Thursday, October 14, 2010

You’re out by miles…..

Economic misconceptions abound – not least in the media. The extent to which people are “out” in their notions is not often tested however. Here  marginal revolution brings us some stats about US students. I find it difficult to think why they would not apply – at least in order of magnitude in NZ… especially to journalists:

“Students typically come to an economics class with many misconceptions, not just random errors but systematic biases (see especially Caplan 2002).

Bill Goffe recently (2009) surveyed one of his macro principles classes and found, for example, that the median student believes that 35% of workers earn the minimum wage and a substantial fraction think that a majority of workers earn the minimum wage (Actual rate in 2007: 2.3% of hourly-paid workers and a smaller share of all workers earn the minimum wage, rates are probably somewhat higher today since the min. wage has risen and wages have not).

When asked about profits as a percentage of sales the median student guessed 30% (actual rate, closer to 4%).

When asked about the inflation rate over the last year (survey was in 2009) the median student guessed 11%.  Actual rate: much closer to 0%.  Note, how important such misconceptions could be to policy.

When asked by how much has income per person in the United States changed since 1950 (after adjusting for inflation) the median student said an increase of 25%.  Actual rate an increase of about 248%, thus the median student was off by a factor of 10.”

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