In college, I was an econ-nerd. My heroes were Adam Smith, Friedrich Hayek, Milton Friedman, Thomas Sowell. I listened to every Russ Roberts’ EconTalk episode on my iPod Nano. Russ got to interview celebrities(!) like Richard Thaler, Sam Peltzman, and Tyler Cowen each week. Scarcity, opportunity costs, utility functions, I thought I was discovering a secret language to explain the world.
My college had two Nobel prize winning economics professors. They were kind of a big deal.
My sophomore year, I took a class with one of the Nobel prize winners: Vernon Smith. Vernon won the 2002 Nobel prize for his foundational work in experimental economics. He had the idea you could test economic theories by creating games and offering people real money to play them. When you do this, you find that humans don’t always act like the profit-maximizing utility-robots some economic theorists think they act like. This is interesting.
An example: I give you 10 dollars and ask you how much of the 10 dollars you want to share with another participant. A selfish utility-robot would keep the whole $10 for himself. Basic economic theory predicts you would keep the whole $10 for yourself. But some people do not. Some people share – even if the other participant is a stranger. How odd.
Another example: I give you 10 dollars and ask how much of the 10 dollars you want to share with the other participant. BUT IN THIS EXAMPLE the other participant can reject your offer. If they reject your offer you both get nothing. In a world of Utility-robots, Utility-robot A would want to keep as much of the money as he can and only offer $1 to Utility-robot B, which Utility-robot B would accept because one dollar is more than zero dollars. However, Human B often rejects these proposals. Humans are not utility-robots. Humans are more complicated. Weird.
So Vernon Smith set up a lot of these games, and he gave out a lot of money for people to play them, and recorded the results, and then he got the Nobel prize. He was basically MrBeast before there was a MrBeast. Imagine how famous Vernon Smith would be if YouTube had been bigger at the time.
And when I was a sophomore, I took Vernon’s class, and we got to play the games and understand the ideas behind them, and it was pretty awesome, and taught me the valuable lesson that humans are not robots.
My college’s other Nobel prize winner was more elusive.
James Buchanan didn’t teach any classes, but he was still a very big deal. Buchanan won the Nobel Prize in 1986 (the year I was born) for his “contributions to the theory of political decision-making and public economics.” He’s one of the founders of Public Choice economics, which applies economic thinking to political decision making.
One public choice idea is “Instead of imagining politicians as benevolent public servants, what happens if we imagine them as rational actors responding to incentives?”
In other words, Buchanan thought “If politicians were utility-robots, what would they do?” And to some people’s surprise, theorizing politicians are selfish rational actors is a pretty good way to model how they act.
To recap: people are more complicated than utility-robots, but thinking of politicians as utility-robots can be a useful way to predict their behavior.
Another fun fact: James Buchanan lived in the James Buchanan House making him (as far as I can tell) the only professor at my school living on campus in a house named after himself.
So the summer after my sophomore year, I learned there was an economics seminar on campus, headlined by Deirdre McCloskey and Nobel Prize Winner James Buchanan (with reception to follow at the Buchanan House). Economics seminars are one way academic economists share their works in progress. They read their draft papers to each other, offer feedback, and think about how their ideas fit into the web of all the other ideas other people have thought about. Excited about the opportunity to meet my school’s other Nobel prize winner, I asked if I could attend and the seminar organizer graciously let me sit in.
I was the only undergraduate. The seminar was mostly professors or people aspiring to be professors. The next youngest person there was probably 30, which feels very old when you are 20, but also very young when you are 35 and reflecting on the event. The average age was probably 50 – very, very old if you are 20 – and if my math is right James Buchanan himself was about 90, unimaginably old to me even today.
Drafts papers were presented and debated. Most of the ideas were too chunky for my mushy undergraduate brain to absorb.
Then Deirdre McCloskey presented. Deirdre is not the stereotype of a lecturing economics professor. She has a stutter in public speaking that leaves you craning for the next word in her sentence. But her ideas are so crisp and clear and provocative that you are anxious for those next words. Her presentation that day has stuck with me all these years later.
A big idea in economics is gains from trade. I choose to trade with you because it makes me better off, and you also choose to trade with me because it makes you better off. Trades are positive-sum games, and voluntary trade is one of the foundations of our current prosperity.
Deirdre presented the idea that conversation is an exchange of words. Conversation is a trade of sorts, so conversation should have some positive-sum benefits, creating value like we see in traditional trade.
Economics hasn’t focused much on conversation’s benefits. One reason is the benefits are harder to add up than the dollars and cents of business activity. Deirdre also proposed another theory for this lack of attention: Economics is a male-dominated field. Men are not as naturally given to conversation, and therefore tend to overlook its value.
Then she proposed a solution: More women in Economics! She closed “this is an endeavor to which I hope to have done my part”.
Later, Professor Buchanan gave a talk. I don’t remember a word of it.
Following the seminar, there was food and drinks and mingling. I remember feeling lost. Out of place in the age gap between myself and the other seminar attendees. And then Deirdre McCloskey, headline seminar attendee, came over and talked to little-old me. Maybe she noticed I was different. Maybe she sensed I felt out of place. Whatever the reason, she engaged me in conversation and I suddenly felt seen. I felt I belonged.
Then she did the most amazing thing.
Deirdre McCloskey walked me across the room to where a circle of economists had gathered around Nobel Prize Winner James Buchanan.
“Jim,” she said, “I’d like to introduce you to a friend of mine, Josh Knox. He is an undergraduate here at George Mason University”
I was starstruck. I began to extend my hand.
Nobel Prize Winner James Buchanan grunted, “Yeah, we met already,”
But here’s the thing: we hadn’tmet already. And Deirdre knew we hadn’t met already. But also, he’s Nobel Prize Winner James Buchanan. What are you going to do?
Deirdre shot me a glance and smirked.
Maya Angeleau said “people will forget what you said, people will forget what you did, but people will never forget how you made them feel.” I smile when I remember what Deirdre McCloskey said in her draft paper, what she did in her introduction, and how she made me feel that day.
I won’t get a second chance to meet James Buchanan, he passed away in 2013. But if I get a chance to meet Deirdre McCloskey again, I’d like to thank her for her courtesy that day. I’d like to thank her for starting a conversation and making me feel valuable.