Knowing and Making

It probably has not escaped your notice that the Game of Thrones TV series finished this week. If you use social media at all, I suspect you also saw some anguished squawks about how awful the ending was. How the incompetent writers screwed it all up. Maybe you even signed the petition, along with 1.5 million others, to have the last series remade with a different conclusion. Personally I thought it wasn't a bad outcome, but I seem to be in the minority. Either way, why does this have such significance? I read a counterargument a few days ago: You've had 70 hours of enjoyment already – it's in the bank. You enjoyed episode 1, 2, 3, …and you can't go back and "unenjoy" them now. One bad hour at the end can't rewind the clock and eliminate the last 8 years of pleasure? Yet this feels wrong. The ending can ruin the beginning. Why should this be? A model from cognitive economics may have the answer. The theory of " cognitive goods " says tha...

Anthony J. Evans (who kindly linked to my camel story earlier in the year - or as he notes, perhaps not all that kindly) has written a paper about economic counterfactuals . He confirms what's now becoming a mantra among economists (if not their public): economists can't make predictions. However, he says, rather than giving up completely on exploring the future, they should do so with two tools of the economist's imagination: counterfactual analysis and scenario building. Counterfactuals are stories about the past - a retrospective prediction if you will - considering what might have happened had a different decision been taken at a key moment. For example, what if the financial sector had not been rescued by governments in 2008? Or what if governments themselves had defaulted on their debts? Scenarios are possible alternative futures - constructed not so that you can predict which one will happen, but so that you can prepare to understand events as they unfold. Each sce...

There were two traders who used to cross the desert in Kenya, carrying incense from one city to another and metalwork back the other way. The trip was a long and hot one, and they travelled with two camels each and always with just a bit more food and water than they strictly needed. For many years their trade carried on successfully - occasionally with a sandstorm, once losing some goods and camels to a thief, but never with a real crisis. Their wealth gradually accumulated, and they were able to expand their caravan to six and eventually ten camels; but no matter how rich they became, they never forgot to carry an extra waterskin and packet of cured beef: they were wise enough to know that riches cannot stop you dying of thirst. But still it came to pass that on one difficult trip, the wind was strong and they had to camp for an extra day; when they reached the next oasis it was dry; and the spare water was soon gone. With three days to walk to the next water, and the sun stronger th...