Kenneth Arrow

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pages: 206 words: 70,924

The Rise of the Quants: Marschak, Sharpe, Black, Scholes and Merton by Colin Read

Abraham Wald, Albert Einstein, Bayesian statistics, Bear Stearns, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, capital asset pricing model, collateralized debt obligation, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, discovery of penicillin, discrete time, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, fixed income, floating exchange rates, full employment, Henri Poincaré, implied volatility, index fund, Isaac Newton, John Meriwether, John von Neumann, Joseph Schumpeter, Kenneth Arrow, Long Term Capital Management, Louis Bachelier, margin call, market clearing, martingale, means of production, moral hazard, Myron Scholes, Paul Samuelson, price stability, principal–agent problem, quantitative trading / quantitative finance, RAND corporation, random walk, risk free rate, risk tolerance, risk/return, Robert Solow, Ronald Reagan, shareholder value, Sharpe ratio, short selling, stochastic process, Thales and the olive presses, Thales of Miletus, The Chicago School, the scientific method, too big to fail, transaction costs, tulip mania, Works Progress Administration, yield curve

Jacob Marschak, “Rational Behavior, Uncertain Prospects, and Measurable Utility,” Econometrica, 18(2) (1950), 111–41. 10. Ibid., p. 120. 11. Jacob Marschak, “Probability in the Social Sciences,” Cowles Commission Paper, 82 (1954), referring to a lecture given on December 6, 1950. 12. Ibid., p. 179. 13. Kenneth Arrow and Frank Hahn, General Competitive Analysis. San Francisco: Holden-Day, 1971, pp. 361 and 369. 6 Applications 1. Kenneth Arrow, “The Theory of Risk Aversion,” in Aspects of the Theory of Risk Bearing. Helsinki: Yrjo Jahnssonin Saatio, 1965. Reprinted in Essays in the Theory of Risk Bearing. Chicago: Markham, 1971, pp. 90–109. 182 Notes 183 2. J.W. Pratt, “Risk Aversion in the Small and in the Large,” Econometrica, 32(1/2) (1964), 122–36. 3.

Nevertheless, the necessity for action and for decision compels us as practical men to do our best to overlook this awkward fact and to behave exactly as we should if we had behind us a good Benthamite calculation of a series of prospective advantages and disadvantages, each multiplied by its appropriate probability waiting to be summed.1 The finance literature further clarified that there are calculable risks and that there are uncertainties that cannot be quantified. In the 1930s, John von Neumann set about producing a model of expected utility that permitted the inclusion of risk. Then, Leonard Jimmie Savage described how our individual perceptions affect the probability of uncertainty, and Kenneth Arrow was able to include these probabilities of uncertainty in a model that established the existence of equilibrium in a market for financial securities. With the existence of equilibrium and a better understanding of the meaning and significance of probability at hand, Harry Markowitz then packaged up these intuitions into a tidy set of insights we now call Modern Portfolio Theory.

These are the questions that the pricing analysts sought to resolve. 2 A Roadmap to Resolve the Big Questions In the first half of the twentieth century, Irving Fischer described why people save. John Maynard Keynes then showed how individuals adjust their portfolios between cash and less liquid assets, while Franco Modigliani demonstrated how all these personal financial decisions evolve over one’s lifetime. John von Neumann, Leonard Jimmie Savage, and Kenneth Arrow then incorporated uncertainty into the mix, and Harry Markowitz packaged the state of financial science into Modern Portfolio Theory. However, none of these great minds provided a satisfactory explanation for how the price of individual securities evolve over time. By the 1960s, the finance discipline was begging for a revolution that could turn the theoretical into the quantitative and practical.


Gaming the Vote: Why Elections Aren't Fair (And What We Can Do About It) by William Poundstone

affirmative action, Albert Einstein, book value, business cycle, Debian, democratizing finance, desegregation, Donald Trump, en.wikipedia.org, Everything should be made as simple as possible, global village, guest worker program, guns versus butter model, hiring and firing, illegal immigration, invisible hand, jimmy wales, John Nash: game theory, John von Neumann, Kenneth Arrow, manufacturing employment, Nash equilibrium, Paul Samuelson, Pierre-Simon Laplace, prisoner's dilemma, Ralph Nader, RAND corporation, Ronald Reagan, Silicon Valley, slashdot, the map is not the territory, Thomas Bayes, Tragedy of the Commons, transcontinental railway, Unsafe at Any Speed, Y2K

Senate Collection. Center for Legislative Archives) To Scott Contents Prologue: The Wizard and the Lizard 3 THE PROBLEM 25 I. Game Theory Kurt Code! • Adolf Hitler· Albert Einstein· Oskar Morgenstern· Bambi· the u.s. Constitution· Joseph Goebbels • God· Kaiser Wilhelm II • John von Neumann" Kenneth Arrow" J\'larxism • Alfred Tarski • intransitivity· Harold Hotelling· ice cream· John Hicks· "Scissors, Paper. Stone" • Duncan Black· the "forty-seven-year-old wife of a machinist liVing in Dayton. Ohio" • the RAND Corporation· Condoleezzrl Rice· Olaf Helmer· Harry Truman· Joseph Stalin· Abram Bergson 2.

