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Words of wisdom: "The first step is to get an idea. This is not all...

"How do you know if it is any good? The first test is to try to phr...

Spoken like a true economist - opportunity cost is a concept from m...

The same advice applies well to ideas outside of academia (i.e. for...

‘Everything should be as simple as possible ...but no simpler.’’ Th...

"Hey, no one said research would be easy. But this is a point where...

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"Once the paper is written I put it aside for a couple of weeks. Pa...

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How to Build an Economic Model in Your Spare Time

by

Hal R. Varian

UC Berkeley

December 1994

Current version: June 11, 1997

Abstract. This is an essay for Passion and Craft: Economists at Work, edited by Michael

Szenberg, University of Michigan Press, 1997.

Keywords.

Address. Hal R. Varian, Dean, School of Information Mangement and Systems, UC

Berkeley. Web page http://www.sims.berkeley.edu

~

hal

How to Build an Economic Model in Your Spare Time

Hal R. Varian

Most of my workin economics involves constructing theoretical models. Over the years,I

havedeveloped someways ofdoing thisthat maybeworthdescribing tothose whoaspire

to practice this art. In reality the process is much more haphazard than my description

would suggest---the model of research that I describe is an idealization of reality, much

like the economic models that I create. But there is probably enough connection with

reality to make thedescription useful---which Ihope is also true for myeconomic models.

1. Getting ideas

The first step is to get an idea. This is not all that hard to do. The tricky part is to get a

good idea. The way you do this is to come up with lots and lots of ideas and throw out all

the ones that aren’t good.

But where to get ideas, that’s the question. Most graduate students are convinced

that the way you get ideas is to read journal articles. But in my experience journals

really aren’t a very good source of original ideas. You can get lots of things from journal

articles---technique, insight, even truth. But most of the time you will only get someone

else’s ideas. True, they may leave a few loose ends lying around that you can pick up

on, but the reason they are loose is probably that the author thought about them a while

and couldn’t figure out what to do with them or decided they were too tedious to bother

with---which means that it is likely that you will find yourself in the same situation.

My suggestion is rather different: I think that you should look for your ideas outside

the academic journals---in newspapers, in magazines, in conversations, and in TV and

radio programs. When you read the newspaper, look for the articles about economics

:::and then look at theones that aren’t abouteconomics, because lots of the time theyend

up being about economics too. Magazines are usually better than newspapers because

they go into issues in more depth. On the other hand, a shallower analysis may be more

1

stimulating: there’s nothing like a fallacious argument to stimulate research.

1

Conversations, especially with people in business, are often very fruitful. Commerce

is conducted in many ways, and most of them have never been subjected to a serious

economic analysis. Of course you have to be careful not to believe everything you hear-

--people in business usually know a set of rules that work well for running their own

business, but they often have no idea of where these rules come from or why they work,

and this is really what economists tend to find interesting.

In many cases your ideas can come from your own life and experiences. One of my

favorite pieces of my own work is the paper I wroteon ‘‘A Model of Sales’’. I had decided

to get a new TV so I followed the ads in the newspaper to get an idea of how much it

would cost. I noticed that the prices fluctuated quite a bit from week to week. It occurred

to me that the challenge to economics was not why the prices were sometimes low (i.e.,

during sales) but why they were ever high. Who would be so foolish as to buy when the

price was high since everyone knew that the item would be on sale in a few weeks? But

there must be such people, otherwise the stores would never find it profitable to charge

a high price. Armed with this insight, I was able to generate a model of sales. In my

model there were two kinds of consumers: informed consumers who read the ads and

uninformed consumers who didn’t read the ads. The stores had sales in order to price

discriminate between the informed and uninformed consumers.

Once I developed the model I had a research assistant go through a couple of years’

worth of the Ann Arbor News searching for the prices of color TVs. Much to my delight

the general pattern of pricing was similar to that predicted by the model. And, yes, I did

manage to get a pretty good deal on the TV I eventually bought.

2. Is your idea worth pursuing?

So let’s assume (a favorite word of economists) that you have an idea. How do you know

if it is any good? The first test is to try to phrase your idea in a way that a non-economist

can understand. If you can’t do this it’s probably not a very good idea. If you can phrase

1

But which sources to read? I read the New York Times, the Wall Street Journal and the Economist; these are

probably good places to start.

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it in a way that a noneconomist can understand, it still may be a lousy idea, but at least

there’s hope.

