Everyone needs more homework.

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Discussion point:

In your subfield of economics, what is a simple naive model of behavior, and how does your subfield's fancypants model beat it?

In macro, here are two examples:

1. Consumption. Naive view: people consume their income, C=Y. Fancy model: the Permanent Income Hypothesis, that people make consumption and saving decisions based on lifetime expected wealth. A good paper on the extent to which people actually follow the PIH is Hseih (2003 AER). People are more likely to follow the PIH when income streams are well anticipated and any shocks are large; people tend to react more naively to small income shocks.

2. Forecasting. The naive model for any stationary macro variable (GDP growth, inflation, unemployment) is "almost a random walk." My naive forecast of unemployment next month is unemployment this month, plus or minus a small factor based on whether unemployment is currently high or low by historical standards.

   More sophisticated view: vector autoregressions. These tend to beat the naive forecast.

   Even more sophisticated view: full-blown DSGE forecasts. These tend to beat the naive forecast, um, not as much.