"People make rational decisions and respond to financial incentives. Most economists use those assumptions as rules of thumb to predict behaviour. But though they are often useful, they don't always work.
Parliament's Treasury Committee last week complained about the stark lack of women at senior levels of the Bank of England. This was attributed by the new deputy Bank of England governor, Dave Ramsden, to the fact economics is a heavily male-dominated course at universities, making the pool of potential female appointees to senior economics roles smaller.
It was also a week in which the Labour MP David Lammy drew attention to data he had collected confirming the under-representation of black and working-class students with top A-level results at Oxford and Cambridge.
From a financial incentives perspective such under-representation is puzzling. Economics graduates earn considerably more on average than most other graduates, with a median salary of around £32,000 after five years. That's around £10,000 more than the equivalent for science or English students. And the average salaries of those who graduate from elite universities such as Oxford and Cambridge are also relatively high. Research by Boston Consulting Group suggests Oxbridge graduates earn an average of £1.8m over their lifetime, compared with £1.6m for those who attend other respected universities.
Why? It's possible those who choose economics and Oxbridge are more financially motivated and capable than the average student and that this explains why they go on to earn more; that the courses themselves don't really add much value. But it's also highly likely that those degrees act as an important signal to employers, which is advantageous to the graduate when they enter the jobs market. Such a signallingbenefit would make it economically rational for far more bright women and black and working-class students with sufficiently good A-level results to apply for those courses and those institutions.
Mr Lammy fears discrimination is behind the relative lack of black and working-class students at Oxbridge.
It would be foolish to dismiss this as a factor, particularly the unthinking form of discrimination whereby interviewers might be unconsciously tempted to select people in their own image. Yet it's unlikely to be the whole story. Oxbridge colleges and economics departments in recent years have stepped up outreach programmes. Many academics at these institutions are genuinely concerned with widening access and increasing ethnic and gender diversity.
There is plainly also a demand side-issue. Too few qualified black students apply to Oxbridge. And evidence shows too few well-qualified young women choose to study economics. To explain this, the insights of behavioural economics are likely to be more useful than the classical theory of rational choice, particularly the propensity to herd behaviour. If those in your school or social peer group are very unlikely to apply to elite universities, it can have a powerful discouraging affect - outweighing or even cancelling out a rational estimate of financial benefit.
Gender stereotypes about domains of ability may also be relevant in terms of deterring women from economics. A study last year showed women were more likely to underestimate their ability in subjects deemed to be more "male", such as economics. Cultural factors are also relevant. A young US scholar Alice Wu recently presented evidence of a misogynistic culture on a popular anonymous chat site for economists. A well-grounded fear of future discrimination is likely to put people off applying for the course, even if their grades at school mean they are qualified on paper.
So does this mean elite universities and economics departments can shrug off responsibility for under-representation of various groups such as women, ethnic minorities and people from a disadvantaged background? Can they put the blame on pervasive gender stereotypes in society and hardwired psychological biases? On the contrary, it shows they need to work even harder to offset them. They need to spend more resources on outreach, to collaborate more effectively and intimately with schools and sixth-form colleges to encourage applications from under-represented groups. And, in the most difficult challenge, they need to reform their cultures if those cultures are putting off potential applications and reinforcing damaging stereotypes.
If under-representation was a consequence of primitive discrimination by a social caste determined to keep hold of its powers and privileges - what Mr Lammy calls "social apartheid"- it would be a relatively straightforward problem to solve. But the problems are complex, multi-faceted and structural. And so must the solutions be.
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