Tuesday, June 02, 2009

Are B-school economists different?

David Brooks, the NY Times columnist, emails me an intriguing query:
I was having dinner with a journalist last night and he mentioned that he was finding that many of his best sources on the crisis teach at B schools, not Econ Departments. I've also found that a rising number of people I learn from also teach at B-Schools. I have no idea if there is a difference in training or in the sorts of talents the two departments draw upon, but this struck me as an interesting trend, if true.
I don't know of any hard data to establish whether journalists are more likely to cite economists in business schools than those in economics departments, but I can believe it might be the case. I know a lot of economists in both places, and I think it is true that, on average, economists in business schools have a more practical and empirical approach to the field than do those in economics departments. The phenomenon is not universal (I like to think of myself as practical and empirical, even though I am in an economics department), but it seems a valid generalization.

Why? I don't think the answer is, as David conjectures, a difference in training. Economists in business schools often earn their PhDs in economics departments, as do economics department professors. There is no large difference in training between the two groups.

I think part of the answer is self-selection. Economists who are naturally more abstract will have a harder time teaching MBAs and will gravitate toward economics departments. The PhD students there will not mind the higher level of abstraction. By contrast, economists of a more practical and empirical frame of mind will gravitate toward business schools, where their practicality is valued and the salaries are typically higher.

Another part of the answer is that some business schools encourage more practical research. The case studies written by faculty at Harvard Business School are a particularly extreme example. This experience forces the faculty to come down to earth from the rarefied theory that often characterizes economics research.

Finally, the students themselves influence how the faculty thinks. Faculty who teach PhD students are used to being asked, "How did you derive that first-order condition? How can you prove that the equilibrium exists and is unique?" Faculty who teach MBA students are used to being asked, "Is that really how it works? When I worked at Goldman Sachs last year,...." My guess is that typical journalists' questions more closely resemble those of MBAs than those of PhD candidates.

I should note that undergraduate teaching, at its best, will have some resemblance to MBA teaching. Like the typical MBA student, the typical undergraduate prefers practical to abstract economics. But undergraduates are usually less assertive in their preferences. So if the professor wants to teach theory, the undergraduate will learn it to do well on the exam. By constrast, the typical MBA student, like the typical journalist, is older and more self-confident; he or she will more likely balk at what seems to be excessive abstraction. The business students force the faculty to think practically.