Before you start trying to decide whether your idea is correct, you should stop to ask

whether it is interesting. If it isn’t interesting, no one will care whether it is correct or not.

So try it out on a few people---see if they think that it is worth pursuing. What would

follow from this idea if it is correct? Would it have lots of implications or would it just be

a dead end? Always remember that working on this particular idea has an opportunity

cost---you could be spending your time working on a different idea. Make sure that the

expected benefits cover that opportunity cost. One of the primary purposes of economic

theory is to generate insight. The greatest compliment is ‘‘Ah! So that explains it!’’ That’s

what you should be looking for---forget about the ‘‘nice solid work’’ and try to become a

Wizard of Ahs.

3. Don’t look at the literature too soon

The first thing that most graduate students do is they rush to the literature to see if

someone else had this idea already. However, my advice is to wait a bit before you look

at the literature. Eventually you should do a thorough literature review, of course, but I

think that you will do much better if you work on your idea for a few weeks beforedoing

a systematic literature search. There are several reasons for delay.

First, you need the practice of developing a model. Even if you end up reproducing

exactly something that is in the literature already you will have learned a lot by doing

it---andyou canfeel awfullygood about yourselffordeveloping a publishableidea! (Even

if you didn’t get to publish it yourself :::)

Second, you might come up with a different approach than is found in the literature.

If you look at what someone else did your thoughts will be shaped too much by their

views---you are much more likely to be original if you plunge right in and try to develop

your own insights.

Third, your ideas need time to incubate, so you want to start modeling as early as

possible. When you read what others have done their ideas can interact with yours and,

hopefully, produce something new and interesting.

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4. Building your model

So let’s skip the literature part for now and try to get to the modeling. Lucky for you, all

economics models look pretty much the same. There are some economic agents. They

make choices in order to advance their objectives. The choices have to satisfy various

constraints so there’s something that adjusts to make all these choices consistent. This

basic structure suggests a plan of attack: Who are the people making the choices? What

are the constraints they face? How do they interact? What adjusts if the choices aren’t

mutually consistent?

Asking questions like this can help you to identify the pieces of a model. Once you’ve

got a pretty good idea of what the pieces look like, you can move on to the next stage.

Most students think that the next stage is to prove a theorem or run a regression. No!

The next stage is to work an example. Take the simplest example---one period, 2 goods, 2

people, linear utility---whatever it takes to get to something simple enough to see what is

going on.

Onceyou’ve gotan example,workanother one,then anotherone. Seewhat iscommon

to your examples. Is there something interesting happening here? When your examples

have given you an inkling of what is going on, then you can try to write down a model.

The critical advice here is KISS: keep it simple, stupid. Write down the simplest possible

model you can think of, and see if it still exhibits some interesting behavior. If it does,

then make it even simpler.

Several years ago I gave a seminar about some of my research. I started out with a

very simple example. One of the faculty in the audience interrupted me to say that he

had worked on something like this several years ago, but his model was ‘‘much more

complex’’. I replied ‘‘My model was complex when I started, too, but I just kept working

on it till it got simple!’’

And that’s what you should do: keep at it till it gets simple. The whole point of a

model is to give a simplified representation of reality. Einstein once said ‘‘Everything

should be as simple as possible :::but no simpler.’’ A model is supposed to reveal the

essence of what is going on: your model should be reduced to just those pieces that are

required to make it work.

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This takes a surprisingly long time---there are usually lots of false starts, frustrating

diversions, and general fumbling around. But keep at it! If it were easy to do, it would

have already been done.

5. Generalizing your model

Suppose that you’ve finally made your model as simple as possible. At this point your

model is probably too simple to be of much interest: it’s likely just an example or a special

case. But if you have made your model as simple as possible, it will now be much easier

to see how to generalize it since you know what the key pieces are that make the model

work.

Here is where your education can be helpful. At last you can use all those techniques

you learned in graduate school. Most of the time you were a student you probably

studied various canonical models: things like consumer choice, and producer choice,

general equilibrium, game theory and so on. The professor probably told you that these

were very general models that could encompass lots of special cases.

Well, it was all true. Over the last fifty years economists have come up with some

very general principles and models. Most likely your model is a special case of one of

these general models. If so you can immediately apply many of the results concerning

the general model to your special case, and all that technique you learned can help you

analyze your model.

