Read on Twitter
Normative economics developed around two approaches:
- Choosing (C) identifies how society ought to choose for each situation in some domain;
- Ranking (R) identifies how society ought to rank alternatives in some domain.
What is the difference? #econtwitter 1/5
- Choosing (C) identifies how society ought to choose for each situation in some domain;
- Ranking (R) identifies how society ought to rank alternatives in some domain.
What is the difference? #econtwitter 1/5
Building on consumer theory, one can guess a relationship between the two:
under some conditions, the ordering of all alternatives generates a choice correspondence and the choice correspondence can be rationalized by such an ordering.
Yet, these conditions are rarely met. 2/5
under some conditions, the ordering of all alternatives generates a choice correspondence and the choice correspondence can be rationalized by such an ordering.
Yet, these conditions are rarely met. 2/5
The key issue is: society chooses differently depending on the specific situation at hand (similarly to framing or reference dependence in behavioral economics).
In fact, fairness principles often impose such an apparent inconsistency of choices.
Orderings disregard this. 3/5
In fact, fairness principles often impose such an apparent inconsistency of choices.
Orderings disregard this. 3/5
Another key difference is the role of individuals’ strategic behavior.
The C literature often sacrifices fairness (or efficiency) on the altar of immunity to strategic behavior.
The R literature mostly treats strategic behavior as a constraint (together with feasibility). 4/5
The C literature often sacrifices fairness (or efficiency) on the altar of immunity to strategic behavior.
The R literature mostly treats strategic behavior as a constraint (together with feasibility). 4/5
Not surprisingly, MACRO policy generally builds on R (where situation-specific factors and strategizing are mostly considered ethically irrelevant).
Instead, MICRO policy often builds on C (claims, school assignments, matching…where specific factors/strategies matter). 5/5
Instead, MICRO policy often builds on C (claims, school assignments, matching…where specific factors/strategies matter). 5/5
