experimental economics

68 results back to index


pages: 187 words: 62,861

The Penguin and the Leviathan: How Cooperation Triumphs Over Self-Interest by Yochai Benkler

business process, California gold rush, citizen journalism, Daniel Kahneman / Amos Tversky, East Village, Everything should be made as simple as possible, experimental economics, experimental subject, framing effect, informal economy, invisible hand, jimmy wales, job satisfaction, Joseph Schumpeter, Kenneth Arrow, knowledge economy, laissez-faire capitalism, loss aversion, Murray Gell-Mann, Nicholas Carr, peer-to-peer, prediction markets, Richard Stallman, Scientific racism, Silicon Valley, Steven Pinker, telemarketer, Toyota Production System, twin studies, ultimatum game, Washington Consensus, zero-sum game, Zipcar

This adoption of cooperative systems in so many fields has been paralleled by a renewed interest among researchers in the social and behavioral sciences in the mechanics of cooperation. Perhaps humankind might not be so inherently selfish after all. Through the work of hundreds of scientists, we have begun to see mounting evidence in psychology, organizational sociology, political science, experimental economics, and elsewhere that people are in fact more cooperative and selfless, or at least behave far less selfishly, than most economists and others previously assumed. This isn’t just theory; dozens of field studies have identified cooperative systems, often more stable and effective than equivalent incentive-based ones. Even in the study of human biology, evolutionary biologists and psychologists are now finding neural and possibly genetic evidence of a human predisposition to cooperate.

In the next few chapters I will look at the intellectual arc of work in various fields over the past fifty years in several core disciplines concerned with human action and motivation. We will look broadly, but also dive more deeply into the role of cooperation in social relations: the effects of empathy and solidarity, our drive to do what is right and fair, and our desire to conform to the normal. I will draw from such diverse fields as evolutionary biology, experimental economics, psychology, organizational sociology, and neuroscience. I’ll also draw from the real world, with examples ranging from the band Radiohead’s online pricing (or non-pricing) structure to the success of the Obama campaign and case studies of companies like Toyota and Google; from the harsh realities of a group of lobster fishermen to the strides being made by companies simultaneously pursuing social justice and profit.

Later in life, we usually develop more complex notions of what is fair. Other facts enter into the equation, such as relative need, luck, and talent. We come to accept that some people are better off than others, and that’s just how it is. And yet we still care about fairness in one way or another. What, then, might we be caring about when we feel that we care about fairness? In looking through the experimental economics and social psychology literature, it seems that when we care about “fairness” we really care about three distinct things: fairness of outcomes, fairness of intentions, and fairness of processes. With regard to outcomes, we care about how much each of us gets out of an interaction relative to others, given the generally understood norms. For intentions, we particularly care when the outcomes are not “fair” given generally understood conventions for the situation, whether the unfair outcome was intentionally brought about or not.


pages: 503 words: 131,064

Liars and Outliers: How Security Holds Society Together by Bruce Schneier

airport security, barriers to entry, Berlin Wall, Bernie Madoff, Bernie Sanders, Brian Krebs, Broken windows theory, carried interest, Cass Sunstein, Chelsea Manning, commoditize, corporate governance, crack epidemic, credit crunch, crowdsourcing, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Graeber, desegregation, don't be evil, Double Irish / Dutch Sandwich, Douglas Hofstadter, experimental economics, Fall of the Berlin Wall, financial deregulation, George Akerlof, hydraulic fracturing, impulse control, income inequality, invention of agriculture, invention of gunpowder, iterative process, Jean Tirole, John Nash: game theory, joint-stock company, Julian Assange, longitudinal study, mass incarceration, meta analysis, meta-analysis, microcredit, moral hazard, mutually assured destruction, Nate Silver, Network effects, Nick Leeson, offshore financial centre, patent troll, phenotype, pre–internet, principal–agent problem, prisoner's dilemma, profit maximization, profit motive, race to the bottom, Ralph Waldo Emerson, RAND corporation, rent-seeking, RFID, Richard Thaler, risk tolerance, Ronald Coase, security theater, shareholder value, slashdot, statistical model, Steven Pinker, Stuxnet, technological singularity, The Market for Lemons, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, too big to fail, traffic fines, transaction costs, ultimatum game, UNCLOS, union organizing, Vernor Vinge, WikiLeaks, World Values Survey, Y2K, zero-sum game

Neuroscience is starting Kerri Smith (2011), “Neuroscience vs Philosophy: Taking Aim at Free Will,” Nature, 477:23–5. Ultimatum game Charles A. Holt (2000), “Y2K Bibliography of Experimental Economics and Social Science: Ultimatum Game Experiments,” University of Virginia. Hessel Oosterbeek, Randolph Sloof, and Gijs van de Kuilen (2004), “Cultural Differences in Ultimatum Game Experiments: Evidence From a Meta-Analysis,” Experimental Economics, 7:171–88. how the game works Werner Güth, Rolf Schmittberger, and Bernd Schwarze (1982), “An Experimental Analysis of Ultimatum Bargaining,” Journal of Economic Behavior & Organization, 3:267–88. turn down offers Hessel Oosterbeek, Randolph Sloof, and Gijs van de Kuilen (2004), “Differences in Ultimatum Game Experiments: Evidence from a Meta-Analysis,” Experimental Economics, 7:171–88. cultural backgrounds Donna L. Bahry (2004), “Trust in Transitional Societies: Experimental Results from Russia,” Paper presented at the American Political Science Association Meeting, Chicago.

Knetsch, and Richard H. Thaler (1986), “Fairness and the Assumptions of Economics,” Journal of Business, 59:S285–S300. Christoph Engel (2011), “Dictator Games: A Meta Study,” Experimental Economics, 14:584–610. Trust game Joyce Berg, John Dickhaut, and Kevin McCabe (1995), “Trust, Reciprocity, and Social History,” Games & Economic Behavior, 10:122–42. not what happens Colin Cramer (2003), Behavioral Game Theory: Experiments in Strategic Interaction, Russell Sage Foundation. Public Goods game John O. Ledyard (1995), “Public Goods: A Survey of Experimental Research,” in Alvin E. Roth and John H. Kagel, eds., Handbook of Experimental Economics, Princeton University Press. fear of rejection Daniel Kahneman, John L. Knetsch, and Richard H Thaler (1986), “Fairness and the Assumptions of Economics,” Journal of Business, 59:S285–S300.

Livingston, and Charlice Hurst (2011), “Do Nice Guys and Gals Really Finish Last? The Joint Effects of Sex and Agreeableness on Income,” Journal of Personality & Social Psychology, in press. George Price Oren S. Harman (2010), The Price of Altruism: George Price and the Search for the Origins of Kindness, W.W. Norton & Co. bargaining games Gary E. Bolton (1998), “Bargaining and Dilemma Games: From Laboratory Data Towards Theoretical Synthesis,” Experimental Economics, 1:257–81. found a coin Paula F. Levin and Alice M. Isen (1972), “The Effect of Feeling Good on Helping: Cookies and Kindness,” Journal of Personality & Social Psychology, 21:384–8. flying through clouds Lawrence J. Sanna, Edward C. Chang, Paul M. Miceli, and Kristjen B. Lundberg (2011), “Rising Up to Higher Virtues: Experiencing Elevated Physical Heights Uplifts Prosocial Actions,” Journal of Experimental & Social Psychology, 47:472–6.


pages: 500 words: 145,005

Misbehaving: The Making of Behavioral Economics by Richard H. Thaler

"Robert Solow", 3Com Palm IPO, Albert Einstein, Alvin Roth, Amazon Mechanical Turk, Andrei Shleifer, Apple's 1984 Super Bowl advert, Atul Gawande, Berlin Wall, Bernie Madoff, Black-Scholes formula, business cycle, capital asset pricing model, Cass Sunstein, Checklist Manifesto, choice architecture, clean water, cognitive dissonance, conceptual framework, constrained optimization, Daniel Kahneman / Amos Tversky, delayed gratification, diversification, diversified portfolio, Edward Glaeser, endowment effect, equity premium, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, George Akerlof, hindsight bias, Home mortgage interest deduction, impulse control, index fund, information asymmetry, invisible hand, Jean Tirole, John Nash: game theory, John von Neumann, Kenneth Arrow, Kickstarter, late fees, law of one price, libertarian paternalism, Long Term Capital Management, loss aversion, market clearing, Mason jar, mental accounting, meta analysis, meta-analysis, money market fund, More Guns, Less Crime, mortgage debt, Myron Scholes, Nash equilibrium, Nate Silver, New Journalism, nudge unit, Paul Samuelson, payday loans, Ponzi scheme, presumed consent, pre–internet, principal–agent problem, prisoner's dilemma, profit maximization, random walk, randomized controlled trial, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Silicon Valley, South Sea Bubble, Stanford marshmallow experiment, statistical model, Steve Jobs, Supply of New York City Cabdrivers, technology bubble, The Chicago School, The Myth of the Rational Market, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, ultimatum game, Vilfredo Pareto, Walter Mischel, zero-sum game

I keep a photograph of one of those farm stands in my office for inspiration. 16 Mugs At some point during the Vancouver year, the economist Alvin Roth, who was then deeply involved with experimental methods, organized a conference at the University of Pittsburgh. The goal was to present the first drafts of papers that would later be published in a small book called Laboratory Experimentation in Economics: Six Points of View. The contributors were major figures in the experimental economics community including Al, Vernon Smith, and Charlie Plott. Danny and I represented the new behavioral wing of the experimental economics community. For Danny and me, the most interesting discussion was about my beloved endowment effect. Both Vernon and Charlie claimed we didn’t have convincing empirical evidence for this phenomenon. The evidence I had presented was based on a paper written by Jack Knetsch along with an Australian collaborator, John Sinden.

The problem with a slow hunch is you have no way to know whether it will lead to a dead end. I felt like I had arrived on the shores of a new world with no map, no idea where I should be looking, and no idea whether I would find anything of value. Kahneman and Tversky ran experiments, so it was natural to think that I should be running experiments, too. I reached out to the two founders of the then nascent field called experimental economics, Charlie Plott at Caltech and Vernon Smith, then at the University of Arizona. Economists traditionally have used historical data to test hypotheses. Smith and Plott were practitioners of and proselytizers for the idea that one could test economic ideas in the laboratory. I first took a trip down to Tucson to visit Smith. Smith’s research agenda was, at least at that time, different from the one I was imagining for myself.

This assertion, unsupported by any evidence, was firmly believed, even in spite of the fact that nothing in the theory or practice of economics suggested that economics only applies to large-stakes problems. Economic theory should work just as well for purchases of popcorn as for automobiles. Two Caltech economists provided some early evidence against this line of attack: David Grether and Charlie Plott, one of my experimental economics tutors. Grether and Plott had come across research conducted by two of my psychology mentors, Sarah Lichtenstein and Paul Slovic. Lichtenstein and Slovic had discovered “preference reversals,” a phenomenon that proved disconcerting to economists. In brief, subjects were induced to say that they preferred choice A to choice B . . . and also that they preferred B to A. This finding upset a theoretical foundation essential to any formal economic theory, namely that people have what are called “well-defined preferences,” which simply means that we consistently know what we like.


pages: 461 words: 128,421

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street by Justin Fox

activist fund / activist shareholder / activist investor, Albert Einstein, Andrei Shleifer, asset allocation, asset-backed security, bank run, beat the dealer, Benoit Mandelbrot, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, card file, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, discovery of the americas, diversification, diversified portfolio, Edward Glaeser, Edward Thorp, endowment effect, Eugene Fama: efficient market hypothesis, experimental economics, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, George Akerlof, Henri Poincaré, Hyman Minsky, implied volatility, impulse control, index arbitrage, index card, index fund, information asymmetry, invisible hand, Isaac Newton, John Meriwether, John Nash: game theory, John von Neumann, joint-stock company, Joseph Schumpeter, Kenneth Arrow, libertarian paternalism, linear programming, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, market bubble, market design, Myron Scholes, New Journalism, Nikolai Kondratiev, Paul Lévy, Paul Samuelson, pension reform, performance metric, Ponzi scheme, prediction markets, pushing on a string, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk/return, road to serfdom, Robert Bork, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, shareholder value, Sharpe ratio, short selling, side project, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, stocks for the long run, The Chicago School, The Myth of the Rational Market, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, Thorstein Veblen, Tobin tax, transaction costs, tulip mania, value at risk, Vanguard fund, Vilfredo Pareto, volatility smile, Yogi Berra

Thaler, “Toward a Positive Theory of Consumer Choice,” Journal of Economic Behavior and Organization 1 (1980): 39–60. Reprinted in Thaler, Quasi Rational Economics. 19. Richard H. Thaler and H. M. Shefrin, “An Economic Theory of Self-Control,” Journal of Political Economy (April 1981): 392–406. 20. The best description of Chamberlin’s experiment, and of the rise of experimental economics in general, is in Ross M. Miller, Paving Wall Street: Experimental Economics and the Quest for the Perfect Market (New York: John Wiley & Sons, 2002). 21. It’s called the Social Science Faculty, and includes anthropologists, psychologists, political scientists, and legal scholars as well as economists. CHAPTER 11: BOB SHILLER POINTS OUT THE MOST REMARKABLE ERROR 1. At least, that’s how Thaler remembers it. The account is assembled from his recollections as well as those of Shefrin and Kahneman.

See also rational market hypothesis and agency costs, 162 and behavioral finance, 299–300 and the Chicago School, xiii, 101–5 and contrary evidence, 224–25 and corporate finance, 355n. 38 described, 153 and Fama, 97, 206–7 and finance, 202–6 and Friedman, 93 and Graham, 119–20 and information availability, 182 and Jensen, 107 and market anomalies, 304 and market crashes, 228, 232 and Mills, 320 and mutual funds, 125, 130, 131 origin of, 43, 73 and portfolio theory, 54–55, 57 and psychology, 201–2 resistance to, 105–7, 269–70 and risk, 139 and Samuelson, 73 and security analysis, 366n. 29 and Shiller, 196–98 and Shleifer, 247 and stock market bubbles, 315 and takeovers, 166–68 taxonomy of, 101 testing, 190, 194–95 “Efficient Markets: Theory and Evidence” (Fama), 104 Einstein, Albert, 7, 50, 66 Ellis, Charley, 130, 131 Employee Retirement Income Security Act (ERISA), 272, 290 Employee Retirement Security Act, 137–38 endogenous change, 305–6 endowment effect, 294 Engel, Louis, 97–98 Engels, Friedrich, 369n. 1 Engle, Robert, 139 Enron, 267, 283 environmental risk, 185 equilibrium theory and the Arrow-Debreu framework, 77–78 and asset pricing, 87 background of, 9–12 and behavioral finance, 301 and complexity theory, 304–6 and derivatives, 237 and intrinsic values, 193 and Keynesian economics, 35 and mathematics, 49–50 and Pareto’s Law, 349–50n. 2 and Reder, 89–90 and Samuelson, 61 equity risk premium, 141–43, 263–64 Erhard, Werner, 285, 319 Erhard Seminars Training (est), 285 event study method, 102 exchange rates, 92–93, 200, 250 executive compensation, 164–65, 274–79, 279–80, 284–85 expected utility, 51–52, 54, 75, 80, 176–77, 193 experimental economics, 188–90 Fallows, James, 365n. 8 Fama, Eugene, 323 and Alexander, 72 and Asness, 259–60 and behavioral finance, 295–96, 296–97, 298, 299–300 and the Chicago School of Economics, 96 and computing, 99–100 and the efficient market hypothesis, 101, 103–5, 193–94, 204, 206–8 and equity risk premium, 263 and experimental economics, 190 and the Journal of Financial Economics, 201 and Mandelbrot, 70, 134 and market crashes, 232 satirical depiction of, 287–88 and Shleifer, 248, 252 and stock price momentum, 209–10 and value stocks, 225 Fannie Mae, 313 Farmer, J.

He left the idea alone for a while after that, only to revive it during a stint as a visiting professor at Caltech in the mid-1970s. The science and engineering hotbed had created an Economics Department of sorts,21 and Smith’s former Purdue colleague Charles Plott was one of its early hires. Together, they began to see the laboratory not just as an educational device but as a serious means of verifying economic theories. Smith and Plott hatched test after test, developing an experimental-economics ethos that has lived on at Caltech and a few other campuses, the most important element being that participants must compete for real monetary rewards. These weren’t the questionnaires and what-if scenarios used by other social scientists, but actual markets—albeit artificial ones populated almost exclusively by college students. The study of finance was replete with experimental possibilities.


pages: 326 words: 106,053

The Wisdom of Crowds by James Surowiecki

AltaVista, Andrei Shleifer, asset allocation, Cass Sunstein, coronavirus, Daniel Kahneman / Amos Tversky, experimental economics, Frederick Winslow Taylor, George Akerlof, Howard Rheingold, I think there is a world market for maybe five computers, interchangeable parts, Jeff Bezos, John Meriwether, Joseph Schumpeter, knowledge economy, lone genius, Long Term Capital Management, market bubble, market clearing, market design, Monkeys Reject Unequal Pay, moral hazard, Myron Scholes, new economy, offshore financial centre, Picturephone, prediction markets, profit maximization, Richard Feynman, Richard Feynman: Challenger O-ring, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, The Nature of the Firm, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Toyota Production System, transaction costs, ultimatum game, Yogi Berra, zero-sum game

Many of the papers he has published over the years have been collected in two volumes: Smith, Papers in Experimental Economics (Cambridge: Cambridge University Press, 1991); and Smith, Bargaining and Market Behavior (Cambridge: Cambridge University Press, 2000). The key paper is Kenneth J. Arrow and Gerard Debreu, “Existence of an Equilibrium for a Competitive Economy,” Econometrica 22 (1954): 265–90. See also Arrow, “The Role of Securities in the Optimal Allocation of Risk-Bearing,” Review of Economic Studies 31 (1964): 91–96. (Oddly, this essay was first published in French in 1953, and was only published in English eleven years later, even though it was written in English to begin with.) See also Debreu, Theory of Value (New York: Wiley, 1959). Vernon L. Smith’s Nobel lecture offers an excellent survey of not just experimental economics but also of current thinking about what efficient market exchange requires.

Markets, we know, foster selfishness and greed, not trust and fairness. But even if you find the history unconvincing, there is this to consider: in the late 1990s, under the supervision of Bowles, twelve field researchers—including eleven anthropologists and one economist—went into fifteen “small-scale” societies (essentially small tribes that were, to varying degrees, self-contained) and got people to play the kinds of games in which experimental economics specializes. The societies included three that depended on foraging for survival, six that used slash-and-burn techniques, four nomadic herding groups, and two small agricultural societies. The three games the people were asked to play were the three standards of behavioral economics: the ultimatum game (which you just read about), the public-goods game (in which if everyone contributes, everyone goes away significantly better off, while if only a few people contribute, then the others can free ride off their effort), and the dictator game, which is similar to the ultimatum game except that the responder can’t say no to the proposer’s offer.

In practice, what would this mean? The flow of information within the organization shouldn’t be dictated by management charts. Specifically, companies can use methods of aggregating collective wisdom—like, most obviously, internal decision markets—when trying to come up with reasonable forecasts of the future and even, potentially, when trying to evaluate the probability of possible strategies. Despite the evidence from experimental economics and places such as the IEM, companies have been strangely hesitant to use internal markets. But the few examples that we have suggest that they could be very useful. In the late 1990s, for instance, Hewlett-Packard experimented with artificial markets—set up by the economists Charles R. Plott and Kay-Yut Chen—to forecast printer sales. (Essentially, Hewlett-Packard employees, who were drawn from different parts of the company to ensure the diversity of the market, bought and sold shares depending on what they thought sales in the next month or the next quarter would be.)


pages: 442 words: 39,064

Why Stock Markets Crash: Critical Events in Complex Financial Systems by Didier Sornette

Asian financial crisis, asset allocation, Berlin Wall, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, capital controls, continuous double auction, currency peg, Deng Xiaoping, discrete time, diversified portfolio, Elliott wave, Erdős number, experimental economics, financial innovation, floating exchange rates, frictionless, frictionless market, full employment, global village, implied volatility, index fund, information asymmetry, intangible asset, invisible hand, John von Neumann, joint-stock company, law of one price, Louis Bachelier, mandelbrot fractal, margin call, market bubble, market clearing, market design, market fundamentalism, mental accounting, moral hazard, Network effects, new economy, oil shock, open economy, pattern recognition, Paul Erdős, Paul Samuelson, quantitative trading / quantitative finance, random walk, risk/return, Ronald Reagan, Schrödinger's Cat, selection bias, short selling, Silicon Valley, South Sea Bubble, statistical model, stochastic process, stocks for the long run, Tacoma Narrows Bridge, technological singularity, The Coming Technological Singularity, The Wealth of Nations by Adam Smith, Tobin tax, total factor productivity, transaction costs, tulip mania, VA Linux, Y2K, yield curve

Lacunarity and intermittency in fluid turbulence, Physics Letters A 114, 465–468. 388. Smith, L. A., Ziehmann, C., and Fraedrich, K. (1999). Uncertainty dynamics and predictability in chaotic systems, Quarterly Journal of the Royal Meteorological Society 125, 2855–2886. 389. Smith, V. L. (1982). Microeconomic systems as an experimental science, American Economic Review 72, 923–955. 390. Smith, V. L. (1991). Papers in Experimental Economics (Cambridge University Press, New York). 391. Smith, V. L. (1996). The handbook of experimental economics, Journal of Economic Literature 34, 1950–1952. 392. Sornette, D. (1998). Discrete scale invariance and complex dimensions, Physics Reports 297, 239–270. 393. Sornette, D. (1999). Complexity, catastrophe and physics, Physics World 12 (N12), 57–57. 394. Sornette, D. (2000). Critical Phenomena in Natural Sciences, Chaos, Fractals, Self-organization and Disorder: Concepts and Tools, Springer Series in Synergetics (Springer-Verlag, Heidelberg). 395.

This is because people have natural intuitive mechanisms—mind modules that serve them well in daily interchanges—enabling them to “read” situations and the intentions and likely reactions of others without deep, tutored, cognitive analysis. This fact has been established by “experiments” performed by a large school of economics researchers (the bibliography of which contains 1500 entries [197]) in the fields of “experimental economics” [389]. These experimental approaches to economics, started in the midtwentieth century, were developed to examine propositions implied by economic theories of markets. An untested theory is simply a hypothesis, and science seeks to expand our knowledge of things by a process of testing hypotheses. In contrast, much of traditional economic theory can be called, appropriately, “ecclesiastical theory”; it is accepted (or rejected) on the basis of authority, tradition, or opinion about assumptions, rather than on the basis of having survived a rigorous falsification process positi ve feedback s 85 that can be replicated.

