Developments in Economics Education
Enabling Students to Compare Theories
In Media Stories about the Economy
or
journal articles
or
textbooks
I. David Wheat
Associate Professor of System Dynamics
University of Bergen, Norway
Adjunct Associate Professor of Economics
Virginia Western Community College, U.S.A.
Cardiff
September 10, 2009
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D. Wheat, DEE Conference
Cardiff, Wales, Sep 10, 2009
Challenge: Representing Causal Structures
A challenge for students: representing a discipline's causal structures
… hypotheses and theories
… how and why things happen the way they do
Even verbatim notes do not guarantee comprehension of hypotheses and
theories. Students may merely memorize and repeat.
What’s missing: a translation technique that structures information in a way
that is
– … faithful to the theory in the textbook, article, or news media
– … yet comprehensible to the student.
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Cardiff, Wales, Sep 10, 2009
What is the Feedback Method?
• 2007 DEE Conference: MacroLab Workshop
– students use a simulation model of U.S. economy
– students see structure represented in two formats:
• stock & flow diagram
• feedback loop diagrams
– students examine behavior via interactive learning environment
– enables even first-year students to study dynamics
• Today: Feedback Method of Theory Representation
1. converts a theory (narrative text or equations) into causal links & loops
2. formulates the stock and flow structure of the theory
3. simulates the translated model
4. tests the theory’s predictive claims
provides a “structured pattern” to facilitate understanding & comparison
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Example from 18th Century Economics
Richard Cantillon
• Essai Sur la Nature du Commerce en General (1755)
• described the economic system as self-adjusting
Cantillon’s wage model:
• higher wages encourage larger families
• larger families increase the labor supply
• larger labor supply reduces wages
wages
+
wages
+
family
size
+
labor
supply
_
wages
_
delays
C
family
size
labor
supply
||
+
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Example from 19th Century Economics
When there is a general impression that the price of some
commodity is likely to rise, from an extra demand, a short
crop, obstructions to importation, or any other cause, there
is a disposition among dealers to increase their stocks, in
order to profit by the expected rise. This disposition tends in
itself to produce the effect which it looks forward to, a rise of
price; and if the rise is considerable and progressive, other
speculators are attracted...[resulting] in a further advance [in
price].
John Stuart Mill (Principles of Political Economy, 1848)
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Cardiff, Wales, Sep 10, 2009
Mill’s Speculative Demand Model
When there is a general impression that the price of some commodity is likely to rise,
from an extra demand, a short crop, obstructions to importation, or any other cause,
there is a disposition among dealers to increase their stocks, in order to profit by the
expected rise. This disposition tends in itself to produce the effect which it looks
forward to, a rise of price; and if the rise is considerable and progressive, other
speculators are attracted...[resulting] in a further advance [in price].
Variables: (1) expectation of rising prices
expectation of rising prices
+
(2) speculative demand
speculative demand
+ price
+
(3) price
expectation of rising prices
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Three Theories of the Housing Price Bubble
“There Is No Housing Bubble in the USA: Housing
Activity Will Remain at High Levels in 2005 and Beyond”
J. Smith (2005)
“The 1998-2005 Housing 'Bubble' and the Current
Correction: What's Different this Time?”
Wheaton and Nechayev (2007)
“From Bubble to Depression?”
Gjerstad and V. Smith (2009)
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Model 1
“There Is No Housing
Bubble in the USA:
Housing Activity Will
Remain at High Levels in
2005 and Beyond”
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Model 2
“The 1998-2005 Housing 'Bubble'
and the Current Correction:
What's Different this Time?”
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Model 3
“From Bubble
to Depression?”
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Comparing the Three Price-Bubble Theories*
There Is No Housing Bubble …
The Housing Bubble …
What’s Different this Time?
Bubble to Depression?
*adapted from Wheat (2009),
“Empowering Students to
Compare Ways Economists
Think: The Case of the
Housing Bubble,”
International Journal
of Pluralism and
Economics Education.
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Summary Conclusions
End product of a Feedback Method of mapping:
• a set of causal links (and maybe a loop) representing how
an economic process is believed to work
• evidence of student-constructed understanding
• facilitates comparison of economists’ theories
Resulting “feedback map”--whether accurate or not-provides a forum for discussion that can
…correct student misconceptions
…facilitate better instructor explanations
…enhance learning about dynamic processes in economics
A commitment to pluralism in economics education requires a corresponding
commitment to empower students to compare economists’ mental models.
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Thank you.
Stay in touch.
david.wheat@uib.no
+47-55-58-3081
D. Wheat, DEE Conference
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Feedback Loop Diagram of Sachs’ “Poverty Trap Model”
+
C
population
+
+
+
official development
assistance
Adapted from Jeffrey Sachs’
The End of Poverty: Economic
Possibilities for our Time (2005)
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Stock-and-Flow Diagram of Sachs’ “Poverty Trap Model”
R1
C
R2
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Simulation Results
ODA = $100/year/person
for 10 years
ODA = 0
simulation 2
reference mode
Income
per capita
simulation 1
ODA = $100/year/person
for 15 years
simulation 3
Income
per capita
reference mode
Income
per capita
reference mode
ODA = $100/year/person
for 18 years
simulation 4
Income
per capita
reference mode
D. Wheat, DEE Conference
Cardiff, Wales, Sep 10, 2009
Summary
• The Feedback Method Model reproduces the reference mode.
• If the ODA policy is $100/year/person, it takes 18 years to produce
sustainable growth in the Sachs model.
• The Sachs model has several limitations, including:
– It ignores all counteracting loops except one (capital depreciation)
– It has no dynamic history. It ignores the development of the
poverty trap.
– It assumes investment responds only to saving;
i.e., “expected profits” from investment do not affect investment
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