I was stunned to read Robert Frank's NYTimes column about a recent study testing economist's knowledge of economics. Bob Dylan is performing on the same night and is your next-best alternative activity. On any given day, you would be willing to pay up to to see Dylan.
Taylor of Georgia State University asked some 200 economists, many with Ph Ds from top-economics programs, at the 2005 annual meetings of the American Economic Association, a simple question: You won a free ticket to see an Eric Clapton concert (which has no resale value).
Assume there are no other costs of seeing either performer. Opportunity cost is central to economics, the people asked were among the best economists in the world, a large majority of them have taught intro econ and yet the correct answer was the The answer is b, . I sure hope there was something seriously *wrong* with the way the study was conducted (I haven’t yet clicked through the link)…
The net benefit is what you give up by attending the Clapton concert. I often have grad students take my intro exams, and they do remarkably poorly We really need to emphasize the concept a LOT more if we want people to understand the economic way of thinking. Your net benefit to seeing Clapton is whatever you would have paid to see him, while your net benefit to seeing Dylan is $0 if the tickets cost $50 That was my answer, but it seemed so easy that I was really nervous about it. The only thing potentially tricky about the problem, I suppose, is that the free Eric Clapton ticket is a distractor and has nothing whatsoever to do with the answer.
Would the the economists have gotten the aswer right if the question had been simply, “Tickets to a Bob Dylan concert are $40.
On any given day, you’d be willing to spend $50 to see Dylan.
What’s the opportunity cost of staying home to watch TV?
” Tom – I think/hope you are correct about the wording of the question.
Honestly when I first read the question I was a little confused about whether or not you already had tickets to the Dylan concert.
I think it is clear if you read slowly; hopefully these “top economists” are just busy people who (rationally?
) chose not to invest much of their scarce time carefully reading a meaningless survey question. Since the thesis of the post is that many, many economists — a whopping huge majority — do not know what “opportunity costs” are, and since this blog’s readers include people with less formal training in economics than a typical economist, would this post not be more readable to a majority of its actual or target readers if you included a goddam definition of “opportunity costs”?
Is the point of this blog to inform, or is it just that the bloggers wants to publicly look down their noses at everyone else?
Random answers imply more than not reading carefully.
Monetary motivations have historically proven ineffective in eliciting correct answers to simple logic problems.