Category Archives: Main Page

What’s new about nudges?

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As I prepare to lecture on behavioural economics in public policy tomorrow, I’ve been riffling through the books I have in the room here & am struck by how similar they all are. The most recent is Richard Thaler’s [amazon_link id=”1846144035″ target=”_blank” ]Misbehaving: The Making of Behavioural Economics[/amazon_link], which is as the subtitle suggests about the debate within economics about foundational assumptions as well as the content of behavioural economics. It’s very good and accessible. Daniel Kahneman’s Thinking Fast and Slow is still my favourite. There’s [amazon_link id=”0141040017″ target=”_blank” ]Nudge[/amazon_link], of course, by Thaler and Sunstein. The Dan Ariely books – I have [amazon_link id=”0007256531″ target=”_blank” ]Predictably Irrational[/amazon_link] here – are jolly reads. Mullanaithan and Shafir’s [amazon_link id=”0141049197″ target=”_blank” ]Scarcity[/amazon_link] is an important book. A more scholarly volume is Eldar Shafir’s edited volume [amazon_link id=”0691137560″ target=”_blank” ]The Behavioural Foundations of Public Policy[/amazon_link]. Somewhere too in here is Colin Camerer’s [amazon_link id=”0691116822″ target=”_blank” ]Advances in Behavioural Economics[/amazon_link]. And I have [amazon_link id=”0691164371″ target=”_blank” ]Government Paternalism[/amazon_link] by Julian LeGrand and Bill New, somewhat cautious in its embrace of behavioural policies.

[amazon_image id=”1846144035″ link=”true” target=”_blank” size=”medium” ]Misbehaving: The Making of Behavioural Economics[/amazon_image]  [amazon_image id=”0141040017″ link=”true” target=”_blank” size=”medium” ]Nudge: Improving Decisions About Health, Wealth and Happiness[/amazon_image]  [amazon_image id=”0007256531″ link=”true” target=”_blank” size=”medium” ]Predictably Irrational: The Hidden Forces that Shape Our Decisions[/amazon_image]  [amazon_image id=”0141049197″ link=”true” target=”_blank” size=”medium” ]Scarcity: The True Cost of Not Having Enough[/amazon_image]  [amazon_image id=”B00P6ZJ6LS” link=”true” target=”_blank” size=”medium” ]Government Paternalism: Nanny State or Helpful Friend?[/amazon_image]

The thing that strikes me looking at these volumes covering a dozen years is how much overlap there is in the material they cover, often exactly the same examples. Does this mean behavioural economics has not really moved on from the central insight about people’s inability to calculate probabilities as if they were Mr Spock from Star Trek, and hence the “irrationality” of much decision-making concerning uncertainty and predictions of the future? The big questions I have  – and can’t readily find the answers to – are:

1. What do we know about the boundaries between situations in which people are “rational” and “irrational” (ie individual choices lead to the market outcome as predicted by conventional economic theory, or not) – is it as simple as any situation involving having to predict the future?

2. What do we know systematically about the interaction between individual decisions and social influencing (other than that it exists)?

3. What do we know about whether people adjust over time to ‘nudge’ policies and change their behaviour, as they do to any traditional economic policies?

If those who have read more of the behavioural literature know where I can find relevant material, I’d be very grateful.

Technology paradoxes

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I’ve started reading James Bessen’s [amazon_link id=”0691143218″ target=”_blank” ]Learning By Doing: The Real Connection between Innovation, Wages, and Wealth[/amazon_link], and it promises to be very interesting. He starts with a paradox: That “the effects of the new technology are all around us,” but for one place: our paychecks. “Since the beginning of the personal computer revolution, the median wage in the United States has been stagnant.” (I’ve yet to get far enough to know whether the book only talks about the US – phenomena like the stagnant median wage and increased income inequality are at their extreme there.)

[amazon_image id=”0300195664″ link=”true” target=”_blank” size=”medium” ]Learning by Doing: The Real Connection Between Innovation, Wages, and Wealth[/amazon_image]

It set me thinking that actually there is another paradox that’s the twin of Bessen’s: that the main (only?) thing that has benefitted many people in economic terms in the past couple of decades is – technology. People greatly value their smartphones and other ever-cheaper/better consumer electronics, internet access, free online content and services. This consumer surplus story is well-known; among others, Brynjolfosson and McAfee point it out in [amazon_link id=”0393239357″ target=”_blank” ]The Second Machine Age[/amazon_link].

So we have the meta-paradox of limited if any gains in monetary incomes and potentially large gains in non-monetary consumer surplus (although there are some reasons for caution about the scale as ‘free’ is not free), and no obvious way to evaluate these, You can’t eat consumer surplus but people see internet access as a basic right (pdf), a sign that they put huge value on the technology. I’m spending a lot of time thinking about these measurement/welfare questions.

Thinking and writing

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It was one of 20 minutes gaps between appointments, and of course I spent the time in a bookshop. I escaped with just one paperback, Steven Pinker’s [amazon_link id=”0241957710″ target=”_blank” ]The Sense of Style: The Thinking Person’s Guide to Writing in the 21st Century[/amazon_link]. To be honest, it was the cover image that sold it to me: I’m a sucker for monochrome photographs.

