Knowing and Making

I celebrate the good news that  Bletchley Park has been saved  by my new friend @Dr_Black among others. It's a good story and you should read it if you aren't familiar with the background. However, is it wise to announce and frame the news in this way? The post suggests an optimistic transition: I mentioned "Saving Bletchley Park" as part of this conversation and Simon said "...hold on, Bletchley Park is saved, there is no way we are going to shut now with all the support that we have. What we need to talk about now is Building Bletchley Park for the future". I sat there with a big smile on my face... Bletchley Park is Saved - It is no longer about *Saving* Bletchley Park but about *Building* Bletchley Park. It sounds great. But surely it is much easier to raise money to "save Bletchley Park" from an impending emergency than to "build Bletchley Park" for an undetermined future? I predict that, unfortunately, donations will fall if the...

If you didn't see the Italian Grand Prix on Sunday and you're still planning to watch it, look away now. But really . It's been three days. So for those who didn't see it and are not planning to watch it, think about this question. Should the order in which drivers are placed affect the aggregate happiness of all fans? (Assume for now that all drivers and teams have the same number of fans.) Surely not, right? No matter whether Rubens Barrichello wins or Robert Kubica does, people will be - on average - equally happy. There's a certain utility gained from your driver coming first, a lower amount for coming second, third, and so on. The total utility gained by all fans is the sum of U(first) + U(second) ... + U(20th), and the only difference is the distribution of happiness between people. And yet. On Sunday, Lewis Hamilton was running in third place and ready to get on the podium. He entered the last lap a couple of seconds behind Jenson Button and trying to catch...

I'm on a continuous quest to apply behavioural modelling to macroeconomics, and I have some way to go before I complete a model that is credible, tractable and predictive. But what I can do is use behavioural finance research to explain a trait that Paul Krugman discusses in his blog posting today . Put simply, people feel losses much more keenly than they imagine gains. Ask a hundred people whether they'd work an hour to earn £10 and most of them will say no. But overcharge them £10 on their mobile phone bill and watch them sit on hold, fill out forms and argue with shop assistants for as long as it takes to get their money back. And there is something about fiscal deficits that just feels like a loss. Carrying billions of pounds of debt and knowing that your income tax will go up to pay for it is a very concrete concern. But the idea that without it, you will lose 10% of potential growth in your income, is much harder to get worked up about. You could make a legitimate argume...