The fact that economic agents can achieve efficient outcomes that are not part of their intentions was the key principle formulated by Adam Smith [384], as we already stressed. Indeed, “in many experimental markets, poorly informed, error-prone, and uncomprehending human agents interact through the trading rules to produce social algorithms which demonstrably approximate the wealth maximizing outcomes traditionally thought to require complete information and cognitively rational actors” [391]. In much of the literature on experimental economics [101, 226, 143], the rational expectations model has been the main benchmark against which to check the informational efficiency of experimental markets. The research generally falls into two categories: information dissemination between fully informed agents (“insiders”) and uninformed agents, and information aggregation among many partially informed agents. The former experiments investigate the common intuition that market prices reflect insider information, hence uninformed traders should be able to infer the true price from the market.


pages: 302 words: 83,116

SuperFreakonomics by Steven D. Levitt, Stephen J. Dubner

agricultural Revolution, airport security, Andrei Shleifer, Atul Gawande, barriers to entry, Bernie Madoff, Boris Johnson, call centre, clean water, cognitive bias, collateralized debt obligation, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, deliberate practice, Did the Death of Australian Inheritance Taxes Affect Deaths, disintermediation, endowment effect, experimental economics, food miles, indoor plumbing, Intergovernmental Panel on Climate Change (IPCC), John Nash: game theory, Joseph Schumpeter, Joshua Gans and Andrew Leigh, longitudinal study, loss aversion, Louis Pasteur, market design, microcredit, Milgram experiment, oil shale / tar sands, patent troll, presumed consent, price discrimination, principal–agent problem, profit motive, randomized controlled trial, Richard Feynman, Richard Thaler, selection bias, South China Sea, Stanford prison experiment, Stephen Hawking, The Wealth of Nations by Adam Smith, too big to fail, trickle-down economics, ultimatum game, urban planning, William Langewiesche, women in the workforce, young professional

Under this construct, people gave on average about $4, or 20 percent of their money. The message couldn’t have been much clearer: human beings indeed seemed to be hardwired for altruism. Not only was this conclusion uplifting—at the very least, it seemed to indicate that Kitty Genovese’s neighbors were nothing but a nasty anomaly—but it rocked the very foundation of traditional economics. “Over the past decade,” Foundations of Human Sociality claimed, “research in experimental economics has emphatically falsified the textbook representation of Homo economicus.” Non-economists could be forgiven if they felt like crowing with satisfaction. Homo economicus, that hyper-rational, self-interested creature that dismal scientists had embraced since the beginning of time, was dead (if he ever really existed). Hallelujah! If this new paradigm—Homo altruisticus?—was bad news for traditional economists, it looked good to nearly everyone else.

After all, some of the nation’s most brilliant academic researchers had scientifically established that human beings are altruistic by their very nature. Perhaps this altruism was just an ancient evolutionary leftover, like that second kidney. But who cared why it existed? The United States would lead the way, a light unto the nations, relying proudly on our innate altruism to procure enough donated kidneys to save tens of thousands of lives every year. The Ultimatum and Dictator games inspired a boom in experimental economics, which in turn inspired a new subfield called behavioral economics. A blend of traditional economics and psychology, it sought to capture the elusive and often puzzling human motivations Gary Becker had been thinking about for decades. With their experiments, behavioral economists continued to sully the reputation of Homo economicus. He was starting to look less self-interested every day—and if you had a problem with that conclusion, well, just look at the latest lab results on altruism, cooperation, and fairness.

Out of loyalty, List presented the offer to his dean, expecting UCF to at least match the offer. “For $63,000,” he was told, “we think we can replace you.” His stay at Arizona was brief, for he was soon recruited by the University of Maryland. While teaching there, he also served on the President’s Council of Economic Advisors; List was the lone economist on a forty-two-person U.S. delegation to India to help negotiate the Kyoto Protocol. He was by now firmly at the center of experimental economics, a field that had never been hotter. In 2002, the Nobel Prize for economics was shared by Vernon Smith and Daniel Kahneman, a psychologist whose research on decision-making laid the groundwork for behavioral economics. These men and others of their generation had built a canon of research that fundamentally challenged the status quo of classical economics, and List was following firmly in their footsteps, running variants of Dictator and other behavioralist lab games.


pages: 340 words: 94,464

Randomistas: How Radical Researchers Changed Our World by Andrew Leigh

Albert Einstein, Amazon Mechanical Turk, Anton Chekhov, Atul Gawande, basic income, Black Swan, correlation does not imply causation, crowdsourcing, David Brooks, Donald Trump, ending welfare as we know it, Estimating the Reproducibility of Psychological Science, experimental economics, Flynn Effect, germ theory of disease, Ignaz Semmelweis: hand washing, Indoor air pollution, Isaac Newton, Kickstarter, longitudinal study, loss aversion, Lyft, Marshall McLuhan, meta analysis, meta-analysis, microcredit, Netflix Prize, nudge unit, offshore financial centre, p-value, placebo effect, price mechanism, publication bias, RAND corporation, randomized controlled trial, recommendation engine, Richard Feynman, ride hailing / ride sharing, Robert Metcalfe, Ronald Reagan, statistical model, Steven Pinker, uber lyft, universal basic income, War on Poverty

Chang & Phillip Li, ‘A preanalysis plan to replicate sixty economics research papers that worked half of the time’, American Economic Review, vol. 107, no. 5, 2017, pp. 60–4. 50John P.A. Ioannidis, ‘Why most published research findings are false’, PLoS Med, vol. 2, no. 8, 2005, e124. 51See, for example, Zacharias Maniadis, Fabio Tufano & John A. List, ‘How to make experimental economics research more reproducible: Lessons from other disciplines and a new proposal’, Replication in Experimental Economics, 2015, pp. 215–30; Regina Nuzzo, ‘How scientists fool themselves – and how they can stop’, Nature, vol. 526, no. 7572, 2015, pp. 182–5. 52Larry Orr, ‘If at first you succeed, try again!’, Straight Talk on Evidence blog, Laura and John Arnold Foundation, 16 August 2017 53Author’s interview with David Johnson, 16 July 2015. 54The same is true of the question as to when research should overturn prior beliefs.

Note too that audit studies can miss income in tax havens, which is strongly skewed towards the top: Annette Alstadsæter, Niels Johannesen & Gabriel Zucman, ‘Tax Evasion and Inequality’, NBER Working Paper No. 23772, Cambridge, MA: NBER, 2017. 35Eric Avis, Claudio Ferraz & Frederico Finan, ‘Do government audits reduce corruption? Estimating the impacts of exposing corrupt politicians’, Journal of Political Economy, forthcoming. 36F.H. Knight, Risk, Uncertainty, and Profit, New York: Cosimo, 1921, p. 313, quoted in Omar Al-Ubaydli & John A. List, ‘On the generalizability of experimental results in economics’, in Guillaume R. Fréchette and Andrew Schotter (eds) Handbook of Experimental Economic Methodology, New York: Oxford University Press, 2015, pp. 420–62. 37Glenn W.Harrison & John A. List, ‘Field experiments’, Journal of Economic Literature, vol. 42, no. 4, 2004, pp. 1009–55. 38John A. List, ‘Do explicit warnings eliminate the hypothetical bias in elicitation procedures? Evidence from field auctions for sportscards”, American Economic Review, vol. 91, no. 4, 2001, pp. 1498–1507. 39Peter Bohm, ‘Estimating the demand for public goods: An experiment”, European Economic Review, vol. 3, 1972, pp. 111–30. 40Quoted in Manzi, Uncontrolled, p. 152. 41Robert Slonim, Carmen Wang, Ellen Garbarino & DanielleMerrett, ‘Opting-In: Participation Biases in Economic Experiments’, Journal of Economic Behavior and Organization, vol. 90, 2013, pp. 43–70. 42Ernst Fehr & John A.

See George Kelling & James Wilson, ‘Broken windows: The police and neighborhood safety’, Atlantic, vol. 249, no. 3, 1982, pp. 29–38. 31See USAID, ‘Frequently Asked Questions about Development Innovation Ventures’, Washington, DC: USAID, 6 February 2017; USAID, ‘FY2015 & FY2016 Development Innovation Ventures Annual Program Statement’, Washington, DC: USAID, 20 October 2015. 32These examples are drawn from the Coalition for Evidence-Based Policy (now incorporated into the Laura and John Arnold Foundation), and a presentation by Adam Gamoran, titled ‘Measuring impact in science education: Challenges and possibilities of experimental design’, NYU Abu Dhabi Conference, January 2009. 33‘In praise of human guinea pigs’, The Economist, 12 December 2015, p. 14. 34Education Endowment Foundation, ‘Classification of the security of findings from EEF evaluations’, 21 May 2014. 35‘David Olds speaks on value of randomized controlled trials’, Children’s Health Policy Centre, Faculty of Health Sciences, Simon Fraser University, 26 May 2014. 36Dean Karlan & Daniel H. Wood, ‘The effect of effectiveness: Donor response to aid effectiveness in a direct mail fundraising experiment’, Journal of Behavioral and Experimental Economics, vol. 66, issue C, 2017, pp. 1–8. The mailings were sent in 2007 and 2008, but the description quoted is from the 2008 letters. TEN COMMANDMENTS 1Gueron and Rolston, Fighting for Reliable Evidence, p. 383 2Admittedly, this creates the risk that results may come too late to shape policy. When the Indonesian government announced that it planned to double teacher salaries, a team of researchers created a randomised trial by implementing the change early in randomly selected schools.


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Think Twice: Harnessing the Power of Counterintuition by Michael J. Mauboussin

affirmative action, asset allocation, Atul Gawande, availability heuristic, Benoit Mandelbrot, Bernie Madoff, Black Swan, butter production in bangladesh, Cass Sunstein, choice architecture, Clayton Christensen, cognitive dissonance, collateralized debt obligation, Daniel Kahneman / Amos Tversky, deliberate practice, disruptive innovation, Edward Thorp, experimental economics, financial innovation, framing effect, fundamental attribution error, Geoffrey West, Santa Fe Institute, George Akerlof, hindsight bias, hiring and firing, information asymmetry, libertarian paternalism, Long Term Capital Management, loose coupling, loss aversion, mandelbrot fractal, Menlo Park, meta analysis, meta-analysis, money market fund, Murray Gell-Mann, Netflix Prize, pattern recognition, Philip Mirowski, placebo effect, Ponzi scheme, prediction markets, presumed consent, Richard Thaler, Robert Shiller, Robert Shiller, statistical model, Steven Pinker, The Wisdom of Crowds, ultimatum game

It turns out the earnings and cash flow camps addressed the question using two very different approaches. The earnings camp listens to what people talk about day-to-day, including the investment community’s chatter, what hits CNBC’s screens, and the stories on the Wall Street Journal’s. pages. In contrast, the economists look at how the market behaves. One group focuses on the components, the other on the aggregate. Research in experimental economics, for example, shows that markets can generate very efficient prices even when the individual participants have limited information. Just as watching one bee won’t help you understand the hive’s behavior, listening to individual investors will give you scant insight into the market.10 I have explained to executives countless times that the opinion of the market is far more relevant than the utterances of individuals.

Shyam Sunder, “Relationship Between Accounting Changes and Stock Prices: Problems of Measurement and Some Empirical Evidence,” Journal of Accounting Research: Empirical Research in Accounting: Selected Studies 1973 11 (1973): 1–45. 10. Vernon L. Smith, Rationality in Economics: Constructivist and Ecological Forms (Cambridge: Cambridge University Press, 2008). See also Charles R. Plott and Vernon L. Smith, eds., Handbook of Experimental Economics Results: Volume 1 (Amsterdam: North-Holland, 2008). 11. John R. Graham, Campbell R. Harvey, and Shiva Rajgopal, “Value Destruction and Financial Reporting Decisions,” Financial Analysts Journal 62, no. 6 (2006): 27–39. 12. This is a bias that arises from the availability heuristic. See Max H. Bazerman, Judgment in Managerial Decision Making, 6th ed. (New York: John Wiley & Sons, 2006), 18–21. 13.

New York: W.W Norton & Company, 1997. ___. The Blank Slate: The Modern Denial of Human Nature. New York: Viking, 2002. Plassmann, Hilke, John O’Doherty, Baba Shiv, and Antonio Rangel. “Marketing Actions Can Modulate Neural Representations of Experienced Pleasantness.” Proceedings of the National Academy of Sciences 105, no. 3 (2008): 1050–1054. Plott, Charles R., and Vernon L. Smith, eds. Handbook of Experimental Economics Results: vol. 1. Amsterdam: North-Holland, 2008. Poundstone, William. Fortune’s Formula: The Untold Story of the Unscientific Betting System That Beat the Casinos and Wall Street. New York: Hill and Wang, 2005. Pronovost, Peter. “Testimony before Government Oversight Committee,” April 16, 2008. Rappaport, Alfred, and Michael J. Mauboussin. Expectations Investing: Reading Stock Prices for Better Returns.


pages: 519 words: 104,396

Priceless: The Myth of Fair Value (And How to Take Advantage of It) by William Poundstone

availability heuristic, Cass Sunstein, collective bargaining, Daniel Kahneman / Amos Tversky, delayed gratification, Donald Trump, East Village, en.wikipedia.org, endowment effect, equal pay for equal work, experimental economics, experimental subject, feminist movement, game design, German hyperinflation, Henri Poincaré, high net worth, index card, invisible hand, John von Neumann, Kenneth Arrow, laissez-faire capitalism, Landlord’s Game, loss aversion, market bubble, mental accounting, meta analysis, meta-analysis, Nash equilibrium, new economy, Paul Samuelson, payday loans, Philip Mirowski, Potemkin village, price anchoring, price discrimination, psychological pricing, Ralph Waldo Emerson, RAND corporation, random walk, RFID, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, rolodex, social intelligence, starchitect, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, ultimatum game, working poor

Were the P/E and sales volume figures scanner data, a price consultant would conclude that the “consumers” of corporate earnings have remarkably inelastic demand. This was roughly Graham’s assessment. He believed that most investors made emotional decisions to plunge into or out of the market and didn’t care much about the price. There has been much experimental work on the psychology of market prices. Colin Camerer has used Caltech’s Laboratory for Experimental Economics and Political Science to create super-simplified stock markets. The lab is the creation of Charles Plott, one of the economists who replicated preference reversal. It consists of a grid of cubicles, each with a computer. Every keystroke or mouse action is recorded and archived by software. At the end of an experiment, the researcher can play back everything that happened like a TiVo’d movie.

The New York Times, Jan. 14, 2006. Northcraft, Gregory B., and Margaret A. Neale (1987). “Experts, Amateurs, and Real Estate: An Anchoring-and-Adjustment Perspective on Property Pricing Decisions.” Organizational Behavior and Human Decision Processes 84, 87–93. Oosterbeek, Hessel, Randolph Sloof, and Gijs van de Kuilen (2004). “Cultural Differences in Ultimatum Game Experiments: Evidence from a Meta-analysis.” Experimental Economics 7, 171–88. Orr, Dan, and Chris Guthrie (2006). “Anchoring, Information, Expertise, and Negotiation: New Insights from Meta-Analysis.” Ohio State Journal on Dispute Resolution 21, 597–628. Available at ssrn.com/abstract=900152. Phillips, Lawrence D., and Detlof von Winterfeldt (2006). “Reflections on the Contributions of Ward Edwards to Decision Analysis and Behavioral Research.” London School of Economics and Political Science, working paper LSEOR 06.86.

“Heuristic Strategies for Estimation Under Uncertainty: The Enigmatic Case of Anchoring.” In Galen V. Bodenhausen and Alan J. Lambert (eds.), Foundations of Social Cognition: A Festschrift in Honor of Robert S. Wyer, Jr. Mahwah, N.J.: Lawrence Erlbaum Associates. Strategic Interaction Group (2002). “An Interview with Werner Güth.” Excerpt at http://www.econ.mpg.de/english/research/ESI/gueth_interview.php. The full interview is in Experimental Economics: Financial Markets, Auctions, and Decision Making, Fredrik Andersson and Hakan Holm (eds.). Dordrecht, Netherlands: Kluwer Academic Publishers. Stross, Randall (2008). “What Carriers Aren’t Eager to Tell You About Texting.” The New York Times, Dec. 26, 2008. Summers, Lawrence (1986). “Does the Stock Market Rationally Reflect Fundamental Values?” Journal of Finance 41, 591–602. Tacke, Georg, and Frank Luby (n.d.).


pages: 330 words: 77,729

Big Three in Economics: Adam Smith, Karl Marx, and John Maynard Keynes by Mark Skousen

"Robert Solow", Albert Einstein, banking crisis, Berlin Wall, Bretton Woods, business climate, business cycle, creative destruction, David Ricardo: comparative advantage, delayed gratification, experimental economics, financial independence, Financial Instability Hypothesis, full employment, Hernando de Soto, housing crisis, Hyman Minsky, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, laissez-faire capitalism, liberation theology, liquidity trap, means of production, microcredit, minimum wage unemployment, money market fund, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, price stability, pushing on a string, rent control, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Shiller, rolodex, Ronald Coase, Ronald Reagan, school choice, secular stagnation, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, Tobin tax, unorthodox policies, Vilfredo Pareto, zero-sum game

Because information in a decentralized market economy is "asymmetric"—"different people know different things," which in turn can lead to "thin or non-existent markets" (2001, 488-89). What Hayek views as positive, Stiglitz sees as negative. Market economists counter Stiglitz by arguing that while imperfect information may indeed be pervasive, the outcome of the imperfect competitive market system acts "as if' it is perfectly competitive. For example, experimental economics seems to confirm this "as if' approach. Vernon L. Smith, Nobel laureate from George Mason University and founder of experimental economics, ran an experiment to test the Chamberlin-Robinson "imperfect competition" model. Recall from chapter 5 that this model suggested that a small number of sellers (or buyers) creates an imperfect form of competition, causing prices to rise, and output to fall. The imperfect monopolistic model was therefore inefficient, and gave support to government antitrust actions to break up big businesses and force more competition into the industry.

Churchill Keynesian view of, 150, 175, 181 (Keynes), 142 leaks, 180 Economic Consequences of the Peace production and, 48—49. 184 (Keynes), 140-141, 156 productive and unproductive, 186 Economic determinism, 80, 87, 96 Economic freedom, 10-11, 18 Environmentalism, 214 economic growth and, 31-32, 203-204 Equation of exchange, 126-127, 196 effects of, 31-32, 34 Essay on Population (Malthus), 51 See also Capitalism Essay on the Nature of Commerce in Economic growth General (Cantillon), 42-43 Bohm-Bawerk on, 112 Essence of Christianity (Feuerbach), 71 economic freedom and, 31-32, 203-204 Everyday Stalinism (Fitzpatrick), 203 keys to, 11 Exchange Protestantism and, 124 classical view of, 106 savings and, 179 equation of, 126-127, 196 Economic indicators, 182 key to wealth, 9 Economic Possibilities for Our Marxist view of, 99-100 Grandchildren (Keynes), 152, 217 Experimental economics, 215 Economic theories Exploitation, worker, 85, 86 pendulum approach to, ix-x totem pole approach to, x-xi Fable of the Bees, 39-40 Economics Falling profits, 85-86 blackboard, 55 Faust, 72 classical. See Classical model Federal Reserve, 127-128, 160, expanding role of, 209 194-195 the imperial science, 209 Feuerbach, Ludwig, 71 mathematics and, 55, 56 Fiscal policy, 172, 208 moral behavior and, 30 Fisher, Irving, 125-128, 129 neoclassical, 106, 192-193, 199, 205 Fitzpatrick, Sheila, 203 as a social science, 113 Foster, William T„ 157-158, 183 stagnation of, 106 Foundations of Economic Analysis Economics (Samuelson), 165-166, 169, (Samuelson), 55 170 Franklin, Benjamin, 44—45. 174 Economics of Impetfect Competition Free banking, 36 (Robinson), 134-135 Free markets Edgeworth, Francis, 115-116 degrees of faith in, 26-27 Education, 89 post Soviet Union, 199, 204 Effective demand, 158-151^8 wealth and prosperity through, 18 Egoism, 27, 29 Free trade.


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The Middleman Economy: How Brokers, Agents, Dealers, and Everyday Matchmakers Create Value and Profit by Marina Krakovsky

Affordable Care Act / Obamacare, Airbnb, Al Roth, Ben Horowitz, Black Swan, buy low sell high, Chuck Templeton: OpenTable:, Credit Default Swap, cross-subsidies, crowdsourcing, disintermediation, diversified portfolio, experimental economics, George Akerlof, Goldman Sachs: Vampire Squid, income inequality, index fund, information asymmetry, Jean Tirole, Joan Didion, Kenneth Arrow, Lean Startup, Lyft, Marc Andreessen, Mark Zuckerberg, market microstructure, Martin Wolf, McMansion, Menlo Park, Metcalfe’s law, moral hazard, multi-sided market, Network effects, patent troll, Paul Graham, Peter Thiel, pez dispenser, ride hailing / ride sharing, Robert Metcalfe, Sand Hill Road, sharing economy, Silicon Valley, social graph, supply-chain management, TaskRabbit, The Market for Lemons, too big to fail, trade route, transaction costs, two-sided market, Uber for X, uber lyft, ultimatum game, Y Combinator

Yet there’s plenty of material for such an education because lots of social scientists have studied, from one angle or another, the questions of how middlemen provide value and profit from their roles between buyers and sellers. For example, economic theory has much to say about transaction-cost economics, two-sided markets, and intermediaries’ ability to reduce information asymmetries between buyers and sellers. In particular, game theory informs our understanding of repeated interactions, reputations, shirking and cheating, and third-party enforcement. Social psychology and experimental economics show how acting on behalf of others affects people’s behavior and impressions. And sociology offers insights into the ways the structures of social networks create opportunities for middlemen. This book reports on fascinating research from these and other fields, revealing the ways in which the scientific findings illuminate and reinforce the lessons that top middlemen have picked up on the job.

The number rises to $10,000 for Gold, $25,000 for Platinum, and an astounding $150,000 per month for Titanium. 17.You must also get consistently high feedback scores from your buyers: fall anywhere below 98 percent positive feedback, and you lose your PowerSeller status. 18.Interview with Ann Whitley Wood, September 24, 2013. 19.Along the same lines, a recent article pointed out that large players also dominate the Prosper Marketplace (where two-thirds of the lenders are hedge funds and other large institutions) and that nearly half of the hosts on Airbnb had at least three listings on the site, suggesting these hosts weren’t just renting out a spare bedroom. See William Alden, “The Business Tycoons of Airbnb,” New York Times Magazine, November 25, 2014. 20.Paul Resnick, Richard Zeckhauser, John Swanson, and Kate Lockwood, “The Value of Reputation on eBay: A Controlled Experiment,” Experimental Economics 9, no. 2 (2006): 79–101. 21.Nira Yacouel and Aliza Fleischer, “The Role of Cybermediaries in Reputation Building and Price Premiums in the Online Hotel Market,” Journal of Travel Research 51, no. 2 (2012): 219–26. 22.Michael Anderson and Jeremy Magruder, “Learning from the Crowd: Regression Discontinuity Estimates of the Effects of an Online Review Database,” The Economic Journal 122, no. 563 (September 2012): 957–89. 23.Michael Luca, “Reviews, Reputation, and Revenue: The Case of Yelp.com,” Harvard Business School Working Paper, No. 12–016. 24.Carl Shapiro, “Premiums for High Quality Products as Returns to Reputation,” The Quarterly Journal of Economics (November 1983): 659–79. 25.Investing in a storefront is one of several ways sellers can elicit trust among buyers.

