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The study of economics is currently at a crossroads, with one direction theoretical and the other empirical, said economist Steven Levitt. But the Initiative on Chicago Price Theory utilizes both without sacrificing the other, he told the Chicago GSB Club at Gleacher Center on December 1.
“There’s this middle ground in economic that is neither very technical nor completely cut off from theory,” said Levitt, Alvin H. Baum Professor in Economics in the University of Chicago College, author of Freakonomics, and director of the initiative. “That is what the pricing guys—professors Gary Becker and Kevin Murphy—are all about: taking basic economic ideas and applying them to the world. Any question you give those guys, they can give you a good answer, a believable answer—usually the right answer.”
John List, economics professor at the College and affiliate with the initiative, put a fresh twist on a common experiment in which people receive 10 one-dollar bills and are asked to give as many as they desire to others waiting next door. Typically each person gives $2.50 to $3.50, but when List provided the option of taking money from or giving it to the others, fewer people gave anything, Levitt said.
Required to work for the $10—and told the other people also worked for their money— almost everybody gave or took nothing, he said. “That’s the world we live in,” Levitt said. “More or less, people leave each other alone. A few people do acts of kindness once in a while. A small fraction is actively out to hurt other people. In the lab, you’ve managed to replicate the real world.”
—Phil Rockrohr