The financial crisis: Why did no-one see it coming, and why did economists get it so wrong?

Why didn’t the experts see it coming?, asked the Queen of England, and the British Academy wrote a letter to explain. Of the lead up to the global financial crisis they wrote:

“It is difficult to recall a greater example of wishful thinking combined with hubris.”

Meanwhile, economist Paul Krugman asked a similar question – how did economists get it so wrong –  and came up with an answer to do with the difference between salt water and fresh water (apparently one turns you Keynsian and the other turns you neo-classical). Krugman noted the failure  of neoclassical economics to account for the apparent irrationality of the market, and proposed as a remedy the emerging sub-discipline of behavioural economics.

When it comes to the all-too-human problem of recessions and depressions, economists need to abandon the neat but wrong solution of assuming that everyone is rational and markets work perfectly.

Both these approaches – that of the British Academy highlighting wishful thinking and hubris, and that of behavioural economics highlighting cognitive biases – make the great mistake of assuming that there is a single ‘ideal’ rationality,which real humans happen to be incapable of attaining. Continue reading “The financial crisis: Why did no-one see it coming, and why did economists get it so wrong?”

Advertisements

East meets West: are there just two cultures?

New Scientist has an article by Ed Yong on the dichotomy between eastern and western thought.

But there are more than two alternatives (western/individualist/analytic vs eastern/collective/holistic)… Continue reading “East meets West: are there just two cultures?”

Is Belief in Free Will a Cultural Universal?

This is the title of a recent paper by a group promoting ‘experimental philosophy‘. This involves the “use of the methods of experimental psychology to probe the way people think about philosophical issues and then examine how the results of such studies bear on traditional philosophical debates” (Nadelhoffer and Nahmias, 2007: 123)

The paper examines two related philosophical concepts, determinism and moral compatiblism, and seeks to discover whether views regarding these differ across national cultures. Reading the paper through the lens of the Four Cultures is an interesting experience. Continue reading “Is Belief in Free Will a Cultural Universal?”

Certainty: I’m fairly sure we don’t need it

Have you noticed many people tend to be pretty certain that Peak Oil either is or isn’t happening, global warming either is or isn’t happening, and so on. Guns, abortion, nanotechnology, Genetic Modification of crops, controlled burning of the Australian bush – it can be quite polarised.

The preferred strategy seems to be to get hold of all the evidence then make a decision that you can be more or less sure about. We seem to like certainty and it seems to be an aid to decision-making. Conversely, it’s hard to take F. Scott Fizgerald’s advice that

“The test of a first rate intelligence is the ability to hold two opposed ideas in the mind at the same time and still retain the ability to function.”

So Robert A. Burton’s book, On Being Certain: Believing You Are Right Even When You’re Not is very helpful and provocative. Basically, the story we tell ourselves about certainty and how we reach it is completely wrong. Continue reading “Certainty: I’m fairly sure we don’t need it”

So… what should I believe?

Psychologist Dorothy Rowe has a book out about religious belief, entitled What Should I Believe? She says,

it is possible to create set of beliefs, which allow us to live at peace with ourselves and other people, to feel strong in ourselves without having to remain a child forever dependent on some supernatural power, and to face life with courage and optimism.

What I find interesting about this is the acceptance of the idea that belief  as such presents itself as some kind of choice, while the content of belief is in need of construction by each and every would-be believer. It seems that DIY religion is not so much an option – it’s the only real possibility.

But I think there may be at least three alternatives… Continue reading “So… what should I believe?”