Greene, and Max Bazerman, “Dirty Work, Clean Hands: The Moral Psychology of Indirect Agency,” Organizational Behavior and Human Decision Processes 109 (2009): 134–41. 3.Gabriel Rossman, “Obfuscatory Relational Work and Disreputable Exchange,” Sociological Theory 32, no. 1 (May 2014): 43–63. 4.Mikhail Drugov, John Hamman, and Danila Serra, “Intermediaries in Corruption: An Experiment,” Experimental Economics 17, no. 1 (March 2014): 78–99. 5.For a review, see Neeru Paharia, Lucas C. Coffman, and Max Bazerman, “Intermediation and Diffusion of Responsibility in Negotiation: A Case of Bounded Ethicality,” in Gary E. Bolton and Rachel T. A. Croson (eds.), The Oxford Handbook of Economic Conflict Resolution (New York: Oxford University Press, 2012), 37–46. 6.William Finlay and James E. Coverdill, Headhunters: Matchmaking in the Labor Market (Ithaca, NY: Cornell University Press, 2002), 33. 7.Interview with Al Roth, July 25, 2011. 8.Jeffrey Pfeffer, Christina T.


Adam Smith: Father of Economics by Jesse Norman

"Robert Solow", active measures, Andrei Shleifer, balance sheet recession, bank run, banking crisis, Basel III, Berlin Wall, Black Swan, Branko Milanovic, Bretton Woods, British Empire, Broken windows theory, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, centre right, cognitive dissonance, collateralized debt obligation, colonial exploitation, Corn Laws, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, David Ricardo: comparative advantage, deindustrialization, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Fellow of the Royal Society, financial intermediation, frictionless, frictionless market, future of work, George Akerlof, Hyman Minsky, income inequality, incomplete markets, information asymmetry, intangible asset, invention of the telescope, invisible hand, Isaac Newton, Jean Tirole, John Nash: game theory, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, lateral thinking, loss aversion, market bubble, market fundamentalism, Martin Wolf, means of production, money market fund, Mont Pelerin Society, moral hazard, moral panic, Naomi Klein, negative equity, Network effects, new economy, non-tariff barriers, Northern Rock, Pareto efficiency, Paul Samuelson, Peter Thiel, Philip Mirowski, price mechanism, principal–agent problem, profit maximization, purchasing power parity, random walk, rent-seeking, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, scientific worldview, seigniorage, Socratic dialogue, South Sea Bubble, special economic zone, speech recognition, Steven Pinker, The Chicago School, The Myth of the Rational Market, The Nature of the Firm, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, time value of money, transaction costs, transfer pricing, Veblen good, Vilfredo Pareto, Washington Consensus, working poor, zero-sum game

, Journal of Economic Behavior and Organization, 73, 2010. For the spillover effects of prosocial environments, and the importance of institutions in shaping persisting habits, see Alexander Peysakhovich and David G. Rand, ‘Habits of Virtue: Creating Norms of Cooperation and Defection in the Laboratory’, Management Science, Articles in Advance, 2015 Experimental economics: Robert Sugden has suggested that David Hume should be considered one of the originators of experimental economics. In the Treatise Hume argues that the workings of the human mind should be investigated by ‘careful and exact experiments, and the observation of those particular effects, which result from its different circumstances and situations’ (A Treatise of Human Nature, ed. L. A. Selby-Bigge, rev. edn, P. H. Nidditch, Oxford University Press 1978, pp. xv–xvii).

He generally dislikes abstractions, and he specifically rejects the use of highly idealized and artificial assumptions in economic policy-making, insisting that practical experience is more valuable in political economy than abstract theorizing. As he put it, ‘If a nation could not prosper without the enjoyment of perfect liberty and perfect justice, there is not in the world a nation which could ever have prospered.’ Substitute ‘markets’ for ‘justice’, and it is a point Kenneth Arrow would have been proud of. It is this Smithian seam of inquiry that Vernon Smith and his fellow workers in experimental economics found themselves mining so successfully when they started to test mainstream assumptions about economic rationality under laboratory conditions. They found that their subjects’ behaviour could not be adequately explained by the simple assumption of utility-maximization. On the contrary, it was deeply influenced by specific norms of reciprocity and fairness, by force of habit and by desire to preserve reputation.

., in, 96–97 taxation in, 121–122 trade of, 113, 115–116, 136 See also Church of England; History of England (Hume) the Enlightenment, 27–28 See also Scottish Enlightenment Enquiry Concerning the Principles of Morals (Hume), 184 Epicurus, 182 Episcopalians, 31, 36 equality, capitalism and, 273–276 equilibrium, 194–195, 202–206, 225–226, 230, 299 See also general equilibrium Essay on the Principle of Population (Malthus), 198–199 Essays, Moral and Political (Hume), 27, 48, 176 Essays in Biography (Keynes), 207–208 ethical norms, 298 Euclid, 19 evolution, theory of, 168–170 exchanges, 180–181, 199, 201–202, 216, 237 experimental economics, 222 The Fable of the Bees (Mandeville), 56–57, 86 Facebook, 282, 286, 329 Fall of Man, 57 Fama, Eugene, 225 Fellenberg, Daniel, 93–94 feminist economics, 214, 217–218 See also women Ferguson, Adam, 99, 124–126, 170–171, 242 Festinger, Leon, 301–303, 311 Fifteen Sermons Preached at the Rolls Chapel (Butler), 76 financial crash, of 2008, 244–245, 249–252, 300, 322–323, 327–328 financial markets, 227–228 See also markets financial products, 250 First and Second Welfare Theorems, 195 Fisman, Raymond, 309–310 fixed capital, 110 Fletcher, Andrew, 118, 232 four maxims of good taxation, x, 122–123 four states, of mankind, 78 Fox, Charles James, 134, 138 France, 11–12, 31–33 England and, 68–69, 101, 277, 291 Smith, A., in, 84–85 franchise capitalism, 263 Freakonomics (Dubner and Levitt), 208–209 free commerce, 200 free trade, 258–259, 277, 280 freedom, 108–109, 115–116, 186 free-market, xiii, 211, 230–231, 238, 245 in America, 276–277 The Wealth of Nations on, 184–185 See also markets French Revolution, 150 Friedman, Milton, xii–xiii, 226, 253 further future, 305 game theory, 203, 299–300 General Competitive Analysis (Arrow and Hahn), 193, 195 general equilibrium, 194–195, 204–205, 207, 212, 244 See also equilibrium General Theory of Employment, Interest and Money (Keynes), 207 George II (king), 69–70 George III (king), 70–71 Germany, 240, 274 Gibbon, Edward, 22–23, 123 Glasgow, Scotland, 10, 16–17, 22, 48–49, 51, 53–54, 84, 144 Glassford, John, 16 Glass-Steagall Act of 1933, 260 globalization, 259, 280, 287, 321–322, 330 God, 28, 74, 148 goods.


Smart Mobs: The Next Social Revolution by Howard Rheingold

A Pattern Language, augmented reality, barriers to entry, battle of ideas, Brewster Kahle, Burning Man, business climate, citizen journalism, computer vision, conceptual framework, creative destruction, Douglas Engelbart, Douglas Engelbart, experimental economics, experimental subject, Extropian, Hacker Ethic, Hedy Lamarr / George Antheil, Howard Rheingold, invention of the telephone, inventory management, John Markoff, John von Neumann, Joi Ito, Joseph Schumpeter, Kevin Kelly, Metcalfe's law, Metcalfe’s law, more computing power than Apollo, New Urbanism, Norbert Wiener, packet switching, Panopticon Jeremy Bentham, pattern recognition, peer-to-peer, peer-to-peer model, pez dispenser, planetary scale, pre–internet, prisoner's dilemma, RAND corporation, recommendation engine, Renaissance Technologies, RFID, Richard Stallman, Robert Metcalfe, Robert X Cringely, Ronald Coase, Search for Extraterrestrial Intelligence, SETI@home, sharing economy, Silicon Valley, skunkworks, slashdot, social intelligence, spectrum auction, Steven Levy, Stewart Brand, the scientific method, transaction costs, ultimatum game, urban planning, web of trust, Whole Earth Review, zero-sum game

Whereas simpler signals and smaller brains could have remained adequate for coordinating the males’ hunting activities, Dunbar proposes they weren’t sufficient for the complicated lists of who did what to whom that could have been the basis for the original proto-human reputation system.39. Research reported in 2002 offers provocative theories about how reputation, altruism, and punishment are structured to support human cooperation. A field now known as “experimental economics” has extended game theory to include two specific “minigames”: the “Ultimatum Game” and the “Public Goods Game.” Research using these games as probes indicate that People tend to exhibit more generosity than a strategy of rational self-interest predicts. People will penalize cheaters, even at some expense to themselves. These tendencies and the emotions that accompany them influence individuals to behave in ways that benefit the group.40 The Ultimatum Game takes place between two players who play it once and never again.

Because the unlicensed band your cordless phone uses is a little commons,” retorts Dave Hughes, the last guy you’d want to call a communist to his face.80 To complicate the issue, advocates of “open-source software- defined radio” are designing radios that can transmit and receive on any frequency and modulate with any scheme (i.e., AM, FM, spread spectrum), making it far more difficult to regulate devices, since modifications take place only in the software.81 During my journeys into cybersociology, I had discovered Elinor Os-trom’s studies of commons that were not tragically mismanaged and encountered the notion of “public goods” in the experimental economics games probing cooperation. And Lawrence Lessig had referred to an “innovation commons” built into the Internet’s end-to-end architecture. When the same notion showed up in the hot center of policy debate concerning wireless Internet regulation, another conceptual Schelling point in the smart mobs literature revealed itself. The commons is where smart mobs could gather; commons are what smart mobs have the potential to create and what they have to be careful not to overconsume.

In addition to the organizers’ all-points network, protest communications were leavened with individual protesters using cell phones, direct transmissions from roving independent media feeding directly onto the Internet, personal computers with wireless modems broadcasting live video, and a variety of other networked communications. Floating above the tear gas was a pulsing infosphere of enormous bandwidth, reaching around the planet via the Internet.18 From Seattle to Manila, the first “netwars” have already broken out. The term “netwar” was coined by John Arquilla and David Ronfeldt, two analysts for the RAND corporation (birthplace of game theory and experimental economics), who noticed that the same combination of social networks, sophisticated communication technologies, and decentralized organizational structure was surfacing as an effective force in very different kinds of political conflict: Netwar is an emerging mode of conflict in which the protagonists—ranging from terrorist and criminal organizations on the dark side, to militant social activists on the bright side—use network forms of organization, doctrine, strategy, and technology attuned to the information age.


pages: 407 words: 109,653

Top Dog: The Science of Winning and Losing by Po Bronson, Ashley Merryman

Asperger Syndrome, Berlin Wall, Charles Lindbergh, conceptual framework, crowdsourcing, delayed gratification, deliberate practice, Edward Glaeser, experimental economics, Fall of the Berlin Wall, fear of failure, game design, industrial cluster, Jean Tirole, knowledge worker, longitudinal study, loss aversion, Mark Zuckerberg, meta analysis, meta-analysis, Mikhail Gorbachev, phenotype, Richard Feynman, risk tolerance, school choice, selection bias, shareholder value, Silicon Valley, six sigma, Steve Jobs, zero-sum game

Kagel, “Selection Bias, Demographic Effects, and Ability Effects in Common Value Auction Experiments,” American Economic Review, vol. 97(4), pp. 1278–1304 (2007) Cotton, Christopher, Frank McIntyre, & Joseph Price, “Gender Differences in Competition: A Theoretical Assessment of the Evidence,” The Selected Works of Christopher Cotton, http://bit.ly/Q654OM (2011) Dargnies, Marie-Pierre, “Men Too Sometimes Shy Away from Competition: The Case of Team Competition,” http://d.doiorg/102139/ssrn1814989 (2011) Dreber, Anna, Interview with Author (2011) Dreber, Anna, Christer Gerdes, & Patrik Gränsmark, “Beauty Queens and Battling Knights: Risk Taking and Attractiveness in Chess,” IZA Discussion Paper No. 5314, Institute for the Study of Labor (2010) Dreber, Anna, Emma von Essen, & Eva Ranehill, “Outrunning the Gender Gap—Boys and Girls Compete Equally,” Experimental Economics, vol. 14(4), pp. 567–582 (2011) Eckel, Catherine C., & Philip J. Grossman, “Men, Women and Risk Aversion: Experimental Evidence,” In: Charles R. Plott & Vernon L. Smith (Eds.). Handbook of Experimental Economics Results, ch. 113, pp. 1061–1073 (2008) Franken, Robert E., & Douglas J. Brown, “Why Do People Like Competition? The Motivation for Winning, Putting Forth Effort, Improving One’s Performance, Performing Well, Being Instrumental, and Expressing Forceful/Aggressive Behavior,” Personality & Individual Differences, vol. 19(2), pp. 175–184 (1995) Frick, Bernd, “Gender Differences in Competitiveness: Empirical Evidence from Professional Distance Running,” Labour Economics, vol. 18(3), pp. 389–398 (2011) Frick, Bernd, “Gender Differences in Competitive Orientations: Empirical Evidence from Ultramarathon Running,” Journal of Sports Economics, vol. 12(3), pp. 317–340 (2011) Garza, R.

Manning, “Second to Fourth Digit Ratio, Testosterone, and Perceived Dominance,” Proceedings of the Royal Society, Biological Sciences B, vol. 270, pp. 2167–2172 (2003) Paul, S. N., B. S. Kato, J. L. Hunkin, S. Vivekanadndan, & T. D. Spector, “The Big Finger: The Second to Fourth Digit Ratio is a Predictor of Sporting Ability in Women,” British Journal of Sports Medicine, vol. 40(12), pp. 981–983 (2006) Pearson, Matthew, & Burkhard C. Shipper, “The Visible Hand: Finger Ratio (2d:4d) and Competitive Bidding,” Experimental Economics, vol. 15(3), pp. 510–529 (2012) Rustichini, Aldo, Interview with Author (2011) Sandri, Serena, Christian Schade, Oliver Mußhoff, & Martin Odening, “Holding On for Too Long? An Experimental Study on Inertia in Entrepreneurs’ and Non-Entrepreneurs Disinvestment Choices,” SiAg-Working Paper, No. 02 (2009) Schade, Christian, & Sabrina Boewe, “Characterizing the Female Entrepreneur: Comparing Behavior in a Market Entry Experiment with Other Groups of Individuals,” Frontiers of Entrepreneurship Research, vol. 30(8), art. 8. (2010) Stenstrom, Eric, Gad Saad, Marcelo V.


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A Beautiful Mind by Sylvia Nasar

"Robert Solow", Al Roth, Albert Einstein, Andrew Wiles, Brownian motion, business cycle, cognitive dissonance, Columbine, experimental economics, fear of failure, Gunnar Myrdal, Henri Poincaré, invisible hand, Isaac Newton, John Conway, John Nash: game theory, John von Neumann, Kenneth Arrow, Kenneth Rogoff, linear programming, lone genius, longitudinal study, market design, medical residency, Nash equilibrium, Norbert Wiener, Paul Erdős, Paul Samuelson, prisoner's dilemma, RAND corporation, Ronald Coase, second-price auction, Silicon Valley, Simon Singh, spectrum auction, The Wealth of Nations by Adam Smith, Thorstein Veblen, upwardly mobile, zero-sum game

A paper on war games was merely a half-hearted effort, designed to justify his employment at RAND and to be hastily drafted before he returned to Cambridge at the beginning of September.14 But Nash and Milnor did collaborate on one project, an experiment on bargaining involving hired subjects, that was to become, unexpectedly, a much-cited classic.15 The experiment, designed with two researchers from the University of Michigan who were also at RAND for the summer, anticipated by several decades the now-thriving field of experimental economics. The RAND experiments grew more or less directly out of the habit of playing games that the mathematicians indulged in their spare time. Inventing new games and trying them out, always with the inventors as subjects, had been a popular pastime at Princeton. Many of the players had, like Nash, only recently outgrown boyhood passions for chemistry and electricity experiments. The idea of recording the play to see whether people played the way the theory predicted was already a bit of a tradition at RAND, inaugurated by the famous Prisoner’s Dilemma experiment.

For a lucid description of game theoretic analyses of duels, see Dixit and Skeath, op. cit. 15. Dresher and Shapley, op. cit. 16. For von Neumann’s views, see Clay Blair, Jr., “Passing of a Great Mind,” Life (February 1957), pp. 88–90, as quoted in William Poundstone, Prisoner’s Dilemma, op. cit., p. 143. 17. Arrow, interview. 18. See Poundstone, op. cit.; Joseph Baratta, interview, 8.12.97. 19. Arrow, interview. 20. John H. Kagel and Alvin E. Roth, The Handbook of Experimental Economics (Princeton: Princeton University Press, 1995), pp. 8–9. 21. Albert W. Tucker, interview, 12.94. 22. See, for example, Avinash Dixit and Barry Nalebuff, Thinking Strategically, op. cit. 23. See, for example, Anatole Rappaport, “Prisoner’s Dilemma,” in John Eatwell, Murray Milgate, and Peter Newman, The New Palgrave, op. cit., pp. 199–204. 24. Dixit and Nalebuff, op. cit. 25. Harold Kuhn, interview, 7.96. 26.

Nering, “Some Experimental N-Person Games,” RAND Memorandum, RM-948, 8.25.52. 16. M. Legg, interview. 17. The description of the experiment is based on, apart from the original paper, Evar Nering, professor of mathematics, University of Minnesota, interview, 6.18.96; R. Duncan Luce and Howard Raiffa, Games and Decisions (New York: John Wiley & Sons, 1957), pp. 259–69; John H. Kagel and Alvin E. Roth, The Handbook of Experimental Economics, op. cit., pp. 10–11. 18. Kagel and Roth, op. cit. 19. Milnor, interview, 10.28.94. 20. John Milnor, “A Nobel Prize for John Nash,” op. cit. 21. See, for example, Kagel and Roth, op. cit. 22. Milnor, interview, 1.27.98. 23. Letter from John Nash to John Milnor, 12.27.64. 19: Reds 1. Zipporah Levinson, interview, 9.11.95. 2. Hearing before Committee on Un-American Activities, House of Representatives, Washington, D.C., 4.22.53 and 4.23.53.


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Nerds on Wall Street: Math, Machines and Wired Markets by David J. Leinweber

AI winter, algorithmic trading, asset allocation, banking crisis, barriers to entry, Big bang: deregulation of the City of London, business cycle, butter production in bangladesh, butterfly effect, buttonwood tree, buy and hold, buy low sell high, capital asset pricing model, citizen journalism, collateralized debt obligation, corporate governance, Craig Reynolds: boids flock, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Danny Hillis, demand response, disintermediation, distributed generation, diversification, diversified portfolio, Emanuel Derman, en.wikipedia.org, experimental economics, financial innovation, fixed income, Gordon Gekko, implied volatility, index arbitrage, index fund, information retrieval, intangible asset, Internet Archive, John Nash: game theory, Kenneth Arrow, load shedding, Long Term Capital Management, Machine translation of "The spirit is willing, but the flesh is weak." to Russian and back, market fragmentation, market microstructure, Mars Rover, Metcalfe’s law, moral hazard, mutually assured destruction, Myron Scholes, natural language processing, negative equity, Network effects, optical character recognition, paper trading, passive investing, pez dispenser, phenotype, prediction markets, quantitative hedge fund, quantitative trading / quantitative finance, QWERTY keyboard, RAND corporation, random walk, Ray Kurzweil, Renaissance Technologies, risk tolerance, risk-adjusted returns, risk/return, Robert Metcalfe, Ronald Reagan, Rubik’s Cube, semantic web, Sharpe ratio, short selling, Silicon Valley, Small Order Execution System, smart grid, smart meter, social web, South Sea Bubble, statistical arbitrage, statistical model, Steve Jobs, Steven Levy, Tacoma Narrows Bridge, the scientific method, The Wisdom of Crowds, time value of money, too big to fail, transaction costs, Turing machine, Upton Sinclair, value at risk, Vernor Vinge, yield curve, Yogi Berra, your tax dollars at work

Innovative Abstract Visualizations Experimental markets are a remarkable laboratory technique that allows investigation of markets that would not be possible by observing real financial markets from a distance.Vernon Smith shared the 2002 Nobel Prize in economics for pioneering experimental economics.15 Vernon is also the hands-down winner of the “Nobel laureate who looks most like Willie Nelson” award. Smith’s colleagues can create (and have created) markets that have any degree of transparency they want. They have created automated and semi-automated systems that may give us insight into how we will approach markets technologically in the future. Charles Plott, Smith’s sometime collaborator at Caltech’s Experimental Economics Laboratory, has developed a novel visualization that allows participants to look deeply into the workings of the market. His invention, called Jaws, can be seen in living color and full animation at http://eeps.caltech.edu/mov/jaws.html.

There is a huge collection of past and current HCIL work at the lab’s site: www.cs.umd.edu/hcil/. 14. The tree map is still enormously useful for its original purpose—tracking down those files that suddenly take over your disk. A free utility along these lines is Sequoia View, from the computer science department at Eindhove Technical University in the Netherlands (www.win.tue.nl/sequoiaview/). 15. For more on this remarkable story, see Paving Wall Street: Experimental Economics and the Quest for the Perfect Market by Ross Miller ( John Wiley & Sons, 2002). 16. See “Delving Deeper” by David Leinweber, Bloomberg Wealth Manager, October 2003. 17. The Harvard Business School e-Information project at www.people.hbs.edu/ptufano/einfo/ has a nice online collection of these studies. 18. Ser-Huang Poon and Clive Granger, “Practical Issues in Forecasting Volatility,” Financial Analysts Journal 61, no. 1 (2005): 45–55. 19.


