoslavia (where Goldstone was chief prosecutor) only got to prosecute the likes of Milosevic because Serbia was defeated in a war. … The trouble is that … the system of international law that we currently have is as much about power in the international system, as about human rights or the law.

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I like to think that I know a little bit about contrarianism. So I’m disturbed to see that people who are making roughly infinity more money than me out of the practice aren’t sticking to the unwritten rules of the game.
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“From Hansard”:http://www.publications.parliament.uk/pa/cm200809/cmhansrd/cm091020/debtext/91020-0006.htm , in the context of the impending UK postal strike:

bq. Mr. Peter Atkinson (Hexham) (Con): Does the Minister have any idea how many postal workers, particularly in London, have second jobs? It is the threat— [ Interruption. ] It is the threat that they might have to work a full shift for which they are paid that is adding to the militancy. [ Interruption. ]

Second jobs? Leaving work without working a full shift? I can well see that British MPs would be outraged by such practices. Here’s to the success of Billy Hayes and the CWU!

Another section from my book-in-progress. The book-so-far can be viewed here.
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I have a coincidence to report. This morning, right before Kieran’s post went up, I was scanning (see this post, concerning my new hobby) selections from Russell Lynes’ classic essay “Highbrow, Lowbrow, Middlebrow”, the inspiration for the Life chart on brows. Here is how Lynes tells the story in a (1979) afterword to his book, The Tastemakers: The Shaping of American Popular Taste [amazon], which is an out-of-print minor classic, if you ask me. [click to continue…]

From a 1949 issue of Life Magazine, your guide to the “three basic categories of a new U.S. social structure — and the high brows have the whip hand”. With the rise of the cultural omnivore still well off in the distance, this is your must-have guide for the vagaries of mainstream culture in postwar America. Click for a larger version.

It’s good if people ask for advice, but it’s not ideal if they ask for it too late. For example, when students ask me the year they are going on the job market how they should start thinking about the process, my first reaction (although I don’t say it since there is no point in stressing out the person at that stage) is that they should have started preparing years ago. Similarly, the year one is going up for tenure is not the right time to start wondering who could be on one’s list of tenure letter writers. Yet all too often this is precisely what happens, people don’t realize that some preparation over the years would have been extremely valuable if not crucial when approaching such important milestones in one’s academic career.

To help academics think about some of these matters, I have started a career advice column called Ph.Do over at Inside Higher Ed. In the first piece, More than Merit, I explain the reasons for the column. In the second, The Conference Scene, I discuss how to think about when and which conferences to attend. In the third, Conference Do’s and Don’t’s, I talk about how to maximize going to meetings without derailing one’s career. Any guesses as to which friend I refer to regarding the advice about dinners?

Future pieces will cover lots of topics ranging from collaborative work to making oneself marketable in several disciplines, applying for awards and fellowships and more. I welcome suggestions for what to address in upcoming pieces. Some of the ideas I have for future writing is already very much inspired by conversations we’ve had here on CT in the past.

I don’t think IHE has RSS feeds for specific columns, but for Twitter users, I’ve set up an account here and I’m also keeping this page updated with links although I haven’t set up a feed for it yet.

My still-in-progress book (outline here) will have a chapter on privatisation. That reminded me of some thoughts on school privatisation and for-profit education that I thought might be of interest here. The near-total failure of the for-profit education ventures that proliferated in the 1990s is striking and to some extent mysterious. In part, I suspect that the whole enterprise (at least as regards school education) was based on a misdiagnosis of the problems of the public school system, focusing on organizational factors, rather than the more intractable effects of steadily growing inequality. The limited success of the charter schools movement would point in that direction. But I argue below (from a piece I wrote for Campus Review in Australia a couple of years ago) that there are more fundamental problems with the for-profit approach. Your thoughts appreciated.

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“Via Mark Thoma”:http://economistsview.typepad.com/economistsview/2009/10/the-pundits-dilemma.html, Mark Liberman presents us with “The Pundit’s Dilemma”:http://languagelog.ldc.upenn.edu/nll/?p=1824.

Overall, the promotion of interesting stories in preference to accurate ones is always in the immediate economic self-interest of the promoter. It’s interesting stories, not accurate ones, that pump up ratings for Beck and Limbaugh. But it’s also interesting stories that bring readers to The Huffington Post and to Maureen Dowd’s column, and it’s interesting stories that sell copies of Freakonomics and Super Freakonomics. In this respect, Levitt and Dubner are exactly like Beck and Limbaugh.