The consequences are weakened mandates, loss of faith in the democratic process, squandered dollars, and sometimes squandered lives. This book asks a simple question: Is it possible to devise a fair way of voting, one immune to vote splitting? Until recently, any wellinformed person would have told you the answer was a most definite no. They would have cited the work of Nobel-laureate economist Kenneth Arrow and his famous impossibility theorem. In 1948 Arrow devised a logical proof saying (very roughly) that no voting system is perfect. Arrow was not talking about hanging chads, confusing ballot designs, hacked electronic machines, or any type of outright fraud. Such problems, though serious, can be fixed.

They have gone largely unnoticed by the public, the media, and nearly everyone except the campaign strategists and their clients. The story of vote splitting is one of political hardball. It is equally a tale of attempts to improve the world through logic (and how rarely that works out). In both cases, the story properly begins with Kenneth Arrow's lauded, feared, and long-misunderstood impossibility theorem. 22 THE PROBLEM ONE Game Theory Kurt Giidel, the most brilliant logician of the twentieth century, had no interest in politics. He showed no apparent alarm when Hitler became chancellor of Germany. (Codel closed a 1936 letter with a cordial "Heil Hitler:') He was equally unconcerned when Hitler annexed Austria in 1938.


pages: 461 words: 128,421

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

"Friedman doctrine" OR "shareholder theory", Abraham Wald, activist fund / activist shareholder / activist investor, Alan Greenspan, Albert Einstein, Andrei Shleifer, AOL-Time Warner, asset allocation, asset-backed security, bank run, beat the dealer, behavioural economics, Benoit Mandelbrot, Big Tech, Black Monday: stock market crash in 1987, Black-Scholes formula, book value, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, card file, Carl Icahn, Cass Sunstein, collateralized debt obligation, compensation consultant, complexity theory, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, democratizing finance, Dennis Tito, discovery of the americas, diversification, diversified portfolio, Dr. Strangelove, Edward Glaeser, Edward Thorp, endowment effect, equity risk premium, Eugene Fama: efficient market hypothesis, experimental economics, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, George Akerlof, Glass-Steagall Act, Henri Poincaré, Hyman Minsky, implied volatility, impulse control, index arbitrage, index card, index fund, information asymmetry, invisible hand, Isaac Newton, John Bogle, John Meriwether, John Nash: game theory, John von Neumann, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Arrow, libertarian paternalism, linear programming, Long Term Capital Management, Louis Bachelier, low interest rates, mandelbrot fractal, market bubble, market design, Michael Milken, Myron Scholes, New Journalism, Nikolai Kondratiev, Paul Lévy, Paul Samuelson, pension reform, performance metric, Ponzi scheme, power law, prediction markets, proprietary trading, prudent man rule, pushing on a string, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk/return, road to serfdom, Robert Bork, Robert Shiller, rolodex, Ronald Reagan, seminal paper, shareholder value, Sharpe ratio, short selling, side project, Silicon Valley, Skinner box, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, stocks for the long run, tech worker, 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, Two Sigma, Tyler Cowen, value at risk, Vanguard fund, Vilfredo Pareto, volatility smile, Yogi Berra

To provide for economic equilibrium in the face of economic uncertainty, Kenneth Arrow had proposed in the 1950s that there needed to be securities for sale representing every possible state of the future. That seemed a purely theoretical ideal at the time, of course. By the mid-1970s, though, one of Arrow’s students, Steve Ross, was proclaiming that—thanks to option-pricing theory—the financial world was moving in that direction. Ross had majored in physics as an undergraduate at Caltech, and then studied economics at Harvard with Kenneth Arrow. He landed a teaching job at the University of Pennsylvania, and discovered options theory when Fischer Black gave a seminar on campus.

In the 1980s he went over to managing money himself. Stephen Ross Student of Kenneth Arrow, co-originator of the binomial option pricing model. Argued that options and other derivatives were bringing the world closer to economic perfection. Founded a money management firm with Richard Roll. Mark Rubinstein Coauthor with Stephen Ross of the binomial option pricing model. Cofounder with Hayne Leland and John O’Brien of the portfolio insurance firm LOR. Paul Samuelson Greatest American economist of the second half of the twentieth century (although some might favor Kenneth Arrow or Milton Friedman). Finance was just a side interest for him, but he devised the first mathematical proof of the efficient market hypothesis and came close to solving the option-pricing puzzle.

Herbert Simon Economist at Carnegie-Mellon University who theorized in the 1950s that humans didn’t optimize, as most of his colleagues assumed, but “satisficed”—that is, came up with simple but not always entirely rational solutions to his problems. Winner of the 1978 economics Nobel. Joseph Stiglitz Student of Paul Samuelson and Franco Modigliani who, influenced by the work of Kenneth Arrow, showed how the efficient market hypothesis could not be—in theory at least—entirely true. Co-winner of the 2001 economics Nobel. Lawrence Summers Nephew of Paul Samuelson and Kenneth Arrow. Author of sharp critiques of efficient market finance in the 1980s and early 1990s who went on to be Secretary of Treasury in the Clinton administration and top economic adviser to President Barack Obama.


