Economics, the scientific method, and behavioural economics - Part II

Series Name Department of Economics
Speaker Professor Sanjit Dhami
Type Lectures & Talks
Starts at Oct 08, 2013 05:30 PM
Ends at Oct 08, 2013 06:30 PM
Venue Ken Edwards Building, Lecture Theatre 1
Open To Public

In the first inaugural, Professor al-Nowaihi outlines the scientific method and the methodological positions taken in economics. The immunizing stratagems adopted by the mainstream in economics to avoid refutation are outlined. He also compares and contrasts the relative failure of the mainstream approach in economics with the spectacular success of the mainstream approach in physics. He makes a strong case for economics to accept a standard of rigor (in the sense of conformity to the evidence) that is not inferior to that of physics.

In the second inaugural, Professor Dhami discusses some examples from the joint work on behavioural economics with Professor al-Nowaihi. In particular, he focusses on their work in solving the four decade old tax evasion puzzles. Given actual probabilities of being caught and the magnitude of fines, the rate of return from tax evasion for an amateur tax evader is about 98%. So why does anyone pay taxes? Further, neoclassical economics predicts that as the tax rate goes up, people should evade less, which is refuted by the evidence. They solved these puzzles using the Nobel Prize winning work on prospect theory, to which they have also made theoretical contributions. Their work was then confirmed with data from 3.6 million Swedish taxpayers and also formed a part of the literature that informed the compliance strategy of HMRC.

Time permitting, other examples of their work may be briefly alluded to. These could include, the behaviour of humans in the domain of very low probability events, the effect of the human desire for fairness in social redistribution, the role of time preferences, and a new solution concept for static games.

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