Still, there is one theme that J. K. Rowling has put big neon arrows and flashing lights around: choice. In the second book of the series, Harry Potter and the Chamber of Secrets, Professor Dumbledore tells Harry that “It is our choices. . . that show what we truly are, far more than our abilities.” This theme gets its explicit repetition in Harry Potter and the Half-Blood Prince, the most recent addition to the series, in a discussion about the meaning of prophecies. There can be no question that we all must face choices – some of which are between bad and worse options – and that how we decide reveals our character.
Well, isn’t this exactly what economics is about? The definition of economics that I give my students is that it’s the study of the allocation of scarce resources. If life didn’t involve tradeoffs, there would be no reason for this list, and the economics profession might be reduced to tallying wealth. Harry’s major choice -- whether and how to pursue the evil Lord Voldemort, at possibly lethal cost to himself – is a little more dramatic (and a lot more fun to read) than my decision whether to write this or work on my fall course syllabus. Still, making choices is the human (economic) condition.
The second part of choices, as Dumbledore notes, is that they reveal who we are. The principles of demand theory, including nonmarket valuation, rely on this principle. How I spend my money, how I allocate time between work and other activities, and an infinite number of sublime to ridiculous choices disclose a lot about me. I may talk a good game about caring about the environment, but I’m much more credible if I put my money, time, or other effort into environmental protection – if I have to give something up in exchange. Harry Potter, from the beginning of the series, could have stayed away from anything having to do with the Dark Lord, but Rowling would have had to find a different character for her series. At the end of the current book (no, I won’t give it away), he yet again faces tradeoffs in pursuit of ridding the world of the bad guy, and he yet again chooses the battle. This is the core of revealed preference analysis.
Tuesday, August 09, 2005