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Daniel Nevins: Economics for Independent Thinkers
Daniel Nevins: Economics for Independent Thinkers
Economists are supposed to monitor and analyze the economy, warn us if risks are getting out of hand, and advise us on how to make things runs more effectively — right?
Well, even though that’s what most people expect from economists, it’s not at all how they see their role, warns CFA and and behavioral economist Daniel Nevins.
Economists, he cautions, are modelers. They pursue academic lines of thought in order to make their models more perfect. They live in a universe of equations and presumptions about equilibrium states and other chimerical mathematical perfections that don’t exist in real life.
In short, they are the wrong people to advise us, Nevins claims, as they have no clue how the imperfect world we live in actually works.
In his book Economics For Independent Thinkers, he argues that we need a new, more accurate and useful way of studying the economy:
However far you go back, you can find economists who had a more realistic approach to how humans actually behave, than the way that mainstreamers assume they behave in the models that the Fed uses to pick winners and losers.
You mentioned credit cycles, business environment, and behavioral economics. What I’ve done is to say, “Okay. We know that the modeling approach, the systems of equations approach doesn’t work. But instead of starting completely from scratch, what can we find in the economics literature that is maybe more realistic?”
And the interesting thing is that if you look at the work that was done, the state of the profession before the 1930s, before Keynesianism took hold, you can find a lot of work that was quite sensible.
…click on the above link to read the rest of the article…
Dan Ariely: Why The Next Market Downturn May Quickly Become A Full-Blown Panic
Dan Ariely: Why The Next Market Downturn May Quickly Become A Full-Blown Panic
Behavioral economist and author of Predictably Irrational Dan Ariely returns to explain the science underlying the continued mismanagement and mal-investment within our financial system, despite 7 years of opportunity to learn from and address the causal factors of the Great Recession.
Behavioral science shows we are our own worst enemies in this story. In a realm where everything is so quantifiable, measurable and trackable, one would expect exceptionally good decision-making. But it’s our human wiring, our proclivity for seeing things as we want them to be rather than as they truly are, that makes us vulnerable to influences we often aren’t even conscious of. And the bad decisions — and bad outcomes — ensue:
For me, as somebody interested in human behavior, there are two elements that worry me a lot. The first one is Conflicts of interest.
Conflicts of interest is one of those things that get to us without us realizing how powerful it is. Imagine that you invite me to dinner, and you buy me a beer and a sandwich and we talk more and we become friends. To what degree am I going to be able to see the world in an objective way without taking your perspective into account? It turns out conflicts of interest are wonderful because they allow us to create friendship really quite quickly. You can buy someone a beer and a sandwich and they become your friend to some degree. Once you marry this with a complex system like the financial system, all of a sudden some not-so-good things can happen.
…click on the above link to read the rest of the article…
