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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.

Please vote for us and help a charity

September 7, 2011 Comments (0)

My company Inon, which applies behavioural economics to help our clients set the right pricing strategy, has been nominated for the Smarta 100 - the top innovative businesses in London. If we win, our £10,000 prize will be donated to charity - please leave a comment if you would like to nominate your preferred charity as one of the recipients. If you'd like to support us and your chosen charity, please click here and vote for us. You'll need to register but it only takes a few...

Has the nature of investment in the economy changed?

August 31, 2011 Comments (0)

I may have more to say about this in the next few weeks, but this New York Times article about industrial policy reminds me of a question I asked on twitter the other day: ...hedge funds and venture capitalists are geared toward investing in financial instruments and software companies. In such endeavors, even modest investments can yield extraordinarily quick and large returns. Financing brick-and-mortar factories, by contrast, is expensive and painstaking and offers far less potential for...

Why Obama should propose a Balanced Budget Amendment

August 20, 2011 Comments (0)

It's the one simplest thing President Obama could do to seize control of the economic agenda. It's counterintuitive - but done right, it could be the tonic both for the economy and for a divided political scene. Don't click on your back button yet - I haven't gone crazy. Obama should propose a Balanced Budget Amendment with the following key features: The balance must be achieved over ten years, not one It should include automatic (not discretionary) investment programmes when...

The cost of making a hit single

August 20, 2011 Comments (0)

I've been listening to NPR's Planet Money podcast, and one of the recent episodes [mp3 link] is about how much it costs to make - and promote - a hit single. Or more accurately: to attempt to make a hit single. A friend in the music industry asked me to write down their figures with so he doesn't have to listen to the whole podcast. So here they are. The record in question is Rihanna's "Man Down", which her record company Def Jam was hoping would be one of the anthems of the summer. The...

Two challenges for behavioural economics - one real, one fictional

August 20, 2011 Comments (0)

It seems that some people from outside behavioural economics are, like me, getting frustrated with the lack of progress within the field. Eric Falkenstein says here: I read Kahneman, Tversky and Slovic's Judgement under Uncertainty in the 80's (published 1982), which mainly discussed a series of papers published in the 1970s, and found it fascinating, but now it's now 30 year old stuff and pretty boring. There's a couple hundred academically based confirmed biases which are all kinda true,...

Notes from banking fragility talk

August 20, 2011 Comments (0)

Here are my unedited notes from David Miles' talk on monetary policy and banking fragility tonight. This may not be of much sense or interest to everyone, so feel free to skip it if you're not into this topic. [Here is the somewhat more coherent post I wrote before the talk] Miles – recently wrote a paper about the benefits (and costs) of higher bank capital. LSE is intellectual home of MPC in many ways. Links between monetary policy and financial stability: strong and...

Banking fragility and money

August 20, 2011 Comments (0)

Another day, another LSE lecture. This one features David Miles from the Bank of England and is chaired by Charles Goodhart. It's on monetary policy and banking fragility. There are two aspects of this problem that are particularly important. The first is transmission mechanisms – an important aspect of monetary macroeconomics. Simple monetary models highlight that there is a relationship between the amount of money in the economy and the amount of economic output (consumption, investment...

Keynes vs Hayek and cognitive macroeconomics

August 20, 2011 Comments (0)

This evening Paul Mason leads a debate for LSE, the Adam Smith Institute [Update: I made this assumption based on the debate being listed on the ASI's "Events" page. A BBC editor has kindly emailed me to correct my mistake. Thanks!] and Radio 4 on Keynes versus Hayek. It’s a good day to talk about it, with UK growth figures coming in at a disappointing 0.2% and a lot of uncertainty about whether public sector austerity is slowing economic growth, or conversely enabling more private...

Writing in prison - is choice restriction beneficial?

August 20, 2011 Comments (0)

Tony Perrottet in the NY Times suggests that writers can be more productive inside prison than out. Completely counter to rational choice theory, of course, but surprisingly plausible. I have several writing jobs to do myself, and though I haven't missed my deadlines yet, I absolutely recognise the seductive danger of twitter (follow me!). Jonathan Franzen apparently superglued the ethernet port on his computer to stop himself from going online. Extreme, but effective. Rationality...

Behavioural economics and news #askeconomist

August 20, 2011 Comments (0)

The Economist is running a one-hour chat session on the #askeconomist hashtag today, which I'd recommend for some thought-provoking questions. My own interest, of course, is in the behavioural, cognitive and information-processing aspects of this. Two particular questions are relevant: Rational people would apply an appropriate level of skepticism to crowdsourced news; weighting its credibility according to who the messenger is, by the number of times the same message has been recycled or...