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I watched Duflo's TED talk and found it very interesting. As a person interested in the Austrian school of economics, I was intrigued (I'm not an economist). Most of what she says makes sense. Superficially, her approach seems to contradict the views of Hayek and Mises on the epistemology of economics. However, I don't think this is the case. In the first place, I don't think the result of the immunization-lentils experiment contradicts economic theory, like the article says. It's perfectly natural for people to react to an additional incentive. That the reaction was bigger than expected doesn't contradict economics at all. At any rate, it doesn't contradict Austrian economics, because economic theory cannot make exact quantitative predictions. Also, people's reactions depend on their objectives. Therefore, the strength of their reaction to the lentils incentive depends on how much they value lentils. I wasn't surprised at all by the result of the experiment. In my view, these experiments are valuable, because their results can enable people to determine the best ways to relieve poverty. That's great. But no economic theory can be deduced from them. Their results are not generalizable. They apply only to the context in which they were performed. E.g, while giving lentils to people in India may yield the best results in immunizing as many children as possible, that might not be true in other places. I'm not saying this is a drawback of these experiments. It's simply something that is out of their scope. I think the purpose of these experiments is not to develop general economic theories, but to determine, in specific contexts, which poverty relief measures work best. That's why I think this doesn't contradict Hayek's and Mises' views on epistemology. In my opinion, performing these experiments is not less valid from their point of view than recording athlete statistics in order to manage a sports team. In my view, what Duflo is doing doesn't qualify as economics in the sense to which Mises and Hayek were referring when they wrote about epistemology. Also, I think these experiments have nothing to do with government policy. They don't say anything about whether governments should send relief to Africa or not. They just say: if you have x dollars and you want to help people in place y so that problem z is relieved, the best approach is p. For that, these technique seems to be appropriate. For building general economic theories, no.
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May 7, 2010