Wednesday, October 31, 2007

Explaining Economics Without Math?

Arnold Kling:

I can think of only one economic idea that I have never been able to express satisfactorily in non-mathematical terms. That is the Portfolio Separation Theorem, which says that the optimal market portfolio does not depend on individual risk preferences. When I discussed CAPM, I talked around that theorem. I still cannot come up with a good way to explain it. (The conditions under which the theorem holds may or may not apply in practice. That is not the issue here. My point is that I cannot convey the intuition behind the theorem.)

In general, results in economics fall into three categories:

a. Results that I am not aware of or have made no effort to understand.

b. Results that I do not think are important.

c. Results that I can explain without resorting to math.

The Portfolio Separation Theorem is the one result that I can think of that falls outside of those categories.

My take:  Math may not be necessary to explain everything in economics, but math has certainly helped to discover some powerful concepts.  I do agree with Kling, though.  Nearly all important econoimc concepts can be communicated clearly and effectively without math.

2 comments:

Nita said...

I think the beautiful thing about economics is the math. That's what differentiates economists as scientists, as opposed to psychologists and sociologists. We use math!! Numbers are an amazing thing.

Unknown said...

I will agree with you - it is cool to seem more smart than you really is by speaking the language that only few people know... But so called 'economist' who try to live in artifitial world of their formulas are neither humanitarians, no scientists. They are paid not to mess with the real things, and I am sure they don't count how much they have to spend when they come to supermarket. I don't realy beleave that to be a good economist you need more knowlege of math than just algebra. Real social world is too interdependent and complicated to be described even by the differencial of the first order. But do this kind of 'economist' do realy care about real world? Just remember what Keines said about it...