When writing a lecture on economic modeling and understanding health insurance markets, I’m using a helpful device from Martha Olney of UC Berkeley. She calls it the Olney method of thinking like an economist.
The Olney Method
- Replicate the argument
- Identify assumptions
- Change one of the assumptions
- Use logic to arrive to conclusion
- If same conclusion, go back to step 3
- Arrive at new conclusion
- Verify empirically or argue rhetorically
See the lecture for how this can be applied and can change one’s policy recommendations about the desirability of health insurance mandates.
For a full explanation, compare the classic model of adverse selection with the one with loading and advantageous selection based on risk preferences (in the new Chetty, Finkelstein handbook chapter on Social Insurance).
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