Knowing and Making

The 2010 Nobel Prize in Economics has been awarded to Peter Diamond (MIT), Dale Mortensen (NWU) and Christopher Pissarides (LSE). Tyler Cowen has written a good concise summary of each prizewinner's work and contribution (linked above). I promised on twitter earlier today to write a post about the application of their research to the 2008-2010 recession. First I'll mention Diamond's book on behavioural economics , which is one of the respected texts in the field and which I've been meaning to order for a while. Today I finally got around to it. The introduction, available here , gives a very clear and perceptive abstraction of the key contributions of behavioural economics as currently practised. It can be summarised in three departures from the standard model: bounded rationality, bounded willpower and bounded self-interest. He (and co-author Hannu Vartainen) also reference the psychological process of decision-making as an important part of behavioural analys...

I visited a networking group yesterday which brings entrepreneurs and investors together to try and matchmake them. At the end we had a conversation about how to make the group work best. One of the persistent concerns about investment networking events is that each investor just stands there while a hundred entrepreneurs swarm over them, trying to get their money. This is unmanageable for the investor and doesn't serve the entrepreneurs very well either. Most of them get nothing and it is so competitive that those who might get an offer, get screwed down on terms. What's more, the facades that people (particularly entrepreneurs) erect make the search for worthwhile matches difficult. Even though investors will nearly always get to the truth before providing and money, the results of search theory  mean that they will have to spend more time, and will find worse matches, than if the entrepreneurs were honest (although there may be behavioural phenomena that counter this - back ...