From the history of thought to the mechanics of the prisoner’s dilemma, former University of Chicago president and professor of economics Hugo Sonnenschein shared wide-ranging thoughts and insights with undergraduate economics students.
Speaking to a crowded room, Sonnenschein prefaced his talk with some basic thoughts on “what economics is all about.” He started by quoting Adam Smith on the the “natural effort of every individual to better his own condition”—a force so powerful it is capable of “carrying society to wealth and prosperity” despite the folly and obstructions of human laws.
In contrast, Sonnenschein pointed out, the more recently developed subfield of behavioral economics “is all about the notion that we should the distrust the idea that people are always acting in their own best interest, mainly because [people] don’t always know what’s best.”
Using a simple description of the classic game theoretic model, the prisoner’s dilemma, Sonnenschein demonstrated a basic insight: people doing the best for themselves may not promote the social good. And if, like the behavioralists, “you start with the idea that people don’t know what’s best for themselves, the notion that what they do will not promote the public interest is not an unreasonable idea,” he added.
Sonnenschein then contextualized this challenge in today’s economic situation, discussing financial crises, inequality, regulation, and unemployment. He continued to present the evolution of game theory from the works of John Nash to those of Ariel Rubinstein and the University of Chicago’s Roger Myerson.
Sonnenschein concluded his talk by returning to that question of what economics is about. Clearly, he noted, “there are unsolved problems.” The basic question of economics is how, when, and to what extent we intervene in the markets, attempting to solve these problems.
His advice to the student audience was to build analytical tools–not because these tools will automatically solve problems, but because they will build an analytical framework to help economists learn how to attack them.
“At the end of the day, you have a healthy skepticism, to find out what is right and important, and to push back” against what you hear and are taught. “Don’t buy into all of our stories. The more you push back, the better,” he advised.
— Amelia Snoblin