Today's guest is Stuart Ritchie, psychologist and author of Science Fictions: How Fraud, Bias, Negligence, and Hype Undermine the Search for Truth.

Science is how we understand the world. Yet failures in peer review and mistakes in statistics have rendered a shocking number of scientific studies useless – or, worse, badly misleading. Such errors have distorted our knowledge in fields as wide-ranging as medicine, physics, nutrition, education, genetics, economics, and the search for extraterrestrial life. As Science Fictions makes clear, the current system of research funding and publication not only fails to safeguard us from blunders but actively encourages bad science – with sometimes deadly consequences.

Stuart Ritchie’s own work challenging an infamous psychology experiment helped spark what is now widely known as the “replication crisis,” the realization that supposed scientific truths are often just plain wrong. Now, he reveals the very human biases, misunderstandings, and deceptions that undermine the scientific endeavor: from contamination in science labs to the secret vaults of failed studies that nobody gets to see; from outright cheating with fake data to the more common, but still ruinous, temptation to exaggerate mediocre results for a shot at scientific fame.

Yet Science Fictions is far from a counsel of despair. Rather, it’s a defense of the scientific method against the pressures and perverse incentives that lead scientists to bend the rules. By illustrating the many ways that scientists go wrong, Ritchie gives us the knowledge we need to spot dubious research and points the way to reforms that could make science trustworthy once again.

Today's guest is Viktor Vanberg of the Walter Eucken Institute. We discuss a recent working paper of his entitled Individual Choice and Social Welfare: Theoretical Foundations of Political Economy.

What we call an economy, i.e. the nexus of economic activities and relations within some defined regional limits – e.g. a local, a national or the world economy –, has always been subject to measures taken, or constraints imposed by political authorities. How economies work is inevitably, and to a significant extent, contingent on the political environment within which they operate.

It is not surprising that economists studying the working principles of economic systems have rarely been content with confining their work to describing and explaining the economic realities they observe. Their ambitions always extended to passing judgments on the policies that shaped these realities and to providing guidance for what politics ought to do to improve economic matters. In economics explanations of what is and judgments on what politics should do are often not only more closely intertwined than in most other fields of scientific inquiry, and more than from practitioners in other fields the general public expects economists to pass such policy judgments.

We discuss welfare economics, what it means for economics to be an applied science, and the work of the late James Buchanan.

My guest today is Fabio Rojas. He is professor of sociology at Indiana University Bloomington.

Fabio is the author of three books, the first is From Black Power to Black Studies: How a Radical Social Movement Became an Academic Discipline, published in 2007. The second book, coauthored with Michael Heaney, is Party in the Street: The Antiwar Movement and the Democratic Party after 9/11, published in 2015. The third book, Theory for the Working Sociologist, was published just recently in 2017.

We begin the conversation by talking about the discipline of sociology in general. What should an undergraduate student know about sociology, and furthermore, what should other social scientists know about the field? We discuss the distinct methods that make sociology sociology.

Moving on, we discuss the relationship between activism and scholarship, particularly as it pertains to sociology but also as it pertains to black studies, the subject of Fabio's first book.

Related Links:

The Theory of Moral Sentiments

James Heckman discusses field experiments on EconTalk

Evicted: Poverty and Profit in the American City by Matt Desmond

The American Journal of Sociology

The American Sociological Review

In this episode, I have three guests on the show with me: Kewei Hou of Ohio State University, Chen Xue of the University of Cincinnati, and Lu Zhang of Ohio State University.

Kewei, Chen, and Lu have coauthored a paper titled "Replicating Anomalies," a large-scale replication study that re-tests hundreds of so-called "anomalies" in financial markets. An anomaly is a predictable pattern in stock returns, or stated differently, it is a deviation from the efficient markets hypothesis. Their abstract reads as follows:

The anomalies literature is infested with widespread p-hacking. We replicate the entire anomalies literature in finance and accounting by compiling a largest-to-date data library that contains 447 anomaly variables. With microcaps alleviated via New York Stock Exchange breakpoints and value-weighted returns, 286 anomalies (64%) including 95 out of 102 liquidity variables (93%) are insignificant at the conventional 5% level. Imposing the cutoff t-value of three raises the number of insignificance to 380 (85%). Even for the 161 significant anomalies, their magnitudes are often much lower than originally reported. Out of the 161, the q-factor model leaves 115 alphas insignificant (150 with t < 3). In all, capital markets are more efficient than previously recognized.

We discuss the process of replicating these anomalies, issues involving the use of equal-weighted vs value-weighted returns, and the problems of p-hacking in finance research.

Works Cited

Hamermesh, Daniel S. 2007. “Replication in Economics.” Canadian Journal of Economics 40(3):715–733.

Kewei Hou, Chen Xue, Lu Zhang; Digesting Anomalies: An Investment Approach. Rev Financ Stud 2015; 28 (3): 650-705.

Hou, Kewei and Xue, Chen and Zhang, Lu, Replicating Anomalies (June 12, 2017). Charles A. Dice Center Working Paper No. 2017-10; Fisher College of Business Working Paper No. 2017-03-010.

Other Links

The Marginal Revolution post on this paper.

