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Presentation on growing interest in heuristics, networks and complexity in economic thinking. Designed for VI Form economists
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Happy to help with UCAS Advice and Support in your Economics
@tutor2u_econ
Economic Crisis
The Crisis Has Lasted Longer Than WW1
Comfort in old ideas and theories
Comfortable choices are hard to let go
Sunk Cost Fallacy at Work!Economists can suffer from the sunk cost fallacy!
What is taught often does not match reality
“I can’t understand why people are frightened
of new ideas. I’m frightened of the old
ones.”
John Cage
Challenging the Mainstream
• Humans are different from Econs!
• Social animals• Emotional• Habitual• Satisficers• Lack self-control
Domain 2: Domain of conscious, effortful thought
System One – The domain of intuitive responses
“The world is full of complex products and services. Naive supply and demand analysis can only take us so far in understanding how their prices are set”
Heuristics
Network Behaviour
Cooperation
Systemic Uncertainty
Heuristics
We use mental short-cuts all the time
Many of them operate in our unconscious
“I normally find what I need without scrolling down”
How can I catch a ball as well as Fido?
1/ Fix eye on ball2/ Start running3/ Adjust running until the angle of gaze remains constant
The Gaze Heuristic
The Gaze Heuristic (2)
Heuristics for uncertain financial markets – asset allocations?
Heuristics for uncertain financial markets – asset allocations?
asset allocation heuristic
= 1/ni.e. allocate money equally to each of n fundsGerd Gigerenzer
Heuristics are designed to get us through life
Most people and businesses SATISFICE!
“If nothing bad happened last time, do what I did last time.”
“If nothing bad happened last time, do what I did last time.”
“If nothing bad happened last time, do what I did last time.”
“from heuristics to habits”
“familiarity breeds contentment”
“top brands play capitalism’s long game”
“the conscious brain is no longer listening”
“everything is contextual ..so change cues”
Network Economics
Networks are vital in understanding behaviour
Networks are vital in understanding behaviour
A person can and often does decide to change his or her preferences simply on the basis of what others do
Networks are vital in understanding behaviour
Copying behaviour in networks is intuitive
Smart businesses mix economic & social incentives
Co-operative behaviour
Co-operative game theory in the real world
“The master-economist must possess a rare combination of gifts ... He must be a mathematician, historian, statesman, philosopher – in come 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. “
Macroeconomics is having a tough time of it
Most economists do not make forecasts!
“Prediction is difficult - especially about the
future.”
Niels Bohr
Bank of England forecast errors (relative to forecasts made one year earlier)
Over-estimating growth, under-estimating prices
Oil and Gas Prices
Currency Fluctuations
Political Surprises
Volatile Weather Patterns
Tough to forecast in turbulent times….
Oil and Gas Prices
Currency Fluctuations
Political Surprises
Volatile Weather Patterns
Deficiencies in Modelling
Structural Economic
Breaks
More True Randomness?
Interconnected economies – signals and noise
Wait and see before investing
Lend to businesses with proven track record
Save more now
Stick to tried & tested value products
With uncertainty .... Heuristics can take over
..... This poses big challenges for macro policy-makers
Heuristics
Network Behaviour
Cooperation
Systemic Uncertainty
Riskier and more satisfying to try new directions!
Follow your nose … leave the syllabus behind!
Kate Raworth Kalle Lasn Nate Silver
Esther Duflo
Paul Krugman
Ha-Joon Chang
Richard Koo
Tim HarfordAl Roth Cesar Hidalgo Hal Varian
Happy to help with UCAS Advice and Support in your Economics
@tutor2u_econ
Cesar Hidalgo’s work focuses on improving the understanding of systems using and developing concepts of complexity, evolution and network science.
“Capabilities” a cornerstone for development
Cesar Hidalgo’s work focuses on improving the understanding of systems using and developing concepts of complexity, evolution and network science.
Hidalgo’s Map of Complexity reveals much
Fresh Perspectives on Development & Growth
Doughnut EconomicsRe-designing growth
Planetary Boundaries+ Social Foundation - a safe and just space for humanity
Stay within the edible part of the doughnut
Academic Challenge and Enrichment Suggestions