6. Making mistakes

This process---simplify to get the result, complexify to see how general it is---is a good

way to understand your model. Most of the time that I spend modeling is involved in

this back-and-forth process. Along the way, I make a lot of mistakes. As Piet Hein puts it:

The road to wisdom? We’ll it’s plain

and simple to express:

Err

and err

and err again

but less

and less

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and less.

This back-and-forth iteration in building a model is like sculpting: you are chipping

awaya little bit here,and alittle bit there,hoping to findwhat’s really inside thatstubborn

block of marble. I choose the analogy with sculpting purposely: like sculpture most of the

work in building a model doesn’t consist of adding things, it consists of subtracting them.

This is the most fun part of modeling, and it can be very exciting when the form of the

idea really begins to take shape. I normally walk around in a bit of a daze at this stage;

and I try not to get too far away from a yellow pad. Eventually, if you’re lucky, the inner

workings of your model will reveal itself: you’ll see the simple core of what’s going on

and you’ll also understand how general the phenomenon really is.

7. Searching the literature

At this point you can start doing your literature search. Tell your professors about what

you’ve discovered---nine times out of ten they’ll tell you to look in the ‘‘1983 AER’’ or

‘‘Econometrica 77’’ orsome textbook (maybeeven oneof mine). And lots of the time they’ll

be right. You’ll look there and find ‘‘your’’ model---but it will be much better done, much

more fully developed, and much clearer.

Hey, no one said research would be easy. But this is a point where you really have a

chance to learn something---read the article(s) carefully and ask yourself ‘‘Why didn’t I

do that?’’ If someone started with the same idea as you and carried it further, you want

to see what you missed.

On the other hand, if you really followed the advice I gave you above to keep it

simple, you may have come up with something that is much clearer than the current

treatments. Or, maybe you’ve found something that is more general. If so, you may have

a worthwhile insight. Go back to your advisor and tell him or her what you have found.

Maybe you’ve got a new angle on an old idea that is worth further exploration. If so,

congratulations---you would never have found this if you did the literature search right

away.

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Maybe what you’ve figured out is not already in the literature. The next possibility is

that you are wrong. Maybe your analysis isn’t right, maybe the idea is just off the wall.

This is where your advisor can play a big role. If you’ve really made your analysis as

simple as possible, it is a) less likely to contain an error, and b) any errorsthat remain will

be easier to find.

This brings me to another common problem. When you’ve worked on a topic for

several months---or even several weeks---you tend to lose a lot of perspective :::literally.

You’re just too close to the work to really get a picture of what is going on. This lack of

perspective takes one of two forms: first, you may think something is obvious when it

really isn’t. It may be obvious to you, but you’ve been thinking about this issue for several

months---it probably isn’t so obvious to someone who doesn’t have the benefit of that

experience.

The other possibility is that you may think something is complicated when it is really

obvious---you’ve wandered into a forest via a meandering path. Maybe there’s a nice

clear trail just a few feet away that you’ve totally missed.

So at this point you’ve got to start getting some independent judgment of your work.

Talk to your advisor, talk to your fellow students, talk to your wife, husband, girlfriend,

boyfriend, neighbor, or pet:::whoever you can get to listen. And here’s what you’ll find:

they’ve got no idea of what you are talking about (especially your pet). So you have to go

back to trying to figure out what you really are talking about: what is the fundamental

idea of your model?

8. Giving a seminar

After you’ve bored your friends, relatives and pets to death, you should give seminar.

This is a really important phase: the more you can talk about your work, the better the

final paper will be. This is because a talk forces you to get to the point. If you want your

audience tolisten to you, you’vegotto makeyour ideaclear, concise, and organized---and

the experience that you gain by doing this is extremely useful for writing your paper.

I listen to a lot of stupid ideas---but that’s what I’m paid to do. Lots of people listen to

stupid ideas from me, too: my colleagues get paid to do it, and the students get examined

7

on it. But most people don’t have to listen to you. They don’t have to read your paper.

They won’t even have to glance at the abstract unless they have a reason to.

This comes as a big shock to most graduate students. They think that just because

they’ve put a lot of work and a lot of thought into their paper that the rest of the world

is obliged to pay attention to them. Alas, it isn’t so. Herb Simon once said that the

fundamental scarcity in the modern world was scarcity of attention---and brother, is that

the truth. There are demands for everybody’s attention, and if you want someone to pay

attention to you, you have to give them a reason to do so. A seminar is a way to get them

to pay attention, so be sure to exploit this opportunity to get people to listen to you.