pages: 415 words: 125,089

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

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

Molly Baker, Peter Brodsky, Robert Ferguson, Richard Geist, and William Lee were good enough to read segments of early versions of the manuscript. They gave me the running start I needed in order to transform rough drafts into a finished material. The following people also made significant contributions to my work and warrant my deepest appreciation: Kenneth Arrow, Gilbert Bassett, William Baumol, Zalmon Bernstein, Doris Bullard, Paul Davidson, Donald Dewey, David Durand, Barbara Fotinatos, James Fraser, Greg Hayt, Roger Hertog, Victor Howe, Bertrand Jacquillat, Daniel Kahneman, Mary Kentouris, Mario Laserna, Dean LeBaron, Michelle Lee, Harry Markowitz, Morton Meyers, James Norris, Todd Petzel, Paul Samuelson, Robert Shiller, Charles Smithson, Robert Solow, Meir Statman, Marta Steele, Richard Thaler, James Tinsley, Frank Trainer, Amos Tversky,* and Marina von N.

The late Fischer Black, a pioneering theoretician of modern finance who moved from M.I.T. to Wall Street, said, "Markets look a lot less efficient from the banks of the Hudson than from the banks of the Charles."2 Over time, the controversy between quantification based on observations of the past and subjective degrees of belief has taken on a deeper significance. The mathematically driven apparatus of modern risk management contains the seeds of a dehumanizing and self-destructive technology. Nobel laureate Kenneth Arrow has warned, "[O]ur knowledge of the way things work, in society or in nature, comes trailing clouds of vagueness. Vast ills have followed a belief in certainty."3 In the process of breaking free from the past we may have become slaves of a new religion, a creed that is just as implacable, confining, and arbitrary as the old.

One might expect, as a result, that the history of utility theory and decision-making would be dominated by Bernoullians, especially since Daniel Bernoulli was such a well-known scientist. Yet such is not the case: most later developments in utility theory were new discoveries rather than extensions of Bernoulli's original formulations. Was the fact that Bernoulli wrote in Latin a problem? Kenneth Arrow has pointed out that Bernoulli's paper on a new theory of measuring risk was not translated into German until 1896, and that the first English translation appeared in an American scholarly journal as late as 1954. Yet Latin was still in common usage in mathematics well into the nineteenth century; and the use of Latin by Gauss was surely no barrier to the attention that his ideas commanded.


Adam Smith: Father of Economics by Jesse Norman

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

(National Galleries Scotland) 10. Statue of Adam Smith by Alexander Stoddart, 2008. (Realy Easy Star/Giuseppe Masci/Alamy) 11. Statue of David Hume by Alexander Stoddart, 1995. (Chris Dorney/ Alamy) 12. John Maynard Keynes and Henry Morgenthau at Bretton Woods, New Hampshire, July 1944. (Alfred Eisenstaedt/Time/Getty) 13. Kenneth Arrow carrying his Nobel prize, Stockholm 1972. (AP/REX/Shutterstock) 14. Adam Smith medallion by James Tassie, 1787. (National Galleries of Scotland) 15. Back of a £20 banknote. (Copyright © The Governor and the Company of the Bank of England, 2006) INTRODUCTION Adam, Adam, Adam Smith Listen what I charged you with!

In a wide range of areas, from markets to crony capitalism to inequality to the social foundations of our lives, there are profound lessons to be drawn from his thought, as we shall see. In the next chapter, we turn to his influence on economics itself. CHAPTER 7 SMITH’S ECONOMICS THINK OF IT AS AN ECONOMIC JUST-SO STORY. AT THE START OF their highly successful economics textbook, the dauntingly entitled General Competitive Analysis of 1971, Kenneth Arrow and Frank Hahn acknowledged the importance of Adam Smith: There is by now a long and fairly imposing line of economists from Adam Smith to the present who have sought to show that a decentralized economy motivated by self-interest and guided by price signals would be compatible with a coherent disposition of economic resources that could be regarded, in a well-defined sense, as superior to a large class of possible alternative dispositions… Adam Smith’s ‘invisible hand’ is a poetic expression of the most fundamental of economic balance relations… [But] Smith also perceived the most important implication of general equilibrium theory… Thus it can be maintained that Smith was a creator of general equilibrium theory, though the coherence and consistency of his work may be questioned.

Decoded, however, its message is plain: Adam Smith was the first person to grasp, albeit vaguely, that individual self-interest working across different freely functioning markets under conditions of perfect competition can generate superior economic efficiency. It may not look like it, but this is a tribute to genius. This idea was and remains arguably the central insight of mainstream modern economics. But for the lead author of the book, Kenneth Arrow, widely regarded as one of the greatest economists of all time, there was another and more personal reason to start with Smith. In 1954, with the brilliant French mathematical economist Gérard Debreu—and alongside Lionel McKenzie, working separately—Arrow had discovered what many saw as the philosopher’s stone of modern economics.


