Trade-Off: Dr. Peter Duersch on Inflation, Rationality, and Academia

Dr. Duersch

by Maya Moritz

In the first installment of Basta’s conversation with Dr. Peter Duersch of Universität Heidelberg and Mannheim, we discussed his unique seminar “Microeconomics and Wikipedia” and the state of economics education.

In this follow-up, we’ll take a broader view of economics, academia, and Dr. Duersch’s fascinating work in behavioral economics and game theory. Readers will find a no-holds-barred warning for those considering a PhD alongside a peek into the experiments and insights evolving in the field.

An Education

According to Dr. Duersch, “my journey was rather straightforward.” As the end of Gymnasium loomed, he considered history, politics, or economics as potential study paths. He chose economics for rational purposes, very much in line with his discipline.

“I thought, ‘oh, with economics I’ll get an easier job later on,’ not knowing that I wouldn’t actually do a job in private industry.” He enrolled at Universität Bonn in 1999, where he was exposed to experimental economics in the class of Prof. Armin Falk. Later, Prof. Jörg Oechssler, asked the future Dr. Duersch whether he would like to continue his studies in Heidelberg, where Dr. Oechssler was moving. Duersch joined him there in 2005 to begin his Ph.D.

Since then, Dr. Duersch has held temporary and interim professorships at Universität Mannheim and Konstanz. He currently serves as an interim professor (Lehrstuhlvertreter) at Universität Mannheim and Heidelberg, two doors down from his mentor.

A Complex System

With a full, dark beard and glasses, Dr. Duersch looks the part of the bookish scholar. This image matches his zeal when describing the pull of microeconomics.

“I think game theory is just more fun than other topics. It’s the most logic-driven of all the fields, so you can figure out stuff just by deeply thinking about it. Whereas in other fields, you deal with uncomplicated but very annoying maths that you have to fiddle with or in many fields it’s data and you spend all of your time trying to clean up your dataset, which is also not what I think is fun.”

Beyond the clear dominance of game theory in terms of eye-glazing derivations, the puzzle of the discipline appeals to him as well. “I think game theory is really interesting to look at as a complex system that you can describe with logic and it’s also really closely related to what my main research field is, which is behavioral economics.”

Within behavioral economics, Dr. Duersch contends with the reality of people bearing little resemblance to homo economicus, the “economic man” of John Stuart Mill who functions as a rational, selfish agent optimizing his own utility.

Homo economicus makes consistently logical, stable choices. He does not display cognitive biases and he certainly shows no altruism. Strict adherence to the idea of homo economicus allows for simpler models and may explain why Lionel Robbins’s rational choice theory persisted for so long.

If you perform a cost-benefit analysis every time you enter the grocery store for all your purchases with no emotional involvement, you are a prime example of homo economicus. But, like most people, you’ll likely buy Toffifee’s because they’re near the till and not because they fit your caloric or financial budget.

The concept of rational agents has been slowly chipped away at by Daniel Kahneman, Richard Thaler, Amos Tversky, and even older economists like John Maynard Keynes.

“Of course, real humans are not the same as what we assume in game theory,” says Dr. Duersch. “But you try to have the game-theoretical outcome as a kind of benchmark to compare what humans are doing too.”

Real World Applications

Dr. Duersch has published extensively in several topics within the fields of game theory and behavioral economics, with some of his projects promising more day-to-day relevance than others. He resigns his studies on imitation, for example, to a less policy-relevant domain while holding out hope for his more recent publications.

 “One of the newer fields I worked on is measuring how much skill or how much chance there is in games. That has real world applications because government regulation depends on that.” He can imagine scenarios where his findings are used outside of academia: “Not specifically that I ever had to do it. but it is reasonable to assume that eventually some court will have to decide, [so] maybe in some indirect way my research might matter there.”

His work on inflation may even affect one of the most important decisions of the central bank. “Recently, I’ve also started working more on inflation, not in the macroeconomic sense of how inflation matters for the whole economy, but how individuals react to inflation. You might draw conclusions from that research on how the central bank should set their inflation rate. That, of course, is probably the biggest economic decision made by economic professional people.”

Cautious to manage expectations, he adds, “Not that my research would be so large, but even if you have a tiny impact on that important decision, that may count.”

The findings of his inflation work are consistent with his commentary on the absurdity of rationality assumptions. People are not completely rational, or alternatively not everyone is rational.

“In a field where typically one of the basic assumptions that is rarely changed is that all of the subjects we use in our models are fully rational, learning that someone is not fully rational and in this specific case misinterprets inflation can be quite impactful.”

The paper even finds benefits to inflation, a word that often conjures up the burning-money-for-warmth hyperinflation of Weimar Germany for many. Using the result that small firms are not fully rational and do not fully incorporate publicly available information, inflation may inhibit cooperation between firms “to the detriment of customers.” Extending this line of reasoning to economic decisionmakers, Dr. Duersch explains, “that is one tiny bit of information I might use when you think about what the optimal inflation rate is.”

„You have to deal with the fact that you might end up just not making it. It’s a very, very tough pyramid with very few extremely nice jobs at the top if you make it.“

-Dr. Peter Duersch

Going Mainstream

In the fields of behavioral and experimental economics, Dr. Duersch has observed welcome changes. “I think one way the field changed is making research more reproducible, which used to be a big problem. I think there are many steps taken to address it.”

