Does undergraduate economics education need to change?


I am involved in a session at the Australian Conference of Economists in a few weeks looking at this issue. And it has been discussed elsewhere – such as at the Royal Economic Society conference (thanks to Alex Millmow for the link). Here are some preliminary thoughts (feedback very welcome).

Is university level undergraduate education fundamentally flawed?

Unsurprisingly, as someone with a strong vested interest in this area and a well-selling textbook, my answer is ‘no’. But we do teach too much and we teach it superficially. For example, by the end of second year undergraduate studies, all students should know what the economic model of choice is all about. I suspect most don’t, partly because I meet a lot of graduate economists who do not know (my summary of what a second-year student should know about this at a minimum is below). Economics training often seems to ignore the basics and wants to scale new heights before students are ready. Importantly, we often seem to forget to train students to understand economic modelling and what modelling is all about. We do not focus enough on the assumptions so our graduates forget (or never learnt) the limitations of individual models.

Where is the context?

Economics is a public policy discipline. It is useful in many areas but its main role is to provide a set of tools to think about markets. Students need to understand what tools to use where and when. So they need the assumptions. But they also need context. Students need examples of where models work (and where they don’t and why). They need economics linked to current policy debates and to economic history. The discipline has largely abandoned its own history in teaching – which is completely mad. If we teach economics in a vacuum, then that is all we will leave with students – an economics vacuum.

Why did I leave off the ‘post-GFC’ bit?

A lot of discussion seems to focus on the GFC and why it wasn’t predicted. But this is a silly question. Life is uncertain and difference economic models have different predictions. Plenty of economists predicted the GFC – and indeed numerous other crashes that we haven’t had! Other macro models are built on assumptions that a crash like the GFC couldn’t occur. The real question is: Do we understand the limitations of our own models or do we exchange academic rigour for hubris in an attempt to bolster our own view of the world? I suspect that deep down, many economists would have to answer ‘yes’ to this question.

Thoughts comments very welcome – particularly if you think I am wrong!

(Minimum knowledge about the economic model of choice by the end of second year:

First students need to know what the model is and is not about. It is not about greed or being selfish. Rather, it simply says that if your choices satisfy certain consistency properties then your decisions can be modelled as if you are maximizing a utility function. It says nothing about why you make the choices and does not limit those choices to be for things that you ‘like’ or that are ‘self centered’. From this modest base we can make a variety of predictions about the behaviour of individuals as their choice set changes. We can also add other assumptions (e.g. a-dollar-is-a-dollar) and make stronger predictions (e.g. welfare analysis).

Second students need to understand the assumptions behind the model so that they can recognize situations where the model (in its second-year form) doesn’t apply (e.g. where choices are intransitive) and the consequences (the person can be turned into a money pump on the market!). They need to understand the assumptions really well. If they don’t, they will make silly errors when they graduate.)


13 Responses to "Does undergraduate economics education need to change?"
  1. Great post. I’m afraid alot of people will disagree with you, but I definitely take comfort in the fact that this is your view and you’re in a position of power to change things. I’m very cynical about the profession because the criticisms you put forth are in fact so relevant.

    The part about hubris is worth alot of consideration. Economists need to think long and hard about ideology and professional ethics. These might be useful topics for your conference:

    1) Given the link between economics and policy, why does the discipline not have a code of professional ethics and should it have one?

    2) Why is there not more discussion about the assumptions and limitations of economic models? Is there something wrong with the fact that people get personally offended about critiques of rational choice theory? Political scientists, for example, both use rational choice theory and acknowledge its limitations e.g. the book “Pathologies of Rational Choice” Isn’t it the case that critics of RCT in economics like Samuel Bowles are ‘radicals’?

    3) On the empirical side, what about all the papers papers and studies that can’t be replicated? Shouldn’t transparency and data sharing be the norm rather than the exception? Is finding data to fit one’s favorite hypothesis really scientific or ethical?

    4) What about the confusion between substantive significance and statistical significance? Should we ban the practice of filling up tables with ***’s and picking off ‘statistically significant’ coefficients without translating this into substantive meaning?

    I know people will say “only bad economists do these things”…we’ll I guess there are many ‘bad’ economists…but I don’t think it’s that simple, I think it comes from problems with training and the sociology of the discipline.

    As you say, economics is a public policy discipline. What economists do affects the common person. If you can’t explain what you’re doing to the public, maybe you don’t actually know what you’re doing and maybe you shouldn’t be doing it, much less trying to teach it to students who then walk away with a ‘vacuum’ view of the world.