Theusefulthingaboutaseminaristhatyougetimmediatefeedbackfromtheaudience.

An audience won’t put up with a lot of the things that authors try to write in papers:

turgid prose, complex notation, and tedious details. And, believe it or not, readers won’t

put up with these things either! The trick is to use the seminar to get all those things out

of your paper---that way, it may actually get read.

Controlling the audience

I’ve seen it claimed that one of the greatest fears that most people have is speaking before

a group. I imagine that most assistant professors have this problem, but after many years

of giving lectures before several hundred students it goes away.

In fact, lecturing can become downright addictive (as my family often reminds me.)

As the mathematician R. H. Bing once said: ‘‘When I was young, I would rather give a

lecture on mathematics than listen to one. Now that I am older and more mature I would

rather give two lectures on mathematics than listen to one.’’ Giving lectures is a bit like

eating oysters. Your first one requires some courage, but after you develop a taste for

them, it can be hard to stop.

There are three parts to a seminar: the introduction, the content, and the conclusion.

My advice about introductions is simple: don’t have one. I have seen many seminars

ruined by long, pretentious, contentless introductions. My advise: say a few sentences

about the big picture and then get down to business: show them what you’ve got and

why it’s important. The primary reason to get down to business right away is that your

8

audience will only remember about twenty minutes of your talk---and that is usually the

first twenty minutes. So make sure that you get some useful information into that first

twenty minutes.

As for conclusions, the most common problem is letting the seminar trail off into

silence. This can ruin a good talk. I always like to spend the last couple of minutes

summarizing what I accomplished and why the audience should care. After all, this

is what they will walk away with, so you might as well tell them what they should

remember rather than make them figure this out for themselves.

Nowadays everyone seems to use overheads for their lectures. The downside of this

is that the seminar isn’t very spontaneous---but the upside is that the seminar is usually

better organized. My advice is to limit yourself to one or two slides for a introduction

and one for a conclusion. That way you will be forced to get to your contribution sooner

rather than later. And make your overheads big; use large type and don’t try to say too

much on each one.

Thereare two thingsto avoid in your presentation: don’t let your audience go tosleep,

and don’t let them get too lively. You want the audience to hear what you have to say.

They won’t hear your message if they are sleeping, and they won’t hear your message if

they are talking more than you are. So don’t loose control of your seminar!

The key to maintaining control is to establish credibility early on. The way to do is

to go into great detail in the presentation of your first result---a theorem, a regression, a

diagram, whatever. Spell out each aspect of your result in excruciating detail so no one

can possibly misunderstand. When you do this you will certainly get questions like ‘‘Will

this generalize to n agents?’’ or ‘‘Have you corrected for heteroskedasticity?’’

If youknow the answer to the question, go ahead and answerit. If you don’t know the

answer---orthe questions is totally off thewall---say ‘‘That’sa good question; let me come

back to that at the end of the seminar.’’ (Of course you never will.) Don’t get sidetracked:

the point of going through the initial result in great detail is to establish credibility.

Once you’ve presented your result and you see that the audience has understood the

point---their headsare nodding butnot nodding off---youcan go onto the generalizations

and elaborations. If you’ve done a good job at establishing your credibility initially now

9

the audience will believe anything you say! Of course you shouldn’t abuse this trust, but

it is useful to exploit it in the rest of your presentation. This is the fundamental reason for

starting simple: if you start out with a delicate argument, it will be hard for the audience

to understand and you will never establish trust.

When you are done with your talk you should take a few minutes to jot down some

notes: what was difficult for people to understand? what questions did they ask? what

suggestions did they make? what references did they give you? You may think that you

will remember these points, but quite often you won’t. The audience is a very useful

resource for clarifying your thoughts---make sure you use it well.

9. Planning your paper

Almost everyone writes on computers these days. I know that computers are great

time savers: I get almost as much work done now as I got done before I started using

computers.

2

I thought that I would spend a bit of time talking about how I use computers, not

because it is all that important, but because no one else in this collection will discuss such

mundane matters. Since I am well known as a computer nerd, people always ask me

what I use, and I figure I can save time by pointing them to this article. Undoubtedly this

will all look incredibly archaic in a few years, but that’s the cost of being on the bleeding

edge of technology.