Erik Kimbrough, assistant professor of economics at Simon Fraser University, is an experimental economist. In this episode, we discuss his paper, "Norms Make Preferences Social" which he coauthored with Alexander Vostroknutov.

Experimental economics began with Vernon Smith's double auction experiments in the 1950s. Smith wanted to test whether market participants could converge to the equilibrium prices and quantities predicted under neoclassical theory. He found that, indeed, the students in the lab did converge to the optimal prices and quantities, and experimental economics was born.

In the late 1970s and 1980s, the practice of testing game theory models in the lab caught on and became mainstream. One of these games, the ultimatum game, features two players dividing up a sum of money. The first play offers the second one an amount, and the second player can accept or reject. Rejection means neither player gets anything, so a (naive) game theorist would predict that player one will offer the smallest amount, a penny, and the second player will accept it. In reality, people often offer a 50-50 split, or 60-40. And when the person offering gets too greedy, say offering an 90-10 split, people routinely reject such offers.

What can explain this behaviour? To find out, experimentalists came up with an even simpler game: the dictator game. In this game (really not much of a game) one player decides how to divide up an amount of money between himself and another player. But even without the possibility of rejection, people still give others positive amounts.

What can explain this? Experimentalists believed that people were offering positive amounts to appear generous to the experimenters. In order to control for this, experimenters did double-blind studies, using code names and passing envelopes under doors to ensure participants that nobody would know if they kept the money for themselves. And yet people still shared positive amounts!

But how can we reconcile people giving away large portions of their money in a lab setting when they don't give similarly large portions of their income in real life? Experimenters realized that the money in the lab wasn't earned, so the participants may have conceived of it differently than money they felt they earned and deserved. So they had participants take a quiz, and awarded the right to be dictator to the highest scorer on the quiz.

Combining the double blind and earned income experimental designs, the experimenters were able to get 96% of people to keep the money for themselves.

One theory of why people share positive amounts is that people have preferences over payoff distributions. That is, they care about inequality. But this hypothesis is contradicted by the double blind and earned income experimental designs; neither of these affect the final distribution of payoffs, and yet they affect how much people offer in the dictator game.

Erik's conjecture is that people offer, for instance, a 50-50 split because they are adhering to a fairness norm. He uses a game where people are instructed to wait at a stoplight, even though they are paid to cross a virtual street as quickly as possible.

Indeed, the people who wait at the light, those who have a strong preference for following the norm, are also more likely to offer a 50-50 split in the dictator game. Furthermore, when the norm-following individuals play a public goods game, they are able to maintain high contributions to the public good.

You can read more about Erik's work at his personal website

In this episode, Ash Navabi discusses whether the Austrian School of Economics is a cult and the value of mathematics in economic theory. Ash is an economics student at Ryerson University.

Ash wrote an article responding to recent criticisms of the Austrian school by Keynesian bloggers Noah Smith and Paul Krugman. Krugman approvingly referenced Smith's attacks on the “hermetic system that is Austrians.” Just a week later he made the following telling comment about the economics mainstream:

"And modern academic economics is very much an interlocking set of old-boy networks; to some extent this has become even more true since the decline of the journals, with most discourse taking place via working papers long before formal publication. I used to refer to the international trade circuit as the floating crap game — the same 30 or 40 people meeting in conferences all over the world, reading and citing each others’ work; it’s the same in each sub-field. And to some extent it’s inevitable: there’s so much stuff out there, and you have to filter somehow, so you mainly read stuff by people you know and people they tell you are worth reading."

Ash was quick to point out that, by the logic of the people who deride Austrian economists as "cultish" because they interact mainly with one another, each of the "old-boy networks" Paul Krugman refers to (that is, each sub-field of mainstream economics) must also be a cult.

Gary Becker, another Nobel Laureate, referred to the Austrian school as a cult in a letter to Walter Block. Becker's definition of a cult was "a small number of dedicated followers who speak mainly to each other, and interact little with let us call them mainstream economists.” This definition is problematic, to say the least. When people hear the word "cult," they don't think of Becker's dry definition but of animal sacrifice and mass suicide. The word "cult" also implies unquestioning devotion to the cult leaders, but modern Austrians frequently criticize Mises and Hayek, in highly un-cultish fashion.

Ash also wrote an article on mathematical economics versus so-called "literary" economics. John Cochrane recently referred to non-mathematical economics as "literary," a mild slur that goes back at least as far as the 1940s when Mises responded to it in Human Action. The Austrian method is not "literary" in the sense of using airy prose and fuzzy logic, rather it uses a highly rigorous form of verbal logic to derive causal chains from the basic axioms of human action.

Mathematical economics forces economists to start their analyses from unrealistic assumptions in order to put all problems in mathematically tractable terms. However rigorous the mathematics itself is, the foundation is flawed so the conclusions are flawed.

Austrians conceive of economic theory as a descriptive science rather than a predictive one. That is, pure theory cannot tell you how the future will turn out, nor is a theory tested by its empirical predictions. An entrepreneur can have a true theory of how the economy works, and yet he can still make wrong predictions if he misjudges the actual factors at play.

Ash can be found online at the Mises Canada blog page.