Difference Between Economics and Physics
In physics, there are constants defined to 10+ decimal places. Most economic debates are about the sign: is Coke riskier than GM stock? Does increasing the minimum wage increase aggregate worker total wage, or reduce it? Would increasing government spending increase or decrease GDP over the next 5 years?
Consider the following example, from Shane Frederick's
presentation on time discounting at MIT. This is the estimate of the spped of light over the past 150 years or so:
In contrast, below are a set of estimates of an important parameter in economics, the time discount parameter. If delta =1, you count the future equal to today, and are indifferent to receiving a massage in 1 year or tomorrow. If you have a delta=0, you totally ignore the future, and so glue sniffing is optimal, because though it kills your brain cells, it is a great rush over the next 5 minutes (or however long glue-sniffing highs last).
Note even at first, the estimates of the speed of light were reasonably close to the true value (or, the current value), off by about 0.07%, and converged to the current estimate about 50 years ago. In contrast, estimates for the discount factor seem to be a random draw from the uniform distribution between 0 and 1, though slightly more between 0.9 and 1.0.
So, the equations in advanced economics and physics look the same, but that's a pretty superficial similarity
Consider the following example, from Shane Frederick's
presentation on time discounting at MIT. This is the estimate of the spped of light over the past 150 years or so:
In contrast, below are a set of estimates of an important parameter in economics, the time discount parameter. If delta =1, you count the future equal to today, and are indifferent to receiving a massage in 1 year or tomorrow. If you have a delta=0, you totally ignore the future, and so glue sniffing is optimal, because though it kills your brain cells, it is a great rush over the next 5 minutes (or however long glue-sniffing highs last).
Note even at first, the estimates of the speed of light were reasonably close to the true value (or, the current value), off by about 0.07%, and converged to the current estimate about 50 years ago. In contrast, estimates for the discount factor seem to be a random draw from the uniform distribution between 0 and 1, though slightly more between 0.9 and 1.0.
So, the equations in advanced economics and physics look the same, but that's a pretty superficial similarity
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