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D. Wheat, DEE Conference Cardiff, Wales, Sep 10, 2009 1 Cardiff September 10, 2009 Enabling Students to Compare Theories In Media Stories about the Economy.

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Presentation on theme: "D. Wheat, DEE Conference Cardiff, Wales, Sep 10, 2009 1 Cardiff September 10, 2009 Enabling Students to Compare Theories In Media Stories about the Economy."— Presentation transcript:

1 D. Wheat, DEE Conference Cardiff, Wales, Sep 10, 2009 1 Cardiff September 10, 2009 Enabling Students to Compare Theories In Media Stories about the Economy Enabling Students to Compare Theories In Media Stories about the Economy Developments in Economics Education I. David Wheat Associate Professor of System Dynamics University of Bergen, Norway Adjunct Associate Professor of Economics Virginia Western Community College, U.S.A. or journal articles or textbooks

2 D. Wheat, DEE Conference Cardiff, Wales, Sep 10, 2009 2 Challenge: 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. Whats 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.

3 D. Wheat, DEE Conference Cardiff, Wales, Sep 10, 2009 3 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 Representation 1. 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 theorys predictive claims provides a structured pattern to facilitate understanding & comparison

4 D. Wheat, DEE Conference Cardiff, Wales, Sep 10, 2009 4 Example from 18th Century Economics Richard Cantillon Essai Sur la Nature du Commerce en General (1755) described the economic system as self-adjusting Cantillons wage model: higher wages encourage larger families larger families increase the labor supply larger labor supply reduces wages C + wages _ + family size || labor supply wages family size labor supply wages ++ _ delays

5 D. Wheat, DEE Conference Cardiff, Wales, Sep 10, 2009 5 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 Economics

6 D. Wheat, DEE Conference Cardiff, Wales, Sep 10, 2009 6 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]. Mills Speculative Demand Model Variables: (1) expectation of rising prices (2) speculative demand (3) price pricespeculative demandexpectation of rising prices ++ +

7 D. Wheat, DEE Conference Cardiff, Wales, Sep 10, 2009 7 Three 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)

8 D. Wheat, DEE Conference Cardiff, Wales, Sep 10, 2009 8 Model 1 There Is No Housing Bubble in the USA: Housing Activity Will Remain at High Levels in 2005 and Beyond

9 D. Wheat, DEE Conference Cardiff, Wales, Sep 10, 2009 9 Model 2 The 1998-2005 Housing 'Bubble' and the Current Correction: What's Different this Time?

10 D. Wheat, DEE Conference Cardiff, Wales, Sep 10, 2009 10 Model 3 From Bubble to Depression?

11 D. Wheat, DEE Conference Cardiff, Wales, Sep 10, 2009 11 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 and Economics Education. There Is No Housing Bubble … The Housing Bubble … Whats Different this Time? Bubble to Depression?

12 D. Wheat, DEE Conference Cardiff, Wales, Sep 10, 2009 12 Summary 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.

13 D. Wheat, DEE Conference Cardiff, Wales, Sep 10, 2009 david.wheat@uib.no +47-55-58-3081 Thank you. Stay in touch.

14 D. Wheat, DEE Conference Cardiff, Wales, Sep 10, 2009 14

15 D. Wheat, DEE Conference Cardiff, Wales, Sep 10, 2009 15 + C population - official development assistance ++ + Feedback Loop Diagram of Sachs Poverty Trap Model Adapted from Jeffrey Sachs The End of Poverty: Economic Possibilities for our Time (2005)

16 D. Wheat, DEE Conference Cardiff, Wales, Sep 10, 2009 16 Stock-and-Flow Diagram of Sachs Poverty Trap Model R1 R2 C

17 D. Wheat, DEE Conference Cardiff, Wales, Sep 10, 2009 Simulation Results reference mode simulation 3 ODA = $100/year/person for 15 years Income per capita reference mode simulation 1 ODA = 0 Income per capita reference mode simulation 4 ODA = $100/year/person for 18 years Income per capita reference mode simulation 2 ODA = $100/year/person for 10 years Income per capita

18 D. Wheat, DEE Conference Cardiff, Wales, Sep 10, 2009 18SummarySummary 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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