pages: 545 words: 137,789

How Markets Fail: The Logic of Economic Calamities by John Cassidy

Abraham Wald, Alan Greenspan, Albert Einstein, An Inconvenient Truth, Andrei Shleifer, anti-communist, AOL-Time Warner, asset allocation, asset-backed security, availability heuristic, bank run, banking crisis, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, Black-Scholes formula, Blythe Masters, book value, Bretton Woods, British Empire, business cycle, capital asset pricing model, carbon tax, Carl Icahn, centralized clearinghouse, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, corporate raider, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Daniel Kahneman / Amos Tversky, debt deflation, different worldview, diversification, Elliott wave, Eugene Fama: efficient market hypothesis, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, Garrett Hardin, George Akerlof, Glass-Steagall Act, global supply chain, Gunnar Myrdal, Haight Ashbury, hiring and firing, Hyman Minsky, income per capita, incomplete markets, index fund, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kickstarter, laissez-faire capitalism, Landlord’s Game, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, Mikhail Gorbachev, military-industrial complex, Minsky moment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, Naomi Klein, negative equity, Network effects, Nick Leeson, Nixon triggered the end of the Bretton Woods system, Northern Rock, paradox of thrift, Pareto efficiency, Paul Samuelson, Phillips curve, Ponzi scheme, precautionary principle, price discrimination, price stability, principal–agent problem, profit maximization, proprietary trading, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, RAND corporation, random walk, Renaissance Technologies, rent control, Richard Thaler, risk tolerance, risk-adjusted returns, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, subprime mortgage crisis, tail risk, Tax Reform Act of 1986, technology bubble, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, too big to fail, Tragedy of the Commons, transaction costs, Two Sigma, unorthodox policies, value at risk, Vanguard fund, Vilfredo Pareto, wealth creators, zero-sum game

Rather than confining myself to expounding the arguments of Friedrich Hayek, Milton Friedman, and their fellow members of the “Chicago School,” I have also included an account of the formal theory of the free market, which economists refer to as general equilibrium theory. Friedman’s brand of utopian economics is much better known, but it is the mathematical exposition, associated with names like Léon Walras, Vilfredo Pareto, and Kenneth Arrow, that explains the respect, nay, awe with which many professional economists view the free market. Even today, many books about economics give the impression that general equilibrium theory provides “scientific” support for the idea of the economy as a stable and self-correcting mechanism. In fact, the theory does nothing of the kind.

Many of the scholars associated with the Cowles Commission were mathematicians and natural scientists who had turned to economics mainly because it provided interesting technical problems to study. In 1948, Tjalling Koopmans, a Dutchman and naturalized American who had started out in theoretical physics, became the research director at Cowles, and he gathered around him an assortment of brilliant young minds. One belonged to Kenneth Arrow, who was born in New York City in 1921 to a family of European Jewish immigrants. During the Great Depression, Arrow’s parents lost almost everything. Arrow graduated from City College in 1940 and enrolled in the graduate program in statistics at Columbia. After taking a class in economics with Harold Hotelling, a noted mathematical economist, he switched subjects and did his Ph.D. in economics.

From Walras onward, general equilibrium theorists had sought to start out with individual consumers and firms, each of them following a simple set of rules, and to build up a theory of how the economy as a whole behaves. Sonnenschein, Mantel, and Debreu essentially said this wasn’t possible: the whole could not be derived from the parts. “In the aggregate, the hypothesis of rational behavior has in general no implications,” Kenneth Arrow wrote in a 1986 article reviewing general equilibrium theory. The authors of a high-level textbook for Ph.D. students made the same point in a more lighthearted manner, entitling their section that deals with this body of research “Anything Goes: The Sonnenschein-Mantel-Debreu Theorem.” Some researchers are still trying to rescue the general equilibrium approach, but they face at least two formidable issues.


pages: 483 words: 134,377

The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor by William Easterly

air freight, Andrei Shleifer, battle of ideas, Bretton Woods, British Empire, business process, business process outsourcing, Carmen Reinhart, classic study, clean water, colonial rule, correlation does not imply causation, creative destruction, Daniel Kahneman / Amos Tversky, Deng Xiaoping, desegregation, discovery of the americas, Edward Glaeser, en.wikipedia.org, European colonialism, Ford Model T, Francisco Pizarro, fundamental attribution error, gentrification, germ theory of disease, greed is good, Gunnar Myrdal, income per capita, invisible hand, James Watt: steam engine, Jane Jacobs, John Snow's cholera map, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, low interest rates, M-Pesa, microcredit, Monroe Doctrine, oil shock, place-making, Ponzi scheme, public intellectual, risk/return, road to serfdom, Robert Solow, Silicon Valley, Steve Jobs, tacit knowledge, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, Thomas L Friedman, urban planning, urban renewal, Washington Consensus, WikiLeaks, World Values Survey, young professional

Hayek’s spontaneous order was related to an idea that was already a mainstream concept in economics—general equilibrium—which held that a system of uncontrolled markets in every possible consumer or producer product would be a self-regulating system that reconciled supply and demand in every market, with nobody in charge.45 Kenneth Arrow summed it all up in a sentence that sounds a lot like Hayek: “The notion that through the workings of an entire system effects may be very different from, and even opposed to, intentions is surely the most important intellectual contribution that economic thought has made to the general understanding of social processes.”46 Lawrence Summers, a Harvard economist who was treasury secretary under Bill Clinton (and coincidentally Kenneth Arrow’s nephew), wrote about Hayek: “What’s the single most important thing to learn from an economics course today?

