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Knowing and Making's Blog

A blog about cognitive and behavioural economics. Building mathematical models of how psychology influences economic systems.

On the identity and methods of behavioural economics

March 23, 2014 Comments (0)

The FT has a very good article from Tim Harford today, surveying behavioural economics and asking some important questions about it. People within a field can be so immersed in their unconscious assumptions and practices that it takes an outsider to point out some of the questions they are not asking. Tim says: The past decade has been a triumph for behavioural economics...[which] is one of the hottest ideas in public policy....Yet, as with any success story, the backlash has begun. Critics...

Catching up on 2013

January 4, 2014 Comments (0)

I didn't intend to stop posting on here when I started my tour. But things overtook me. Here's a summary of what some of them were: My book, The Psychology of Price, came out. You should buy it!I started a new business, The Irrational Agency, with a business partner. We've taken the ideas of behavioural economics into the market research and marketing worlds, and tried to go a bit deeper than some of the agencies who appear to have based their behavioural services on reading the first half of...

The Cognitive Microfoundations Project: a behavioural economics world tour

June 7, 2012 Comments (0)

There has been much talk about microfoundations on the economics blogs in the last few months [Noahpinion, Mark Thoma, Simon Wren-Lewis twice, Andrew Gelman twice, Karl Smith, Paul Krugman twice, Robert Waldmann, Rajiv Sethi from 2009]. The idea of microfoundations is that a model of the overall economy should be consistent with how individual people act. The aggregate behaviour of variables like GDP, government deficits and unemployment should be derived by adding up the...

Did he jump or was he pushed; is there a difference?

May 5, 2012 Comments (0)

This New Yorker article about why so many Americans are single reminded me of the debate about unemployment prompted by Casey Mulligan. Here’s why: From the New Yorker: "...do people live alone because they want to or because they have to?" Paraphrasing Mulligan and his critics: “Are workers choosing to be unemployed or are they forced to be?” [actual quotes from Mulligan: "there are sensible people...who will recognize that 2009 is not the time for them to...commute a long distance to...

Behavioural economics: the Kylie Minogue of market research

March 20, 2012 Comments (0)

Do you remember those catchy tunes from the late 1980s? I Should Be So Lucky? The Locomotion? The first time you heard them they were quite fun, memorable even. But then they got more airplay. And more. And more. Radio stations figured out that the sugary, bubbly popness of the tunes would cut through a lot of background noise and get your attention, so they played them again and again. Soon we had Got To Be Certain, and Je Ne Sais Pas Pourquoi, which were exactly the same as the first...

Clearing my tabs for 2012

December 31, 2011 Comments (0)

During 2011 I have probably spent about four days waiting for my browser to respond, due to the number of tabs I habitually keep open. Between the four computers I use, I probably have 200 blog posts in tabs waiting for me to comment. Here are a few of them (in no particular order), so my Chrome may enjoy a faster 2012. A note from Paul Krugman on what makes economics economics. Not a rhetorical discipline but one based on mathematical models. (However, see also Deirdre McCloskey's Knowledge...

What is "playing"?

December 29, 2011 Comments (0)

In between work on some more serious posts (not to mention the day job), let me post a brief comment on Margaret Robertson's article on gamification, "Can't play, won't play". It was written a year ago, so I'm not expecting to provoke an intense debate, but the same argument could easily be made today and it's worth responding to. In short, Margaret claims: gamification isn’t gamification at all. What we’re currently terming gamification is in fact the process of taking the thing that is...

A thought experiment: why the ECB should print money...

December 12, 2011 Comments (0)

...and why the Bank of England and Fed are right to have done so already. I'm not talking about whether the European Central Bank should directly buy eurozone government bonds. This causes a moral hazard problem - it might encourage governments to be profligate and reduce incentives for structural reform. It's, at the very least, debatable. I'm talking about a more general question: why should central banks print money in a recession? This post won't have much new to say to...

Does Nudge require regulators to be "more rational" than consumers?

November 7, 2011 Comments (0)

A couple of times recently - notably in Bill Easterly's otherwise very positive review of Daniel Kahneman's new book - I've seen the following common critique of Nudge-style approaches: "But if people are irrational, regulators are irrational too - so how can they make rules to counter citizens' irrationality?" Easterly says: But [the case for libertarian paternalism] is much too sweeping, because it overlooks everything the rest of the book says about how the experts are as prone to...

Prompted Pareto improvements

November 2, 2011 Comments (0)

I'm going to attempt to introduce a new concept here. It is a bit technical, but I'll try to provide background for non-economists first. I may indulge in some modelling to help me understand it better, so if that's not your thing, feel free to skip the equations and just read the words. I'm also struggling for the name of this concept. The title of the post, "Prompted Pareto improvements" is a name I'm reasonably happy with, but catchier suggestions are welcome. I'll start by explaining...