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The Secret of Our Success: How Culture Is Driving Human Evolution, Domesticating Our Species, and Making Us Smarter by Joseph Henrich

agricultural Revolution, capital asset pricing model, Climategate, cognitive bias, Daniel Kahneman / Amos Tversky, delayed gratification, demographic transition, endowment effect, experimental economics, experimental subject, Flynn Effect, impulse control, Monkeys Reject Unequal Pay, Nash equilibrium, out of africa, phenotype, placebo effect, profit maximization, randomized controlled trial, risk tolerance, side project, social intelligence, social web, Steven Pinker, The Wisdom of Crowds, theory of mind, ultimatum game

I consciously took a “reading year,” though I knew it would extend my time to the PhD by one year. You could probably get away with this only in a department of anthropology. I had no classes to take, no advisors to work for, and no one really seemed to care what I was doing. I started by going to the library to take out a stack of books. I read books on cognitive psychology, decision-making, experimental economics, biology, and evolutionary psychology. Then I moved to journal articles. I read every article ever written on an economics experiment called the Ultimatum Game, which I’d used during my second and third summers with the Matsigenka. I also read a lot by the psychologists Daniel Kahneman and Amos Tversky, as well as by a political scientist named Elinor Ostrom. Kahneman and Ostrom would, years later, both receive Nobel Prizes in economics.

Many valuable insights about social norms and psychology come from the use of economic games. Properly interpreted, economic games are valuable tools for measuring social behavior and for teasing apart the complex packages of motivations, understandings, and beliefs that jointly influence decisions. Well-known economic games include the Prisoner’s Dilemma, Ultimatum Game, and Dictator Game. To understand these experiments, imagine this situation: You enter an experimental economics laboratory at Big City University. It’s filled with college-age strangers seated at computer terminals. You are told to sit down at an open terminal, which has partitions that prevent others from seeing your screen. After some preliminaries, the computer screen informs you that your ID has been randomly assigned to interact with another person in the room, but neither you nor this person will ever know the other’s identity.

“The unitary hypothesis: A common neural circuitry for novel manipulations, language, plan-ahead, and throwing?” In Tools, Language, and Cognition in Human Evolution, edited by E. R. Gibson and T. Ingold, 230–250. Cambridge: Cambridge University Press. Camerer, C. F. 1989. “Does the basketball market believe in the ‘hot hand’?” American Economic Review 79:1257–61. ———. 1995. “Individual decision making.” In The Handbook of Experimental Economics, edited by J. H. Kagel and A. E. Roth, 587–703. Princeton, NJ: Princeton University Press. Campbell, B. C. 2011. “Adrenarche and middle childhood.” Human Nature 22 (3):327–349. Campbell, D. T. 1965. “Variation and selective retention in socio-cultural evolution.” In Social Change in Developing Areas: A Reinterpretation of Evolutionary Theory, edited by H. R. Barringer, G. I. Glanksten, and R.


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Who Gets What — and Why: The New Economics of Matchmaking and Market Design by Alvin E. Roth

Affordable Care Act / Obamacare, Airbnb, algorithmic trading, barriers to entry, Berlin Wall, bitcoin, Build a better mousetrap, centralized clearinghouse, Chuck Templeton: OpenTable:, commoditize, computer age, computerized markets, crowdsourcing, deferred acceptance, desegregation, experimental economics, first-price auction, Flash crash, High speed trading, income inequality, Internet of things, invention of agriculture, invisible hand, Jean Tirole, law of one price, Lyft, market clearing, market design, medical residency, obamacare, proxy bid, road to serfdom, school choice, sealed-bid auction, second-price auction, second-price sealed-bid, Silicon Valley, spectrum auction, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, The Wealth of Nations by Adam Smith, two-sided market, uber lyft, undersea cable

. [>] “signaling mechanism”: On the economics job market, and on the mechanism we built to allow candidates to signal particular interest, see Peter Coles, John H. Cawley, Phillip B. Levine, Muriel Niederle, Alvin E. Roth, and John J. Siegfried, “The Job Market for New Economists: A Market Design Perspective,” Journal of Economic Perspectives 24, no. 4 (Fall 2010): 187–206. [>] The experiment allowed: Soohyung Lee and Muriel Niederle, “Propose with a Rose? Signaling in Internet Dating Markets,” Experimental Economics, forthcoming. [>] And the effect of a rose: This turns out to echo the effect of signals that we observe in the economics job market when we use the relative prestige of the university from which the applicant is graduating and the one to which he or she is applying as a measure of desirability. This turns out to echo the effect of signals that we observe in the economics job market when we use the relative prestige of the university from which the applicant is graduating and the one to which he or she is applying as a measure of desirability. [>] impressive genetic resources: For signals of desirability in biology, see Amotz Zahavi, The Handicap Principle: A Missing Piece of Darwin’s Puzzle (Oxford: Oxford University Press, 1997). [>] one of the oldest: Herodotus writes in The Histories (1.196) that the Babylonians used to sell marriageable girls, once a year, in an auction in which each of the most beautiful girls would be sold for a high price to the highest bidder among the wealthy men, and each of the others would go to the bidder who demanded the smallest dowry.

See also college admissions; residency programs for doctors; school matching in democracy, 166 early admissions in, 73–74 exploding offers in, 98–99 marriage age and, 72 Ph.D. offers in, 77–78 public value of, 125 Edwards, Valerie, 130 electronic order books, 83–84 Elias, Julio, 245 email, 169, 175–77 E-mini S&P 500 futures (ES), 82–89 equilibrium, 77 Ethiopia Commodity Exchange, 17–18 experimental economics, 77, 127–28, 176, 209, 244 experiments, 209, 213, 241 expert guides, 147–48 exploding offers, 9–10, 67, 98–99 empowerment of candidates and, 76–80 in gastroenterology fellowships, 76–78 for judicial clerkships, 91–99 in law firm recruiting, 67, 68 to medical residents, 136 for orthopedic surgeon fellows, 78–80 to Ph.D. candidates, 77–78 in school admissions, 73–74 exploitation, 203 failures, market abandonment of, 167 causes vs. symptoms of, 90–98 child marriage and, 70–74 from congestion, 92–93 cultural change and, 78–80 difficulty of limiting, 67–68, 74, 79–80, 90–98 from early transactions, 57–80 exploding offers and, 67–68 finding solutions for, 133–34 in gastroenterology fellowships, 75–78 in judicial clerkships, 69–70, 79, 90–98 in law firm recruiting, 65–68 in orthopedic surgeon hiring, 78–80 prevalence of, 73 safety, trust, and simplicity and, 113–30 self-control and, 67–68, 74–78 from speed, 81–99 fairness, 25 Falke, Roberta, 38–39 Farmer City, Illinois, 115 farmers’ markets, 20, 74 farming, 198 Federal Communications Commission, 186–89 Federal Law Clerk Hiring Plan, 93–98 fellowships, gastroenterology, 75–78 fertility tourism, 201–2 Fiesta Bowl, 61 financial markets, 82–89 flash crash of 2010, 84–85 Fleming, Alexander, 133–34 Florey, Howard, 134 Food Facility Inspection Report, 220–21 Football Bowl Association, 62–63 football bowl games, 59–65 Franklin, Benjamin, 200–201 Fréchette, Guillaume, 64, 237 free markets, 7, 12–13, 217, 226–28.


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Exodus: How Migration Is Changing Our World by Paul Collier

Ayatollah Khomeini, Boris Johnson, charter city, Edward Glaeser, experimental economics, first-past-the-post, full employment, game design, George Akerlof, global village, guest worker program, illegal immigration, income inequality, informal economy, mass immigration, moral hazard, open borders, risk/return, Silicon Valley, sovereign wealth fund, Steven Pinker, The Wealth of Nations by Adam Smith, transaction costs, University of East Anglia, white flight, zero-sum game

In contrast, beyond some unknowable point the losses from reduced mutual regard are liable to increase sharply as thresholds are crossed at which cooperation becomes unstable. Cooperation games are fragile because if pushed too far they collapse. In fancier language, equilibrium is only locally stable. So moderate migration is liable to confer overall social benefits, whereas sustained rapid migration would risk substantial costs. The rest of this chapter substantiates those potential risks. Mutual Regard: Trust and Cooperation Through research in experimental economics we now understand what enables cooperative outcomes to persist. In a sense successful cooperation is a minor miracle, because if almost everyone else is cooperating, whatever is the objective will be achieved even if I don’t help: so why should I incur the costs of helping? In the vicinity of the fully cooperative outcome, each individual has a strong incentive to free ride, so cooperation should usually be unstable.

Its foundations were laid by Adam Smith in The Wealth of Nations, where he famously demonstrated that such behavior generates social benefits. But Smith also wrote The Theory of Moral Sentiments, about the foundations of mutual regard. Belatedly, that work is receiving its due recognition.4 It is being expanded by the new subdiscipline of neuroeconomics, in which the regard for others is neurologically grounded.5 Experimental economics has found that a propensity to trust is both valuable and varies between societies. Studies of happiness find that what really matters is social, not material: how we relate to others, and how we are regarded by others. But even judged by the narrow metric of income, a group within which there is high regard and trust for others will be better off than one of selfish individualists. A controversy is currently raging as to whether sociobiology could explain the genetic emergence of a predisposition toward trust.


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The Irrational Economist: Making Decisions in a Dangerous World by Erwann Michel-Kerjan, Paul Slovic

"Robert Solow", Andrei Shleifer, availability heuristic, bank run, Black Swan, business cycle, Cass Sunstein, clean water, cognitive dissonance, collateralized debt obligation, complexity theory, conceptual framework, corporate social responsibility, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-subsidies, Daniel Kahneman / Amos Tversky, endowment effect, experimental economics, financial innovation, Fractional reserve banking, George Akerlof, hindsight bias, incomplete markets, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, iterative process, Kenneth Arrow, Loma Prieta earthquake, London Interbank Offered Rate, market bubble, market clearing, money market fund, moral hazard, mortgage debt, Pareto efficiency, Paul Samuelson, placebo effect, price discrimination, price stability, RAND corporation, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, source of truth, statistical model, stochastic process, The Wealth of Nations by Adam Smith, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transaction costs, ultimatum game, University of East Anglia, urban planning, Vilfredo Pareto

WHAT CAN WE LEARN FROM THE MARRIAGE OF ECONOMICS AND NEUROSCIENCE? Today, this multidisciplinary field—which brings together economics, neuroscience, psychology, philosophy, sociology, and physics—is offering new empirical and theoretical insights on how emotions and rationality interdependently sha(r)p(en) our decisions. Among the most striking examples are a couple of neuroscientific studies of a familiar experimental economic setting, the Ultimatum Game (UG). The first of these was conducted by scientists at Princeton University in 2003.8 Alan Sanfey, Jonathan Cohen, and colleagues used functional magnetic resonance imaging (fMRI)9 in order to estimate the brain activity that occurs when people decide to accept (or not) an unfair share of money in the UG.10 From a purely rational view, whether a proposition is unfair or not should not make any difference to their decision—they would get more money by accepting than by rejecting it.

Camerer, California Institute of Technology Colin Camerer is the Rea and Lela Axline Professor of Business Economics at the California Institute of Technology (located in Pasadena, California), where he teaches cognitive psychology and economics. He earned an MBA in finance and a PhD in decision theory from the University of Chicago Graduate School of Business. Before coming to Caltech in 1994, Professor Camerer worked at the Kellogg, Wharton, and University of Chicago business schools. He studies both behavioral and experimental economics. His most recent books include Behavioral Game Theory (Princeton University Press, 2003), Foundations of Human Sociality, with fourteen co-authors (Oxford University Press, 2004), and Advances in Behavioral Economics, co-edited with George Loewenstein and Matthew Rabin (Princeton University Press, 2004). Neil Doherty, The Wharton School Neil Doherty is the Frederick H. Ecker Professor of Insurance and Risk Management and past chair of the Department of Insurance and Risk Management at The Wharton School of the University of Pennsylvania.


pages: 385 words: 111,807

A Pelican Introduction Economics: A User's Guide by Ha-Joon Chang

Affordable Care Act / Obamacare, Albert Einstein, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collateralized debt obligation, colonial rule, Corn Laws, corporate governance, corporate raider, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, discovery of the americas, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Akerlof, Gini coefficient, global value chain, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Gunnar Myrdal, Haber-Bosch Process, happiness index / gross national happiness, high net worth, income inequality, income per capita, information asymmetry, intangible asset, interchangeable parts, interest rate swap, inventory management, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, knowledge economy, laissez-faire capitalism, land reform, liberation theology, manufacturing employment, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, Nelson Mandela, Northern Rock, obamacare, offshore financial centre, oil shock, open borders, Pareto efficiency, Paul Samuelson, post-industrial society, precariat, principal–agent problem, profit maximization, profit motive, purchasing power parity, quantitative easing, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, Scramble for Africa, shareholder value, Silicon Valley, Simon Kuznets, sovereign wealth fund, spinning jenny, structural adjustment programs, The Great Moderation, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Vilfredo Pareto, Washington Consensus, working-age population, World Values Survey

The school extends this approach to the study of economic institutions and organizations – for example, how best to organize a firm or how to design financial regulation. The school thus has a fundamental affinity, and some overlap in membership, with the Institutionalist school. The Behaviouralist school is the youngest of the schools of economics that we have so far examined, but it is older than most people think. The school has recently come to prominence through the fields of behavioural finance and experimental economics. But it has its origins in the 1940s and the 1950s, especially in the works of Herbert Simon (1916–2001), the 1978 Nobel economics laureate.* Limits to human rationality and the need for individual and social rules Simon’s central concept is bounded rationality. He criticizes the Neoclassical school for assuming that people possess unlimited capabilities to process information, or God-like rationality (he calls it ‘Olympian rationality’).

The Behaviouralist school’s attempt to understand human society from individuals up – actually from a place ‘lower’ than that, that is, from our thinking process up – is both its strength and its weakness. Focusing too much at this ‘micro’ level, the school often loses sight of the bigger economic system. This does not have to be; after all, Simon wrote a lot about the economic system. But most members of the school have focused too much on individuals – especially those economists who are engaged in experimental economics (trying to establish whether people are rational and selfish through controlled experiments) or neuroeconomics (trying to establish links between brain activities and particular types of behaviour). It also needs to be added that, given its focus on human cognition and psychology, the Behaviouralist school has few things to say about issues of technology and macroeconomics. Concluding Remarks: How to Make Economics Better Preserving intellectual diversity and encouraging cross-fertilization of ideas Recognizing that there are different approaches to economics is not enough.


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Thinking, Fast and Slow by Daniel Kahneman

Albert Einstein, Atul Gawande, availability heuristic, Bayesian statistics, Black Swan, Cass Sunstein, Checklist Manifesto, choice architecture, cognitive bias, complexity theory, correlation coefficient, correlation does not imply causation, Daniel Kahneman / Amos Tversky, delayed gratification, demand response, endowment effect, experimental economics, experimental subject, Exxon Valdez, feminist movement, framing effect, hedonic treadmill, hindsight bias, index card, information asymmetry, job satisfaction, John von Neumann, Kenneth Arrow, libertarian paternalism, loss aversion, medical residency, mental accounting, meta analysis, meta-analysis, nudge unit, pattern recognition, Paul Samuelson, pre–internet, price anchoring, quantitative trading / quantitative finance, random walk, Richard Thaler, risk tolerance, Robert Metcalfe, Ronald Reagan, Shai Danziger, Supply of New York City Cabdrivers, The Chicago School, The Wisdom of Crowds, Thomas Bayes, transaction costs, union organizing, Walter Mischel, Yom Kippur War

Other goods, such as wine and Super Bowl tickets, are held “for use,” to be consumed or otherwise enjoyed. Your leisure time and the standard of living that your income supports are also not intended for sale or exchange. Knetsch, Thaler, and I set out to design an experiment that would highlight the contrast between goods that are held for use and for exchange. We borrowed one aspect of the design of our experiment from Vernon Smith, the founder of experimental economics, with whom I would share a Nobel Prize many years later. In this method, a limited number of tokens are distributed to the participants in a “market.” Any participants who own a token at the end Bon s A end Bon of the experiment can redeem it for cash. The redemption values differ for different individuals, to represent the fact that the goods traded in markets are more valuable to some people than to others.

“Each of our executives is loss averse in his or her domain. That’s perfectly natural, but the result is that the organization is not taking enough risk.” Keeping Score Except for the very poor, for whom income coincides with survival, the main motivators of money-seeking are not necessarily economic. For the billionaire looking for the extra billion, and indeed for the participant in an experimental economics project looking for the extra dollar, money is a proxy for points on a scale of self-regard and achievement. These rewards and punishments, promises and threats, are all in our heads. We carefully keep score of them. They shape o C Th5ur preferences and motivate our actions, like the incentives provided in the social environment. As a result, we refuse to cut losses when doing so would admit failure, we are biased against actions that could lead to regret, and we draw an illusory but sharp distinction between omission and commission, not doing and doing, because the sense of responsibility is greater for one than for the other.

brand names over generics: Itamar Simonson, “The Influence of Anticipating Regret and Responsibility on Purchase Decisions,” Journal of Consumer Research 19 (1992): 105–18. clean up their portfolios: Lilian Ng and Qinghai Wang, “Institutional Trading and the Turn-of-the-Year Effect,” Journal of Financial Economics 74 (2004): 343–66. loss averse for aspects of your life: Tversky and Kahneman, “Loss Aversion in Riskless Choice.” Eric J. Johnson, Simon Gächter, and Andreas Herrmann, “Exploring the Nature of Loss Aversion,” Centre for Decision Research and Experimental Economics, University of Nottingham, Discussion Paper Series, 2006. Edward J. McCaffery, Daniel Kahneman, and Matthew L. Spitzer, “Framing the Jury: Cognitive Perspectives on Pain and Suffering,” Virginia Law Review 81 (1995): 1341–420. classic on consumer behavior: Richard H. Thaler, “Toward a Positive Theory of Consumer Choice,” Journal of Economic Behavior and Organization 39 (1980): 36–90. taboo tradeoff: Philip E.


pages: 403 words: 111,119

Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist by Kate Raworth

"Robert Solow", 3D printing, Asian financial crisis, bank run, basic income, battle of ideas, Berlin Wall, bitcoin, blockchain, Branko Milanovic, Bretton Woods, Buckminster Fuller, business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, choice architecture, clean water, cognitive bias, collapse of Lehman Brothers, complexity theory, creative destruction, crowdsourcing, cryptocurrency, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, dematerialisation, disruptive innovation, Douglas Engelbart, Douglas Engelbart, en.wikipedia.org, energy transition, Erik Brynjolfsson, Ethereum, ethereum blockchain, Eugene Fama: efficient market hypothesis, experimental economics, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, Financial Instability Hypothesis, full employment, global supply chain, global village, Henri Poincaré, hiring and firing, Howard Zinn, Hyman Minsky, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kickstarter, land reform, land value tax, Landlord’s Game, loss aversion, low skilled workers, M-Pesa, Mahatma Gandhi, market fundamentalism, Martin Wolf, means of production, megacity, mobile money, Mont Pelerin Society, Myron Scholes, neoliberal agenda, Network effects, Occupy movement, off grid, offshore financial centre, oil shale / tar sands, out of africa, Paul Samuelson, peer-to-peer, planetary scale, price mechanism, quantitative easing, randomized controlled trial, Richard Thaler, Ronald Reagan, Second Machine Age, secular stagnation, shareholder value, sharing economy, Silicon Valley, Simon Kuznets, smart cities, smart meter, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, Steve Ballmer, The Chicago School, The Great Moderation, the map is not the territory, the market place, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, Torches of Freedom, trickle-down economics, ultimatum game, universal basic income, Upton Sinclair, Vilfredo Pareto, wikimedia commons

., Vaish, A. and Schmidt, M. (2014) ‘The emergence of human prosociality: aligning with others through feelings, concerns, and norms’, Frontiers in Psychology 5, p. 822. http://journal.frontiersin.org/article/10.3389/fpsyg.2014.00822/full 23. Bowles, S. and Gintis, H. (2011) A Cooperative Species: Human Reciprocity and Its Evolution. Princeton, NJ: Princeton University Press, p. 20. 24. Helbing, D. (2013) ‘Economics 2.0: the natural step towards a self-regulating, participatory market society’, Evolutionary and Institutional Economics Review, 10: 1, pp. 3–41. 25. Kagel, J. and Roth, A. (1995) The Handbook of Experimental Economics, Princeton, NJ: Princeton University Press pp. 253–348, cited in Beinhocker, E. (2007) The Origin of Wealth, London: Random House, p. 120. 26. Henrich, J. et al. (2001) ‘In search of Homo Economicus: behavioral experiments in 15 small-scale societies’, Economics and Social Behavior, 91: 2, pp. 73–78. 27. Bernays, E. (2005) Propaganda, New York: Ig Publishing, pp. 37–38. 28. Edward L.

London: Earthscan. Jensen, K., Vaish, A. and Schmidt, M. (2014) ‘The emergence of human prosociality: aligning with others through feelings, concerns, and norms’, Frontiers in Psychology 5, p. 822. Jevons, W. S. (1871) The Theory of Political Economy, Library of Economics and Liberty, http://www.econlib.org/library/YPDBooks/Jevons/jvnPE.html Kagel, J. and Roth, A. (1995) The Handbook of Experimental Economics. Princeton, NJ: Princeton University Press. Keen, S. (2011) Debunking Economics. London: Zed Books. Kelly, M. (2012) Owning our Future: The Emerging Ownership Revolution. San Francisco: Berrett-Koehler. Kennedy, P. (1989) The Rise and Fall of World Powers. New York: Vintage Books. Kerr, J. et al. (2012) ‘Prosocial behavior and incentives: evidence from field experiments in rural Mexico and Tanzania’, Ecological Economics 73, pp. 220–227.


pages: 415 words: 125,089

Against the Gods: The Remarkable Story of Risk by Peter L. Bernstein

"Robert Solow", Albert Einstein, Alvin Roth, Andrew Wiles, Antoine Gombaud: Chevalier de Méré, Bayesian statistics, Big bang: deregulation of the City of London, Bretton Woods, business cycle, buttonwood tree, buy and hold, capital asset pricing model, cognitive dissonance, computerized trading, Daniel Kahneman / Amos Tversky, diversified portfolio, double entry bookkeeping, Edmond Halley, Edward Lloyd's coffeehouse, endowment effect, experimental economics, fear of failure, Fellow of the Royal Society, Fermat's Last Theorem, financial deregulation, financial innovation, full employment, index fund, invention of movable type, Isaac Newton, John Nash: game theory, John von Neumann, Kenneth Arrow, linear programming, loss aversion, Louis Bachelier, mental accounting, moral hazard, Myron Scholes, Nash equilibrium, Norman Macrae, Paul Samuelson, Philip Mirowski, probability theory / Blaise Pascal / Pierre de Fermat, random walk, Richard Thaler, Robert Shiller, Robert Shiller, spectrum auction, statistical model, stocks for the long run, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, Thomas Bayes, trade route, transaction costs, tulip mania, Vanguard fund, zero-sum game

De Moivre first conceived of the bell curve by writing equations on a piece of paper, not, like Quetelet, by measuring the dimensions of soldiers. But Galton conceived of regression to the mean-a powerful concept that makes the bell curve operational in many instances-by studying sweetpeas and generational change in human beings; he came up with the theory after looking at the facts. Alvin Roth, an expert on experimental economics, has observed that Nicholas Bernoulli conducted the first known psychological experiment more than 250 years ago: he proposed the coin-tossing game between Peter and Paul that guided his uncle Daniel to the discovery of utility.26 Experiments conducted by von Neumann and Morgenstern led them to conclude that the results "are not so good as might be hoped, but their general direction is correct."'-' The progression from experiment to theory has a distinguished and respectable history.

