In the 1940s, economics started getting highly mathematical. It was basically because economists weren't smart enough to write down models of real behavior that they started writing down models of highly rational behavior - and they kind of forgot about humans.
Interpretation
Richard Thaler critiques the shift in economics towards overly mathematical models that neglect human behavior.
In this quote, Richard Thaler reflects on the evolution of economics in the 1940s, pointing out that the increasing mathematical complexity in economic models led to a disconnection from real human behavior. Thaler argues that economists, faced with the challenge of accurately representing the intricacies of human actions, opted for simplified rational models instead, resulting in a neglect of the essential factors that drive genuine human decisions.
In practice
During a lecture on the evolution of economic theory, one might use this quote to highlight the importance of human behavior in economic models.
The ability of businesses to monitor our behavior is already a fact of life, and it isn't going away. Of course we must protect our privacy rights. But if we're smart, we'll also use the data that is being collected to improve our own lives.
If you're trading individual securities, you're almost certainly making a mistake. Because most professional managers can't outperform their benchmarks, and there's little reason to think that individuals can.
When an economist says the evidence is "mixed," he or she means that theory says one thing and data says the opposite.
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In the world of traditional economics, it shouldn't matter whether you use an opt-in or opt-out system. So long as the costs of registering as a donor or a nondonor are low, the results should be similar. But many findings of behavioral economics show that tiny disparities in such rules can make a big difference.
My thesis topic was 'The value of a human life.' I asked people a question: 'Suppose you had some risk, a one in a thousand risk of dying - how much would you pay to eliminate it?'
Globalisation, for me, seems to be not first-order harm, and I find it very hard not to think about the billion people who have been dragged out of poverty as a result.
Economists specialize in pointing out unpleasant trade-offs - a skill that is on full display in the health care debate. We want patients to receive the best care available. We also want consumers to pay less. And we don't want to bankrupt the government or private insurers. Something must give.
You could not possibly maintain the current level of government taxation without the taxes being hidden, and they are hidden in two very different ways. They are hidden through withholding, but they are also hidden by being imposed on business, supposedly on business, when really, of course, business can't pay taxes, only people can pay taxes.
The more the division of labor and the application of machinery extend, the more does competition extend among the workers, the more do their wages shrink together.
The great thing about fiscal policy is that it has a direct impact and doesn't require you to bind the hands of future policymakers.
Nothing so weakens government as persistent inflation.
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