If you only read one Nobel Prize Acceptance Speech this week…

…you could do worse than to make it this one:

http://www.nobelprize.org/nobel_prizes/economics/laureates/2002/kahneman-lecture.html

Economist Daniel Kahneman at his most accessible (not particularly) and relevant (very). You can also watch it.

“people rely on a limited number of heuristic principles which reduce the complex tasks of assessing probabilities and predicting values to simpler judgemental operations. In general, these heuristics are quite useful, but sometimes they lead to severe and systematic errors.” Tversky & Kahneman, 1974: 1124

If you prefer your behavioural economics a little less dry, you could try instead, Dan Ariely’s book, Predictably Irrational – apparently there’s an expanded edition coming out in May, but I suspect that as a behavioural economist  he’s pulling a fast one on us. “Expanded? Must be even better!!”

http://www.predictablyirrational.com

Economic Crisis – perhaps now we’ll have some decent music

A recent article about 1980s British band the Specials makes me ponder the link between economic downturns and quality popular music.

It was an era of strikes, unemployment, recession and a hundred thousand school pencil cases with black and white checks scratched on them…

So it would be nice to hope for better pop  now the bottom’s dropped out of the economy. At least in the midst of shipwreck we could be buoyed up by  music.

But before getting our hopes up, let’s pause and remember that while Coventry gave us Jerry Dammers, Terry Hall and the Specials, just along the road in Birmingham,  gearing up for world domination was –  Duran Duran.

Economics of the Singularity

Crooked Timber has been running a ‘book event‘ on the economic ideas of science fiction writer Charlie Stross.

In case you haven’t come across him, Stross is a prolific (300,000 words a year) writer of extravagant ideas who lives in Scotland. His approach to  pulp sci-fi is reminiscent of  Philip K Dick’s.  Sure it’s commercial, but with Stross as with Dick, it’s also art.

Perhaps the thought of economics puts you off an otherwise good read. Or perhaps the thought of science fiction puts you off some otherwise good economics. But for anyone still left in the room, the discussion, including posts by economists Paul Krugman and John Quiggin, as well as by writer Ken MacLeod, is well worth reading.

Warning: cheap joke ahead.

Of course, some might say all economics is fiction…

What the world needs now is… efficiency plus resilience

Economist Bernard Lietaer has an interesting paper on handling the current financial crisis. It’s based on the interplay between efficiency and resilience.

http://www.lietaer.com/images/White_Paper_on_Systemic_Bank_Crises_December.pdf

Lietaer’s main point is that in going all out for efficiency, economic managers have failed to pay attention to the importance of resilience, which requires such seemingly ‘inefficient’ features such as redundancy.

He is also concerned with the very idea of a general equilibrium theory in economics, when financial systems are, for him, better seen as being in dynamic disequilibrium.

As Lietaer notes,

“The misclassification of economics as a system in equilibrium is brilliantly explained in chapters 2 and 3 of Beinhocker, Eric The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics (Cambridge, Mass: Harvard Business School Press, 2006)” (Lietaer 2008:15)

Competely independently of this, but on a related topic, the Association of American Geographers has a session at its Annual conference in March entitled:

From Growth to Resilience – Changing Perspectives on Regional Development.


Dear Davos, How much is there?

Rupert Murdoch at the World Economic Forum
Rupert Murdoch at the World Economic Forum

News channel  CNN is giving ‘influential bloggers’ a chance to ask world business leaders a burning question at the forthcoming world economic forum.

The question Fourcultures would ask is:

How much is there?

This question is deceptively simple. Think about it for a moment, then if you like, take the little poll to the right of this page.

The answers given at Davos would increase awareness of the way our assumptions are conditioned by the four biases described by grid-group cultural theory. Given the context – a meeting of world business leaders – it can be predicted that the most popular answer by far would be:

‘There is plenty, as long as we  harness our ingenuity and hard work’.

It would speak of, in Rupert Murdoch’s words, ‘what happens when human talent, ingenuity and ambition is given free rein’. This is the world view of the individualists, for whom the world is a cornucopia, to be unlocked by innovation and personal prowess.

The second most popular answer would be:

‘There is enough, as long as we regulate it properly’.

This is the hierarchical approach, and it is to be remembered that, internally,  many large businesses are effectively hierarchical bureaucracies.

Way behind would be

‘There’s not enough – we’ve got to change our values, share more and be more frugal’.

Unfortunately this is the answer of most egalitarians, including a large part of the green movement. I say unfortunately, simply because it’s hard for them to see that when they speak with business leaders they’re often speaking a different language.

Also unpopular would be

‘How should I know how much there is, let’s just spin the wheel and see where the ball lands!’

This is the fatalist worldview, and it’s extremely populareverywhere except Davos. But in their spare time, the business leaders of Davos may well apply exactly this approach to life; indeed there was something of this about the financial markets prior to the recent crash.

These four answers to the question ‘how much is there?’ don’t just contradict each other, they actively compete.

So when the Transition Culture website (a meticulously egalitarian and wonderful endeavour) works out its question for CNN, it’s hardly surprising that the question chosen starts with the words

‘On a finite planet…’

Picture the business leaders at Davos rolling their eyes and saying ‘Let’s just stop right there – who says it’s finite?’

For as long as business leaders think the environmentalists are really just defeatists, we have a big, big problem. Conversely, when the environmentalists learn to translate their words for the benefit of their hearers, we begin to have a solution.

Four Cultures and Bounded Rationality

Recently this site suggested grid-group cultural theory as a type of bounded rationality could explain certain economic behaviour (that of pirates) more completely than rational choice theory could. But is grid-group cultural theory actually a version of bounded rationality, or are there important differences.? A forthcoming article in the Harvard Law Review should shed light on this:

Kahan, D. M., & Slovic, P. (in press). Is cultural cognition a product of bounded rationality? Harvard Law Review.

Update:

I’m informed that the above article is already available  on-line. It is part of an in-print discussion with Cass Sunstein.  Sunstein’s response to the review essay, Fear of Democracy: A Cultural Critique of Sunstein on Risk, 119 Harv. L. Rev.1071 (2006) is also available online.

Pirates: just acting rationally?

pirate sunset

Economist Peter Leeson has a new book coming out about the economics of piracy in the late 16th and early 17th century ‘golden age’. He uses piracy as a test case for the claim that rational choice economics is what motivates much of human behaviour. In an article on the same subject, he writes:

‘“Pirational choice” differs from rational choice only in that it deals with rationally self-interested decision making in the uniquely piratical context.’ (Leeson, 36)

The book has a great title, But is he right?

Continue reading “Pirates: just acting rationally?”