Reconciling the Teaching of Economics

by Dr. Asma Hyder[i]

Affiliation of faculty with different schools of thought in economics and their teaching techniques often pose challenges for each other. Every year the annual conference of the American Economic Association dedicates a number of sessions on teaching of economics to under and post-graduate students in American universities and beyond. I recently had a very interesting conversation in two local economics departments at LUMS and IBA. The faculty was able to make a clear distinction between two camps for teaching economics within both departments; those who rely more on rational choice theory and second, those who are more in favor of behavioral approaches.

The first group, the neoclassical economists, emphasize a lot on theory and their main argument is that the theory strips away minor and unnecessary information and provides an opportunity to focus on fundamental relationships between fewer set of variables. Those fewer set of variables is helpful in designing policy. Most of the time they give high weights to optimization and establishing equilibrium in their models.

The second group of economists argues that humans behave differently from neoclassical assumptions; their actions are more complex and their decisions systematically deviate from the neoclassical axioms. The research approach is inductive, drawing on knowledge from psychology and sociology and other disciplines.

While there is no denying the importance of both approaches, each of which have their theoretical plus as well as negative points. Not only does the teaching pedagogy in both schools of thought vary, but outcomes have certain caveats. If graduates are less familiar with one school of thought, it is the traditional one.

The challenge for many economics departments, especially in developing countries with limited faculty and resources, is the move away from traditional economic theory in teaching. Behavioral economics is more fascinating for both faculty and students. It seems more interesting to experience the real world with randomized control experiments. No long derivations and simulations with unrealistic assumptions are required. Donor agencies are more receptive towards experiment-based grant applications because they can show something happening in communities. The major issue with this approach is that many promising economists are too busy studying multidimensional factors and have lost their focus on fundamental policy variables.

The teaching pedagogy in these camps is also different. For instance, economists following rational choice theory usually rely on ‘chalk and talk’ method even in the world leading universities but the behavioral economists are more inclined toward multimedia and overhead slides.  Furthermore, students generally find it appealing to attend a behavioral economics class with cooperative learning environment. In contrast to that the traditional economics class and content both are usually difficult and boring for students.

After graduation, the popular destinations of nascent economists are policy design, formulation of development programs and NGOs. Neoclassical mindsets may suggest low tax rates and limited government spending, this can help to expand private sector and to flourish the economy. Behavioral economists may argue differently on tax policy because different cohort of people based on their social strata respond differently and these responses may be more complex than the standard models.  They can even claim that tax policy should be more encouraged by psychology. Thus the approach for policy and also the program design is different in both camps. The knowledge for both should be taught in universities with a balanced approach. The complementary role of both approaches if realized will help to design a better policy.

For instance, BISP may consider traditional economics thoughts to eliminate poverty, such as lack of access to credit and limited assets are fundamental variables to focus on. But on the other hand many behavioral economists have raised their concerns regarding limited networks across different social groups, psychological and cognitive scarcity, and uncertainties in decision-making. These are equally important policy concerns in poverty alleviation. A complementing role of both schools of thought can help to design a better policy and reconciliation of teaching behavioral and neoclassical economics is important.


[i] Dr. Asma Hyder is an Associate Professor of Economics and Finance at IBA, Karachi.

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