But there was more to the risk that nationalism posed for freedom than just its threat to ethnic minorities. What exactly did the goal of “national development” mean? It could not make sense as just a unified aspiration of all individuals, when individuals have so many different goals of their own. Indeed, another Nobel laureate, Kenneth Arrow, was to demonstrate a famous “impossibility theorem” in 1950, showing that no method can exist to rank the choices of a collection of individuals in a way that satisfies the most elementary common-sense rules for consistency and coherence. Hayek was blunt that a “national goal” just covered up the fact that some goals for some groups were attained at the expense of other goals for other groups.

Tacit knowledge is the kind of trained and mostly unconscious knowledge needed, for example, to ride a bicycle—it does not work to follow a recipe on how to balance and turn the pedals. Economics examples include on-the-job learning, which is the main reason workers’ earnings rise with experience. Even purely technical solutions often require experience with that technology, in particular times and places, to fix the bugs. Tacit knowledge can only be gained through what Kenneth Arrow later called “learning by doing.” Tacit knowledge can certainly not be accessed by centralized problem-solvers. For Hayek, the advantages of a spontaneous order of free individuals is that it creates the incentives for individuals to utilize their own localized or tacit knowledge, without any need for anyone else to access it.


pages: 298 words: 95,668

Milton Friedman: A Biography by Lanny Ebenstein

Abraham Wald, affirmative action, Alan Greenspan, banking crisis, Berlin Wall, Bretton Woods, business cycle, classic study, Deng Xiaoping, Fall of the Berlin Wall, fiat currency, floating exchange rates, Francis Fukuyama: the end of history, full employment, Hernando de Soto, hiring and firing, inflation targeting, invisible hand, Joseph Schumpeter, Kenneth Arrow, Lao Tzu, liquidity trap, means of production, Modern Monetary Theory, Mont Pelerin Society, Myron Scholes, Pareto efficiency, Paul Samuelson, Phillips curve, Ponzi scheme, price stability, public intellectual, rent control, road to serfdom, Robert Bork, Robert Solow, Ronald Coase, Ronald Reagan, Sam Peltzman, school choice, school vouchers, secular stagnation, Simon Kuznets, stem cell, The Chicago School, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Thorstein Veblen, zero-sum game

Columbia was home of the retired John Bates Clark—the most esteemed economist America had produced—Wesley Mitchell, Hotelling, and John Maurice Clark, son of John B. Clark. Like Mitchell, John Maurice Clark had studied and taught at Chicago. Friedman says that Hotelling “undoubtedly influenced me most”14 in the year at Columbia. Hotelling, primarily a mathematician, has been described by Kenneth Arrow, a student and future Nobel laureate, as a “creative thinker in both mathematical statistics and economics.”15Friedman remembers Hotelling as “concise, rigorous, and lucid.... [H]e also had an extraordinary instinct for picking problems and making contributions of the greatest practical importance.”16 Friedman describes the active leaders in economics at Columbia in this way: “Hotelling did for mathematical statistics what Jacob Viner had done for economic theory: revealed it to be an integrated logical whole, not a set of cook-book recipes....Wesley C.

According to Lester Telser, now the senior continuous member of the faculty in the Department of Economics, who came to Chicago as a research assistant on the Cowles Commission in 1952: “While Cowles was here, the economics of Chicago was unparalleled in the world. I would say it was the leading center in economics. No one else even came close.”3 The only comparable gathering of scholars, according to Telser, was the Niels Bohr Institute of Physics in Copenhagen. According to Nobel laureate Kenneth Arrow, who was also at Chicago with the Cowles Commission, a “truly exceptional group of people was assembled in Chicago during the late 1940s. I doubt that such a group could ever be put together again in economics.”4 Here Arrow is not referring to the economists of Friedman’s perspective. Friedman wrote that he, as well as the rest of the economics department, significantly benefited from the location of Cowles at Chicago.

Christ, “The Cowles Commission’s Contributions to Econometrics at Chicago, 1939–1955,” Journal of Economic Literature (March 1994), for the perspective of a participant. Daniel Bell and Irving Kristol (eds.), The Crisis in Economic Theory (New York: Basic Books, 1981), is an excellent snapshot of where the economics profession was at that time. Contributors include, in addition to the editors, Kenneth Arrow, Peter Drucker, and Allan Meltzer. Friedman, though he does not contribute an essay, is the most discussed contemporaneous economist. James Dean notes in his essay that behind Friedman’s idea of a fixed rule for monetary growth is a “fundamental premise of pre-Keynesian laissez faire economics, namely that the private sector is self-stabilizing.