First published 1871. Second edition 1879. Johnson, Dirk, 1995. "More Casinos, More Players Who Bet Until They Lose All." The New York Times, September 25, p. Al. Jones, Charles P., and Jack W. Wilson, 1995. "Probability Estimates of Returns from Common Stock Investing." Journal of Portfolio Management, Vol. 22, No. 1 (Fall), pp. 21-32. Kagel, John H., and Alvin E. Roth, eds., 1995. The Handbook of Experimental Economics. Princeton, New Jersey: Princeton University Press. Kahneman, Daniel, and Amos Tversky, 1979. "Prospect Theory: An Analysis of Decision under Risk." Econometrica, Vol. 47, No. 2, pp. 263-291.` Kahneman, Daniel, and Amos Tversky, 1984. "Choices, Values, and Frames." American Psychologist, Vol. 39, No. 4 (April), pp. 342-347. Kahneman, Daniel, Jack L. Knetsch, and Richard H. Thaler, 1990.


pages: 218 words: 44,364

The Starfish and the Spider: The Unstoppable Power of Leaderless Organizations by Ori Brafman, Rod A. Beckstrom

Atahualpa, barriers to entry, Burning Man, creative destruction, disintermediation, experimental economics, Firefox, Francisco Pizarro, jimmy wales, Kibera, Lao Tzu, Network effects, peer-to-peer, pez dispenser, shareholder value, Silicon Valley, Skype, The Wisdom of Crowds, union organizing

SOURCES CHAPTER 7: The Combo Special: The Hybrid Organization EClass229 still offers unbelievable bargains for designer clothing. Since our coup with the Zegna suits, we've recommended it to all our friends. The value of positive feedback on eBay is explained in Paul Resnick, Richard Zeckhauser, John Swanson, and Kate Lockwood, "The Value of Reputation on eBay: A Controlled Experiment," Experimental Economics (forthcoming). A comprehensive overview of Google's history can be found in John Battelle's The Search—How Google and Its Rivals Rewrote the Rules of Business and Transformed Our Culture (New York: Portfolio, 2005). The story of IBM's decision to give away its software is told by David Kirkpatrick in "Giving to Get More: IBM Shares Its Secrets," Fortune (August 22, 2005). David Cooperrider has written extensively about appreciative inquiry.


pages: 807 words: 154,435

Radical Uncertainty: Decision-Making for an Unknowable Future by Mervyn King, John Kay

"Robert Solow", Airbus A320, Albert Einstein, Albert Michelson, algorithmic trading, Antoine Gombaud: Chevalier de Méré, Arthur Eddington, autonomous vehicles, availability heuristic, banking crisis, Barry Marshall: ulcers, battle of ideas, Benoit Mandelbrot, bitcoin, Black Swan, Bonfire of the Vanities, Brownian motion, business cycle, business process, capital asset pricing model, central bank independence, collapse of Lehman Brothers, correlation does not imply causation, credit crunch, cryptocurrency, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, Donald Trump, easy for humans, difficult for computers, Edmond Halley, Edward Lloyd's coffeehouse, Edward Thorp, Elon Musk, Ethereum, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, fear of failure, feminist movement, financial deregulation, George Akerlof, germ theory of disease, Hans Rosling, Ignaz Semmelweis: hand washing, income per capita, incomplete markets, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Jeff Bezos, Johannes Kepler, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Snow's cholera map, John von Neumann, Kenneth Arrow, Long Term Capital Management, loss aversion, Louis Pasteur, mandelbrot fractal, market bubble, market fundamentalism, Moneyball by Michael Lewis explains big data, Nash equilibrium, Nate Silver, new economy, Nick Leeson, Northern Rock, oil shock, Paul Samuelson, peak oil, Peter Thiel, Philip Mirowski, Pierre-Simon Laplace, popular electronics, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, railway mania, RAND corporation, rent-seeking, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Coase, sealed-bid auction, shareholder value, Silicon Valley, Simon Kuznets, Socratic dialogue, South Sea Bubble, spectrum auction, Steve Ballmer, Steve Jobs, Steve Wozniak, Tacoma Narrows Bridge, Thales and the olive presses, Thales of Miletus, The Chicago School, the map is not the territory, The Market for Lemons, The Nature of the Firm, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Davenport, Thomas Malthus, Toyota Production System, transaction costs, ultimatum game, urban planning, value at risk, World Values Survey, Yom Kippur War, zero-sum game

But only in small worlds are right and wrong answers clearly identified. Most of the observed ‘biases’ in behavioural economics are not the result of errors in beliefs or logic, although some are. Most are the product of a reality in which decisions must be made in the absence of a precise and complete description of the world in which people live, in contrast to the small worlds in which the students whose choices are studied in experimental economics are asked to participate. In those latter exercises, there is always something which the experimenters think is the ‘right’ answer. Kahneman uses as an example of bias a drawing similar to the image on page 142. 14 His subjects are asked to judge which of the three figures on the page is the largest, and most choose the one furthest back. Of course, the figures are drawn so as to be the same size on the page.

While Ioannidis’ work primarily concerned medicine and related subjects, his critique is equally valid for similar work in finance and economics. Economists frequently derive their findings from large data sets. One major study was able to replicate fewer than one half of published results, even with assistance from the authors and use of the same data employed by these authors. 18 A smaller study of experimental findings in economics found that around 60% of results could be replicated. 19 But experimental economics, unusually, is economic research under laboratory conditions; it involves asking subjects questions like ‘How often does the letter K appear in a text?’ The percentage of results that would have been reproduced successfully would certainly have been much lower if the same conjectured ‘bias’ had been investigated in a different experiment. And the growing use of proprietary data sets means that the problem of replication is likely to worsen.


pages: 190 words: 61,970

Life You Can Save: Acting Now to End World Poverty by Peter Singer

accounting loophole / creative accounting, Branko Milanovic, Cass Sunstein, clean water, end world poverty, experimental economics, illegal immigration, Martin Wolf, microcredit, Monkeys Reject Unequal Pay, Peter Singer: altruism, pre–internet, purchasing power parity, randomized controlled trial, Richard Thaler, Silicon Valley, Thomas Malthus, ultimatum game, union organizing

Jen Shang and Rachel Croson, “Field Experiments in Charitable Contribution: The Impact of Social Influence on the Voluntary Provision of Public Goods,” The Economic Journal, forthcoming. Renewing members gave 43 percent more when they were given the appropriate information, and new members 29 percent more. For the mail survey, see Rachel Croson and Jen Shang, “The Impact of Downward Social Information on Contribution Decision,” Experimental Economics 11 (2008), pp. 221—33. 4. Matthew 6:1. 5. Charles Isherwood, “The Graffiti of the Philanthropic Class,” The New York Times, December 2, 2007. 6. www.boldergiving.org. 7. Plan International, “Sponsor a Child: Frequently Asked Questions,” www.plan-international.org/sponsorshipform/sponsorfaq/, accessed January 16, 2008. 8. Eric Johnson and Daniel Goldstein, “Do Defaults Save Lives?” Science 302 (November 2003), pp. 1338-39.


pages: 236 words: 66,081

Cognitive Surplus: Creativity and Generosity in a Connected Age by Clay Shirky

Andrew Keen, Brewster Kahle, Burning Man, citizen journalism, corporate social responsibility, Dean Kamen, experimental economics, experimental subject, fundamental attribution error, invention of movable type, invention of the telegraph, Kevin Kelly, means of production, meta analysis, meta-analysis, Nelson Mandela, New Urbanism, Nicholas Carr, social software, Steve Ballmer, The Nature of the Firm, the scientific method, ultimatum game

Klein, Christian Lambertz, Giancarlo Spagnolo, and Konrad O. Stahl, “The Actual Structure of eBay’s Feedback Mechanism and Early Evidence on the Effects of Recent Changes,” International Journal of Electronic Business 7.3 (2009): 301-20. 177 an 8 percent premium on price: Paul Resnick published these findings with his coauthors Richard Zeckhauser, John Swanson, and Kate Lockwood, in “The Value of Reputation on eBay: A Controlled Experiment,” Experimental Economics 9.2 (2006): 79-101. 179 added a fake quote to composer Maurice Jarre’s Wikipedia page: Shawn Pogatchnik discussed Fitzgerald’s actions in “Student Hoaxes World’s Media on Wikipedia,” MSNBC, May 12, 2009, http://www.msnbc.msn.com/id/30699302 (accessed January 10, 2010). CHAPTER 7: Looking for the Mouse 185 notes in his book The Success of Open Source: Steven Weber, The Success of Open Source (Cambridge, MA: Harvard University Press, 2005): 272. 188 He got a loan to enter the indulgence-printing business: The British Library discusses Gutenberg’s printing of indulgences in its documentation of Gutenberg’s Bible: http://www.bl.uk/treasures/gutenberg/indulgences.html (accessed January 9, 2010). 188 John Tetzel, the head pardoner for German territories: Tetzel’s place in history was largely secured by Martin Luther’s objections to indulgences in 1517, but his name recently reappeared when the Catholic Church brought back indulgences in 2008; in discussing this change, John Allen references Tetzel’s phrase in the Room for Debate blog, http://roomfordebate.blogs.nytimes.com/2009/02/13/sin-and-its-indulgences (accessed January 7, 2010). 190 As Elizabeth Eisenstein notes in The Printing Press as an Agent of Change: Elizabeth Eisenstein, The Printing Press as an Agent of Change: Communications and Cultural Transformations in Early-Modern Europe (Cambridge, U.K.: Cambridge University Press, 1980). 192 a computer system called PLATO: Elisabeth Van Meer discusses this history in “PLATO: From Computer-Based Education to Corporate Social Responsibility,” Iterations: An Interdisciplinary Journal of Software History (2003): 6-22. 196 “The behavior you’re seeing is the behavior you’ve designed for”: Joshua Porter, “The Behavior You’re Seeing Is the Behavior You’ve Designed For,” Bokardo, July 28, 2009, http://bokardo.com/archives/the-behavior-youve-designed-for (accessed January 10, 2010). 203 One of the most parsimonious examples of this pattern on the web is from JavaRanch: “Be Nice,” JavaRanch, http://faq.javaranch.com/java/BeNice (accessed January 10, 2010). 203 it sometimes upgraded its software every half hour: Nisan Gabbay, “Flickr Case Study: Still About Tech for Exit?”


pages: 233 words: 64,702

China's Disruptors: How Alibaba, Xiaomi, Tencent, and Other Companies Are Changing the Rules of Business by Edward Tse

3D printing, Airbnb, Airbus A320, Asian financial crisis, barriers to entry, bilateral investment treaty, business process, capital controls, commoditize, conceptual framework, corporate governance, creative destruction, crowdsourcing, currency manipulation / currency intervention, David Graeber, Deng Xiaoping, disruptive innovation, experimental economics, global supply chain, global value chain, high net worth, industrial robot, Joseph Schumpeter, Lyft, money market fund, offshore financial centre, Pearl River Delta, reshoring, rising living standards, risk tolerance, Silicon Valley, Skype, Snapchat, sovereign wealth fund, special economic zone, speech recognition, Steve Jobs, thinkpad, trade route, wealth creators, working-age population

These efforts claimed tens of millions of lives, blocked all individual aspirations, and stultified the Chinese economy. Following Mao’s death in 1976, his successors recognized that his repressive policies could not be sustained, even if they wanted to see them continue. A five-day meeting of the Communist Party’s Central Committee in December 1978 led to the release of energy pent up in the preceding decades. Gathered at a hotel in west Beijing, the committee agreed to allow experimental economic reforms that would tentatively allow market forces once again to operate in China. The primary leader of this reform movement was Deng Xiaoping, chairman of the party’s Central Advisory Committee. Deng had been in party leadership positions since the 1960s, always advocating for (and sometimes overseeing) economic reforms. He had been targeted and pushed aside during the Cultural Revolution, but with Mao’s death he and his ideas returned to ascendancy, and he became the de facto leader of the country.


pages: 288 words: 64,771

The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality by Brink Lindsey

"Robert Solow", Airbnb, Asian financial crisis, bank run, barriers to entry, Bernie Sanders, Build a better mousetrap, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, collective bargaining, creative destruction, Credit Default Swap, crony capitalism, Daniel Kahneman / Amos Tversky, David Brooks, diversified portfolio, Donald Trump, Edward Glaeser, endogenous growth, experimental economics, experimental subject, facts on the ground, financial innovation, financial intermediation, financial repression, hiring and firing, Home mortgage interest deduction, housing crisis, income inequality, informal economy, information asymmetry, intangible asset, inventory management, invisible hand, Jones Act, Joseph Schumpeter, Kenneth Rogoff, Kevin Kelly, knowledge worker, labor-force participation, Long Term Capital Management, low skilled workers, Lyft, Mark Zuckerberg, market fundamentalism, mass immigration, mass incarceration, medical malpractice, Menlo Park, moral hazard, mortgage debt, Network effects, patent troll, plutocrats, Plutocrats, principal–agent problem, regulatory arbitrage, rent control, rent-seeking, ride hailing / ride sharing, Robert Metcalfe, Ronald Reagan, Silicon Valley, Silicon Valley ideology, smart cities, software patent, too big to fail, total factor productivity, trade liberalization, transaction costs, tulip mania, Uber and Lyft, uber lyft, Washington Consensus, white picket fence, winner-take-all economy, women in the workforce

Eventually, something happens to pierce the collective delusion, the bubble pops, and prices come crashing down again. Alas, since rapid price increases based on fundamentals happen all the time, it’s never clear that a bubble has occurred until after it’s over—which is why people are fooled by them, again and again. Asset bubbles are a glitch inherent in markets. Vernon Smith, the Nobel Prize–winning pioneer in experimental economics, has demonstrated this in a lab setting where groups of experimental subjects tasked with trading an asset will regularly inflate bubbles.16 However, bubbles are more than a market failure; they are a human failure. The very same herd mentality that sweeps market participants into a speculative mania can extend to government regulators as well. This is what happened during the housing bubble.


pages: 247 words: 64,986

Hive Mind: How Your Nation’s IQ Matters So Much More Than Your Own by Garett Jones

centre right, clean water, corporate governance, David Ricardo: comparative advantage, en.wikipedia.org, experimental economics, Flynn Effect, Gordon Gekko, greed is good, hive mind, invisible hand, Kenneth Arrow, law of one price, meta analysis, meta-analysis, prediction markets, Robert Gordon, Ronald Coase, Saturday Night Live, social intelligence, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, Thorstein Veblen, wikimedia commons, zero-sum game

Princeton, NJ: Princeton University Press, 2008. . “Why Should We Restrict Immigration?” Cato Journal 32, no. 1 (Winter 2012): 12–13. Caplan, Bryan, and Stephen C. Miller. “Intelligence Makes People Think Like Economists: Evidence from the General Social Survey.” Intelligence 38, no. 6 (2010): 636–647. Chaudhuri, Ananish. “Sustaining Cooperation in Laboratory Public Goods Experiments: A Selective Survey of the Literature.” Experimental Economics (2011). Christiakis, Nicholas, and James Fowler. Connected: How Your Friends’ Friends’ Friends Affect Everything You Feel, Think, or Do. New York: Little, Brown, 2011. Covey, Steven. The Seven Habits of Highly Effective People: Anniversary Edition. New York: Simon & Schuster, 2013. Cowen, Tyler. “Assorted Links.” Marginal Revolution, May 25, 2013. marginalrevolution.com/marginalrevolution/2013/05/assorted-links-802.html, accessed February 8, 2015.


pages: 209 words: 13,138

Empirical Market Microstructure: The Institutions, Economics and Econometrics of Securities Trading by Joel Hasbrouck

Alvin Roth, barriers to entry, business cycle, conceptual framework, correlation coefficient, discrete time, disintermediation, distributed generation, experimental economics, financial intermediation, index arbitrage, information asymmetry, interest rate swap, inventory management, market clearing, market design, market friction, market microstructure, martingale, price discovery process, price discrimination, quantitative trading / quantitative finance, random walk, Richard Thaler, second-price auction, selection bias, short selling, statistical model, stochastic process, stochastic volatility, transaction costs, two-sided market, ultimatum game, zero-sum game

Roll, Richard, 1984, A simple implicit measure of the effective bid-ask spread in an efficient market, Journal of Finance 39, 1127–39. Ronen, Tavy, 1998, Trading structure and overnight information: A natural experiment from the Tel-Aviv Stock Exchange, Journal of Banking and Finance 22, 489–512. Ross, Sheldon M., 1996, Stochastic Processes (John Wiley, New York). Roth, Alvin E., 1995, Bargaining experiments, in John H. Kagel, and Alvin E. Roth, eds., The Handbook of Experimental Economics (Princeton University Press, Princeton, NJ). Roth, Alvin E., and Axel Ockenfels, 2002, Last-minute bidding and the rules for ending second-price auctions: Evidence from eBay and Amazon auctions on the internet, American Economic Review 92, 1093–103. Rubinstein, Ariel, 1982, Perfect equilibrium in a bargaining model, Econometrica 50, 97–110. Rust, John, John H. Miller, and Richard Palmer, 1993.


pages: 270 words: 73,485

Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One by Meghnad Desai

"Robert Solow", 3D printing, bank run, banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, correlation coefficient, correlation does not imply causation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, German hyperinflation, Gunnar Myrdal, Home mortgage interest deduction, imperial preference, income inequality, inflation targeting, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, market bubble, market clearing, means of production, Mexican peso crisis / tequila crisis, mortgage debt, Myron Scholes, negative equity, Northern Rock, oil shale / tar sands, oil shock, open economy, Paul Samuelson, price stability, purchasing power parity, pushing on a string, quantitative easing, reserve currency, rising living standards, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, seigniorage, Silicon Valley, Simon Kuznets, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, women in the workforce

Gordon Brown, on taking office as Chancellor in the New Labour government in 1997, immediately gave the Bank of England autonomy in determining interest rates in pursuit of an inflation target. We had come a long way from the euthanasia of the rentier. Economists do not do fieldwork as anthropologists do, nor do they, on the whole, experiment in a laboratory as natural scientists do. There is a branch called “experimental economics” but it has not changed the nature of the subject to any great extent. But economists do confront published data. The time series of data on income, consumption, investment and so forth are available on an annual or quarterly basis. Economists model them using statistical techniques, like the models Klein built for the US economy. The new classical economists also modeled the data. They, however, did not forecast or judge the quality of their model by the accuracy of their forecasts.


pages: 241 words: 78,508

Lean In: Women, Work, and the Will to Lead by Sheryl Sandberg

affirmative action, business process, Cass Sunstein, constrained optimization, experimental economics, fear of failure, gender pay gap, glass ceiling, job satisfaction, labor-force participation, longitudinal study, Mark Zuckerberg, meta analysis, meta-analysis, old-boy network, Richard Thaler, risk tolerance, Silicon Valley, social graph, women in the workforce, young professional

For reviews of the research on women tending to be more risk averse than men, see Marianne Bertrand, “New Perspectives on Gender,” in Handbook of Labor Economics, vol. 4B, ed. Orley Ashenfelter and David Card (Amsterdam: North Holland, 2010), 1544–90; Rachel Croson and Uri Gneezy, “Gender Differences in Preferences,” Journal of Economic Literature 47, no. 2 (2009): 448–74; and Catherine C. Eckel and Phillip J. Grossman, “Men, Women, and Risk Aversion: Experimental Evidence,” in Handbook of Experimental Economics Results, vol. 1, ed. Charles R. Plott and Vernon L. Smith (Amsterdam: North Holland, 2008), 1061–73. 3. Centers for Disease Control and Prevention, Drowning Risks in Natural Water Settings, http://​www.​cdc.​gov/​Features/​dsDrowning​Risks/. 4. Karen S. Lyness and Christine A. Schrader, “Moving Ahead or Just Moving? An Examination of Gender Differences in Senior Corporate Management Appointments,” Gender & Organization Management 31, no. 6 (2006): 651–76.


pages: 309 words: 86,909

The Spirit Level: Why Greater Equality Makes Societies Stronger by Richard Wilkinson, Kate Pickett

basic income, Berlin Wall, clean water, Diane Coyle, epigenetics, experimental economics, experimental subject, Fall of the Berlin Wall, full employment, germ theory of disease, Gini coefficient, God and Mammon, impulse control, income inequality, Intergovernmental Panel on Climate Change (IPCC), knowledge economy, labor-force participation, land reform, longitudinal study, Louis Pasteur, meta analysis, meta-analysis, Milgram experiment, moral panic, offshore financial centre, phenotype, plutocrats, Plutocrats, profit maximization, profit motive, Ralph Waldo Emerson, statistical model, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, ultimatum game, upwardly mobile, World Values Survey, zero-sum game

Visible even in young children, our concern for fairness sometimes seems so strong that we might wonder how it is that social systems with great inequality are tolerated. Similarly, the sense of indebtedness (now recognized as universal in human societies) which we experience after having received a gift, serves to prompt reciprocity and prevent freeloading, so sustaining friendship. As the experimental economic games which we discussed showed, there is also evidence that we can feel sufficiently infuriated by unfairness that we are willing to punish, even at some personal cost to ourselves. Another characteristic which is perhaps important is our tendency to feel a common sense of identity and interdependence with those with whom we share food and other resources as equals. They form the in-group, the ‘us’, with whom we empathize and share a sense of identity.


pages: 291 words: 81,703

Average Is Over: Powering America Beyond the Age of the Great Stagnation by Tyler Cowen

Amazon Mechanical Turk, Black Swan, brain emulation, Brownian motion, business cycle, Cass Sunstein, choice architecture, complexity theory, computer age, computer vision, computerized trading, cosmological constant, crowdsourcing, dark matter, David Brooks, David Ricardo: comparative advantage, deliberate practice, Drosophila, en.wikipedia.org, endowment effect, epigenetics, Erik Brynjolfsson, eurozone crisis, experimental economics, Flynn Effect, Freestyle chess, full employment, future of work, game design, income inequality, industrial robot, informal economy, Isaac Newton, Johannes Kepler, John Markoff, Khan Academy, labor-force participation, Loebner Prize, low skilled workers, manufacturing employment, Mark Zuckerberg, meta analysis, meta-analysis, microcredit, Myron Scholes, Narrative Science, Netflix Prize, Nicholas Carr, P = NP, pattern recognition, Peter Thiel, randomized controlled trial, Ray Kurzweil, reshoring, Richard Florida, Richard Thaler, Ronald Reagan, Silicon Valley, Skype, statistical model, stem cell, Steve Jobs, Turing test, Tyler Cowen: Great Stagnation, upwardly mobile, Yogi Berra

