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The Well-meaning Economist

Author

Listed:
  • Adam Gorajek

    (Reserve Bank of Australia)

Abstract
Economists usually inform policymakers with conclusions that come from studying the conditional expectation, i.e. arithmetic mean, of some potential outcome. But there are other means to study, from the same 'quasilinear' family. And they can support very different conclusions. In trade research, for instance, studying other means can transform the perceived roles of colonial history, geography, and trade wars. In wages research, studying other means can reverse perceived earnings differentials between groups. Similar scenarios will be common in other tasks of policy evaluation and forecasting. To choose means well I propose selection criteria, which also consider options that are outside of the quasilinear family, such as quantiles. Optimal choices are application-specific and ideally accommodate the preferences of the relevant policymaker. In the wages case, policymaker aversion to inequality makes it sensible to reject the arithmetic mean for another quasilinear one.

Suggested Citation

  • Adam Gorajek, 2019. "The Well-meaning Economist," RBA Research Discussion Papers rdp2019-08, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp2019-08
    as

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    File URL: https://www.rba.gov.au/publications/rdp/2019/pdf/rdp2019-08.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    policy evaluation; forecasting; quasilinear mean; expected utility; loss function; power transformation; gravity model; inverse hyperbolic sine;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • F10 - International Economics - - Trade - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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