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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.

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...

Incentives, belief in incentives, the left, the right and moral hazard

August 20, 2011 Comments (0)

Several old political problems turn out to be based on the same underlying question. Here are some examples. Should we tax the rich more? The "yes" argument says rich people need the money less (that is, poor people's utility from wealth is higher), and wealth partly arises from luck and therefore is a legitimate target for taxation. The "no" argument says that if people expect to be taxed when they're rich (and receive handouts when they're poor) they have less incentive to earn wealth, and...

Thaler, annuities, freedom and self-knowledge

August 20, 2011 Comments (0)

Richard Thaler has an oddly limited writeup of the "annuity puzzle" in the New York Times this week. He presents a choice between two people retiring at 65. One gets a guaranteed $4,000/month for the rest of their life (a standard annuity). The other retains a standard investment portfolio and draws down $4,000/month until it runs out (at the age of 85, if he lives that long) - or $3,000/month till he's 100. Presenting only these three options, he argues that people should really opt for the...

The economics zeitgeist, 5 June 2011

August 20, 2011 Comments (0)

This week's word cloud from the economics blogs. I generate a new one every Sunday, so please subscribe using RSS or the email box on the right and you'll get a message every week with the new cloud. The words moving up and down the chart are listed here. I summarise around four hundred blogs through their RSS feeds. Thanks in particular to the Palgrave Econolog who have an excellent database of economics blogs; I have also added a number of blogs that are not on their list. Contact me if...

Loss aversion and fundraising for Bletchley Park

August 20, 2011 Comments (0)

I celebrate the good news that Bletchley Park has been saved by my new friend @Dr_Black among others. It's a good story and you should read it if you aren't familiar with the background. However, is it wise to announce and frame the news in this way? The post suggests an optimistic transition: I mentioned "Saving Bletchley Park" as part of this conversation and Simon said "...hold on, Bletchley Park is saved, there is no way we are going to shut now with all the support that we...