He also blames the pandemic for increasing the popularity of online experiments through platforms like Mechanical Turk and Prolific, which have ignited controversy. Alana Semuels in The Atlantic described the websites as a “a new kind of poorly paid hell,” targeting unemployed and underemployed workers for tasks paying below minimum wage.

For research, however, online survey and experiment options promise a sample “which is much broader, and you can even get representative samples these days for small sums of money affordable for individual researchers,” according to Dr. Duersch.

He prefers these samples to the typical audience for economic experiments, which mainly consist of undergraduate students participating in-person. Small groups of educated young adults rarely reflect the population at large, limiting the external validity that researchers crave.

Mostly, Dr. Duersch sees the field becoming mainstream. “[Behavioral economics] used to be extremely new when it started up in like the 1990s. You still had a large share of economists around who actually believed in their rational models. I don’t think that is the case anymore. I think that especially anyone who’s my age or younger basically knows that not everyone is rational and you need to consider when you write down a rational model… It’s really moving from that new field where you have to fight and convince others that what you’re doing is actually useful to being something more standard, where you start to standardize teaching and where you construct that log of knowledge which you consider your central thing, so I think it’s becoming more established in that sense.”

The move away from the fringes of economics toward normality does not worry Dr. Duersch in terms of the research frontier. “Of course, whenever there is some new idea, there are always many people who kind of pile on and you get all of these small advances.”

He points to the publication of ideas changed very slightly that provide little use to practitioners. These papers are “rightfully completely forgotten,” but are an inevitable result of the research process. “You need to have to have that because it might turn out that the initial idea is wrong in some sense and then you need these people to pile on to eventually find out that something wasn’t working.”

Innovative researchers will always discover novel fields to enter and contribute to, according to Dr. Duersch.

The Tough Pyramid

In his frank manner, Dr. Duersch does not mince words when contemplating advice for current economics students.

“In terms of practical matters, I think people should be aware that being in academia is very comfortable in some ways but extremely uncomfortable in other ways.” Besides self-employment, Dr. Duersch can think of few jobs with as much freedom as academia. Though “old top school academia” used to feature a professor micro-managing his underlings, Dr. Duersch believes that system has changed drastically, “definitely in economics.”

However, Dr. Duersch points to the other side of such freedom: extreme insecurity. “So I am over 40 right now and I’ve never had a tenured job in my life… when I look back basically almost every person I know who wanted to have children either dropped out of academia, or was extremely lucky early on, or became depressed.”

The trade-off of academia, fascinating work for rare tenure and a high likelihood of relocation, is certainly not for everyone. “You can pick your own topics. It’s extremely nice to be in academia but it’s also extremely insecure.”

Even for those willing to relocate and self-motivate, the competition of academia may discourage candidates. “You have to deal with the fact that you might end up just not making it. It’s a very, very tough pyramid with very few extremely nice jobs at the top if you make it.” He credits the “huge percentage of people who drop out” with overconfidence or the simple desire for a secure job and family, which pushed many colleagues out of academia.


Despite the warnings, Dr. Duersch is content overall with the structure of academia, believing that “in general the system works okay.” He believes that the “harsh environment of academia for anyone who has any sort of outside of work constraints like family or wanting to live in a specific place” is a result of fewer and fewer permanent job. The resulting job-hopping contributes to the loss of promising researchers.

“Basically, if you’re in academia, you have to be completely okay with going anywhere at least on the same continent… just for a job, and that’s kind of a pretty big ask. You’re not getting out of that until a pretty late stage, for many people never, and that’s driving so many bright people away. I personally know at least half a dozen people who are now working for some consulting firm or SAP not because they were too dumb but simply because they wanted to have a stable income and a stable job in one place.”

The solution for Dr. Duersch lies in the supply of academics. “I think the intake of academia should be much smaller. Far too many people are starting their PhD, far too few of those are actually finding a tenured job later on.”

The idea of an oversupply of PhDs in many fields, including economics, has been oft-reported. Noah Smith, writing for Bloomberg in 2021, suggested government investment in research to improve the job prospects of STEM PhDs. For students of the humanities and social scientists, the author favors reducing the number of accepted candidates, citing more than 140 programs that seized the opportunity of our current pandemic to do just that. Still, some in the field remain optimistic, despite post-pandemic academic employment data remaining rare and most of the fanfare focusing on temporary contracts.

Source: Bloomberg

“It’s so enormous if you compare the number of new PhD’s to the number of tenured jobs. You’re not talking about an oversupply of half, you’re talking about an oversupply of, I don’t know, ten times or so.” Dr. Duersch concedes that he does not have the exact statistics but estimates that 90% of PhD students will not land the dreamed-of tenured position.

Dr. Duersch opposes the oversupply not only for the candidates themselves, but for societal loss. “That’s just extremely wasteful. Imagine how much society invests into people learning something that might not be very helpful for them later on. It’s basically a huge waste of time and effort for really bright people that can be doing something for themselves and for society if they did something else.”

The Trade-Off

Following Dr. Duersch’s advice, students considering graduate studies may rethink their plans once they consider the deficiency of tenured positions and limitations on family or location choice. But those who persist will find themselves engaged in challenging work and training the policymakers and researchers of the future.

In the words of Dr. Duersch, “I think there are few things more interesting than teaching grad students and talking to other extremely bright researchers about new topics.”

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