Today's selection: Do Economists Recognize an Opportunity Cost When They See One? A Dismal Performance from the Dismal Science. (abstract free, full pdf $$. I accessed it through BusinessSourceComplete.)
Abstract: One expects people with graduate training in economics to have a deeper understanding of economic processes and reasoning than people without such training. However, as others have noted over the past 25 years, modern graduate education may emphasize mathematics and technique to the detriment of economic reasoning. One of the most important contributions economics has to offer as a discipline is the understanding of opportunity cost and how to apply this concept to all forms of decision making.
We examine how PhD economists answer an introductory economics textbook question that requires identifying the relevant opportunity cost of an action. The results are not consistent with our expectation that graduate training leads to a deeper understanding of the concept. We explore the implications of our results for the relevance of economists in policy, research, and teaching.
Commentary: Unlike most abstracts, this one doesn't give away the goods up front. The entire paper needs to be read to get an idea what's going on. Luckily, I will distill it for you: the following question was presented exactly as follows to 199 Ph.D economists and Ph.D students in economics at a conference. They were asked to choose the correct answer to this question:
Please Circle the Best Answer to the Following Question:
You won a free ticket to see an Eric Clapton concert (which has no resale value). Bob Dylan is performing on the same night and is your next-best alternative activity. Tickets to see Dylan cost $40. On any given day, you would be willing to pay up to $50 to see Dylan. Assume there are no other costs of seeing either performer. Based on this information, what is the opportunity costof seeing Eric Clapton?
Now, some other tidbits. The average respondent took five minutes to answer the question, which is considerably more than would be alloted on a university exam. 61% of those polled had taught an introductory economics course at the university level. 45% were from top-30 economics departments.
The question is taken directly from p.4 of Frank and Bernanke's 2001 Introduction to Microeconomics.
Here are the responses:
A. $0       25.1%
B. $10      21.6%
C. $40      25.6%
D. $50      27.6%
So, at best, 72.4% of these Ph.D. economists were wrong. At worst, 78.4% were wrong. On a question taken from the fourth page of an introductory text.
I hope you've made a selection by now.
The answer is B, $10. I hope I don't have to explain why.
Disclosure: I got it right. I guess my 93% in introductory micro was worth something, even if it was taught by someone without graduate training in economics.