experimental economics

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pages: 503 words: 131,064

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

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airport security, barriers to entry, Berlin Wall, Bernie Madoff, Bernie Sanders, Brian Krebs, Broken windows theory, carried interest, Cass Sunstein, Chelsea Manning, 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, 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

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

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Albert Einstein, Amazon Mechanical Turk, Andrei Shleifer, Apple's 1984 Super Bowl advert, Atul Gawande, Berlin Wall, Bernie Madoff, Black-Scholes formula, 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, invisible hand, Jean Tirole, John Nash: game theory, John von Neumann, late fees, law of one price, libertarian paternalism, Long Term Capital Management, loss aversion, market clearing, Mason jar, mental accounting, meta analysis, meta-analysis, More Guns, Less Crime, mortgage debt, Nash equilibrium, Nate Silver, New Journalism, nudge unit, 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, statistical model, Steve Jobs, 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, Walter Mischel

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

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Albert Einstein, Andrei Shleifer, asset allocation, asset-backed security, bank run, Benoit Mandelbrot, Black-Scholes formula, Bretton Woods, Brownian motion, capital asset pricing model, card file, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, 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, endowment effect, Eugene Fama: efficient market hypothesis, experimental economics, financial innovation, Financial Instability Hypothesis, floating exchange rates, George Akerlof, Henri Poincaré, Hyman Minsky, implied volatility, impulse control, index arbitrage, index card, index fund, invisible hand, Isaac Newton, John Nash: game theory, John von Neumann, joint-stock company, Joseph Schumpeter, libertarian paternalism, linear programming, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, market bubble, market design, New Journalism, Nikolai Kondratiev, Paul Lévy, 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 Shiller, Robert Shiller, rolodex, Ronald Reagan, shareholder value, Sharpe ratio, short selling, side project, Silicon Valley, South Sea Bubble, statistical model, 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, 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

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AltaVista, Andrei Shleifer, asset allocation, Cass Sunstein, 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, Joseph Schumpeter, knowledge economy, lone genius, Long Term Capital Management, market bubble, market clearing, market design, moral hazard, new economy, offshore financial centre, Picturephone, prediction markets, profit maximization, Richard Feynman, 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

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

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Asian financial crisis, asset allocation, Berlin Wall, Bretton Woods, Brownian motion, 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, 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, quantitative trading / quantitative finance, random walk, risk/return, Ronald Reagan, Schrödinger's Cat, short selling, Silicon Valley, South Sea Bubble, statistical model, stochastic process, 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: 519 words: 104,396

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

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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, laissez-faire capitalism, loss aversion, market bubble, mental accounting, meta analysis, meta-analysis, Nash equilibrium, new economy, payday loans, 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, 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: 302 words: 83,116

SuperFreakonomics by Steven D. Levitt, Stephen J. Dubner

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agricultural Revolution, airport security, Andrei Shleifer, Atul Gawande, barriers to entry, Bernie Madoff, call centre, clean water, cognitive bias, collateralized debt obligation, credit crunch, Daniel Kahneman / Amos Tversky, deliberate practice, disintermediation, endowment effect, experimental economics, food miles, indoor plumbing, John Nash: game theory, Joseph Schumpeter, 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 Feynman, Richard Thaler, South China Sea, Stephen Hawking, The Wealth of Nations by Adam Smith, too big to fail, trickle-down economics, ultimatum game, urban planning, 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: 330 words: 77,729

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

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Albert Einstein, banking crisis, Berlin Wall, Bretton Woods, business climate, 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, laissez-faire capitalism, liquidity trap, means of production, microcredit, minimum wage unemployment, open economy, paradox of thrift, 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

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.


pages: 270 words: 79,180

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

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Affordable Care Act / Obamacare, Airbnb, Al Roth, Black Swan, buy low sell high, Credit Default Swap, cross-subsidies, crowdsourcing, disintermediation, diversified portfolio, experimental economics, George Akerlof, Goldman Sachs: Vampire Squid, income inequality, index fund, Jean Tirole, Lean Startup, Lyft, Mark Zuckerberg, market microstructure, Martin Wolf, McMansion, Menlo Park, moral hazard, multi-sided market, Network effects, patent troll, Paul Graham, Peter Thiel, pez dispenser, ride hailing / ride sharing, 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, 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.