    And I don’t think the answer is ‘more mathematics’ because I don’t think the 2nd derivative is a substitute for critical thinking. It might be a good idea, however, to make ethics, formal logic and communication 101 compulsory courses.

  2. I would like to have taken say a third year course ‘work horse central bank and treasury models’ which would walk students through what models are being used, how to use them, how to interpret them, in what circumstances will they fail. There were no ‘engineering’ focused macro courses available at Melbourne when I was around. I agree about your requirement to understand choice theory.

  3. +1 to student’s comment. As a current econ phd I find that even many of the university staff either play down the limitations of different models, or don’t properly understand the extent of the assumptions required.

    I’m guessing your comment about teaching economics in a vacuum comes from experience, so that’s something I expect many people will agree on. But of course, if the last generation was taught economics in a vacuum, what chance do they have of teaching the next generation the complex history of economy ideas and their application.

    Also, I find the university environment, and economic academics in general, very detached from the real world applications of economic principles. I am quite certain that many a paper is written, without the author knowing anything about the data collection method, survey errors and biases, revisions to the methodology etc. Just assume the data is what you want it to be for your model.

    I for one would like future students to receive a better introduction to economics than I did.

  4. Of course it needs a change! The main change should be adding more Hayek and Mises to every Economics course!

    IMHO the Economics course should let students decide which economic principles are better and more sustainable in the long term. Currently they are teaching mainly one type as the one and only.

  5. James,

    I’m surprised you think Samuel Bowles is critical of rational choice. I’ve got his book, Microeconomics: Behavior, Institutions, and Evolution, and it’s all rational choice! Maybe you’re referring to what he calls ‘Walrasian economics’?


    I can only speak from personal experience but I think the problem with undergraduate econ education is trying to serve two masters.

    With respect to structure of curriculum:

    If you look at the sophistication of first year content in physics and econ they’re miles apart which I think reflects the composition of students. Most students taking physics are going on to be engineers or physics researchers. In econ on the other hand, the majority are business students, students taking econ for leisure i.e. to broaden their knowledge in social science, and a small minority going on to be researchers.

    The students going into business have no need for rational choice or ability to solve constrained optimisation problems or know proofs for BLUE.* So what happens is second/third year material is dumbed down to serve the needs of these two different groups satisfying the needs of neither.

    Ideally I think what should happen is to keep the current difficulty level in econ 101, but a big step up in sophistication for second/third year subjects to serve as screening devices. For example use Big Varian or Nocholson&Snyder for second year micro combined with calc prereq and cores of linear algebra, probability, statistics, and real analysis from the maths department to prepare students that are ‘high level’ econ producers/consumers for the core third year subjects. Keep the same level of difficulty for third year electives which allows the ‘leisure’ group to take them.

    This allows the econ department to keep first year subjects as cash cows, satisfy the needs of the ‘leisure’ group but still provide adequate preparation for the future producers/consumers of high level econ that they don’t get at the moment until honours year.

    *There is a fourth group which are subjects of business students who are also producers/consumers of high level econ e.g. grads going into research unit in investment banks or public policy.

  6. With respect to content of curriculum:

    Again in trying to serve two masters you’re satisfying neither. The low level prerequisites for second year core econ is inhibiting the ability to provide more sophisticated content and to go through current content with more depth.

    Things I’ve noticed from personal experience, econ majors have poor grasp of history of economic thought, methodology, and ability to distinguish between normative/positive economics, though I feel the latter two are more important than the former.

    For instance, I often hear statements like ‘xxx type of behaviour is irrational!’ (equating ‘irrational’ with a negative connotation) from undergrad econ majors (and sometimes from econ phds). A methodological point, econ assumes consistent preferences as a model to approximate real life, therefore if people are exhibiting behaviour inconsistent with rational choice, this just means the model is bad, not the person. Second, (positive) econ gives no justification for/against the normative position that behaviour which is ‘inconsistent’ or policy that doesn’t maximise welfare is ‘bad’.

    Whether a policy/behaviour is ‘bad’ is dependent on individuals values and ethics which positive econ gives no insight to.

    However I get the impression that econ students message aren’t getting that message and there is a perception outside the discipline (which I feel has some justification) undergraduate econ is training for free market ideology. Basically I’m arguing the current undergrad econ curriculum fails at producing critical students of econ.

    I think more mathematical training will help with methodology knowledge and ability to distinguish between positive/normative econ. More mathematics in stats for example will also allow incorporation of more sophisticated empirical content as complement to the abstract material.

