Knowing and Making

10:30  Thanks for watching - see you next week. The lessons from this episode's wander into economic theory? First, that seller ignorance is just as destructive of consumer benefit - or more - as buyer ignorance. Seller ignorance, in a situation like this week's task, is more likely to see something sold to a person who will undervalue it - because if the seller offers it at an unrealistically low price, it will be bought by people on a whim instead of those who will actually derive the most benefit from it. Second, the importance of understanding the rules you're trading under. It's not clear whether the teams were told the full rules at the beginning of the task - that they would be penalised for selling things too cheaply. In the last series' version of this task, it was mandatory to sell all the items (if I'm remembering right) so it would be natural to assume the same thing for this year. Third, the subjectivity of the boardroom process makes performance in...

It seems like someone in the Treasury has been reading Shiller and Akerlof's Animal Spirits . This Budget has a strong unstated theme of 'fairness' in the sense that the authors use it - as one of the fundamental psychological phenomena that they believe contribute to economic performance. Two behavioural experiments are useful in understanding the Budget and the reaction to it. The first is the ultimatum game . This has two players, Mary and John. Mary is offered £10 to share with John as she wishes. The catch is that whatever share she offers to John, he has the chance to accept or reject it. If he rejects it, neither player gets anything. In a perfectly rational world, Mary would offer John a penny and keep £9.99 for herself. He would accept the penny - it's better than nothing, after all - and both would get their money. But in practice, John never behaves like this. If Mary offers him less than about a third of the money, he normally rejects it - so both players lo...

A behind the scenes look at the words that appear in the cloud generation list, but, get lost in translation is a privilege only the word cloud analyst has.  Hello, it is me, Missmarketcrash, guest blogger, looking behind that curtain.  What a great private tour in the land of Leigh and his lofty cloud generator data lists I've had.   Being far less analytical than Leigh, I was wandering around in the data in awe, marveling at its peculiarities.  Here is what I found in the backroom. Looking closely, "Bush" is hiding out with 92 mentions.  Tied at 92 with "Bush" are "security" "programs""happen".  I can almost hear the quote.  "Chinese" also is lurking off the edges of the picture generated.  At 96, the "Chinese" are accompanied by  "carry" "failure" "gets" "bear" also at 96.  At 94, "Thinking", is in good company with "earnings""profits"...

This is a word cloud from all economics blog postings in the last week. I generate this every Sunday - this week with assistance from a special guest - so please subscribe using the links on the right if you'd like to be notified each time it is published. It has been constructed from a list of economics RSS feeds from the Palgrave Econolog and other sources, and uses Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data. You can also see the Java version in the Wordle gallery . If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour and typeface to make week-to-week comparison easier, please get in touch. A special treat coming this week - zeitgeist analysis by guest blogger missmarketcrash .

10:00  Thanks for watching and I'll now put a blank space in for the benefit of those who haven't seen the episode yet. In about eight more lines, you might see who got fired this week. If you don't want to, look away now ! 9:59  Nothing interesting in the ending except the preview of next week's task. They have to sell ten items for the highest price possible. That should have a bit more to it. 9:56  Kimberly is fired for being like the Wizard of Oz - looks impressive but nothing behind the curtain. Ironic in a task about advertising! 9:54  "Why shouldn't I fire you?" Kimberly gives a reasonable answer, Lorraine gives the usual cliches. But she doesn't seem to be sufficiently responsible to get fired. 9:51  Philip's bravado "soars like an eagle" and "attracts a hunter". Alan's "12-bore shotgun" is pointed at him. Are the writers tired of "You're Fired" as a catchphrase? 9:50  There's an economic ...

Has someone been gaming the system? Are the tea parties actually working? Suddenly this week, tax appears out of nowhere to reach number three in the economics zeitgeist list . Or it could just be April 15, American tax return submission day, and economists all over the nation are blogging about how much money they made from their textbooks this year. Income has jumped 200 places to number 34 and taxes 244 places to 54. Other moves in the top twenty: US down one to 4 market and people steady at 5 and 7 financial up two to 6 government falls five places to number 9 money and price are both up two places economy falls three and economic one place years is up seven to 17 Some big rises among words that look meaningful: credit up 25 to 28, policy up 34 to 29 and oil up 50 to 30. On the other hand rate is down 20 to 45, public down 14 to 60 and crisis down 55 to 98. My favourite numbers: billion is down 25 to 52, million down 19 to 56 and trillion down 107 to 467. Mayb...

This is a word cloud from all economics blog postings in the last week. I generate this every Sunday so please subscribe using the links on the right if you'd like to be notified each time it is published. It has been constructed from a list of economics RSS feeds from the Palgrave Econolog and other sources, and uses Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data. You can also see the Java version in the Wordle gallery . If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour and typeface to make week-to-week comparison easier, please get in touch. Update : analysis now available .

And we're done. Good to see you all again and hope to hear from you next week. And if you want to get a bit of slightly more serious economic analysis each day, subscribe using the form on the right - there are articles on here almost every day, with a focus on behavioural economics. Anyone who hasn't yet seen the episode would be advised to stop here before reading on... and if you want to watch alongside the commentary, scroll to the bottom and then work backwards. 10:30  And a bit of preview of next week - looks like one of those judgment shows, which is always annoying. Who has the best ad campaign? You can't really tell until you put both of them on TV and look at the sales figures. But instead we'll have "experts" judging it. Well, that always leaves room for a bit of ridiculousness, which might be light relief at this point. 10:29  For once, the 'best of' sequence seems to show Paula as a really nice person. That hasn't happened yet this ser...

