The solution to recession

The Professor brightened up again. 'The Emperor started the thing,' he said. 'He wanted to make everybody in Outland twice as rich as he was before — just to make the new Government popular. Only there wasn't nearly enough money in the Treasury to do it. So I suggested that he might do it by doubling the value of every coin and bank-note in Outland. It's the simplest thing possible. I wonder nobody ever thought of it before! And you never saw such universal joy. The shops are full from morning to night. Everybody's buying everything!'

– Lewis Carroll, "Sylvie and Bruno"

Comments

Post a Comment

Popular posts from this blog

What is the difference between cognitive economics and behavioural finance?

This question was posed in an interesting LinkedIn discussion group (Behavioural Finance: Theory and Practice) by Kerry Pechter. I dashed off a quick answer which ended up being 500 words long. So I thought it might be useful to post on here. Can anyone tell me the difference between cognitive economics and behavioral finance? Cognitive economics is not yet a widely used phrase, though Marco Novarese and I have been using it as a name for a more microfounded version of what's typically called behavioural economics. So I'll answer the question based on how I use the term. The first difference is between "economics" and "finance". Economics is a broader field, including the trading of any kind of goods or services, whereas finance specifically focuses on investment and the value of financial instruments. Indeed I consider economics very broadly to be the study of how resources are allocated (by individuals, and across society). The more fundamental...
Read more

Book review: Alchemy, by Rory Sutherland

Rory Sutherland's new book Alchemy: The Surprising Power of Ideas that Don't Make Sense  continues his 10-year campaign against the traditional, logical pursuit of business advantage, through a scientific lens that includes several cognitive economics themes. As ever, a curated series of amusing anecdotes about people or companies who took an unusual angle on marketing or product invention, fuel a philosophical wander. That philosophy could be summarised as: if it makes sense, someone's already tried it. So try something that doesn't . The ideas that underpin the book are broadly based on behavioural economics and cognitive science, with bits of evolutionary theory, statistics and old-fashioned advertising intuition thrown in. At first it doesn't look like a behavioural science book as such: the theoretical backbone takes a while to show. Rory's style is discursive: an after-dinner-talk of anecdotes, dismantling of conventional wisdom, ever-so-slightly outr...
Read more

The dilemma of advice

Some colleagues at Irrational Agency and I have recently been working on a framework around advice, and a key dilemma: Those who know less about finance, are more in need of advice But those who know less about finance, are less likely to realise they need advice In some ways this is another form of Dunning-Kruger syndrome. But there's an interesting additional twist. Because advice is an information good , you can't make an informed decision about it before receiving it, because you don't know what the advice will be. And once you've received it, you may think you don't need it, because now you possess all the knowledge that the advice gave you! So an element of trust is required to make the decision to buy advice, as well as an element of self-knowledge. Neither of these things are in abundant supply in the finance industry. An outline of our analysis follows: The context : more and better quality investment is needed. Consumers need to make better financial retur...
Read more