Phil Thornton by The Great Economists Ten Economists whose thinking changed the way we live-FT Publishing International (2014)

Alan Greenspan, availability heuristic, behavioural economics, Berlin Wall, bitcoin, Bretton Woods, British Empire, business cycle, business process, call centre, capital controls, Cass Sunstein, choice architecture, cognitive bias, collapse of Lehman Brothers, Corn Laws, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, double helix, endogenous growth, endowment effect, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, fiat currency, financial deregulation, fixed income, Ford Model T, full employment, hindsight bias, income inequality, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Kenneth Arrow, Kenneth Rogoff, Kickstarter, liquidity trap, loss aversion, mass immigration, means of production, mental accounting, Myron Scholes, paradox of thrift, Pareto efficiency, Paul Samuelson, Post-Keynesian economics, price mechanism, pushing on a string, quantitative easing, Richard Thaler, road to serfdom, Ronald Coase, Ronald Reagan, school vouchers, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, Toyota Production System, trade route, transaction costs, unorthodox policies, Vilfredo Pareto, women in the workforce

Much of that period saw him sparring with Friedman in particular. Although Samuelson said he was nervous of debating directly with Friedman – who was also a close personal friend – he represented the Keynesian tradition of government intervention and regulation against his counterpart’s strong free-market views. Verdict: credits and debits Kenneth Arrow, a fellow Nobel laureate economist, said in the introduction to the collection of essays celebrating Samuelson’s work that ‘modern economics is inconceivable without his accomplishments’. Paul Krugman, another laureate, said Samuelson had ‘literally created’ at least eight whole fields of economics, any one of which would have earned him a place among history’s greatest economic thinkers.

The idea that discrimination is costly to the discriminator is both common sense among economists today, and part of the reason why governments insist that employers and service providers cannot discriminate on the basis of prejudice. It has also fuelled future research. Nobel laureates Edmund Phelps and Kenneth Arrow built on Becker’s work to show that the beliefs held by employers, teachers and other influential groups that minority members are less productive can be selffulfilling, for these beliefs may cause minorities to under-invest in their education, training and work skills and this underinvestment does make them less productive.