We might call this the Pundit’s Dilemma — a game, like the Prisoner’s Dilemma, in which the player’s best move always seems to be to take the low road, and in which the aggregate welfare of the community always seems fated to fall. And this isn’t just a game for pundits. Scientists face similar choices every day, in deciding whether to over-sell their results, or for that matter to manufacture results for optimal appeal.

In the end, scientists usually over-interpret only a little, and rarely cheat, because the penalties for being caught are extreme. As a result, in an iterated version of the game, it’s generally better to play it fairly straight. Pundits (and regular journalists) also play an iterated version of this game — but empirical observation suggests that the penalties for many forms of bad behavior are too small and uncertain to have much effect. Certainly, the reputational effects of mere sensationalism and exaggeration seem to be negligible.

(to avoid falling into my own version of this dilemma, I should acknowledge straight up that while I’m disappointed with the Freakonomics phenomenon _ex-post_, I was quite optimistic _ex-ante_ )

I missed out on the book title contest a while back, so here’s my entry. As regards earnestness, i’m riffing off Andrew Gelman, via Kieran, who observes “”pissing off conservatives” is boring and earnest?”

The main point, though, is that the fuss over the global cooling chapter in Levitt and Dubner’s new book is the first occasion, I think, where the refutation of specific errors has taken a back seat (partly because, in this case, it’s so easy) to an attack on contrarianism, as such. The general point is that contrarianism is a cheap way of allowing ideological hacks to think of themselves as fearless, independent thinkers, while never challenging (in fact reinforcing) the status quo. Here’s Krugman and Joe Romm, for example

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Andrew Gelman discusses Superfreakonomics saying,

The interesting question to me is why is it that “pissing off liberals” is
delightfully transgressive and oh-so-fun, whereas “pissing off conservatives” is boring and earnest?

Several years ago bumper stickers appeared that read “Annoy a Liberal. Work hard. Succeed. Be happy.” I was living in Arizona at the time, so they became a routine part of my commute. Possessing neither the blunt empirical thesis of “Guns Bought Your Freedom” nor the slow fuse of “Body Piercing Saved My Life”, the barefaced cheek of the non sequitur made the sticker absurd and irritating at the same time. I remember wondering what a parallel message to conservatives would look like. Sure enough, attempts at rebuttal soon started appearing on (other) bumpers. They were lame — stuff like “Annoy a Conservative. Think for yourself. Defend the Constitution. Balance the Budget.” Noble sentiments, but watery stuff by comparison.

Why did they seem so ineffective a response? Perhaps stronger material was needed. Might “Annoy a Conservative. Burn the Flag. Convert to Islam. Have an Abortion” work better? No. While that kind of thing can have some punch (“Jesus Loves You, But Everyone Else Thinks You’re An Asshole”), it doesn’t seem like the right tack. Instead, the best riposte to the “Annoy a Liberal” sticker is simply the same thing with the target swapped out: “Annoy a Conservative: Work. Succeed. Be Happy”. The effect is more or less the same as the original, especially if placed on the back of your Lesbaru. Temporarily suspending my longstanding irritation at divisions of this sort, much of what passes for “Pissing off Conservatives” is really an effort to rebut some ridiculous charge or other, instead of a genuinely symmetrical attempt to piss someone off. Or, as the story has Lyndon Johnson arguing, it’s better to kick off the conversation in a way that forces the other guy to deny that he’s a pig-fucker.

Amazon is giving away a whole Philip Glass album: The Orange Mountain Music Vol.I. I’m really, really enjoying it. On the other hand, I’m using it as background music for scanning and doing itsby bitsy Photoshop stuff. It goes up and down and up and down and my hand goes up and down and up and down, and etc., and we seem to be getting on together. When I was in college I hated Philip Glass. I paid a lot for a ticket to a concert, without knowing what I was in for. I was bitterly disappointed. What do you think of the man? Give the album a try, if you are a skeptic.

From the NYT on the remarkable profitability of Goldman Sachs

A big reason for Goldman Sachs’s blowout profits this year has been the willingness of its traders to take big risks — they have put more money on the line while other banks that suffered last year have reined in such moves. Executives say there are big strategic gaps opening up between banks on Wall Street that are taking on more risks, and those that are treading a safer path.

Hmm. I’d be willing to take big risks if I knew the Fed and the US Treasury were standing by, ready to pick up all my losing bets. In the circumstances, the guys at GS doubtless stand amazed at their own moderation in creaming off a mere $20 billion for the year.

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