Knowing and Making

Do you remember those catchy tunes from the late 1980s? I Should Be So Lucky ?  The Locomotion ? The first time you heard them they were quite fun, memorable even. But then they got more airplay. And more. And more. Radio stations figured out that the sugary, bubbly popness of the tunes would cut through a lot of background noise and get your attention, so they played them again and again. Soon we had Got To Be Certain , and Je Ne Sais Pas Pourquoi , which were exactly the same as the first two songs. Then a "strategic inter-agency collaboration" with Jason Donovan on Especially For You . ( Jason looks a bit less lifelike in this alternative version) . After a short interlude in late 1989, another number 1 with Tears On My Pillow , which was meant to be more sophisticated but was equally artificial, overproduced and in fact just the same old song as I Should Be So Lucky . By this time anyone who wasn't a 13-year-old girl was thoroughly sick of Miss Minogue, who wasn...

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. ...

The Economist is running a one-hour chat session on the #askeconomist hashtag today, which I'd recommend for some thought-provoking questions. My own interest, of course, is in the behavioural, cognitive and information-processing aspects of this. Two particular questions are relevant: Rational people would apply an appropriate level of skepticism to crowdsourced news; weighting its credibility according to who the messenger is, by the number of times the same message has been recycled or retweeted, by the number of independent sources. But real people do not. Psychology tells us that we inevitably overweight a message the first time we hear it (anchoring), and by the degree to which it confirms our prior beliefs (confirmation bias). The role of a professional journalist, in part, is to check facts and give us appropriate caveats on how much we should believe what we're told. How can this be done in the world of participatory journalism? Maybe we can develop automated to...

Economics is useful not when it makes broad, one-sided assertions (markets are good; externalities are bad) but when it uses a model to give a firm, quantitative answer to a specific question. What difference will it make to the price in the milk market if one new supplier enters, producing 3 million litres a year? If I buy this piece of land and build a gas station, will I make a profit? What's the optimal price for me to sell my consulting services if I value my free time at £40/hour? Standard economics gives us models which - if we can find the right data to calibrate them - will answer all these questions for us. Behavioural economics does not. It can show us the existence of certain phenomena: hyperbolic discounting, framing and priming biases, misperception of risk, anchoring. But can it answer questions like these? How high a price should I post in my shop window to maximise the benefits of anchoring and minimise the number of customers who are put off from enter...