Showing posts from July, 2011

Two challenges for behavioural economics - one real, one fictional

It seems that some people from outside behavioural economics are, like me, getting frustrated with the lack of progress within the field. Eric Falkenstein says here : I read Kahneman, Tversky and Slovic's Judgement under Uncertainty in the 80's (published 1982), which mainly discussed a series of papers published in the 1970s, and found it fascinating, but now it's now 30 year old stuff and pretty boring. There's a couple hundred academically based confirmed biases which are all kinda true, but not very profound This part of the posting is quite right. A commenter at the bottom sums up the problem with state-of-the-art behavioural "economics": Behavioral economics is not economics but psychology. It focuses on individuals instead of exchanges and markets. Economics makes assumptions about actors to make market predictions. BE makes predictions of actor choices just like psychologists. The question BE must address is how do biases create market conditions.

Notes from banking fragility talk

Here are my unedited notes from David Miles' talk on monetary policy and banking fragility tonight. This may not be of much sense or interest to everyone, so feel free to skip it if you're not into this topic. [ Here is the somewhat more coherent post I wrote before the talk] Miles – recently wrote a paper about the benefits (and costs) of higher bank capital. LSE is intellectual home of MPC in many ways. Links between monetary policy and financial stability: strong and significant Compared to pre-recession trend in 2007, this recession is almost as bad as 1929, and on current projections will be WORSE from 2012 onwards. Changes in banking sector since previous eras – more gross debt (now being reduced), more fiscal compensation (mostly automatic stabilisers), much higher bank leverage. There would have had to be a rebalancing of some kind, but the rebalancing is now happening in the context of a financial crisis. One challenge: policy compensations for imbalances (VA