Reis, and Susan Sprecher, “Online Dating: A Critical Analysis from the Perspective of Psychological Science,” Psychological Science in the Public Interest, January 2012, 13(1): 3–66. For the tale of Cambry, see David Gelles, “Inside Match.com,” Financial Times, July 29, 2011; this source also has the information on conservatives and liberals and the New Jersey anecdote. For cognitive biases, see http://en.wikipedia.org/wiki/List_of_cognitive_biases. For the pointer about experimental economics I am indebted to Amihai Glazer. In addition to Ken Regan, for another look at using computers to measure the quality of human play, see Matej Guid, “Search and Knowledge for Human and Machine Problem Solving,” doctoral dissertation, University of Ljubljana, 2010, http://eprints.fri.uni-lj.si/1113/1/Matej__Guid.disertacija.pdf. And for a summary of related work, see Matej Guid and Ivan Bratko, “Using Chess Engines to Estimate Human Skill,” Chessbase News, November 11, 2011, http://www.chessbase.com /newsdetail.asp?


pages: 411 words: 80,925

What's Mine Is Yours: How Collaborative Consumption Is Changing the Way We Live by Rachel Botsman, Roo Rogers

Airbnb, barriers to entry, Bernie Madoff, bike sharing scheme, Buckminster Fuller, buy and hold, carbon footprint, Cass Sunstein, collaborative consumption, collaborative economy, commoditize, Community Supported Agriculture, credit crunch, crowdsourcing, dematerialisation, disintermediation, en.wikipedia.org, experimental economics, George Akerlof, global village, hedonic treadmill, Hugh Fearnley-Whittingstall, information retrieval, iterative process, Kevin Kelly, Kickstarter, late fees, Mark Zuckerberg, market design, Menlo Park, Network effects, new economy, new new economy, out of africa, Parkinson's law, peer-to-peer, peer-to-peer lending, peer-to-peer rental, Ponzi scheme, pre–internet, recommendation engine, RFID, Richard Stallman, ride hailing / ride sharing, Robert Shiller, Robert Shiller, Ronald Coase, Search for Extraterrestrial Intelligence, SETI@home, Simon Kuznets, Skype, slashdot, smart grid, South of Market, San Francisco, Stewart Brand, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thorstein Veblen, Torches of Freedom, transaction costs, traveling salesman, ultimatum game, Victor Gruen, web of trust, women in the workforce, Zipcar

“eBay Champions Smart Ways to Shop Green,” eBay press release (March 4, 2009), www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view&newsId=20090304005278&newsLang=en. 19. Christoph Uhlhaas, “Is Greed Good?” Scientific American Mind (August/September 2007), www.sciamdigital.com/index.cfm?fa=Products.ViewIssuePreview&ARTICLEID_CHAR=0950A3EC-3048-8A5E-10BB9808E7E70922. 20. P. Resnick et al., “The Value of Reputation on eBay: A Controlled Experiment,” Experimental Economics 9, no. 2 (2006): 79–101. 21. Bart Wilson, “Fair’s Fair,” Atlantic (January 25, 2009), http://business.theatlantic.com/2009/01/fairs_fair.php. 22. Jonah Lehrer, The Decisive Moment (Text Publishing Company, 2009), 176. 23. Uhlhaas, “Is Greed Good?” 24. Christian Mayer, “Playing Games,” Max Planck Research (January 2003), www.mpg.de/english/illustrationsDocumentation/multimedia/mpResearch/2003/heft01/1_03MPR_64_69.pdf. 25.


pages: 297 words: 84,009

Big Business: A Love Letter to an American Anti-Hero by Tyler Cowen

23andMe, Affordable Care Act / Obamacare, augmented reality, barriers to entry, Bernie Sanders, bitcoin, blockchain, Bretton Woods, cloud computing, cognitive dissonance, corporate governance, corporate social responsibility, correlation coefficient, creative destruction, crony capitalism, cryptocurrency, dark matter, David Brooks, David Graeber, don't be evil, Donald Trump, Elon Musk, employer provided health coverage, experimental economics, Filter Bubble, financial innovation, financial intermediation, global reserve currency, global supply chain, Google Glasses, income inequality, Internet of things, invisible hand, Jeff Bezos, late fees, Mark Zuckerberg, mobile money, money market fund, mortgage debt, Network effects, new economy, Nicholas Carr, obamacare, offshore financial centre, passive investing, payday loans, peer-to-peer lending, Peter Thiel, pre–internet, price discrimination, profit maximization, profit motive, RAND corporation, rent-seeking, reserve currency, ride hailing / ride sharing, risk tolerance, Ronald Coase, shareholder value, Silicon Valley, Silicon Valley startup, Skype, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, The Nature of the Firm, Tim Cook: Apple, too big to fail, transaction costs, Tyler Cowen: Great Stagnation, ultimatum game, WikiLeaks, women in the workforce, World Values Survey, Y Combinator

So to line up this simple comparison, in revenue terms the personal income tax sector is 4.7 times greater than the corporate sector. The relative “cheating factor” is about 6 to 1, with more of the cheating done on the personal income tax. In terms of those simple proportions, individuals would appear to cheat more on their taxes than businesses do.12 CEOS IN LABORATORY GAMES Ernst Fehr and John A. List, two of the best known economists in the field of experimental economics, set up what is called a “trust game” and compared the performance of CEOs to non-CEOs. The results were pretty straightforward: the CEOs both were more trusting of others and exhibited more trustworthiness themselves.13 The experiments used a modified version of the traditional trust game, which is one means of measuring how much trust exists between individuals. In the game, subjects are paired anonymously and one of the individuals receives a certain amount of money.


pages: 312 words: 83,998

Testosterone Rex: Myths of Sex, Science, and Society by Cordelia Fine

assortative mating, Cass Sunstein, credit crunch, Donald Trump, Downton Abbey, Drosophila, epigenetics, experimental economics, gender pay gap, George Akerlof, glass ceiling, helicopter parent, longitudinal study, meta analysis, meta-analysis, phenotype, publication bias, risk tolerance

The authors suggest women are more likely to choose the high-risk packs because of greater punishment sensitivity. However, the high- and low-risk packs are equated overall for frequency of reward and punishment. 32. Holt, C. A., & Laury, S. K. (2002). Risk aversion and incentive effects. American Economic Review, 92(5), 1644–1655. See also Harbaugh, W., Krause, K., & Vesterlund, L. (2002). Risk attitudes of children and adults: Choices over small and large probability gains and losses. Experimental Economics, 5(1), 53–84. This study presented participants from ages 5 to 64 years with gambles involving “real and salient payoffs” (p. 55). The authors note “While many other researchers have found that men are less risk averse than women, with this protocol we find no evidence to support gender differences in risk behavior or in probability weighting, either in children or in adults.” Quoted on p. 66, footnote removed.


pages: 250 words: 88,762

The Logic of Life: The Rational Economics of an Irrational World by Tim Harford

activist fund / activist shareholder / activist investor, affirmative action, Albert Einstein, Andrei Shleifer, barriers to entry, Berlin Wall, business cycle, colonial rule, Daniel Kahneman / Amos Tversky, double entry bookkeeping, Edward Glaeser, en.wikipedia.org, endowment effect, European colonialism, experimental economics, experimental subject, George Akerlof, income per capita, invention of the telephone, Jane Jacobs, John von Neumann, law of one price, Martin Wolf, mutually assured destruction, New Economic Geography, new economy, plutocrats, Plutocrats, Richard Florida, Richard Thaler, Ronald Reagan, Silicon Valley, spinning jenny, Steve Jobs, The Death and Life of Great American Cities, the market place, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, women in the workforce, zero-sum game

List, University of Chicago and NBER, June 27, 2006, pricetheory.uchicago.edu/levitt/Papers/jep% 20revision%20Levitt%20&%20List.pdf. Detailed studies of the winner’s curse include Douglas Dyer and John Kagel, “Bidding in Common Value Auctions: How the Commercial Construction Industry Corrects for the Winner’s Curse,” Management Science 42 (1996): 143–76; James Cox, Sam Dinkin, and James Swarthout, “Endogenous Entry and Exit in Common Value Auctions,” Experimental Economics 4, no. 2(October 2001): 163–81; and Glenn Harrison and John List, “Naturally Occurring Markets and Exogenous Laboratory Experiments: A Case Study of Winner’s Curse,” UCF Working Paper, 2005. Camp David: The story is told in Fred Kaplan’s history, The Wizards of Armageddon (New York: Simon & Schuster, 1983), and Robert Dodge’s biography of Schelling, The Strategist (Hollis, N.H.: Hollis, 2006).


pages: 302 words: 87,776

Dollars and Sense: How We Misthink Money and How to Spend Smarter by Dr. Dan Ariely, Jeff Kreisler

accounting loophole / creative accounting, Airbnb, Albert Einstein, bitcoin, Burning Man, collateralized debt obligation, Daniel Kahneman / Amos Tversky, delayed gratification, endowment effect, experimental economics, hedonic treadmill, IKEA effect, invisible hand, loss aversion, mental accounting, mobile money, placebo effect, price anchoring, Richard Thaler, sharing economy, Silicon Valley, Snapchat, Stanford marshmallow experiment, Steve Jobs, TaskRabbit, the payments system, Uber for X, ultimatum game, Walter Mischel, winner-take-all economy

Simmons, LeBoeuf, and Nelson, “The Effect of Accuracy Motivation on Anchoring and Adjustment.” 6. Dan Ariely (Duke University), Predictably Irrational (New York: HarperCollins, 2008). CHAPTER 8: WE OVERVALUE WHAT WE HAVE 1. Daniel Kahneman (Princeton), Jack L. Knetsch (Simon Fraser University), and Richard H. Thaler (University of Chicago), “The Endowment Effect: Evidence of Losses Valued More than Gains,” Handbook of Experimental Economics Results (2008). 2. Michael I. Norton (Harvard Business School), Daniel Mochon (University of California, San Diego), and Dan Ariely (Duke University), “The IKEA Effect: When Labor Leads to Love,” Journal of Consumer Psychology 22, no. 3 (2012): 453-460. 3. Ziv Carmon (INSEAD) and Dan Ariely (MIT), “Focusing on the Forgone: How Value Can Appear So Different to Buyers and Sellers,” Journal of Consumer Research 27, no. 3 (2000): 360–370. 4.


pages: 321 words: 92,828

Late Bloomers: The Power of Patience in a World Obsessed With Early Achievement by Rich Karlgaard

Airbnb, Albert Einstein, Amazon Web Services, Apple's 1984 Super Bowl advert, Bernie Madoff, Bob Noyce, Brownian motion, Captain Sullenberger Hudson, cloud computing, cognitive dissonance, Daniel Kahneman / Amos Tversky, deliberate practice, Electric Kool-Aid Acid Test, Elon Musk, en.wikipedia.org, experimental economics, fear of failure, financial independence, follow your passion, Frederick Winslow Taylor, hiring and firing, Internet of things, Isaac Newton, Jeff Bezos, job satisfaction, knowledge economy, labor-force participation, longitudinal study, low skilled workers, Mark Zuckerberg, meta analysis, meta-analysis, Moneyball by Michael Lewis explains big data, move fast and break things, move fast and break things, pattern recognition, Peter Thiel, Sand Hill Road, science of happiness, shareholder value, Silicon Valley, Silicon Valley startup, Snapchat, Steve Jobs, Steve Wozniak, theory of mind, Tim Cook: Apple, Toyota Production System, unpaid internship, upwardly mobile, women in the workforce, working poor

“I asked Gordon [Moore], you know”: Laura Sydell, “Digital Pioneer Andrew Grove Led Intel’s Shift From Chips to Microprocessors,” NPR, March 22, 2016, https://n.pr/2MvQCAm. Sunk cost is the money, time: Hal R. Arkes and Catherine Blumer, “The Psychology of Sunk Cost,” in Judgment and Decision Making: An Interdisciplinary Reader, ed. Terry Connolly, Hal R. Arkes, and Kenneth R. Hammond, 2nd ed. (New York: Cambridge University Press, 2000). The sunk-cost fallacy is: Daniel Friedman et al., “Searching for the Sunk Cost Fallacy,” Experimental Economics 10, no. 1 (2007): 79–104. opportunity cost: John W. Payne, James R. Bettman, and Mary Frances Luce, “When Time Is Money: Decision Behavior Under Opportunity-Cost Time Pressure,” Organizational Behavior and Human Decision Processes 66, no. 2 (1996): 131–52; Robert Kurzban et al., “An Opportunity Cost Model of Subjective Effort and Task Performance,” Behavioral and Brain Sciences 36, no. 6 (2013): 661–79.


pages: 350 words: 103,988

Reinventing the Bazaar: A Natural History of Markets by John McMillan

"Robert Solow", accounting loophole / creative accounting, Albert Einstein, Alvin Roth, Andrei Shleifer, Anton Chekhov, Asian financial crisis, congestion charging, corporate governance, corporate raider, crony capitalism, Dava Sobel, Deng Xiaoping, experimental economics, experimental subject, fear of failure, first-price auction, frictionless, frictionless market, George Akerlof, George Gilder, global village, Hernando de Soto, I think there is a world market for maybe five computers, income inequality, income per capita, informal economy, information asymmetry, invisible hand, Isaac Newton, job-hopping, John Harrison: Longitude, John von Neumann, Kenneth Arrow, land reform, lone genius, manufacturing employment, market clearing, market design, market friction, market microstructure, means of production, Network effects, new economy, offshore financial centre, ought to be enough for anybody, pez dispenser, pre–internet, price mechanism, profit maximization, profit motive, proxy bid, purchasing power parity, Ronald Coase, Ronald Reagan, sealed-bid auction, second-price auction, Silicon Valley, spectrum auction, Stewart Brand, The Market for Lemons, The Nature of the Firm, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, War on Poverty, Xiaogang Anhui farmers, yield management

The higher price induces producers to increase their output. If there are unfilled jobs for barrel scrapers, the employers raise the offered wage, people change their jobs in response, and the vacancies get filled. With a price system, unlike under central planning, no central authority needs to know when there is an imbalance of supply and demand. Evidence that price movements can guide an economy to a stable outcome comes from experimental economics, in research done by Vernon Smith and others.12 An economy is simulated in the laboratory, with experimental subjects, usually undergraduate students, being put in the role of consumers and firms (and to get them to take their decision-making seriously, they are offered cash payments based on the outcomes of their decisions). Provided the experimental market’s rules are well designed, prices quickly settle down at their theoretical equilibrium levels (that is, where supply equals demand), even though no one in the economy knows enough to be able to figure out what those prices should be.


pages: 344 words: 104,077

Superminds: The Surprising Power of People and Computers Thinking Together by Thomas W. Malone

agricultural Revolution, Airbnb, Albert Einstein, Amazon Mechanical Turk, Apple's 1984 Super Bowl advert, Asperger Syndrome, Baxter: Rethink Robotics, bitcoin, blockchain, business process, call centre, clean water, creative destruction, crowdsourcing, Donald Trump, Douglas Engelbart, Douglas Engelbart, drone strike, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, experimental economics, Exxon Valdez, future of work, Galaxy Zoo, gig economy, happiness index / gross national happiness, industrial robot, Internet of things, invention of the telegraph, inventory management, invisible hand, Jeff Rulifson, jimmy wales, job automation, John Markoff, Joi Ito, Joseph Schumpeter, Kenneth Arrow, knowledge worker, longitudinal study, Lyft, Marshall McLuhan, Occupy movement, Pareto efficiency, pattern recognition, prediction markets, price mechanism, Ray Kurzweil, Rodney Brooks, Ronald Coase, Second Machine Age, self-driving car, Silicon Valley, slashdot, social intelligence, Stephen Hawking, Steve Jobs, Steven Pinker, Stewart Brand, technological singularity, The Nature of the Firm, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Tim Cook: Apple, transaction costs, Travis Kalanick, Uber for X, uber lyft, Vernor Vinge, Vilfredo Pareto, Watson beat the top human players on Jeopardy!

Maria Kozhevnikov, “Cognitive Styles in the Context of Modern Psychology: Toward an Integrated Framework,” Psychological Bulletin 133 (2007): 464–81. 15. Aggarwal, “Cognitive Diversity”; John B. Van Huyck, Raymond C. Battalio, and Richard O. Beil, “Tacit Coordination Games, Strategic Uncertainty, and Coordination Failure,” The American Economic Review 80, no. 1 (1990): 234–48; Cary Deck and Nikos Nikiforakis, “Perfect and Imperfect Real-Time Monitoring in a Minimum-Effort Game,” Experimental Economics 15, no. 1 (2012): 71–88. 16. Figure from Aggarwal, “Cognitive Diversity,” 2015. Reprinted by permission of authors. 17. David Engel, Anita Williams Woolley, Ishani Aggarwal, Christopher F. Chabris, Masamichi Takahashi, Keiichi Nemoto, Carolin Kaiser, Young Ji Kim, and Thomas W. Malone, “Collective Intelligence in Computer-Mediated Collaboration Emerges in Different Contexts and Cultures,” Proceedings of the SIGCHI Conference on Human Factors in Computing Systems (New York: Association for Computing Machinery, 2015), doi:10.1145/2702123.2702259 (conference held in Seoul, South Korea, April 18–23, 2015). 18.


pages: 523 words: 111,615

The Economics of Enough: How to Run the Economy as if the Future Matters by Diane Coyle

"Robert Solow", accounting loophole / creative accounting, affirmative action, bank run, banking crisis, Berlin Wall, bonus culture, Branko Milanovic, BRICs, business cycle, call centre, Cass Sunstein, central bank independence, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation does not imply causation, Credit Default Swap, deindustrialization, demographic transition, Diane Coyle, different worldview, disintermediation, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Financial Instability Hypothesis, Francis Fukuyama: the end of history, George Akerlof, Gini coefficient, global supply chain, Gordon Gekko, greed is good, happiness index / gross national happiness, hedonic treadmill, Hyman Minsky, If something cannot go on forever, it will stop - Herbert Stein's Law, illegal immigration, income inequality, income per capita, industrial cluster, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jane Jacobs, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, light touch regulation, low skilled workers, market bubble, market design, market fundamentalism, megacity, Network effects, new economy, night-watchman state, Northern Rock, oil shock, Pareto efficiency, principal–agent problem, profit motive, purchasing power parity, railway mania, rising living standards, Ronald Reagan, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, South Sea Bubble, Steven Pinker, The Design of Experiments, The Fortune at the Bottom of the Pyramid, The Market for Lemons, The Myth of the Rational Market, The Spirit Level, transaction costs, transfer pricing, tulip mania, ultimatum game, University of East Anglia, web application, web of trust, winner-take-all economy, World Values Survey, zero-sum game

“The Genuine Savings Criterion and the Value of Population.” Economic Theory 21:2, pp. 217–25. Atwood, Margaret. 2008. Payback: Debt and the Shadow Side of Wealth. London: Bloomsbury. Baker, Dean. 2010. Taking Economics Seriously. Cambridge, MA: MIT Press. Barber, Benjamin R. 2009. “A Revolution in Spirit.” The Nation, 22 January. Bardsley, Nicholas, Robin Cubitt, Graham Loomes, Peter Moffatt, Chris Starmer, and Robert Sugden, eds. 2009. Experimental Economics: Rethinking the Rules. Princeton: Princeton University Press. Barrington-Leigh, Christopher, Anthony Harris, John Haltiwanger, and Haifang Huang. 2010. “International Evidence on the Social Context of Well-being.” VoxEU, 24 April, http//www.voxeu.org. Barro, Robert J. 2000. “Inequality and Growth in a Panel of Countries.” Journal of Economic Growth 5, pp. 87–120. Baumol, William. 1993.


pages: 437 words: 113,173

Age of Discovery: Navigating the Risks and Rewards of Our New Renaissance by Ian Goldin, Chris Kutarna

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, Airbnb, Albert Einstein, AltaVista, Asian financial crisis, asset-backed security, autonomous vehicles, banking crisis, barriers to entry, battle of ideas, Berlin Wall, bioinformatics, bitcoin, Bonfire of the Vanities, clean water, collective bargaining, Colonization of Mars, Credit Default Swap, crowdsourcing, cryptocurrency, Dava Sobel, demographic dividend, Deng Xiaoping, Doha Development Round, double helix, Edward Snowden, Elon Musk, en.wikipedia.org, epigenetics, experimental economics, failed state, Fall of the Berlin Wall, financial innovation, full employment, Galaxy Zoo, global pandemic, global supply chain, Hyperloop, immigration reform, income inequality, indoor plumbing, industrial cluster, industrial robot, information retrieval, Intergovernmental Panel on Climate Change (IPCC), intermodal, Internet of things, invention of the printing press, Isaac Newton, Islamic Golden Age, Johannes Kepler, Khan Academy, Kickstarter, low cost airline, low cost carrier, low skilled workers, Lyft, Malacca Straits, mass immigration, megacity, Mikhail Gorbachev, moral hazard, Nelson Mandela, Network effects, New Urbanism, non-tariff barriers, Occupy movement, On the Revolutions of the Heavenly Spheres, open economy, Panamax, Pearl River Delta, personalized medicine, Peter Thiel, post-Panamax, profit motive, rent-seeking, reshoring, Robert Gordon, Robert Metcalfe, Search for Extraterrestrial Intelligence, Second Machine Age, self-driving car, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Skype, smart grid, Snapchat, special economic zone, spice trade, statistical model, Stephen Hawking, Steve Jobs, Stuxnet, The Future of Employment, too big to fail, trade liberalization, trade route, transaction costs, transatlantic slave trade, uber lyft, undersea cable, uranium enrichment, We are the 99%, We wanted flying cars, instead we got 140 characters, working poor, working-age population, zero day

Mathematical Ciphers: From Caesar to RSA. Providence, RI: American Mathematical Society. 45. Brynjolfsson, Erik and Andrew McAfee (2014). The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies. New York: W.W. Norton & Company. 46. Chen, Yan, Grace Young, et al. (2013). “A Day without a Search Engine: An Experimental Study of Online and Offline Searches.” Experimental Economics 14(4): 512–536; Brynjolfsson, Erik and Andrew McAfee (2014). The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies. New York: W.W. Norton & Company. 47. Metcalfe, Robert (1995, December 4). “Predicting the Internet’s Catastrophic Collapse and Ghost Sites Galore in 1996.” InfoWorld. 48. Arthur, Brian (2010). The Nature of Technology. London: Penguin. 49.


pages: 501 words: 114,888

The Future Is Faster Than You Think: How Converging Technologies Are Transforming Business, Industries, and Our Lives by Peter H. Diamandis, Steven Kotler