A startling result: How many times did blog posts in the last 90 days contain the following keywords? krugman vs. mankiw vs. thoma vs. cowen vs. caldwell

In the last few weeks I've been getting a lot of searches for "the making of knowing". Of course these curious people are more likely to be seeking the "Making Of" information about the incomparable Nicolas Cage film Knowing , than the rather different type of action that is available on  Knowing and Making . But why not offer them some education about economics too? I haven't yet seen the film, so I'll be constrained in offering meaningful advice about it. But let's see what we can determine. First, it went through several different directors before being made. This information was more readily available on the film's Wikipedia article than on IMDB , the Internet's default link-target-for-any-movie-title (just as Amazon is the default for books). Wikipedia also has a little more information about production companies and funding - which to me is quite interesting, and makes me wonder why IMDB doesn't have it. Are they more closely tied t...

Federal  and state  are both up about 50 places in this week's economics zeitgeist , with US  and government  retaining their positions at the top of the charts. Obama  has fallen 45 to 110 and administration  177 places to 401. Washington  is up 28 to 425, so rather a mixed picture there. Nearer the top of the charts,  market  is up one place to 5, with financial  and economic  down three and two respectively to 8 and 10.  Bank  and money  are each up nine places to 14 and 15. Price  is down eight to 18 but prices  up ten to 23. So no clear trends at the top either. Trillion  had the rise this week that I'd expected last week, up 47 places to 360; billion  and million  both up about ten places too. Top new entries are WAIS , North , Chinese  and default , all around the 300-400 mark. Israel , exports  and nuclear  are new around 400-500 with  Smith  at 595,  zombie  at 599 and TARP  at 626. The WAIS  entries seem to be from the blog of the World Association of International St...

Slightly delayed, but here it is as always: This is a word cloud from all economics blog postings in the last week. I generate this every Sunday so please subscribe using the links on the right if you'd like to be notified each time it is published. It has been constructed from a list of economics RSS feeds from the Palgrave Econolog and other sources, and uses Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data. You can also see the Java version in the Wordle gallery . If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour and typeface to make week-to-week comparison easier, please get in touch. Analysis now available .

According to the CEBR, the government's VAT cut in December has worked - with retail sales likely to be £8-9 billion higher this year than without it. This is contrary to anecdotal evidence from small businesses, but I speak to lots of small businesses and they are not the first people you'd go to for econometric analysis. By their nature, smaller firms find it harder to dissociate the effects of a VAT cut or any other single input from random changes in demand. A number of larger businesses have reported better results from the change, but again they are not in a position to measure the effect across the whole economy. The CEBR is independent of the government, although they were calling for the VAT cut before it happened, so they have a vested interest in declaring it successful. Regardless of this, the retail figures are certainly good news and point to an earlier recovery than might have been expected.

The economics zeitgeist word cloud is temporarily delayed as I don't have access to the relevant server today - it should be uploaded by tomorrow. Thanks for checking!

Experimentally, we know that the following phenomenon can be observed: Offer consumers two bottles of wine, priced at £5 and £9. A proportion will not buy at all; of those who do buy, a proportion (70% would be typical) will buy the £5 bottle and the rest (30%) will buy the £9. Repeat the experiment with three bottles on offer, priced at £5, £9 and £15. A similar proportion will still not buy; of those who do, the propensity to buy the £9 bottle is much higher than previously. It would not be surprising to see the proportions exactly reversed: 30% at £5 and 65% at £9. Barely anyone will buy the £15 bottle, but a majority of buyers are influenced by its presence. This experiment violates the assumptions that conventional consumer theory is based on. Rational agents "should" have an context-independent demand curve for each product: they are supposed to evaluate the utility of each option, apply a constant exchange rate between utility and cash, compare the result to the price ...

Actually, before posting the behavioural theory promised in my last post, here is a quick announcement. Last night I saw Saving the World  by British/German theatre company Gob Squad, and it was amazing and beautiful. More people should see it - half the seats were empty. Today is your last chance: there's a matinee at 3 and an evening performance at 7.45 I think. If you have ever been on the South Bank, enjoyed London or thought about life, you must see this show. You can find it at  http://www.spillfestival.com/index.php?plid=19  - see it if you can.

Eric Falkenstein has an interesting post  which highlights some of the problems in the study of behavioural economics (in this case, behavioural finance). I have to agree with his premise, though my conclusions are a bit different. I've just reread some of Nudge  and am partway through Animal Spirits . Both books cheerlead for the behavioural cause - though in each case, one author - Thaler and Shiller respectively - seem to be much more closely associated with it than the other - Sunstein and Akerlof. However both books exemplify the problem that Falkenstein identifies. The field is full of effects without explanations. You can easily list a whole string of cognitive biases which can be easily demonstrated - I show the effect directly to audiences in presentations, by running a price anchoring experiment. But the behaviourists rarely seem to propose a good underlying model of how these effects arise. Having just completed another book, The Making of an Economics, Redux , I can see...

The new EconDirectory.com rankings are out, and Knowing and Making has moved up to number 65 (based on visitors) and 68 (based on page views). In the UK, we are now the second most popular economics blog, behind Tim Worstall . The BBC and FT blogs do not publish their stats in this directory (Willem Buiter is on there but it's his pre-FT blog address), so it's likely that Stephanomics, Undercover Economist and Economist's Forum are ahead too - but we are definitely in the top ten. Thanks for all your visits over the last year, and if we can get ahead of Tim Worstall by the summer I'll buy you all a drink*. * Offer limited to those who turn up in the pub and collect it