pages: 407 words: 109,653

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

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

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.


pages: 998 words: 211,235

A Beautiful Mind by Sylvia Nasar

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Al Roth, Albert Einstein, Andrew Wiles, Brownian motion, cognitive dissonance, Columbine, experimental economics, fear of failure, Henri Poincaré, invisible hand, Isaac Newton, John Conway, John Nash: game theory, John von Neumann, Kenneth Rogoff, linear programming, lone genius, market design, medical residency, Nash equilibrium, Norbert Wiener, Paul Erdős, 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

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.


pages: 282 words: 80,907

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

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Affordable Care Act / Obamacare, Airbnb, algorithmic trading, barriers to entry, Berlin Wall, bitcoin, Build a better mousetrap, centralized clearinghouse, computer age, 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

. [>] “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.


pages: 402 words: 110,972

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

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AI winter, algorithmic trading, asset allocation, banking crisis, barriers to entry, Big bang: deregulation of the City of London, butterfly effect, buttonwood tree, buy low sell high, capital asset pricing model, citizen journalism, collateralized debt obligation, corporate governance, Craig Reynolds: boids flock, 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, Gordon Gekko, implied volatility, index arbitrage, index fund, information retrieval, Internet Archive, John Nash: game theory, Khan Academy, 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, moral hazard, mutually assured destruction, natural language processing, 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, Richard Stallman, risk tolerance, risk-adjusted returns, risk/return, Ronald Reagan, 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

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.


pages: 411 words: 108,119

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

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Andrei Shleifer, availability heuristic, bank run, Black Swan, 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, invisible hand, Isaac Newton, iterative process, Loma Prieta earthquake, London Interbank Offered Rate, market bubble, market clearing, moral hazard, mortgage debt, placebo effect, price discrimination, price stability, RAND corporation, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, statistical model, stochastic process, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transaction costs, ultimatum game, University of East Anglia, urban planning

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

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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, 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, Haber-Bosch Process, happiness index / gross national happiness, high net worth, income inequality, income per capita, 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, manufacturing employment, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, Northern Rock, obamacare, offshore financial centre, oil shock, open borders, 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, 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.


pages: 654 words: 191,864

Thinking, Fast and Slow by Daniel Kahneman

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Albert Einstein, Atul Gawande, availability heuristic, 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, hindsight bias, index card, job satisfaction, John von Neumann, libertarian paternalism, loss aversion, medical residency, mental accounting, meta analysis, meta-analysis, nudge unit, pattern recognition, pre–internet, price anchoring, quantitative trading / quantitative finance, random walk, Richard Thaler, risk tolerance, Ronald Reagan, The Chicago School, The Wisdom of Crowds, 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: 415 words: 125,089

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

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Albert Einstein, Andrew Wiles, Antoine Gombaud: Chevalier de Méré, Big bang: deregulation of the City of London, Bretton Woods, buttonwood tree, capital asset pricing model, cognitive dissonance, 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, linear programming, loss aversion, Louis Bachelier, mental accounting, moral hazard, Nash equilibrium, probability theory / Blaise Pascal / Pierre de Fermat, random walk, Richard Thaler, Robert Shiller, Robert Shiller, spectrum auction, statistical model, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, trade route, transaction costs, tulip mania, Vanguard fund

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

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Atahualpa, barriers to entry, Burning Man, disintermediation, experimental economics, Firefox, Francisco Pizarro, jimmy wales, Kibera, Lao Tzu, Network effects, 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: 190 words: 61,970

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

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accounting loophole / creative accounting, Branko Milanovic, Cass Sunstein, clean water, experimental economics, illegal immigration, Martin Wolf, microcredit, 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

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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, 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: 209 words: 13,138

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

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barriers to entry, conceptual framework, correlation coefficient, discrete time, disintermediation, distributed generation, experimental economics, financial intermediation, index arbitrage, 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, short selling, statistical model, stochastic process, stochastic volatility, transaction costs, two-sided market, ultimatum 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: 411 words: 80,925

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

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Airbnb, barriers to entry, Bernie Madoff, bike sharing scheme, Buckminster Fuller, carbon footprint, Cass Sunstein, collaborative consumption, collaborative economy, Community Supported Agriculture, credit crunch, crowdsourcing, dematerialisation, disintermediation, en.wikipedia.org, experimental economics, George Akerlof, global village, 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 lending, 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: 291 words: 81,703

