Thursday, January 7, 2010

Justin Wolfers on cheap economists

Justin Wolfers responds to a Wall Street Journal piece on cheap economists.

It is very important to distinguish being cheap from economizing. Spending an hour driving around to save a few dollars when your consulting rate is $100 an hour is cheap but not economical unless you really, really enjoy the driving or the feeling of snagging a low money price. Also, spending time trimming the tree yourself, as Justin notes, is perfectly compatible with being a rational maximizer as long as you get enough utility from it.

I made a decision when I moved to Maryland not to worry anymore about any expenditure of less than $20. This means I occasionally buy things that I would not have purchased if I had agonized over the decision, but on the other hand I avoid a great big heap of decision costs. Does this rule make me cheap, or not?

I chatted a bit with Justin at the just-completed American Economic Association meetings in (cold and bleak) Atlanta. We both were at the reception hosted by the IZA, a German research institute with a focus on labor economics. The nice folks at IZA were offering free alcoholic beverages at their reception and had attracted a pretty big crowd. Could this be evidence that economists are cheap?

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