Some excerpts from "Dilemmas of an Economic Theorist", by Ariel Rubinstein, Econometrica, Vol. 74, No. 4 (Jul., 2006), pp. 865-883
What on earth am I doing? What are we trying to accomplish as economic theorists? We essentially play with toys called models. We have the luxury of remaining children over the course of our entire professional lives and we are even well paid for it. We get to call ourselves economists and the public naively thinks that we are improving the economy's performance, increasing the rate of growth, or preventing economic catastrophes. Of course, we can justify this image by repeating some of the same fancy sounding slogans we use in our grant proposals, but do we ourselves believe in those slogans? I recall a conference I attended in Lumini, France, in the summer of 1981 that was attended by the giants of the game theory profession. They were standing around in a beautiful garden waiting for dinner after a long day of sessions. Some of us, the more junior game theoreticians, were standing off to the side eavesdropping on their conversation. They loudly discussed the relevance of game theory and one of them suggested that we are just "making a living." I think he merely intended to be provocative, but nonetheless his response traumatized me. Are we no more than "economic agents" maximizing our utility? Are we members of an unproductive occupation that only appears to others to be useful?
Models in economic theory are also used to suggest regularities in human behavior and interaction. By regularities I mean phenomena that appear repeatedly in similar environments at different points in time and at different locations. I have the impression that as economic theorists, we hope that regularities will miraculously emerge from the formulas we write leisurely at our desks. Applied economists often feel the need for a model before they mine data for a pattern or regularity. Do we really need economic theory to find these regularities? Would it not be better to go in the opposite direction by observing the real world, whether through empirical or experimental data, to find unexpected regularities? Personally I doubt that we need pre- conceived theories to find regularities.
We have now arrived at the dilemma of modelless regularities. We would like a model to produce interesting conclusions that are consistent with observed regularities so we can claim that the model provides an explanation of those regularities, but are complicated theoretical models really necessary to find interesting regularities?
It is true that I would like to change the world. I want people to listen to me, but as an economic theorist, do I have anything to say to them? One of my earliest interests as an economic theorist was in bargaining theory. There were two reasons for this: First and foremost, bargaining theory involves the construction of models that are simple but nevertheless rich in results that have attractive interpretations. Indeed, the possibility of deriving meaningful statements through the manipulation of mathematical symbols was something that attracted me to economics in the first place. Second, as a child I frequented the open air markets in West Jerusalem and later the Bazaar in the Old City of Jerusalem, and as a result, bargaining had an exotic appeal for me. I came to prefer bargaining theory over auction theory, because auctions were associated with the rich whereas bargaining was associated with the common people. However, I never imagined that bargaining theory would make me a better bargainer. When people approached me later in life for advice in negotiating the purchase of an apartment or to join a team planning strategy for political negotiations, I declined. I told them that as an economic theorist I had nothing to contribute. I did not say that I lacked commonsense or life experience that might be useful in such negotiations, but rather that my professional knowledge was of no use in these matters. This response was sufficient to deter them. Decision makers are usually looking for professional advice, rather than advice based on commonsense. They believe, and perhaps rightly so, that they have at least as much commonsense as assertive professional economists. Nevertheless, I am a teacher of microeconomics. I am a part of the "machine" that I suspect is influencing students to think in a way that I do not particularly like.
This brings me to the fourth dilemma. I believe that as an economic theorist, I have very little to say about the real world and that there are very few models in economic theory that can be used to provide serious advice. However, economic theory has real effects. I cannot ignore the fact that our work as teachers and researchers influences students' minds and does so in a way with which I am not comfortable. Can we find a way to be relevant without being charlatans?