Posts Tagged ‘natural experiment’

A Tiger Of A Mistake

December 10, 2009

by Mario Rizzo  

UCLA economist Matthew Kahn says that there is a “natural experiment” of the power of the income effect in Tiger Woods’s troubles (HT Greg Mankiw). The fall in income from endorsements should result in Tiger Woods playing more golf tournaments. The relative price (or wage) from the latter source remains unchanged while his income falls. If leisure is a normal good, then less income means less leisure and hence more tournaments. 

Possibly. But it is not a test of the labor supply theory. Why not? Economics makes predictions about markets and not individual behavior. This is a mistake often made by behavioral economists. They (and some of their neoclassical brethren) think that the individual hypothesized in the models is a “representative individual.”  

This is quite wrong. As the economist Fritz Machlup argued years ago, the individual here is an imaginary puppet whose only task is to generate predictions about market behavior. (In today’s intellectual landscape we might modify that to include predictions about aggregations of individuals in non-market contexts.)   

So whatever Tiger Woods does there has been no “natural experiment” and no test of Jacob Mincer’s labor economics. We can keep Tiger Woods out of the economics books and leave him in the gossip pages.

UPDATE: Tiger Woods says that he will reduce, not increase, his tournament participation. So I guess Jacob Mincer’s labor economics fails the natural experiment. Hmm.  Now will Professor Kahn adopt my (Machlupian) point of view?

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