Ada Lovelace, additive manufacturing, Airbnb, Albert Einstein, Amazon Mechanical Turk, augmented reality, autonomous vehicles, barriers to entry, bitcoin, blockchain, blood diamonds, Burning Man, call centre, cashless society, Charles Lindbergh, Clayton Christensen, clean water, cloud computing, Colonization of Mars, computer vision, creative destruction, crowdsourcing, cryptocurrency, Dean Kamen, delayed gratification, dematerialisation, digital twin, disruptive innovation, Edward Glaeser, Edward Lloyd's coffeehouse, Elon Musk, en.wikipedia.org, epigenetics, Erik Brynjolfsson, Ethereum, ethereum blockchain, experimental economics, food miles, game design, Geoffrey West, Santa Fe Institute, gig economy, Google X / Alphabet X, gravity well, hive mind, housing crisis, Hyperloop, indoor plumbing, industrial robot, informal economy, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invention of the telegraph, Isaac Newton, Jaron Lanier, Jeff Bezos, job automation, Joseph Schumpeter, Kevin Kelly, Kickstarter, late fees, Law of Accelerating Returns, life extension, lifelogging, loss aversion, Lyft, M-Pesa, Mary Lou Jepsen, mass immigration, megacity, meta analysis, meta-analysis, microbiome, mobile money, multiplanetary species, Narrative Science, natural language processing, Network effects, new economy, New Urbanism, Oculus Rift, out of africa, packet switching, peer-to-peer lending, Peter H. Diamandis: Planetary Resources, Peter Thiel, QR code, RAND corporation, Ray Kurzweil, RFID, Richard Feynman, Richard Florida, ride hailing / ride sharing, risk tolerance, Satoshi Nakamoto, Second Machine Age, self-driving car, Silicon Valley, Skype, smart cities, smart contracts, smart grid, Snapchat, sovereign wealth fund, special economic zone, stealth mode startup, stem cell, Stephen Hawking, Steve Jobs, Steven Pinker, Stewart Brand, supercomputer in your pocket, supply-chain management, technoutopianism, Tesla Model S, Tim Cook: Apple, transaction costs, Uber and Lyft, uber lyft, unbanked and underbanked, underbanked, urban planning, Watson beat the top human players on Jeopardy!, We wanted flying cars, instead we got 140 characters, X Prize

See: https://stemcells.nih.gov/info/basics/1.htm. Chapter Four: The Acceleration of Acceleration Force #1: Saved Time In “The Original Macintosh”: Andy Hertzfeld, “Saving Lives,”Folklore.com, August 1983. See: https://www.folklore.org/StoryView.py?story=Saving_Lives.txt. University of Michigan behavioral economist Yan Chen: Yan Chen, “A Day Without a Search Engine: An Experimental Study of Online and Offline Searches,” Experimental Economics 17, no. 4 (December 2014): 512–536. See: https://link.springer.com/article/10.1007/s10683-013-9381-9. Over the past hundred years, labor-saving devices: University of Montreal, “Fridges and Washing Machines Liberated Women, Study Suggests,” Science Daily, March 13, 2009. See: https://www.sciencedaily.com/releases/2009/03/090312150735.htm. Original paper can be found here: https://pdfs.semanticscholar.org/423-D/28062802774c5687bd2545c4024a4961085e.pdf.


pages: 481 words: 125,946

What to Think About Machines That Think: Today's Leading Thinkers on the Age of Machine Intelligence by John Brockman

agricultural Revolution, AI winter, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, algorithmic trading, artificial general intelligence, augmented reality, autonomous vehicles, basic income, bitcoin, blockchain, clean water, cognitive dissonance, Colonization of Mars, complexity theory, computer age, computer vision, constrained optimization, corporate personhood, cosmological principle, cryptocurrency, cuban missile crisis, Danny Hillis, dark matter, discrete time, Douglas Engelbart, Elon Musk, Emanuel Derman, endowment effect, epigenetics, Ernest Rutherford, experimental economics, Flash crash, friendly AI, functional fixedness, global pandemic, Google Glasses, hive mind, income inequality, information trail, Internet of things, invention of writing, iterative process, Jaron Lanier, job automation, Johannes Kepler, John Markoff, John von Neumann, Kevin Kelly, knowledge worker, loose coupling, microbiome, Moneyball by Michael Lewis explains big data, natural language processing, Network effects, Norbert Wiener, pattern recognition, Peter Singer: altruism, phenotype, planetary scale, Ray Kurzweil, recommendation engine, Republic of Letters, RFID, Richard Thaler, Rory Sutherland, Satyajit Das, Search for Extraterrestrial Intelligence, self-driving car, sharing economy, Silicon Valley, Skype, smart contracts, social intelligence, speech recognition, statistical model, stem cell, Stephen Hawking, Steve Jobs, Steven Pinker, Stewart Brand, strong AI, Stuxnet, superintelligent machines, supervolcano, the scientific method, The Wisdom of Crowds, theory of mind, Thorstein Veblen, too big to fail, Turing machine, Turing test, Von Neumann architecture, Watson beat the top human players on Jeopardy!, Y2K

It all happens unconsciously, in our mind, in our body. Right away. We’re not even rational in the sense of being logical and explicitly deductive. We’re fast, intuitive, and emotional. Economists believe we are Homo economicus—selfish and rational, acting with reason in our own self-interest. But most economic and social interactions deal with fairness, trust, sharing, and long-term relationships. Experimental economics shows us that when we act directly and without hesitation, we’re social and cooperative. Only when we start thinking for some seconds do we choose to be selfish. Unless we deal with computers. When we play economic games with machine counterparts, we tend to be cold and egoistic. You can even measure the difference in our blood flow in the brain and in the hormones in our bloodstream. We think of machines the way economists think about us—as rational, cold-blooded, and selfish.


pages: 288 words: 16,556

Finance and the Good Society by Robert J. Shiller

Alvin Roth, bank run, banking crisis, barriers to entry, Bernie Madoff, buy and hold, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, cognitive dissonance, collateralized debt obligation, collective bargaining, computer age, corporate governance, Daniel Kahneman / Amos Tversky, Deng Xiaoping, diversification, diversified portfolio, Donald Trump, Edward Glaeser, eurozone crisis, experimental economics, financial innovation, financial thriller, fixed income, full employment, fundamental attribution error, George Akerlof, income inequality, information asymmetry, invisible hand, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, land reform, loss aversion, Louis Bachelier, Mahatma Gandhi, Mark Zuckerberg, market bubble, market design, means of production, microcredit, moral hazard, mortgage debt, Myron Scholes, Nelson Mandela, Occupy movement, passive investing, Ponzi scheme, prediction markets, profit maximization, quantitative easing, random walk, regulatory arbitrage, Richard Thaler, Right to Buy, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, selection bias, self-driving car, shareholder value, Sharpe ratio, short selling, Simon Kuznets, Skype, Steven Pinker, telemarketer, Thales and the olive presses, Thales of Miletus, The Market for Lemons, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, Vanguard fund, young professional, zero-sum game, Zipcar

Bebchuk, Lucian, and Jesse Fried. 2006. Pay without Performance: The Un lled Promise of Executive Compensation. Cambridge, MA: Harvard University Press. Becker, Jasper. 1997. Hungry Ghosts: Mao’s Secret Famine. New York: Free Press. Berg, Joyce, Robert Forsythe, Forrest Nelson, and Thomas Rietz. 2008. “Results from a Dozen Years of Election Futures Markets Research.” In Vernon Smith, ed., Handbook of Experimental Economic Results, Volume 1, 742–52. Amsterdam: North-Holland. Berger, Helge, and Albrecht Ritschl. 1995. “Germany and the Political Economy of the Marshall Plan 1947–52: A Re-Revisionist View.” In Barry J. Eichengreen, ed., Europe’s Post-War Recovery, 199–245. Cambridge: Press Syndicate of the University of Cambridge. Berk, Jonathan B., and Richard C. Green. 2004. “Mutual Fund Flows and Performance in Rational Markets.”


The Economics Anti-Textbook: A Critical Thinker's Guide to Microeconomics by Rod Hill, Anthony Myatt

American ideology, Andrei Shleifer, Asian financial crisis, bank run, barriers to entry, Bernie Madoff, business cycle, cognitive dissonance, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, different worldview, endogenous growth, equal pay for equal work, Eugene Fama: efficient market hypothesis, experimental economics, failed state, financial innovation, full employment, gender pay gap, Gini coefficient, Gunnar Myrdal, happiness index / gross national happiness, Home mortgage interest deduction, Howard Zinn, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, liberal capitalism, low skilled workers, market bubble, market clearing, market fundamentalism, Martin Wolf, medical malpractice, minimum wage unemployment, moral hazard, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, positional goods, prediction markets, price discrimination, principal–agent problem, profit maximization, profit motive, publication bias, purchasing power parity, race to the bottom, Ralph Nader, random walk, rent control, rent-seeking, Richard Thaler, Ronald Reagan, shareholder value, The Myth of the Rational Market, the payments system, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, ultimatum game, union organizing, working-age population, World Values Survey, Yogi Berra

P. and S. Rosen (1981) ‘Rankorder tournaments as optimum labor contracts’, Journal of Political Economy, 89(5): 841–61. 282 ‘The general theory of the second best’, Review of Economic Studies, 24(1): 11–32. Littlechild, S. (1981) ‘Misleading calculations of the social costs of monopoly power’, Economic Journal, 91: 348–63. Lombardini-Riipinen, C. and M. Autio (2007) ‘Coverage of behavioral and experimental economics in undergraduate microeconomics textbooks’, SSRN, December, available at ssrn. com/abstract=1088076. Lunn, P. and T. Harford (2008) ‘Behavioural economics: is it such a big deal?’, Prospect Magazine, 150, September. Machin, S. and A. Manning (2004) ‘A test of competitive labor market theory: the wage structure among care assistants in the south of England’, Industrial and Labor Relations Review, 57(3): 371–85.


The Future of Technology by Tom Standage

air freight, barriers to entry, business process, business process outsourcing, call centre, Clayton Christensen, computer vision, connected car, corporate governance, creative destruction, disintermediation, disruptive innovation, distributed generation, double helix, experimental economics, full employment, hydrogen economy, industrial robot, informal economy, information asymmetry, interchangeable parts, job satisfaction, labour market flexibility, Marc Andreessen, market design, Menlo Park, millennium bug, moral hazard, natural language processing, Network effects, new economy, Nicholas Carr, optical character recognition, railway mania, rent-seeking, RFID, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, six sigma, Skype, smart grid, software as a service, spectrum auction, speech recognition, stem cell, Steve Ballmer, technology bubble, telemarketer, transcontinental railway, Y2K

To be sure, economics has had its place in the it industry for some years now. hp, for instance, already uses software that simulates markets to optimise the air-conditioning systems in its utility data centres. And ibm’s Institute for Advanced Commerce has studied the behaviour of bidding agents, in the hope of designing them in such a way that they do not engage in endless price wars. Now hp is reaching even higher, with experimental economics. As the name implies, researchers in this field set up controlled experiments with real people and real money to see whether economic theories actually work. Perhaps surprisingly, it seems that they do, as demonstrated by the work of Vernon Smith of George Mason University in Virginia. (Mr Smith is considered the founding father of this field and won the 2002 Nobel prize in economics.) T Secret agent hp goes further.


pages: 1,205 words: 308,891

Bourgeois Dignity: Why Economics Can't Explain the Modern World by Deirdre N. McCloskey

Airbnb, Akira Okazaki, big-box store, Black Swan, book scanning, British Empire, business cycle, buy low sell high, Capital in the Twenty-First Century by Thomas Piketty, clean water, Columbian Exchange, conceptual framework, correlation does not imply causation, Costa Concordia, creative destruction, crony capitalism, dark matter, Dava Sobel, David Graeber, David Ricardo: comparative advantage, deindustrialization, demographic transition, Deng Xiaoping, Donald Trump, double entry bookkeeping, en.wikipedia.org, epigenetics, Erik Brynjolfsson, experimental economics, Ferguson, Missouri, fundamental attribution error, Georg Cantor, George Akerlof, George Gilder, germ theory of disease, Gini coefficient, God and Mammon, greed is good, Gunnar Myrdal, Hans Rosling, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, Hernando de Soto, immigration reform, income inequality, interchangeable parts, invention of agriculture, invention of writing, invisible hand, Isaac Newton, Islamic Golden Age, James Watt: steam engine, Jane Jacobs, John Harrison: Longitude, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, knowledge economy, labor-force participation, lake wobegon effect, land reform, liberation theology, lone genius, Lyft, Mahatma Gandhi, Mark Zuckerberg, market fundamentalism, means of production, Naomi Klein, new economy, North Sea oil, Occupy movement, open economy, out of africa, Pareto efficiency, Paul Samuelson, Pax Mongolica, Peace of Westphalia, peak oil, Peter Singer: altruism, Philip Mirowski, pink-collar, plutocrats, Plutocrats, positional goods, profit maximization, profit motive, purchasing power parity, race to the bottom, refrigerator car, rent control, rent-seeking, Republic of Letters, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Scientific racism, Scramble for Africa, Second Machine Age, secular stagnation, Simon Kuznets, Social Responsibility of Business Is to Increase Its Profits, spinning jenny, stakhanovite, Steve Jobs, The Chicago School, The Market for Lemons, the rule of 72, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, total factor productivity, Toyota Production System, transaction costs, transatlantic slave trade, Tyler Cowen: Great Stagnation, uber lyft, union organizing, very high income, wage slave, Washington Consensus, working poor, Yogi Berra

Thus around 1280 CE one Walter of Henley, well before our modern times devoted to gauging value in money, wrote in French an estate manual for English lords filled with quantitative prudence of a wholly rational sort.20 So was Mesopotamia four millennia earlier filled with quantitative prudence in accounts. Nowadays the behavioral economics of, say, Dan Ariely does a job of demolishing claims of individual rationality in moderns. Yet it too commits the Weberian mistake of focusing on individual psychology instead of group sociology and market economics. The experimental economics of Vernon Smith, Bart Wilson, Erik Kimbrough, and others, by contrast, works always with groups, showing that a wisdom of crowds often prevails over psychological shortsightedness and calculative confusion. And, by the way, it makes a good case that property arises without the help of the state or the nudging of the clerisy.21 Irrationality is always with us. Ernest Renan, professor of Hebrew at the Collège de France from 1862, most famous for his claim that Jesus was a good chap if a trifle primitive and oriental, declared that “we must make a marked distinction between societies like our own, where everything takes place in the full light of reflection, and simple and credulous communities,” such as those that Jesus preached in.22 The Great War was at length to make such European claims to the full light of reflection look bizarre.

“François Hollande Feels the Squeeze in the Town Where He Was Once Idolised.” Observer, March 22. http://www.theguardian.com/world/2014/mar/23/francois-hollande-tulle-elections-france. Wilson, Bart J. 2010. “Social Preferences Aren’t Preferences.” Journal of Economic Behavior & Organization 73:77–82. Wilson, Bart J., Taylor Jaworski, Karl E. Schurter, and Andrew Smyth. 2012. “The Ecological and Civil Mainsprings of Property: An Experimental Economic History of Whalers’ Rules of Capture.” Journal of Law, Economics and Organization 28:617–656. Wilson, Charles. 1965. England’s Apprenticeship, 1603–1763. London: Longmans. Wilson, Charles. 1968. The Dutch Republic and the Civilisation of the Seventeenth Century. World University Library. New York: McGraw-Hill. Wiltshire, John. 2009. “Why Do We Read Jane Austen?” In Susannah Carson, ed., A Truth Universally Acknowledged: 33 Great Writers on Why We Read Jane Austen, pp. 163–174.


pages: 484 words: 136,735

Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis by Anatole Kaletsky

"Robert Solow", bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Black Swan, bonus culture, Bretton Woods, BRICs, business cycle, buy and hold, Carmen Reinhart, cognitive dissonance, collapse of Lehman Brothers, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, Edward Glaeser, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, F. W. de Klerk, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, global rebalancing, Hyman Minsky, income inequality, information asymmetry, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kickstarter, laissez-faire capitalism, Long Term Capital Management, mandelbrot fractal, market design, market fundamentalism, Martin Wolf, money market fund, moral hazard, mortgage debt, Nelson Mandela, new economy, Northern Rock, offshore financial centre, oil shock, paradox of thrift, Pareto efficiency, Paul Samuelson, peak oil, pets.com, Ponzi scheme, post-industrial society, price stability, profit maximization, profit motive, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, statistical model, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, Vilfredo Pareto, Washington Consensus, zero-sum game

It is, however, the least radical of the alternative approaches because it does not challenge the central assumption of REH—that booms, busts, and recessions are all caused by various types of market failure and therefore that breakdowns in laissez-faire capitalism could, at least in principle, be prevented by making markets more perfect, for example, by disseminating information or strengthening the regulations against fraud. Partly because of this ideological compatibility, academic economics has been quite willing to embrace the behavioral approach. Indeed, the work on bounded rationality by Herbert Simon, game theory by Vernon Smith, experimental economics by Daniel Kahneman, and asymmetrical information by George Akerloff, Joe Stiglitz, and Michael Spence have all been rewarded with Nobel prizes. More challenging to orthodox economics is the mathematical work in chaos theory and advanced control engineering, which suggests that most of the mathematical techniques used by precrisis academic economics were simply wrong. Brian Arthur, along with colleagues at the Santa Fe Institute, has spent a lifetime developing the mathematics of nonlinear complex systems and applying them to the self-organizing emergent behavior of economies and markets that involve properties defying the assumptions of standard economics, for example, increasing returns and winner-takes-all positive feedbacks.


pages: 607 words: 133,452

Against Intellectual Monopoly by Michele Boldrin, David K. Levine

"Robert Solow", accounting loophole / creative accounting, agricultural Revolution, barriers to entry, business cycle, cognitive bias, creative destruction, David Ricardo: comparative advantage, Dean Kamen, Donald Trump, double entry bookkeeping, en.wikipedia.org, endogenous growth, Ernest Rutherford, experimental economics, financial innovation, informal economy, interchangeable parts, invention of radio, invention of the printing press, invisible hand, James Watt: steam engine, Jean Tirole, John Harrison: Longitude, Joseph Schumpeter, Kenneth Arrow, linear programming, market bubble, market design, mutually assured destruction, Nash equilibrium, new economy, open economy, peer-to-peer, pirate software, placebo effect, price discrimination, profit maximization, rent-seeking, Richard Stallman, Silicon Valley, Skype, slashdot, software patent, the market place, total factor productivity, trade liberalization, transaction costs, Y2K

He is a coeditor of Econometrica and NAJ Economics, president of the Society for Economic Dynamics, a Fellow of the Econometric Society, and a research associate of the National Bureau for Economic Research. Author with Drew Fudenberg of Learning in Games and editor of several conference volumes, his research interests include the study of intellectual property and endogenous growth in dynamic general equilibrium models; the endogenous formation of preferences, institutions, and social norms; and the application of game theory to experimental economics. Levine has published in leading journals such as American Economic Review, Econometrica, Review of Economic Studies, Journal of Political Economy, Journal of Economic Theory, Quarterly Journal of Economics, and American Political Science Review. i P1: PDX head margin: 1/2 gutter margin: 7/8 CUUS245-FM cuus245 978 0 521 87928 6 May 21, 2008 19:26 ii P1: PDX head margin: 1/2 gutter margin: 7/8 CUUS245-FM cuus245 978 0 521 87928 6 May 21, 2008 19:26 Against Intellectual Monopoly MICHELE BOLDRIN Washington University in St.


pages: 436 words: 76

Culture and Prosperity: The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor by John Kay

"Robert Solow", Albert Einstein, Asian financial crisis, Barry Marshall: ulcers, Berlin Wall, Big bang: deregulation of the City of London, business cycle, California gold rush, complexity theory, computer age, constrained optimization, corporate governance, corporate social responsibility, correlation does not imply causation, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Donald Trump, double entry bookkeeping, double helix, Edward Lloyd's coffeehouse, equity premium, Ernest Rutherford, European colonialism, experimental economics, Exxon Valdez, failed state, financial innovation, Francis Fukuyama: the end of history, George Akerlof, George Gilder, greed is good, Gunnar Myrdal, haute couture, illegal immigration, income inequality, industrial cluster, information asymmetry, intangible asset, invention of the telephone, invention of the wheel, invisible hand, John Meriwether, John Nash: game theory, John von Neumann, Kenneth Arrow, Kevin Kelly, knowledge economy, light touch regulation, Long Term Capital Management, loss aversion, Mahatma Gandhi, market bubble, market clearing, market fundamentalism, means of production, Menlo Park, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Naomi Klein, Nash equilibrium, new economy, oil shale / tar sands, oil shock, Pareto efficiency, Paul Samuelson, pets.com, popular electronics, price discrimination, price mechanism, prisoner's dilemma, profit maximization, purchasing power parity, QWERTY keyboard, Ralph Nader, RAND corporation, random walk, rent-seeking, Right to Buy, risk tolerance, road to serfdom, Ronald Coase, Ronald Reagan, second-price auction, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, Steve Jobs, telemarketer, The Chicago School, The Market for Lemons, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, total factor productivity, transaction costs, tulip mania, urban decay, Vilfredo Pareto, Washington Consensus, women in the workforce, yield curve, yield management

New York: Scribner. Jones-Lee, M. W. 1976. The Value ofLife: An Economic Analysis. London: Martin Robertson. Josephson, P. R 1995. '"Projects of the Century' in Soviet History: Large-Scale Technologies from Lenin to Gorbachev." Technology and Culture 36 (3): 519-59. Judson, H. F. 1980. The Search for Solutions. New York: Rinehart and Winston. Kagel, ]. H., and A. E. Roth. eds. 1995. The Handbook of Experimental Economics. Princeton: Princeton University Press. Kahneman, D., and A. Tversky, eds. 2000. Choices) Values and Frames. New York and Cambridge: Russell Sage Foundation and Cambridge University Press. Kakutani, S. 1941. "A Generalization of Brouwer's Fixed Point Theorem." Duke Mathematical]ournal8: 451-9. Kakwani, N. C. 1980. Income Inequality and Poverty: Methods ofEstimation to Policy Applications.


pages: 470 words: 130,269

The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas by Janek Wasserman

Albert Einstein, American Legislative Exchange Council, anti-communist, battle of ideas, Berlin Wall, Bretton Woods, business cycle, collective bargaining, Corn Laws, correlation does not imply causation, creative destruction, David Ricardo: comparative advantage, different worldview, Donald Trump, experimental economics, Fall of the Berlin Wall, floating exchange rates, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, Gunnar Myrdal, housing crisis, Internet Archive, invisible hand, John von Neumann, Joseph Schumpeter, laissez-faire capitalism, liberal capitalism, market fundamentalism, mass immigration, means of production, Menlo Park, Mont Pelerin Society, New Journalism, New Urbanism, old-boy network, Paul Samuelson, Philip Mirowski, price mechanism, price stability, RAND corporation, random walk, rent control, road to serfdom, Robert Bork, rolodex, Ronald Coase, Ronald Reagan, Silicon Valley, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, trade liberalization, union organizing, urban planning, Vilfredo Pareto, Washington Consensus, zero-sum game, éminence grise

In recent years, a willingness to reconsider the relevance of “un-Austrian Austrians” like Schumpeter, Alfred Schütz, Machlup, and even Morgenstern has restored some of the ecumenism of the earlier tradition, especially in GMU circles.10 Post–Cold War Austrians, like their Austrian-born predecessors, attacked the biggest questions in economics and did not shy from confrontations. As Steven Horwitz has put it, Austrians always “took account of the puzzles that were of interest to the economics profession and aimed their explanations of those puzzles at that audience of their professional peers.” The first issue of RAE addressed monetarism and Keynesianism. In subsequent years, discussions on public choice, macroeconomics, game theory, and experimental economics filled the pages of RAE and Advances in Austrian Economics. Austrians sparred with Nobelists like Milton Friedman, Ronald Coase, James Buchanan, and Douglass North. They reveled in taking apart the arguments of intellectual allies and opponents alike. As the economist Deirdre McCloskey has noted, her conversion to an appreciation of the role of rhetoric in economic thought had a Viennese accent: “I learned from Don [Lavoie] and Karen Vaughn and Jack High as exemplars that Austrian economics was not merely a pointlessly vicious doctrinal war against one’s natural allies carried out on the field of German texts. . . .


