4. “I THINK THERE IS A WORLD MARKET
FOR MAYBE FIVE COMPUTERS”
Thomas Watson, IBM Chairman 1943
5. “THEY COULDN’T HIT AN
ELEPHANT AT THIS DIST.......”
Last words of General Sedgwick,
Battle of Spotsylvania 1864
6. “The master-economist must possess
a rare combination of gifts ... He must
be a mathematician, historian,
statesman, philosopher – in some
degree.
He must understand symbols and
speak in words. He must contemplate
the particular in terms of the general
and touch abstract and concrete in
the same flight of thought.
No part of man’s nature of his
institutions must lie entirely outside
his regard. “
Keynes on the qualities of a master-economist
7. Challenges to Economic Orthodoxy
At a November
2008 visit to the
LSE the Queen
asked Luis
Garicano, an LSE
expert on
economics and
management:
“Why did no one
see it [the crisis]
coming?”
8. • Dogmatic belief in the efficiency of markets
• Perpetuating the myth of the rational maximizing
agent with perfect information
“Living in a neo-liberal world?” (Madonna)
9. “In the economist's
mind, people are
calculating rationalists,
merely seeking to
maximize their own
utility in a world of
perfect information,
and devoid of such
concepts as uncertainty,
mistrust, fear and
regret.”
Rory Sutherland
10. The human is far
less a rational
calculating
machine than a
kind of anxious,
moralizing, herd-
like, reciprocating,
image-conscious,
story-telling game
theorist.
The best quote on economics that I have ever read
11. • Humans are very
different from
Econs!
• Social
• Emotional
• Habitual
• Satisficers
• Lack self-control
• Many cognitive
biases in behaviour
12. At least nine major
schools of economics
1. Classical
2. Neoclassical
3. Marxist
4. Keynesian
5. Schumpeterian
6. Austrian
7. Institutionalist
8. Behaviouralist
9. Developmentalist
There are alternatives to what you have been taught
13. Relying on neo-
classical economics
is the equivalent of
using a very large
hammer!
Economic and Social
Problems are Complex
14. Economic and Social
Problems are Complex
Relying on neo-
classical economics
is the equivalent of
using a very large
hammer!
This is more likely to do
the job!
18. Heuristics
Rules of thumb
designed to get us
through life …………...
We often rely on our
gut instinct rather
than precise
measurement of cost
and benefit
23. Which has more?
– 1) Words that
begin with the
letter “K"
– 2) Words that
have the letter
“K“ in the 3rd
position
24. Which has more?
– 1) Words that
begin with the
letter “K"
Kinesthetic
25. Which has more?
– 1) Words that
begin with the
letter “K"
– 2) Words that
have the letter
“K“ in the 3rd
position Kinesthetic
Ark
26. • Which has more?
– 1) Words that
begin with the
letter “R"
– 2) Words that
have the letter
“R“ in the 3rd
position
27. • Which has more?
– 1) Words that
begin with the
letter “R"
Radio
28. • Which has more?
– 1) Words that
begin with the
letter “R"
– 2) Words that
have the letter
“R“ in the 3rd
position Radio
Aerial
29. • Answer
– Words with the
letter "R" or "K" in
the third position
are more common.
30. • Answer
– Words with the
letter "R" or "K" in
the third position
are more common.
–There are three
times as many
words that have
the letter “R" in the
third position
31. • Answer
– Words with the
letter "R" or "K" in
the third position
are more common.
–There are three
times as many
words that have
the letter “R" in the
third position
Aerial
Bark
Carpet
Dermatologist
Earmarked
Farmer
32. Which of these towns has the bigger population?
Slough
Plymouth
33. Which of these towns has the bigger population?
Slough
Plymouth
250,000
34. Which of these towns has the bigger population?
Slough
Plymouth
250,000
140,000
42. In a World of Uncertainty and Complexity, Instinct
Can Beat Analytical Thinking
43. Expert bias doesn’t always pay dividends!
Using heuristics
often leads to
better decisions
than the models of
“rational” decision-
making developed
by mathematicians
and statisticians.
Gerd Gigerenzer
44. Heuristics for uncertain financial markets
asset allocation
heuristic
= 1/n
i.e. allocate
money equally
to each of n
fundsGerd Gigerenzer
45. Heuristics for uncertain financial markets
Do not be impulsive
in data-rich
situations where
you should be
thoughtful; do not
be thoughtful in
data-poor situations
where you should
be intuitive
Gerd Gigerenzer
70. “Trust is about
more than whether
you can leave your
house unlocked; it
is responsible for
the difference
between the
richest countries
and the poorest.”
Tim Harford
The economics of TRUST and SHARING
91. Happy to help with UCAS
Advice and Extra Support
in your Economics!
G.riley@etoncollege.org.uk
@tutor2u_econ
Notas do Editor
Many bridges still have height max signs at the front ……. Hindsight bias …. Not a very good idea
Copying behaviour by agents is intuitive and widespread – it is often rational to copy the behaviour of others
I have responded a lot to this reminder …. But the last time I made a purchase ….
Trust
On average apartments on Airbnb are 21 per cent cheaper than hotels in most major US cities, according to a Priceonomics study
On average apartments on Airbnb are 21 per cent cheaper than hotels in most major US cities, according to a Priceonomics study
In this short presentation we will look at a small number of behavioural ideas that try to capture the reality and complexity of modern markets and economies.
These are:
Heuristics
Network effects
Herd behaviour
Some suggestions for enrichment reading in the summer of 2014