Monday, 1 February 2010

Links on macro, rationality, expectations and trust

For a while, I've been storing up lots of links to interesting pages from blogs and other places. I keep meaning to weave many of them into an interesting narrative, but some of them don't quite seem to fit, and yet are still on topics that I'm interested in, namely:

  • expectations (and related, rational expectations theory)
  • sentiment and whether it is real, and can be modelled
  • macroeconomic theory and in particular, under what behavioural or market conditions Keynesian stimulus is efficient
Here are some of those links which I'm, realistically, never going to get around to to analysing in detail:

  1. Rajiv Sethi on rational expectations and equilibrium paths. A good insight into why the rational expectations model is unlikely to reflect reality. But aren't rational expectations the only way to achieve a stable equilibrium in many models? Yes indeed. The conclusion must be that either those models are incorrect (a cop-out) or that the economy cannot be stable. There is lots of other good stuff from Sethi and I'd recommend his blog.
  2. In this post, Bob Nease at Consumerology touches on the resolution to an important question: are people rational (like Tim Harford) or irrational (like Dan Ariely)? He attempts to bypass the question by looking at evolutionary explanations of behaviour, and recasting it as "is this behaviour adaptive or maladaptive?". In fact, there is a better answer, but that's not for a late-night posting like this.
  3. Tim Harford again, this time writing on the economics of trust. I've touched on this argument (light-heartedly) in a previous posting about whether UK government spending on the Olympics is worthwhile. The point being, the returns on trust between the people of a society are immense. It is no exaggeration to say that a sensible economic system, which enables specialisation, trading and investment (never mind anything more complicated), can multiply income at least a hundredfold - compared to having no economic system at all. And the two factors that enable this to happen above all are predictability and its special case, trust.
  4. While reading through those old tabs, I came across this Stephanie Flanders post. In it, she explains that the Tories are moderating their anti-deficit message to reassure voters that they won't put economic growth at risk. That was in November. While today, at the beginning of February, she has written that...the Tories are moderating their anti-deficit message to reassure voters that they won't put economic growth at risk. Apparently it takes a long time to turn round a perception.
  5. Finally for any programmers reading, an amusing article from Felix Salmon which blames the financial crisis on...unnormalised relational databases?! We all know there are many dangers in multi-valued fields and non-unique keys, but I bet you never knew that one of those risks was a global depression with 10-15% worldwide unemployment. I hope Felix was joking with the Ted Codd reference.

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