Thursday, November 6, 2014

The Village Idiot Hypothesis

Yesterday, I received an email from Michael Belongia (Economics, U. Mississippi). With it, he kindly sent a copy of the Presidential Address to the American Agricultural Economics Association in 1979. The talk, given by Richard A. King, was titled "Choices and Consequences". It makes interesting reading, and many of the points that King makes are just as valid today as they were in 1979.

He has a lot to say about empirical consumer demand studies, especially as they relate to agricultural economics. In particular, he's rightly critical of the very restrictive characteristics of the Linear Expenditure System (Stone, 1954), and the Rotterdam Model (Theil, 1975). However, many of the objections that King raised were overcome just a year later with the "Almost Ideal Demand System" introduced by Deaton and Muellbauer (1980). 

However, it was my recent post on hypothesis testing that prompted Michael to email me, and King makes some telling observations on this topic in his address.

I liked this remark about the need to be explicit about the hypotheses that we have in mind when undertaking empirical work:

King also talks about "The Village Idiot Hypothesis", in relation to the preoccupation with testing hypotheses such as β = 0. 

As Michael said to me in his email, "When, as in one example, decades of research have indicated that some elasticity is -0.2, why do new papers test whether β = 0 rather than β = -0.2?"

If you have access to the American Journal of Agricultural Economics, I recommend that you take a look at Richard King's address, as he makes several other important points that practitioners should take to heart.


King, R. A., 1979. Choices and consequences. American Journal of Agricultural Economics, 61, 839-848.

Deaton, A. and J. Muellbauer, 1980. An almost ideal demand system. American Economic Review, 70, 312-326.

Stone, R.1954. Linear expenditure systems and demand analysis: An application to the pattern of British demand".Economic Journal, 64, 511-527.

Theil, H., 1975. Theory and Measurement of Consumer Demand, Vol. 1. North-Holland, Amsterdam.

© 2014, David E. Giles

Update to ARDL Add-In for EViews

In a post back in January, I drew attention to an Add-In for EViews that allows you to estimate ARDL models. The Add-In was written by Yashar Tarverdi. At that time, one limitation was that the Add-In handles only two variables, X and Y.

Judging by the questions and feedback I get about ARDL models, I know you'll be delighted to know that this limitation has been eased considerably. News out of @IHSEViews on Twitter this morning announces that the Add-In will now handle up to ten variables.

Good job! And thanks!

© 2014, David E. Giles