Bush 139 influence on Margaret Thatcher 138–9 influence on Ronald Reagan 139 influence on the monetarists 138–9 key economic theories 122–36 key ideas 142 libertarian views 134–6, 140 long-term legacy 137–41 nature of the free market system 131–3 Nobel Prize (1974) 137 opposition to central state planning 134–6, 140 out of fashion 129–31 prices and knowledge 131–3 Prices and Production (1931) 126, 130 rejection of government control of the economy 120 study of philosophy and economics 121–22 The Road to Serfdom (1944) 135, 138, 140 time and the value of capital 124–6 verdict 141–2 Hegel, Georg 51–2, 54 herd behaviour 105 heuristics and bias in decision making 222–5 Hicks, John 173 High Speed 2 train line from London to the North 125 hindsight bias 227 242Index Hobbes, Thomas 5 hubris hypothesis 227 human behaviour, Becker’s approach 212–15 human capital theory (Becker) 200–2, 210 human decision making processes (Kahneman) 221–5 Hume, David 4, 97 Hutcheson, Francis 3–4 illusion of validity concept 220, 224 income inequality in the present day 64–6 individualism, view of Friedman 155–7 industrial districts 84–6, 87 industrial economics 84–6, 87 Industrial Revolution 11 inflation 107, 110 actions of the central banks 161 and Keynesian policies 127 and money supply 151–2 relationship with unemployment 153–5 Institute of Economic Affairs 138, 161 interest rates effects of adjustments 103–4 effects of credit expansion 123–4 natural rate of interest (Hayek) 123 intergenerational economics 178–80 International Bank of Reconstruction and Development 109 international economics and trade, view of Samuelson 183–7 International Monetary Fund (IMF) 108–9, 113, 186 international trade and comparative advantage (Ricardo) 35–8 international trade theory 184–5 intervention during economic depression, view of Keynes 92–3, 94, 105–6 investment, volatility caused by uncertainty 104–5 invisible hand concept (Smith) 7–9 Johnson, Harry 94 Johnson, Lyndon B. 110, 190 joint-stock companies 86 Kahneman, Daniel (1934– ) 206, 217–36 behavioural economics 218–19, 233–6 biases and errors in financial decision making 225–32 cognitive biases 222–5 decision making under risk 228–32 early life and influences 219–20 economic writings and theories 221–32 from psychology to economics 225–32 gambler’s fallacy (misconception of chance) 224 heuristics and bias in decision making 222–5 human decision making processes 221–5 illusion of validity concept 220, 224 long-term legacy 233–4 loss aversion 230–2 multidisciplinary approach to economics 218 Nobel Prize for economic sciences (2002) 218, 220 optimism bias and overconfidence 226–7 Prospect Theory 228–32, 234 Thinking, Fast and Slow (2012) 226–7, 234 verdict 235–6 Kennedy, John F. 110, 190 Keynes, John Maynard (1883–1946) 19, 73, 86, 91–116, 171 aggregate demand and the role of government 102–4 Bretton Woods agreement 95, 108–9 causes of unemployment 101 challenging the classical consensus 99–106 Index243 clash with Hayek 120, 126–31 criticism from monetarists 110–11 criticism of self-correction of markets 99, 105–6 criticism of the gold standard 95, 98, 107 criticism of the quantity theory of money 97 drivers of recession 101 early life and influences 93–4 effects of changes in money supply 97 effects of interest rate adjustments 103–4 effects of reducing wages 101–2 elevation to the House of Lords 106 end of the Keynesian revival 113–14 First World War and aftermath 95–7 focus on demand side economics 127 General Theory 99–106 Great Crash (1929) 98, 99 Great Depression (1930s) 99–100 International Bank of Reconstruction and Development 109 International Monetary Fund 108–9 investments as King’s College Bursar 98, 114 investor expectations and uncertainty 104–5 key ideas 115–16 liquidity preference theory 105, 113 long-term legacy 109–14 marginal propensity to consume (MPC) 103 marginal propensity to save (MPS) 103 move into economics 94–8 multiplier concept 103 national economist to international statesman 106–9 paradox of thrift 101 periods in and out of favour 92–3 plans for post-WWII international economy 107–9 popularity of Keynesianism 109–10 revival in the 2008 financial crisis 111–13 savings and investment 100–1 Second World War and aftermath 106–9 severe falls in output 101–2 state intervention during economic depression 92–3, 94, 105–6 Treaty of Versailles 95–6 and investment volatility 104–5 unpopularity beginning in the 1970s 110–11 verdict 115 Keynes, John Neville 93 Klaus, Vaclav 140 Kotlikoff, Laurence 179 Krugman, Paul 180, 191 Kuznets, Simon 148 Laar, Mart 140 labour-intensive goods, effects of increase in wages 33 labour market, human capital concept 200–2, 210 laissez-faire economic system 9 rejection by Keynes 105–6 law of diminishing returns 31 Lehman Brothers collapse (2008) 42, 67 Leviathan (Hobbes) 5 Levitt, Steve 234 libertarian views Friedman 157 Hayek 134–6, 140 life choices, economic perspective 203–6 Lindbeck, Assar 168 liquidity preference theory 105, 113 London School of Economics (LSE) 122, 126, 128 loss aversion 230–2 Lucas, Robert 202 244Index Mackintosh, William 109 Malthus, Thomas Robert 31, 33, 169 marginal analysis 80–2 marginal change concept (Marshall) 80–2 marginal propensity to consume (MPC) 103 marginal propensity to save (MPS) 103 marginal rate of substitution 180 market equilibrium price 76–7 market mechanism (Smith) 15–16 market price, supply and demand factors 15–16 market self-correction, criticism by Keynes 99, 105–6 marriage, economic perspective 203–6 Marshall, Alfred (1842–1924) 71–89, 170 and the business world 84–6 ceteris paribus approach to economic analysis 79–80 concept of time in supply and demand 77–9 early life and influences 73–4 economics as a science 73, 86 economics theories 75–86 elasticity of demand 82–4 geographical effects in economics 84–6 industrial districts 84–6, 87 industrial economics 84–6, 87 influence on Keynes 93, 95 interaction between costs and value 75–7 key ideas 88–9 long-term legacy 86–8 marginal analysis 80–2 marginal change concept 80–2 mathematical approach to economics 72 microeconomics 72, 86 political economy 74 price as interaction of supply and demand 75–9 Principles of Economics (1890) 72, 76, 77–8, 87–8, 188 supply and demand model 75–84 verdict 88 Marx, Karl (1818–83) 19, 49–68 and the global financial crisis (2008) 61–3 capitalist exploitation of the working class 56–8, 62–3 capitalist production process 54–6 