[amazon_image id=”0241957710″ link=”true” target=”_blank” size=”medium” ]The Sense of Style: The Thinking Person’s Guide to Writing in the 21st Century[/amazon_image]

Normally I don’t read how-to-write books. After all, I’ve been writing for aeons: school essays, 2 essays a week at university, a PhD dissertation (economics, but still, it had words), policy notes, client reports, magazine and newspaper articles, books. Just recently, though, I’ve read two excellent ones (the other being Oliver Kamm’s [amazon_link id=”0297871935″ target=”_blank” ]Accidence Will Happen[/amazon_link]).

[amazon_image id=”0297871935″ link=”true” target=”_blank” size=”medium” ]Accidence Will Happen: The Non-Pedantic Guide to English Usage[/amazon_image]

Pinker’s book is of course written with even more than his usual clarity and elegance. He makes it quite funny, too. The aspect I found most useful was the advice on writing to accommodate how our brains process language. This pertains to sentence structure, and also to the structure of longer pieces of text. Structure is absolutely the hardest aspect of any long piece of writing – the longer, the harder. This is because thinking is hard too. Clarity of thought and clarity of writing are strongly positively correlated.

[amazon_link id=”0241957710″ target=”_blank” ]The Sense of Style[/amazon_link] also has a long final section which runs through the usual questions: when to use ‘I’ or ‘me’; can you put prepositions at the end of sentences or start with a ‘but’ or ‘and’? I enjoyed the advice about the subjunctive mood because I had never known the difference between that and the use of ‘were’ (“If I were a rich man, dah di dah di dah di dah di dah di dah di dah di dah…”), the latter being in fact called ‘irrealis’. If that doesn’t entice you to buy the book, nothing will.

Being modest about economics

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“Economics is a wide enough subject already without having to include the whole of philosophy, psychology, sociology and human biology in addition. Let economists get on with their work, and let students of other social sciences get on with theirs.”

Colin Clark, [amazon_link id=”B0019XFB9M” target=”_blank” ]The Conditions of Economic Progres[/amazon_link]s, 1940

[amazon_image id=”B0006DB6N6″ link=”true” target=”_blank” size=”medium” ]The Conditions of Economic Progress[/amazon_image]

Sharks and economists

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I’m very much looking forward to hearing Joris Luyendijk talk about his book [amazon_link id=”1783350644″ target=”_blank” ]Swimming With Sharks[/amazon_link] at the Festival of Economics in Bristol next month. It’s an excellent piece of reportage on the City and the ways in which it traps its workers into certain forms of behaviour.

[amazon_image id=”1783350644″ link=”true” target=”_blank” size=”medium” ]Swimming With Sharks: My Journey into the World of the Bankers[/amazon_image]

However, Joris’s attack on economics in The Observer this weekend is, unfortunately, stuffed with all the false old chestnuts critics of the subject always trot out: economics is not objective like physics (string theory? hello?!); modelling involves the assumption that there are ‘timeless truths’ in economic behaviour; GDP is not an objective temperature measurement of the economy (I can recommend him [amazon_link id=”0691156794″ target=”_blank” ]an excellent book[/amazon_link] – by an economist – on that issue!)

[amazon_image id=”0691156794″ link=”true” target=”_blank” size=”medium” ]GDP: A Brief but Affectionate History[/amazon_image]

He writes: “Why should bankers ask themselves if a lucrative new complex financial product is safe when the models tell them it is? Why give regulators real power when models can do their work for them?” That question answers itself: because it was more profitable. Surely a sociologist of the City would find that almost nobody in banking gave much thought at all to the underlying economics of financial markets? Financial economists have much to answer for, but there is an odd tendency among critics of economics to attribute extraordinary power to  ‘the model’ rather than to politics or the sociology of financial institutions.

The article argues there should have been more research into the sociology and anthropology of the City. Quite right. But isn’t that what sociologists and anthropologists do? Economists like me have no training or experience in those research methods. I agree, too, that there are economists who disguise their politics as technocracy; I’d call them macroeconomists but some of them take umbrage when I do so. There is tons we don’t know about aggregate behaviour in actual economies. Neither that fact nor its acknowledgement make economics rubbish, or even unscientific. There is tons we don’t know about the natural world too. And by the way, physicists, biologists and chemists all use models. So do historians, just with words instead. Possibly even sociologists.

Don’t read me as saying economics has no criticisms to answer; it certainly does. But it is exasperating to read the same old same old nonsense from a critic who uses the misuse of one sub-field of economics by people in the financial markets to rubbish the whole subject, about which he seems to know very little. So I look forward to welcoming Joris to the Festival, where he’ll be able to hear a lot of economists engaging with the public, and talking about the environment, social mobility, immigration, the scope of government and many other issues.

Meanwhile, I agree with Dani Rodrik’s tweet:

rodrikdani
One reason I wrote Economics Rules is commentary like this, which misleads more than it illuminates https://t.co/y1v2dk5d76
11/10/2015 22:35

and recommend strongly his [amazon_link id=”0393246418″ target=”_blank” ]Economics Rules[/amazon_link]. I might buy a copy for Joris.

[amazon_image id=”0393246418″ link=”true” target=”_blank” size=”medium” ]Economics Rules: The Rights and Wrongs of the Dismal Science[/amazon_image]