Defn: ceteris paribus, with other things equal.

I have chosen a somewhat obscure name for my website because I believe it to be one of those words that we far too often ‘read over’ without thinking about its implications, thinking about the interconnectedness of the world and life. Seldom, if ever, is "all else equal."

Yet, it is mental convenience to make such a simplifying assumption.  It allows us to further explore the relationship between only two factors.  However, that simplifying assumption can lead to us to faulty conclusions.

Ceteris paribus is a concept that is near and dear to my heart as a researcher and as a student of life.  It is impossible to draw conclusions in the real world without the abstraction of models.  And for models to be tractible, we must limit the number of factors that vary at one time.  Thus, you have Ceteris Paribus, holding all else constant.

Ceteris paribus is both a blessing and the bane of an econmists existance.  Ceteris paribus is possibly the most important single assumption to economists.  It allows us to understand how changing only one factor in a complex world affects all other factors (eg. how does an increase in interest rates affect the money supply, ceteris paribus).  However, in its appeal, it has a major flaw.  That flaw is also something economists know so well, endogeneity.  In other words, everything in the world is connected and somehow affects everything else, therefore, ceteris paribus is not a realistic assumption.

The big question is, just how interconnected are all the factors.  Although ceteris paribus is not perfectly reflected in the real world, is it truly reasonble to imagine that the flap of a butterfly’s wing in China, could cause a hurricane to develop in the North Atlantic.  Not very likely, however, this is not a circumstance where we would worry about using an assumption like ceteris paribus.  In fact, the assumption is usually only used in situations where we’re pretty sure that we need the assumption.  Without it, the outcome is not obvious and may be affected by other closely related factors.  These other factors may create feedback loops or may in fact be the underlying cause that drives the two factors being studied.  In the later case, the two factors of interest may be correlated with one another, but not have any causal relationship whatsoever.  The correlation may be driven by the two factors relationship with a third factor, not allowed to change due to the ceteris paribus assumption.

Clearly, this is where we need to rely on well-reasoned theory, rooted in a thorough understanding and intuition of the environment.  Not all theories, however, emanate from such an upbringing.

We use ceteris paribus to isolate and confine the solution, to reduce the complexity of the problem.  In so doing, the usefulness of the solution is called into question.  However, we simply don’t have the brain or computing power to analyze multiple factors all changing at the same time.  Not only that, but we don’t have enough data to allow us to determine the results even if we had the necessary computing power.

This isn’t necessarily a bad use of the assumption, unless one attempts to extrapolate on the outcome and doesn’t understand the full implications of ceteris paribus.  This often happens in the public domain.  Economists often make a statement that “blah, blah, blah, is going to occur, all else held constant.”  If the last part of that statement is ignored, for whatever reason, the receiver of the statement may misinterpret the statement.

None of us achieve our goals without the help of many, many others.  Yet, far too often we observe praise and exultation bestowed upon a single individual for ‘their’ achievement.  That one achievement can build into more and more.  In a vacuum, none of the achievements would have been possible.  Some politicians proclaim that we should let the citizens keep their hard earned money, for they have earned it, solely on their own merits.  Yet, is that really the case?  Does anyone really owe their income soley to their own efforts?  How much of it is due to chance?  Where one is born?  How they were raised?  Etc, etc, etc…  Ceteris Paribus, doesn’t the person born to an impoverished family in sub-Saharan Africa have as much potential as the child from a wealthy family in the United States?  Unfortunately, ceteris paribus isn’t a reasonable assumption in this case.