I currently use a Unix machine, but most of what I say applies equally well to other

environments. I have a directory on my computer called Papers and when I start to

work on a new topic I create a subdirectory under papers. (For example, this paper is in a

directory Papers/how-I-work.) When I create the directory I create a notes.txt file:

this contains my initial ideas, a rough outline, whatever. For example, the notes.txt

file for this paper initially had entries in it like:

*read the newspaper

*simplify

*write and talk

2

If a train stops at a train station, what do you think happens at a work station?

10

**if you don’t grab them in the first page, they won’t read it

I create a notes file like this when I first start to work on a topic---I jot down the

initial ideas I have, which are usually pretty sketchy. In the following days and weeks

I occasionally take a look at this outline. When I look at it I move things around, add

material and so on. I rarely take anything out completely---Ijust move material to the end

of the file. After all, I might want those notes again.

After organizing these ideas for several weeks or months I am ready to write the first

draft of the paper. I usually try to do this in a day or two, to keep it all fresh. I normally

put the notes in one window and the paper in the other and write the paper while I refer

back and update the notes to keep them in sync with the paper.

Once the paper is written I put it aside for a couple of weeks. Papers need to age like

fine cheese---it’s true that mold might develop, but the flavor is often enhanced. More

importantly, it gives your subconscious mind a chance to work on the idea---maybe it

will come up with something your conscious mind has missed.

When I come back to the paper I try to read it with a fresh mind, like someone who

has never seen it before.

3

On rare occasions I like what I read, but usually I have lots

of criticisms. Whenever I have to pause and think ‘‘what does that mean?’’ I rewrite---I

add more explanation, change the notation, or whatever is necessary to make the paper

clearer. When I’m done with this process I have a first draft.

I next check this draft into a revision control system. This is a piece of software that

keeps track of the revisions of a paper. It documents all of the changes you make and

allows you to restore any previous version of a paper. I use the Unix utility rcs but I

know there are many other systems available. Revision control systems are especially

valuable if you are working with a coauthor since they keep track of which person made

which changes when.

I then repeat the process: let the paper sit for a few more weeks or months, then come

back to it, read it with a fresh mind and revise it accordingly.

3

This is much easier once you reach middle age.

11

It is particularly useful to do a revision right after you give a seminar. Remember

those notes I told you to write after your seminar ended? Sit down with the paper and

go over the questions the audience had and the suggestions they made. Can you answer

their questions in your paper? Can you incorporate their suggestions? Be sure to modify

the notes/outline/slides for your talk when you incorporate the audience’s suggestions.

Bibliographic software

One very useful computer tool is a bibliographic system. This is a piece of software

designed to managed a list of references. There is a master database of references

that is stored on your computer. You assign a key to each article like Arrow70 or

ArrowRisk. When you want to refer to a paper you use the key, by saying something

like ncitefArrow70g. The bibliographic program then looks up the appropriate citation

in your database and puts it in the list of references at the end of your article.

I use the system called BibT

E

X, since it works well with T

E

X. However, there are

many other systems available that work for other wordprocessing packages. It’s a good

idea to get in the habit of using a system like this. Over the years you will build up a

comprehensive bibliography for the areas you work in.

But wheredo you get your referencesin the first place? Well, one wayis to ask people:

your adviser, your colleagues, your friends, and so on. This is still one of the most reliable

ways. But nowadays thereare a numberof computerized databases availableonline or on

CDs that allow for easy search. You can open the CD for the Journal of Economic Literature,

type in a few key words like ‘‘price discrimination’’ and get the last 10 years worth of

abstracts of published articles that contain the words ‘‘price discrimination.’’ As you look

at these articles you will see a few ‘‘classic’’ articles cited. When you identify these classic

articles go to the Social Science Citation Index and search for all the recent papers that

have cited these classics. This process should give you an up-to-date bibliography pretty

quickly. Often you can download the citations you get directly into your bibliography

database program.

12

10. The structure of the paper

There’s an old joke about academic papers. They are all supposed to have three parts.

The first part, everyone can understand. The second, only a handful of readers can

understand. The last part no one can understand---that’s how the readers know it’s a

serious piece of work!

The bigmistake that authors make these days is to leave out the first part ofthe paper-

--that part that everyone can understand. But the introduction is the most important part

of the paper. You’ve got to grab the reader on the first page. No matter how brilliant the

rest of the paper is, it won’t be noticed if no one reads it. And no one will read it if you

don’t get their interest in the first few paragraphs. If you really know what your paper is

about, you shouldn’t find it hard to explain this to your readersin a couple of paragraphs.

