D. Wheat, DEE Conference Cardiff, Wales, Sep 10, 2009 1 Cardiff September 10, 2009 Enabling Students...

D. Wheat, DEE Conference

Cardiff, Wales, Sep 10, 20091

CardiffSeptember 10, 2009

Enabling Students to Compare TheoriesEnabling Students to Compare TheoriesIn Media Stories about the EconomyIn Media Stories about the Economy

Enabling Students to Compare TheoriesEnabling Students to Compare TheoriesIn Media Stories about the EconomyIn Media Stories about the Economy

Developments in Economics Education

I. David WheatAssociate Professor of System Dynamics

University of Bergen, Norway

Adjunct Associate Professor of EconomicsVirginia Western Community College, U.S.A.

orjournal articles

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2D. Wheat, DEE Conference


Challenge: Representing Causal StructuresChallenge: Representing Causal StructuresChallenge: Representing Causal StructuresChallenge: 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.



What is the Feedback Method?What is the Feedback Method?What is the Feedback Method?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 Representation1. 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



Example from 18th Century EconomicsExample from 18th Century EconomicsExample from 18th Century EconomicsExample 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

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wages_

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family size

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laborsupply

wages family size

laborsupply wages+ + _

delays



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)

Example from 19th Century EconomicsExample from 19th Century EconomicsExample from 19th Century EconomicsExample 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].

Mill’s Speculative Demand ModelMill’s Speculative Demand ModelMill’s Speculative Demand ModelMill’s Speculative Demand Model

Variables: (1) expectation of rising prices (2) speculative demand (3) price

pricespeculative demand expectation of rising pricesexpectation of rising prices + + +



Three Theories of the Housing Price BubbleThree Theories of the Housing Price BubbleThree Theories of the Housing Price BubbleThree Theories of the Housing Price Bubble

“The 1998-2005 Housing 'Bubble' and the Current Correction: What's Different this Time?” Wheaton and Nechayev (2007)

“There Is No Housing Bubble in the USA: Housing Activity Will Remain at High Levels in 2005 and Beyond” J. Smith (2005)

“From Bubble to Depression?” Gjerstad and V. Smith (2009)



Model 1Model 1Model 1Model 1

“There Is No Housing Bubble in the USA: Housing Activity Will Remain at High Levels in 2005 and Beyond”




“The 1998-2005 Housing 'Bubble' and the Current Correction: What's Different this Time?”

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“From Bubbleto Depression?”

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Comparing the Three Price-Bubble Theories*Comparing the Three Price-Bubble Theories*Comparing the Three Price-Bubble Theories*Comparing the Three Price-Bubble Theories*

*adapted from Wheat (2009), “Empowering Students to Compare

Ways Economists Think: The Case of the Housing

Bubble,” International Journal

of Pluralism andEconomics Education.

There Is No Housing Bubble …

The Housing Bubble …What’s Different this Time?

Bubble to Depression?

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Summary ConclusionsSummary ConclusionsSummary ConclusionsSummary 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.



[email protected]+47-55-58-3081

Thank you.Thank you.Thank you.Thank you.

Stay in touch.

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+C population

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official developmentassistance

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Feedback Loop Diagram of Sachs’ “Poverty Trap Model”Feedback Loop Diagram of Sachs’ “Poverty Trap Model”Feedback Loop Diagram of Sachs’ “Poverty Trap Model”Feedback Loop Diagram of Sachs’ “Poverty Trap Model”

Adapted from Jeffrey Sachs’The End of Poverty: EconomicPossibilities for our Time (2005)

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Stock-and-Flow Diagram of Sachs’ “Poverty Trap Model”Stock-and-Flow Diagram of Sachs’ “Poverty Trap Model”Stock-and-Flow Diagram of Sachs’ “Poverty Trap Model”Stock-and-Flow Diagram of Sachs’ “Poverty Trap Model”

R1

R2

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Simulation ResultsSimulation ResultsSimulation ResultsSimulation Results

reference mode

simulation 3

ODA = $100/year/personfor 15 years

Incomeper capita

reference mode

simulation 1

ODA = 0

Incomeper capita

reference mode

simulation 4


Incomeper capita

reference mode

simulation 2


Incomeper capita

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SummarySummarySummarySummary

• 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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