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

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Amazon Mechanical Turk, Black Swan, brain emulation, Brownian motion, Cass Sunstein, choice architecture, complexity theory, computer age, computer vision, 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, Khan Academy, labor-force participation, Loebner Prize, low skilled workers, manufacturing employment, Mark Zuckerberg, meta analysis, meta-analysis, microcredit, Narrative Science, Netflix Prize, Nicholas Carr, 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: 250 words: 88,762

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

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affirmative action, Albert Einstein, Andrei Shleifer, barriers to entry, Berlin Wall, 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

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: 309 words: 86,909

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

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Berlin Wall, clean water, Diane Coyle, epigenetics, experimental economics, experimental subject, Fall of the Berlin Wall, full employment, germ theory of disease, Gini coefficient, impulse control, income inequality, knowledge economy, labor-force participation, land reform, Louis Pasteur, meta analysis, meta-analysis, Milgram experiment, 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

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: 523 words: 111,615

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

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accounting loophole / creative accounting, affirmative action, bank run, banking crisis, Berlin Wall, bonus culture, Branko Milanovic, BRICs, 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, disintermediation, Edward Glaeser, 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, Hyman Minsky, If something cannot go on forever, it will stop, illegal immigration, income inequality, income per capita, invisible hand, Jane Jacobs, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour market flexibility, low skilled workers, market bubble, market design, market fundamentalism, megacity, Network effects, new economy, night-watchman state, Northern Rock, oil shock, principal–agent problem, profit motive, purchasing power parity, railway mania, rising living standards, Ronald Reagan, 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

“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: 350 words: 103,988

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

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accounting loophole / creative accounting, Albert Einstein, Andrei Shleifer, Anton Chekhov, Asian financial crisis, congestion charging, corporate governance, 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, invisible hand, Isaac Newton, job-hopping, John Harrison: Longitude, John von Neumann, land reform, lone genius, manufacturing employment, market clearing, market design, market friction, market microstructure, means of production, Network effects, new economy, offshore financial centre, 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: 484 words: 136,735

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

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bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Black Swan, bonus culture, Bretton Woods, BRICs, Carmen Reinhart, cognitive dissonance, collapse of Lehman Brothers, Corn Laws, correlation does not imply causation, 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, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Rogoff, laissez-faire capitalism, Long Term Capital Management, mandelbrot fractal, market design, market fundamentalism, Martin Wolf, moral hazard, mortgage debt, new economy, Northern Rock, offshore financial centre, oil shock, paradox of thrift, 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 Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, Washington Consensus

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

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accounting loophole / creative accounting, agricultural Revolution, barriers to entry, cognitive bias, David Ricardo: comparative advantage, Dean Kamen, Donald Trump, double entry bookkeeping, en.wikipedia.org, 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, linear programming, market bubble, market design, mutually assured destruction, Nash equilibrium, new economy, open economy, 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: 481 words: 125,946

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

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3D printing, agricultural Revolution, AI winter, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, algorithmic trading, artificial general intelligence, augmented reality, autonomous vehicles, 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, Elon Musk, Emanuel Derman, endowment effect, epigenetics, Ernest Rutherford, experimental economics, Flash crash, friendly AI, Google Glasses, hive mind, income inequality, information trail, Internet of things, invention of writing, iterative process, Jaron Lanier, job automation, 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, Search for Extraterrestrial Intelligence, self-driving car, sharing economy, Silicon Valley, Skype, smart contracts, 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

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bank run, banking crisis, barriers to entry, Bernie Madoff, 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, full employment, fundamental attribution error, George Akerlof, income inequality, invisible hand, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, land reform, loss aversion, Louis Bachelier, Mahatma Gandhi, Mark Zuckerberg, market bubble, market design, means of production, microcredit, moral hazard, mortgage debt, Occupy movement, passive investing, Ponzi scheme, prediction markets, profit maximization, quantitative easing, random walk, regulatory arbitrage, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, self-driving car, shareholder value, Sharpe ratio, short selling, Simon Kuznets, Skype, Steven Pinker, telemarketer, The Market for Lemons, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, Vanguard fund, young professional, 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.”