My basic advice is to make your paper look like your talk. Get to the point. Use

examples. Keep it simple. Tell people why what you did is important after you’ve

done it. Put the tedious stuff in the appendix. End with a summary of what you have

accomplished. If you have really written a good paper, people won’t have to listen to

your seminar to find out what you have done: they can just read it in your paper.

11. When to stop

You can tell when your work is getting ready for publication by the reactions in the

seminars: people stop asking questions. (Or at least, the people who have read your

paper stop asking questions.) If you’ve followed my advice, you’ve already asked their

questions---and answered them---in your paper.

Once you’ve made your point, stop. Lots of papers drag on too long. I said earlier

that people only remember about 20 minutes of your seminar (if you’re lucky), and they

only remember about 10 pages of your paper. You should be able to say most of what

you want to say in that length.

Once your paper is written, you can submit it to a journal. I don’t have too much to

say about this; Dan Hamermesh has written a nice article that describes the procedure

13

better than I can.

4

All I can say is to echo his advice that you go over the article with a

fine tooth comb before sending it in. Nothing turns off an editor or a referee more than to

find typos, missing references and sloppy editing in the articles they deal with.

12. Writing textbooks

Most of what I’ve had to say so far has to do with writing articles. But I suppose I really

should say a bit about the other kind of writing I’ve done: textbooks.

5

My first text, Microeconomic Analysis really wasn’t planned; it just happened. When

I first started my professional career at MIT in 1973 I was asked to teach the first year

graduate micro course. The text, such as it was, consisted of about 20 pages of notes

written by Bob Hall, maybe 40 pages of notes from Dan McFadden and Sid Winter, and a

few journal articles. The notes were awfully sketchy, and the journal articles were much

too advanced for first year students. So I had to write my own notes for the students.

The first year I wrote about 50 pages; the next year another 50, and the year after that

another 50. The students who used them were great. They read them carefully and told

me what was wrong: where the obscurities were, where the errors were, what was too

advanced, and what was too simple. I owe much of the success of that book to the fact it

was class tested before a highly critical audience.

During this period I happened to meet Richard Hamming, an electrical engineer who

had written several texts. He gave me a key piece of advice: ‘‘Get together the problems

that you want your students to be able to solve after they’ve read your book---and then

write the book that will teach them how to solve them.’’

This was great advice. I followed it to some degree with the graduate text, but later,

when I wrote the undergraduate text, I followed it religiously---but more about that

below.

6

4

Daniel S. Hamermesh, ‘‘The Young Economist’s Guide to Professional Etiquette’’, Journal of Economic

Perspectives, 6: 1, 169--180.

5

The reader may recall Disraeli’s warning: ‘‘An author who speaks about his own books is almost as bad as

a mother who talks about her own children.’’

6

The general principle that I followed (and still follow) with the graduate text is that it should give the

student the information they need to know to read a microeconomics paper in the American Economic Review.

14

One day a publisher came into my office and asked (as they often do) ‘‘Are you

writing a book?’’ I said that would be a silly thing for an assistant professor to do---but as

a matter of fact, I did have some class notes that I had been working on for a few years.

Next thing I knew, I had several publishers interested in my notes. I spent a semester

at Berkeley in 1977 and used that opportunity to hammer them into shape. Much to my

surprise the notes eventually become a book and ended up being very widely used. I did

a second edition in 1983 and I should have done a revision in 1987 or so---but instead I

decided to write an undergraduate text.

I wanted to write an undergraduate book because I was fed up with the books I had

been using. I had tried several different ones, but couldn’t find any I really liked. I

remember one semester I sat down and tried to write a midterm exam---but the book I

had been using wasso vapid that I couldn’t think of any problems that the students could

solve using the tools that had been presented in the book! At that point I figured I could

produce something better.

About the same time one of my undergraduates had picked up a workbook by Marcia

Stigum called, I believe, Problems in Microeconomics. The student found this very helpful

in understanding the concepts of economics, and I remembered what Hamming had told

me about how to write a textbook. So I asked my colleague Ted Bergstrom if he would

like to work with me to create a serious workbook.

7

Ted created problems as the text

was being written, and I had to make sure that the text contained everything necessary

to solve the problems he created. I created problems too, but those were automatically

coordinated with the textbook---the external stimulus imposed by Ted’s problems was

much more important in shaping the content of the book. If the students weren’t able

to solve the problems, I had to add explanations to the text until they could---and if we

couldn’t create a problem to illustrate some point, the point probably wasn’t important

enough to put in the text.

