The Well-meaning Economist
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Adam Gorajek: Reserve Bank of Australia
RBA Research Discussion Papers from Reserve Bank of Australia
Economists usually inform policymakers with conclusions that come from studying the conditional expectation, i.e. arithmetic mean, of some potential outcome. But there are other means to study, from the same 'quasilinear' family. And they can support very different conclusions. In trade research, for instance, studying other means can transform the perceived roles of colonial history, geography, and trade wars. In wages research, studying other means can reverse perceived earnings differentials between groups. Similar scenarios will be common in other tasks of policy evaluation and forecasting. To choose means well I propose selection criteria, which also consider options that are outside of the quasilinear family, such as quantiles. Optimal choices are application-specific and ideally accommodate the preferences of the relevant policymaker. In the wages case, policymaker aversion to inequality makes it sensible to reject the arithmetic mean for another quasilinear one.
Keywords: policy evaluation; forecasting; quasilinear mean; expected utility; loss function; power transformation; gravity model; inverse hyperbolic sine (search for similar items in EconPapers)
JEL-codes: C10 F10 J30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lma and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp2019-08
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