Virtual Competition by Ariel Ezrachi, Maurice E. Stucke

Airbnb, Albert Einstein, algorithmic trading, barriers to entry, cloud computing, collaborative economy, commoditize, corporate governance, crony capitalism, crowdsourcing, Daniel Kahneman / Amos Tversky, David Graeber, demand response, disintermediation, disruptive innovation, double helix, Downton Abbey, Erik Brynjolfsson, experimental economics, Firefox, framing effect, Google Chrome, index arbitrage, information asymmetry, interest rate derivative, Internet of things, invisible hand, Jean Tirole, John Markoff, Joseph Schumpeter, Kenneth Arrow, light touch regulation, linked data, loss aversion, Lyft, Mark Zuckerberg, market clearing, market friction, Milgram experiment, multi-sided market, natural language processing, Network effects, new economy, offshore financial centre, pattern recognition, prediction markets, price discrimination, price stability, profit maximization, profit motive, race to the bottom, rent-seeking, Richard Thaler, ride hailing / ride sharing, road to serfdom, Robert Bork, Ronald Reagan, self-driving car, sharing economy, Silicon Valley, Skype, smart cities, smart meter, Snapchat, social graph, Steve Jobs, supply-chain management, telemarketer, The Chicago School, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, Travis Kalanick, turn-by-turn navigation, two-sided market, Uber and Lyft, Uber for X, uber lyft, Watson beat the top human players on Jeopardy!, women in the workforce, yield management

Price and behavioral discrimination will not increase the product’s or ser vice’s quality or foster any greater societal objectives. Instead, companies price discriminate to capture as much of the consumers’ wealth as possible. In this context price discrimination is generally perceived as unfair. Over the past thirty years, behavioral economists in the lab and the field have tested the assumption that we are greedy, self-interested profit maximizers. Some people are. But the psychological and experimental economic data show that most people care about treating others, and being treated, fairly.21 Some economists are agnostic on price discrimination, or believe that in certain instances it may be welfare-enhancing. But 91 percent of individuals in one survey thought charging higher prices to those who were more dependent on the product was offensive.22 A collateral consequence of price discrimination is a loss of trust between companies and their customers.


pages: 543 words: 153,550

Model Thinker: What You Need to Know to Make Data Work for You by Scott E. Page

"Robert Solow", Airbnb, Albert Einstein, Alfred Russel Wallace, algorithmic trading, Alvin Roth, assortative mating, Bernie Madoff, bitcoin, Black Swan, blockchain, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Checklist Manifesto, computer age, corporate governance, correlation does not imply causation, cuban missile crisis, deliberate practice, discrete time, distributed ledger, en.wikipedia.org, Estimating the Reproducibility of Psychological Science, Everything should be made as simple as possible, experimental economics, first-price auction, Flash crash, Geoffrey West, Santa Fe Institute, germ theory of disease, Gini coefficient, High speed trading, impulse control, income inequality, Isaac Newton, John von Neumann, Kenneth Rogoff, knowledge economy, knowledge worker, Long Term Capital Management, loss aversion, low skilled workers, Mark Zuckerberg, market design, meta analysis, meta-analysis, money market fund, Nash equilibrium, natural language processing, Network effects, p-value, Pareto efficiency, pattern recognition, Paul Erdős, Paul Samuelson, phenotype, pre–internet, prisoner's dilemma, race to the bottom, random walk, randomized controlled trial, Richard Feynman, Richard Thaler, school choice, sealed-bid auction, second-price auction, selection bias, six sigma, social graph, spectrum auction, statistical model, Stephen Hawking, Supply of New York City Cabdrivers, The Bell Curve by Richard Herrnstein and Charles Murray, The Great Moderation, The Rise and Fall of American Growth, the rule of 72, the scientific method, The Spirit Level, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, urban sprawl, value at risk, web application, winner-take-all economy, zero-sum game

An Introduction to Models in the Social Sciences. Lanham, MD: University Press of America. Ledyard, John, David Porter, and Antonio Rangle. 1997. “Experiments Testing Multiobject Allocation Mechanisms.” Journal of Economics and Management Strategy 6, no. 3: 639–675. Ledyard, John, David Porter, and Randii Wessen. 2000. “A Market-Based Mechanism for Allocating Space Shuttle Secondary Payload Priority.” Experimental Economics 2, no. 3: 173–195. Levins, Richard. 1966. “The Strategy of Model Building in Population Biology.” American Scientist 54: 421–431. Levinthal, Daniel A. 1997. “Adaptation on Rugged Landscapes.” Management Science 43: 934–950. Levinthal, Daniel. 1991. “Random Walks and Organizational Mortality.” Administrative Science Quarterly 36, no. 3: 397–420. Levitt, Steven, and Stephen Dubner. 2009.


pages: 517 words: 147,591

Small Wars, Big Data: The Information Revolution in Modern Conflict by Eli Berman, Joseph H. Felter, Jacob N. Shapiro, Vestal Mcintyre

basic income, call centre, centre right, clean water, crowdsourcing, demand response, drone strike, experimental economics, failed state, George Akerlof, Google Earth, HESCO bastion, income inequality, income per capita, information asymmetry, Internet of things, iterative process, land reform, mandatory minimum, minimum wage unemployment, moral hazard, natural language processing, RAND corporation, randomized controlled trial, Ronald Reagan, school vouchers, statistical model, the scientific method, trade route, unemployed young men, WikiLeaks, World Values Survey

Stathis N. Kalyvas and Laia Balcells, “International System and Technologies of Rebellion: How the End of the Cold War Shaped Internal Conflict,” American Political Science Review 104, no. 3 (2010): 415–29; Roger D. Petersen, Resistance and Rebellion: Lessons from Eastern Europe (Chicago: University of Chicago Press, 2006). 3 INFORMATION-CENTRIC INSURGENCY AND COUNTERINSURGENCY 1. Work in experimental economics has shown that people operating in familiar settings in which they have substantial experience tend to calculate utilities correctly and play a range of complicated equilibrium strategies. These findings are explored in a range of publications, including these: John A. List, “Does Market Experience Eliminate Market Anomalies?” Quarterly Journal of Economics 118, no. 1 (2003): 41–71; Steven D.


pages: 470 words: 148,730

Good Economics for Hard Times: Better Answers to Our Biggest Problems by Abhijit V. Banerjee, Esther Duflo

"Robert Solow", 3D printing, affirmative action, Affordable Care Act / Obamacare, Airbnb, basic income, Bernie Sanders, business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, charter city, correlation does not imply causation, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, decarbonisation, Deng Xiaoping, Donald Trump, Edward Glaeser, en.wikipedia.org, endowment effect, energy transition, Erik Brynjolfsson, experimental economics, experimental subject, facts on the ground, fear of failure, financial innovation, George Akerlof, high net worth, immigration reform, income inequality, Indoor air pollution, industrial cluster, industrial robot, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, Jean Tirole, Jeff Bezos, job automation, Joseph Schumpeter, labor-force participation, land reform, loss aversion, low skilled workers, manufacturing employment, Mark Zuckerberg, mass immigration, Network effects, new economy, New Urbanism, non-tariff barriers, obamacare, offshore financial centre, open economy, Paul Samuelson, place-making, price stability, profit maximization, purchasing power parity, race to the bottom, RAND corporation, randomized controlled trial, Richard Thaler, ride hailing / ride sharing, Robert Gordon, Ronald Reagan, school choice, Second Machine Age, secular stagnation, self-driving car, shareholder value, short selling, Silicon Valley, smart meter, social graph, spinning jenny, Steve Jobs, technology bubble, The Chicago School, The Future of Employment, The Market for Lemons, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, total factor productivity, trade liberalization, transaction costs, trickle-down economics, universal basic income, urban sprawl, very high income, War on Poverty, women in the workforce, working-age population, Y2K

In other words, the BTB policy led employers to rely on race to predict criminality, which is of course statistical discrimination. That people are using statistical logic does not, of course, mean they are always drawing the right inferences from it. In one study, researchers asked Ashkenazi Jews (European or American Jews and their descendants) in Israel to play a trust game with Eastern Jews (Asian and African immigrants and their descendants). The trust game is one of the mainstays of experimental economics. It is played by two people, one of whom, the sender, is given a certain amount of money and asked to share some part of it with the other person, the receiver. The amount could be zero and is entirely left to the sender’s discretion. However, they are both told that if the sender shares any of it, that shared amount will be tripled and given to the receiver, who then has full control over the money.


Blueprint: The Evolutionary Origins of a Good Society by Nicholas A. Christakis

agricultural Revolution, Alfred Russel Wallace, Amazon Mechanical Turk, assortative mating, Cass Sunstein, crowdsourcing, David Attenborough, different worldview, disruptive innovation, double helix, epigenetics, experimental economics, experimental subject, invention of agriculture, invention of gunpowder, invention of writing, iterative process, job satisfaction, Joi Ito, joint-stock company, land tenure, Laplace demon, longitudinal study, Mahatma Gandhi, Marc Andreessen, means of production, mental accounting, meta analysis, meta-analysis, microbiome, out of africa, phenotype, Pierre-Simon Laplace, placebo effect, race to the bottom, Ralph Waldo Emerson, replication crisis, Rubik’s Cube, Silicon Valley, social intelligence, social web, stem cell, Steven Pinker, the scientific method, theory of mind, twin studies, ultimatum game, zero-sum game

Heath, “Inside Amazon’s Clickworker Platform,” TechRepublic, 2016, https://www.techrepublic.com/article/inside-amazons-clickworker-platform-how-half-a-million-people-are-training-ai-for-pennies-per-task/. 3. J. Bohannon, “Psychologists Grow Increasingly Dependent on Online Research Subjects,” Science, June 7, 2016. 4. J. J. Horton, D. G. Rand, and R. J. Zeckhauser, “The Online Laboratory: Conducting Experiments in a Real Labor Market,” Experimental Economics 14 (2011): 399–425; E. Snowberg and L. Yariv, “Testing the Waters: Behavior Across Participant Pools” (working paper no. 24781, National Bureau of Economic Research, June 2018). 5. M. Zelditch, “Can You Really Study an Army in the Laboratory?,” in A. Etzioni, ed., Complex Organizations, 2nd ed. (New York: Holt, Rinehart, and Winston, 1969) pp. 528–539. 6. D. Rand, S. Arbesman, and N. A.


Termites of the State: Why Complexity Leads to Inequality by Vito Tanzi

"Robert Solow", accounting loophole / creative accounting, Affordable Care Act / Obamacare, Andrei Shleifer, Andrew Keen, Asian financial crisis, asset allocation, barriers to entry, basic income, bitcoin, Black Swan, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, clean water, crony capitalism, David Graeber, David Ricardo: comparative advantage, deindustrialization, Donald Trump, Double Irish / Dutch Sandwich, experimental economics, financial repression, full employment, George Akerlof, Gini coefficient, Gunnar Myrdal, high net worth, hiring and firing, illegal immigration, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jean Tirole, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labor-force participation, libertarian paternalism, Long Term Capital Management, market fundamentalism, means of production, moral hazard, Naomi Klein, New Urbanism, obamacare, offshore financial centre, open economy, Pareto efficiency, Paul Samuelson, price stability, principal–agent problem, profit maximization, pushing on a string, quantitative easing, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Second Machine Age, secular stagnation, self-driving car, Silicon Valley, Simon Kuznets, The Chicago School, The Great Moderation, The Market for Lemons, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, Tyler Cowen: Great Stagnation, universal basic income, unorthodox policies, urban planning, very high income, Vilfredo Pareto, War on Poverty, Washington Consensus, women in the workforce

In the new century, an important new government role began that has accelerated in recent years: the use of paternalistically inspired regulations and so-called public nudges to promote, on the part of citizens and enterprises, behavior considered socially desirable (see Thaler and Sunstein, 2008). Some of these new regulations, or simply nudges, were justified and promoted using results obtained from experiments conducted by a fastgrowing new branch of economics called “experimental economics” (see Lewis, 2017). The nudges had the virtue of not needing compulsion on the part of the government or (significant) public resources. Therefore, the movement could be considered “paternalistically libertarian,” because individuals and enterprises were free to ignore the nudges, at low or no costs. Some of the new regulations were backed by, and were thus justified by, new scientific results, for example, those related to bans on smoking in public places and to the use of particular chemical substances, and, increasingly, by environmental concerns and the need to maintain biological diversity and to decrease the incidence of some illnesses.


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Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown by Philip Mirowski

"Robert Solow", Alvin Roth, Andrei Shleifer, asset-backed security, bank run, barriers to entry, Basel III, Berlin Wall, Bernie Madoff, Bernie Sanders, Black Swan, blue-collar work, Bretton Woods, Brownian motion, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, constrained optimization, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, dark matter, David Brooks, David Graeber, debt deflation, deindustrialization, do-ocracy, Edward Glaeser, Eugene Fama: efficient market hypothesis, experimental economics, facts on the ground, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, full employment, George Akerlof, Goldman Sachs: Vampire Squid, Hernando de Soto, housing crisis, Hyman Minsky, illegal immigration, income inequality, incomplete markets, information asymmetry, invisible hand, Jean Tirole, joint-stock company, Kenneth Arrow, Kenneth Rogoff, Kickstarter, knowledge economy, l'esprit de l'escalier, labor-force participation, liberal capitalism, liquidity trap, loose coupling, manufacturing employment, market clearing, market design, market fundamentalism, Martin Wolf, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Naomi Klein, Nash equilibrium, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, oil shock, Pareto efficiency, Paul Samuelson, payday loans, Philip Mirowski, Ponzi scheme, precariat, prediction markets, price mechanism, profit motive, quantitative easing, race to the bottom, random walk, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, school choice, sealed-bid auction, Silicon Valley, South Sea Bubble, Steven Levy, technoutopianism, The Chicago School, The Great Moderation, the map is not the territory, The Myth of the Rational Market, the scientific method, The Wisdom of Crowds, theory of mind, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, Tobin tax, too big to fail, transaction costs, Vilfredo Pareto, War on Poverty, Washington Consensus, We are the 99%, working poor

The unbearable lightness of the economy within neoclassicism is only the tip of the iceberg. Let us look more closely at the practical mechanics of orthodox contemporary “economics imperialism.” While gleefully encroaching upon the spheres of interest of other disciplines, orthodox economics has also freely appropriated formalisms and methods from those other disciplines: think of the advent of “experimental economics” or the embrace of magnetic resonance imaging, or attempts to absorb chaos theory or nonstandard analysis or Brownian motion through the Ito calculus. Indeed, if there has been any conceptual constant throughout the history of neoclassical theory since the 1870s, it has been slavish attempts to slake its physics envy through gorging on half-digested imitations of physical models. A social science so promiscuous in its avidity to mimic the tools and techniques of other disciplines has no principled discrimination about what constitutes just and proper argumentation within its own sphere; and this has only become aggravated in the decades since 1980.


Atomic Accidents: A History of Nuclear Meltdowns and Disasters: From the Ozark Mountains to Fukushima by James Mahaffey

clean water, Ernest Rutherford, experimental economics, Google Earth, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, loose coupling, Menlo Park, mutually assured destruction, Richard Feynman, Ronald Reagan, Saturday Night Live, uranium enrichment, wage slave, wikimedia commons

There are many fine hydroelectric dams in the United States, each demonstrating the American ability to bend nature to our needs with well-thought-out engineering practice and the skill necessary to build large things. In 1961 the United States and the Soviet Union were engaged in an all-out war. It was a cold war, in which the purpose was not to see how many of the other side we could kill but to prove who had the superior experimental economic system. It was an American form of capitalism against a Russian form of communism, and the battles raged on many fronts. The Soviets had already cleaned our plow in the race for manned space flight, putting Vostok 1 with Yuri Gagarin into orbit on April 14. We were falling way behind. Thinking to show the U.S., which had built the magnificent Hoover Dam in Nevada, how to really build a hydroelectric plant, the Soviet Union decided to construct the world’s largest reservoir to produce an impressive 6.4 billion watts of power using a line of ten turbo-generators.


pages: 733 words: 179,391

Adaptive Markets: Financial Evolution at the Speed of Thought by Andrew W. Lo

"Robert Solow", Albert Einstein, Alfred Russel Wallace, algorithmic trading, Andrei Shleifer, Arthur Eddington, Asian financial crisis, asset allocation, asset-backed security, backtesting, bank run, barriers to entry, Berlin Wall, Bernie Madoff, bitcoin, Bonfire of the Vanities, bonus culture, break the buck, Brownian motion, business cycle, business process, butterfly effect, buy and hold, capital asset pricing model, Captain Sullenberger Hudson, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computerized trading, corporate governance, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, Daniel Kahneman / Amos Tversky, delayed gratification, Diane Coyle, diversification, diversified portfolio, double helix, easy for humans, difficult for computers, Ernest Rutherford, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, Fall of the Berlin Wall, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, Fractional reserve banking, framing effect, Gordon Gekko, greed is good, Hans Rosling, Henri Poincaré, high net worth, housing crisis, incomplete markets, index fund, interest rate derivative, invention of the telegraph, Isaac Newton, James Watt: steam engine, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, Joseph Schumpeter, Kenneth Rogoff, London Interbank Offered Rate, Long Term Capital Management, longitudinal study, loss aversion, Louis Pasteur, mandelbrot fractal, margin call, Mark Zuckerberg, market fundamentalism, martingale, merger arbitrage, meta analysis, meta-analysis, Milgram experiment, money market fund, moral hazard, Myron Scholes, Nick Leeson, old-boy network, out of africa, p-value, paper trading, passive investing, Paul Lévy, Paul Samuelson, Ponzi scheme, predatory finance, prediction markets, price discovery process, profit maximization, profit motive, quantitative hedge fund, quantitative trading / quantitative finance, RAND corporation, random walk, randomized controlled trial, Renaissance Technologies, Richard Feynman, Richard Feynman: Challenger O-ring, risk tolerance, Robert Shiller, Robert Shiller, Sam Peltzman, Shai Danziger, short selling, sovereign wealth fund, Stanford marshmallow experiment, Stanford prison experiment, statistical arbitrage, Steven Pinker, stochastic process, stocks for the long run, survivorship bias, Thales and the olive presses, The Great Moderation, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, Tobin tax, too big to fail, transaction costs, Triangle Shirtwaist Factory, ultimatum game, Upton Sinclair, US Airways Flight 1549, Walter Mischel, Watson beat the top human players on Jeopardy!, WikiLeaks, Yogi Berra, zero-sum game

But when there are no common risks, the entire population can behave in exactly the same way, because there’s virtually no chance that all the individuals will experience a bad outcome at the same time (the one-in-amillion chance of all the independent tribbles getting rained on we The Adaptive Markets Hypothesis • 203 described before). The difference in adaptation between systematic and idiosyncratic risk is evolutionarily tremendous, giving rise to entirely different behaviors. As we saw earlier, nature abhors an undiversified bet. THE ORIGIN OF RISK AVERSION Probability matching may seem like foolish behavior in an experimental economics laboratory, but it’s likely to have originated from an environment where that kind of behavior conferred certain survival benefits that other behaviors did not. Using the mathematical framework that Tom and I developed, we can identify the specific environments that gave rise to such behavior. In other words, we can trace the origin of all sorts of behaviors to their evolutionary roots, rather than simply asserting that people behave in a certain way, as traditional economic theory often does.


Europe: A History by Norman Davies

agricultural Revolution, Albert Einstein, anti-communist, Berlin Wall, Bretton Woods, British Empire, business climate, centre right, charter city, clean water, Columbian Exchange, conceptual framework, continuation of politics by other means, Corn Laws, cuban missile crisis, Defenestration of Prague, discovery of DNA, double entry bookkeeping, Edmond Halley, Edward Lloyd's coffeehouse, equal pay for equal work, Eratosthenes, Etonian, European colonialism, experimental economics, financial independence, finite state, Francis Fukuyama: the end of history, Francisco Pizarro, full employment, global village, Honoré de Balzac, Index librorum prohibitorum, interchangeable parts, invention of agriculture, invention of movable type, Isaac Newton, James Hargreaves, James Watt: steam engine, Johann Wolfgang von Goethe, Johannes Kepler, John Harrison: Longitude, joint-stock company, Joseph-Marie Jacquard, land reform, liberation theology, long peace, Louis Blériot, Louis Daguerre, Mahatma Gandhi, mass immigration, Mikhail Gorbachev, Monroe Doctrine, Murano, Venice glass, music of the spheres, New Urbanism, North Sea oil, offshore financial centre, Peace of Westphalia, popular capitalism, Potemkin village, purchasing power parity, Ralph Waldo Emerson, road to serfdom, sceptred isle, Scramble for Africa, spinning jenny, Thales of Miletus, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, transatlantic slave trade, Transnistria, urban planning, urban sprawl

The CMEA allocated specialized tasks to each member country, and put great store on the dissemination of modern science and technology. This satisfied everyone, except Romania. But the main pilot scheme was launched in Hungary. Andropov, now head of the CPSU’s International Department, and Kádár both realized that the reign of terror which followed the Hungarian rising had created an opening for intelligent economic experimentation. Economic reform could proceed without the threat of political turbulence. ‘Goulash communism’ would cure well-fed citizens of their dreams of liberty. The main idea was to introduce limited market mechanisms into a system still controlled by the state, and to encourage enterprise, especially in agriculture, by relaxing controls on compulsory deliveries and land ownership. Results came swiftly: by the mid-1960s Hungary’s prosperity was leading people to forget its political misery.