    You can’t teach students stuff if they don’t have the tools to appreciate it in the first place.

  7. The future must surely resolve the problems we have with mega-first year lectures where 600-700 students are packed to listen to a preacher-lecturer.

  8. Hi Miroslav. Obviously the video is an advertisement that somehow links economics to a US approach to education (can’t quite tell if they are advocating home schooling or want government support for market-based education where they are a provider!)

    Two points on the economics – it is an advertisement so it is superficial. But whenever I see this sort of ‘talk’ I think of externalities, public goods, natural monopolies, collusion etc. By ignoring these things, the video fails to show economics but simply shows propaganda for a particular world view.

    Second it argues against formalism (in diagrams or mathematics). But this argues against developing economic models that can be debated. A model can be expressed verbally but it is often difficult to ‘tie down’ the model without diagrammatic or mathematical formalism. This makes it impossible to progress debate (and in the case of the Austrian School, has marginalised them from a position of importance in the 1930s).

    David N – I certainly agree we do not ‘push’ undergraduate economics students hard enough (last time I taught second year micro the third year lecturer noted that she had to rewrite third year micro as I had covered most of it as well. She was delighted – because she could then push the students further!).

    I do not think that ‘pushing students further’ is the same as more mathematics. It is amazing how far you can get with diagrams as a formal tool (e.g. Edgeworth boxes to explain gains from trade, cooperative bargaining theory, contingent goods markets and insurance, etc. Two people, two goods gets you a long way!). Perhaps this is my ANU undergraduate education coming out as the ANU approach pushed students hard but emphasised diagrams and rigorous understanding of the assumptions. But it did have mathematics requirements for honours.

    Perhaps another old ANU approach can also solve the two-market problem. ANU had ‘pass’ classes but optional ‘honours’ classes. Those who did all the honours classes from second semester of first year had more than doubled the amount of economics they saw by the end of third year (compared to the ‘pass’ classes). I was a beneficiary of that system – but it was ‘expensive’ in terms of teaching load and trying to work out how to reward students who did the extra work (ANU had a madly complex grading scheme to do the latter).

  9. I think diagrams and maths are complements rather than substitutes but at the moment I feel the level of maths required at undergrad is below optimal.

    Take for instance explaining the difference between ‘a movement along’ vs ‘shift in’ demand curve. Maybe it’s just me but from experience I don’t think it’s intuitive learning the distinction purely by diagrams, but mathematically it’s quite simple. Shift in demand curve is just increasing/decreasing the constant (exogenous factor) in the demand function, while a movement along the curve is change in one of the variables, price or quantity (depending on your assumptions of firm behaviour).

    Another example, with respect to MR and MC, at 101 level it’s often taught using numerical examples, when again it has a simple mathematical interpretation being the first derivative of the demand/supply function.

    Students taking Econ and Physics 101 have same mathematical background, namely, Maths Method (or equivalent for non-VCE) but for some reason econ has taken the baby step route.

    I’ll throw a theory out there on why this may be the case. US freshman often don’t have or have poor calc background so the leading principles textbook by Mankiw et al is catered accordingly.* The US being the biggest market the rest of the world uses the same textbook. So while in Australia, our freshman have a better maths background they’re are stuck with curriculum that is at pre-calculus level. This effects the setting of difficulty level of 2nd/3rd year level subjects, ending in equilibrium in giant gap between undergrad and grad level econ.

    Alternatively, instead of all freshman have poor calc background, there may be a selection effect, i.e. physics attracts science/engineering types who have better maths background, while econ seen as ‘businessy’ subject attract students with relatively poorer maths background.

    Maybe it’s a personal thing, but I found my understanding of assumptions in models (which I put under methodology) etc. improved with math skills.

    *An exception is Caltech where they use a relatively sophisticated textbook:

  10. A similar solution to what you’ve proposed is have different streams at 101 level.

    I know at Unimelb, Physics 101, has three subject streams to cater for different maths level.

    It will allow the department to keep the 101 subjects as cash cows but allow more efficient allocation in course content. You might even be able to attract more students!

  11. Education always needs change to become bigger and better, but of course we don’t need to be crazy to do that. I believe that if we do just need to do basis things right and that will make everything better especially education. I am lucky that I work in Forex trading with OctaFX broker, it has perfect station with their cTrader demo contest, it helps me learn things well especially with having 400 dollars prize, so I am able to perform really easily.

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