pages: 437 words: 113,173

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

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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 supply chain, Hyperloop, immigration reform, income inequality, indoor plumbing, industrial robot, information retrieval, intermodal, Internet of things, invention of the printing press, Isaac Newton, Islamic Golden Age, Khan Academy, Kickstarter, labour market flexibility, low cost carrier, low skilled workers, Lyft, Malacca Straits, megacity, Mikhail Gorbachev, moral hazard, Network effects, New Urbanism, non-tariff barriers, Occupy movement, On the Revolutions of the Heavenly Spheres, open economy, Panamax, personalized medicine, Peter Thiel, post-Panamax, profit motive, rent-seeking, reshoring, Robert Gordon, 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, TaskRabbit, too big to fail, trade liberalization, trade route, transaction costs, transatlantic slave trade, 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.


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

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Admiral Zheng, agricultural Revolution, Albert Einstein, BRICs, British Empire, butterfly effect, Carmen Reinhart, clockwork universe, computer age, Corn Laws, dark matter, David Ricardo: comparative advantage, Donald Trump, Edward Lorenz: Chaos theory, European colonialism, experimental economics, financial innovation, Fractional reserve banking, full employment, George Akerlof, germ theory of disease, Gini coefficient, greed is good, Howard Zinn, income per capita, interchangeable parts, invention of agriculture, invention of air conditioning, invention of writing, invisible hand, Isaac Newton, James Watt: steam engine, John Maynard Keynes: technological unemployment, John Snow's cholera map, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, means of production, Naomi Klein, New Economic Geography, New Urbanism, purchasing power parity, rent-seeking, road to serfdom, Robert Gordon, Ronald Coase, Ronald Reagan, Scientific racism, Scramble for Africa, Shenzhen was a fishing village, Simon Kuznets, Slavoj Žižek, spinning jenny, Steven Pinker, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, total factor productivity, transaction costs, tulip mania, union organizing, Upton Sinclair, urban renewal, V2 rocket, very high income, working poor, World Values Survey, Yogi Berra

Of course they do: they are farming the government, not merely the pastures, and the public lands are therefore nowadays overgrazed. But in olden days, such as the days of open-field agriculture, the land was private or was regulated when it mattered. And in any case, as the political scientist Elinor Ostrom has shown repeatedly, people cooperate, too: they do not always defect from the common good, as assumed by Hardin.108 It is one of the main findings of experimental economics that people cooperate much more than the prudence-only model Hardin was using would imply. Anyone who troubles to examine local regulations or legal cases in the not-so-wild West, or in English villages in the fourteenth century, will find stinting enforced.109 Hardin, though an impressive scholar in some other ways, appears not to have looked into the evidence. Likewise, if you look into the national and local regulations and legal cases in thirteenth century England you will find private property enforced — and never mind the alternative of “preinstitutional ‘natural’ private property” enforced by shame and ostracism that Gintis talks about.

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

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Albert Einstein, Asian financial crisis, Barry Marshall: ulcers, Berlin Wall, Big bang: deregulation of the City of London, 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, haute couture, illegal immigration, income inequality, invention of the telephone, invention of the wheel, invisible hand, John Nash: game theory, John von Neumann, Kevin Kelly, knowledge economy, labour market flexibility, late capitalism, 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, Naomi Klein, Nash equilibrium, new economy, oil shale / tar sands, oil shock, 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, 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 Death and Life of Great American Cities, The Market for Lemons, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, total factor productivity, transaction costs, tulip mania, urban decay, 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.

The Future of Technology by Tom Standage

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air freight, barriers to entry, business process, business process outsourcing, call centre, Clayton Christensen, computer vision, connected car, corporate governance, disintermediation, distributed generation, double helix, experimental economics, full employment, hydrogen economy, industrial robot, informal economy, interchangeable parts, job satisfaction, labour market flexibility, 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.


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

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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, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, constrained optimization, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, dark matter, David Brooks, David Graeber, debt deflation, deindustrialization, 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, invisible hand, Jean Tirole, joint-stock company, Kenneth Rogoff, knowledge economy, l'esprit de l'escalier, labor-force participation, liquidity trap, loose coupling, manufacturing employment, market clearing, market design, market fundamentalism, Martin Wolf, Mont Pelerin Society, moral hazard, mortgage debt, Naomi Klein, Nash equilibrium, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, oil shock, payday loans, 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, 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.