Ceteris Paribus

I was in school that time. My father once gave me a hand-written card on the occasion of my birthday. The card contained a quote from the famous American poet, Henry Wadsworth Longfellow:

“The heights by great men reached and kept

Were not attained by sudden flight, but they,

While their companions slept, were toiling

Upward in the night.”

Today we have the social media, which generously circulates inspirational quotes every hour for every occasion, perhaps to the point of a receiver’s irritation. However, in my childhood a Longfellow quote was indeed rare to come by and hence I must have treasured it as a piece of wisdom.

The wisdom in the quote suggests that success is achieved by those who do an extra bit of effort when their ‘companions are sleeping’ or when others are not doing enough! What is striking is the assumption that ‘others are not doing enough’ in the above wisdom. Will there ever be a situation like that? Can I know when exactly others are sleeping so that I would wake up and put in some additional efforts to succeed? Well, let me not search its literal meaning and miss the essence of the quote. I cannot, however, avoid seeing an element of ceteris paribus in it!!

Ceteris Paribus is a Latin Phrase meaning ‘other things being equal’. Economists love the phrase. No theory in Economics can stand without ceteris paribus. This all-pervasive assumption in Economics is quite intriguing. It helps economists explain causality by isolating an independent variable from innumerable other variables that influence a dependent variable. For instance, an economist would say in a matter-of-fact style that higher demand for a commodity would push its price up. However, this hypothesis is based on the underlying assumption that all other factors that may influence the price (say, supply position, price of other similar commodities, level of income, etc.) are believed to remain unchanged. We may find the assumption unrealistic, but it helps us simplify matters to understand causality.

We keep making ceteris paribus assumptions in our day-to-day life without actually realizing it. In fact, we assume the world around us to behave in a certain way. Things do change over time, but not in a perceptible manner in the short-run. And that corroborates our implicit reliance on ceteris paribus.

A teacher expects a certain kind of discipline in the classroom; the driver on the road assumes how the traffic would generally behave, and the police have their own idea of crowd behaviour in a city. All of them try to view their environment with a reasonable degree of certainty based on previously experienced patterns. But they seldom realize that the element of ceteris paribus is working behind all this; it is nothing but the assumption, ‘other things being equal’. They do not anticipate dramatic deviations from what is considered ‘usual’.

Our day-to-day implicit reliance on ceteris paribus is, however, different from that of an economist. It is less pure and is capable of accommodating a layer of small deviations within itself. Thus the Longfellow quote seeking to highlight the key to success is not just a poetic inspiration; it is a realistic guide to success based on ceteris paribus of the day-to-day kind.

What happens when your teenage daughter refuses to abide by the code of conduct you set out for her? What happens when the subordinate suspects the rationale of an order and refuses to execute it against his own conviction? What if your friend does not show up this time defying his usual character of being a friend in need? This disturbs us because the behaviour does not conform to our implicit ceteris paribus assumption. ‘Other things’ do not always remain equal and the pace of change may, at times, be greater than what the tiny layer of accommodation our day-to-day ceteris paribus can sustain.

As a student of Economics I was never impressed with the ceteris paribus assumption. However, it increasingly appears that the balance in our life hinges on the innumerable ceteris paribus assumptions that we involuntarily make. Economists may term it as ‘model risk’ each time an assumption goes wrong. In our day-to-day life, we may call it ‘expectations risk’! We could perhaps jargonize and call it a ‘ceteris paribus’ risk.

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Author: Manoranjan Mishra

Interested in creative expressions. View all posts by Manoranjan Mishra