Every now and then I go through a few issues of the AER and note topics that should go in the next edition of

the book.

7

As it turned out, it wasn’t quite as serious as I had expected---in fact, I think that it is quite funny, but that

is due to Ted’s unique sense of humor rather than my intentions.

15

It’s a pity that most workbooks are created as afterthoughts. Creating the workbook

really should bean integral part ofthe writing process, as Hammingsuggested. You want

the students to be able to use the material you teach them, so the first order of business

is to figure out what it is that you want them to be able to do. The latest buzzword in

education is ‘‘learning by doing’’ but as far as I’m concerned that’s always been the only

way to go.

The undergraduate text turned out to be pretty successful as well. And the workbook

has ended up selling two or three times as much as any of its competitors---which goes to

show that there still is a market for a quality product in the textbook market.

13. Summary

I said that every talk should have a summary---so I suppose I have to follow my own

advice. Here are the points to take away:

ž Look for ideas in the world, not in the journals.

ž First make your model as simple as possible, then generalize it.

ž Look at the literature later, not sooner.

ž Model your paper after your seminar.

ž Stop when you’ve made your point.

And now my points have been made, so I’m duty bound to stop. Go forth and model!

16

"How do you know if it is any good? The first test is to try to phrase your idea in a way that a non-economist can understand. If you can’t do this it’s probably not a very good idea." Spoken like a true economist - opportunity cost is a concept from microeconomic theory about the loss of potential gain from other alternatives when one alternative is chosen. For more: https://en.wikipedia.org/wiki/Opportunity_cost "And here’s what you’ll find:they’ve got no idea of what you are talking about (especially your pet). So you have to go back to trying to figure out what you really are talking about: what is the fundamental idea of your model?" Hal Varian is the Chief Economist at Google and an emeritus professor at the University of California, Berkeley where he was the founding dean of the School of Information. Hal joined Google in 2002, and worked on the design of their advertising auction, among many other things. Background: https://en.wikipedia.org/wiki/Hal_Varian ‘Everything should be as simple as possible ...but no simpler.’’ This is a paraphrased quote of Einstein by the writer Roger Sessions in a 1950 NY Times article. For more on the quote and Einstein: https://www.championingscience.com/2019/03/15/everything-should-be-made-as-simple-as-possible-but-no-simpler/ https://en.wikiquote.org/wiki/Albert_Einstein Getting feedback is key! The same advice applies well to ideas outside of academia (i.e. for a business or product idea). Don't focus too much on the literature/competition at first - whatever you come up with will probably change over time and be different than whatever else is out there. "The first thing that most graduate students do is they rush to the literature to see if someone else had this idea already. However, my advice is to wait a bit before you look at the literature. Eventually you should do a thorough literature review, of course, but I think that you will do much better if you work on your idea for a few weeks before doing a systematic literature search." This has become especially true since the publication of this essay (i.e. since the explosion of the internet/social media/smart phones etc demanding people's attention), very prescient of the attention economy. "Herb Simon once said that the fundamental scarcity in the modern world was scarcity of attention---and brother, is that the truth. There are demands for everybody’s attention, and if you want someone to pay attention to you, you have to give them a reason to do so." "Once the paper is written I put it aside for a couple of weeks. Papers need to age like fine cheese---it’s true that mold might develop, but the flavor is often enhanced. More importantly, it gives your subconscious mind a chance to work on the idea---maybe it will come up with something your conscious mind has missed." "During this period I happened to meet Richard Hamming, an electrical engineer who had written several texts. He gave me a key piece of advice: ‘‘Get together the problems that you want your students to be able to solve after they’ve read your book---and then write the book that will teach them how to solve them.’’" Words of wisdom: "The first step is to get an idea. This is not all that hard to do. The tricky part is to get a good idea. The way you do this is to come up with lots and lots of ideas and throw out allthe ones that aren’t good." "My basic advice is to make your paper look like your talk. Get to the point. Use examples. Keep it simple. Tell people why what you did is important after you’ve done it. Put the tedious stuff in the appendix. End with a summary of what you have accomplished. If you have really written a good paper, people won’t have to listen to your seminar to find out what you have done: they can just read it in your paper." "Hey, no one said research would be easy. But this is a point where you really have a chance to learn something---read the article(s) carefully and ask yourself ‘‘Why didn’t I do that?’’ If someone started with the same idea as you and carried it further, you want to see what you missed."