communism 50 Communist Manifesto (Marx and Engels) 52, 58–61 Das Kapital 52, 53–4, 59–61, 62, 67–8 distribution of economic value 54–6 downfall of capitalism 56–8, 61–3 early life and influences 51–3 economics theories 53–8 ‘fictitious capital’ concept 62 income inequality in the present day 64–6 key ideas 68 long-term legacy 63–7 surplus value of labour 54–6 verdict 67–8 view of Marxist governments 66 mass production 11 Massachusetts Institute of Technology (MIT) 170 mathematical approach to economics Marshall 72 Samuelson 169–70 mercantilism 7–8, 22–3 mergers and acquisitions 226–7 Merton, Robert 187 microeconomics 172–3, 174, 196 work of Marshall 72, 86 Microsoft 233 middle class, rise of 64 Mieses, Ludwig von 121–2 Mill, James 30–1 Mill, John Stuart 30, 181 The Principles of Political Economy (1848) 188 Modigliani, Franco 173 monetarism 110, 138–9, 146, 151–2 monetarist rule 152 Index245 money supply and the Great Depression (1930s) 150–2 effects of changes in (Keynes) 97 role in running the economy 151–2 monopolies evil of 10–11 regulation to prevent 21–2 multiplier effect 103, 174–5 Murphy, Kevin 201, 210–12 NAIRU (non-accelerating inflation of unemployment) 153–5 Nashat, Guity 206 neoclassical synthesis 174 neo-Keynesianism 168–9, 173–5 net profit 81 New Classical Economics 159 New Deal (Franklin D. Roosevelt) 148 New Keynesianism 159, 163 New Neoclassical Synthesis 111 Nicholas I, Tsar 52 NINJA (No Income, No Job, No Assets) homebuyers 61–2 Nixon, Richard 109, 146 Nobel laureates Kenneth Arrow (1972) 191, 213 Gary Becker (1992) 194, 195–6 Ronald Coase (1991) 73 Peter Diamond (2010) 179 Eugene Fama (2013) 160, 187 Milton Friedman (1976) 146, 147–8, 154, 161 Lars Peter Hansen (2013) 160 Friedrich Hayek (1974) 137 Daniel Kahneman (2002) 218, 220 Paul Krugman (2008) 180, 191 Simon Kuznets (1971) 148 Robert Lucas (1995) 202 Robert Merton (1997) 187 Edmund Phelps (2006) 213 Paul Samuelson (1970) 168 Myron Scholes (1997) 187 Vernon Smith (2002) 218 non-accelerating inflation of unemployment (NAIRU) 153–5 Nordhaus, William 171, 178 North American Free Trade Agreement 41, 187 North, Lord 23 Obama, Barack 162, 190 offshoring of jobs 41 OPEC 22 opportunity cost concept 201, 205 optimism bias and overconfidence 226–7 outsourcing 21 overlapping generations (OLG) model 178–80 Pareto, Vilfredo 182 Pareto efficiency 182 pensions and pension funds 178 permanent income hypothesis (Friedman) 148–50 Perot, Ross 41 Phelps, Edmund 154, 213 Philip, Prince 158 Pigou, A.C. 95 Pinochet, Augusto 161 political economy 28, 74, 93 population growth theories Malthus 31 Ricardo 31, 32–3 Posner, Richard 215 Predictably Irrational (Ariely, 2009) 234 prejudice economic perspective of Becker 196–7, 198–9 views of Friedman 157 price, as interaction of supply and demand (Marshall) 75–9 prices and knowledge (Hayek) 131–3 Prices and Production (Hayek, 1931) 126, 130 Principles of Economics (Marshall, 1890) 72, 76, 77–8, 87–8, 188 private savings, influence of taxation policy 43–4 private sector windfalls, impact of stimulus measures 43–4 privatisation of state-owned monopolies 21 246Index productivity, and division of labour 11–14 Prospect Theory (Kahneman) 228–32, 234 protectionism 22–3, 33–5, 41–2, 185 public goods economics 175–8 purchasing price parity (PPP) measures 186 quantitative easing 162, 163 quantity theory of money, criticism by Keynes 97 Rae, John 23 rational choice model (Becker) 197, 212–15, 216 challenge from Kahneman 221–33 rational expectations hypothesis 111, 137 Reagan, Ronald 19, 20, 139, 146, 158, 160 recession drivers of (Keynes) 101 see also Great Recession (2009) reflection effect 229 revealed preference theory 180–1 reverse elasticity 84 Ricardo, Abraham 28–9 Ricardo, David (1772–1823) 27–46, 183 attack on the Corn Laws 33–5 early life and influences 28–30 from finance to economics 30–1 global free trade 40–2 government debt 38–9 influence of Adam Smith 30 international trade and comparative advantage 35–8 key ideas 46 long-term legacy 40–4 on the general workings of the economy 31–3 on wealth creation and distribution 31–3 political career 30 population growth theories 31, 32–3 The Principles of Political Economy and Taxation (1817) 28, 31–3, 188 Ricardian equivalence 38–9 Ricardo effect 33 verdict 45–6 wine and cloth example 35, 37, 40–1 Ricardian equivalence 38–9 Ricardo effect 33 Robbins, Lionel 122, 129 Rogeberg, Ole 211 Rogoff, Kenneth 189–90 Roosevelt, Franklin D. 148 Samuelson, Paul (1915–2009) 37, 106, 137, 159, 167–92 autarky concept 184 early life and influences 169–70 economics in action 190–1 Economics: An Introductory Analysis (1948) 168, 171–3, 188–9 efficient markets 187 ethical judgements in economics 182–3 explaining trade imbalances 184–5 factor price equalisation theorem 186–7 financial economics 187 Foundations of Economic Analysis (1947) 168, 169–70 global public goods 177–8 influence of Keynes 171–2 influence on economic theory 189–90 intergenerational economics 178–80 international economics and trade 183–7 key economic theories and writings 171–87 long-term legacy 188–91 mathematical approach to economic issues 169–70 microeconomic market system 172–3, 174 multiplier effect 174–5 Index247 neoclassical synthesis 174 neo-Keynesianism 168–9, 173–5 Nobel Prize in economic sciences (1970) 168 oscillator model of business cycles 174–5 overlapping generations (OLG) model 178–80 public goods and public finance 175–8 public goods economics 175–8 revealed preference theory 180–1 understanding consumer behaviour 180–1 verdict 191–2 warrant pricing 187 welfare economics 181–3 Scholes, Myron 187 Schwartz, Anna 150–1, 162 Scottish Enlightenment 3 Second World War 95, 96 self-interest theory of Adam Smith 2–3, 6, 8–9, 20 Skidelsky, Robert 114, 128 slavery 10–11 Smith, Adam (1723–90) 1–25, 97, 230–1 A Theory of Moral Sentiments (1759) 2, 5–6 division of labour and productivity 11–14 drivers of rates of pay 12–13 early life and character 3–5 free-market mechanism of supply and demand 8–9 free international trade 13–14 from philosophy to economics 6–7 functions funded by general taxation 16 functions of the state 16–18 functions that users should pay for 16–17 idea of ‘natural liberty’ 8 idea of ‘sympathy’ of people for each other 6 key ideas 25 long-term legacy 19–23 market price of a commodity 15–16 on slavery 10–11 personal legacy 23 pin factory example 11–13 role of the state in the economy 9, 10 self-interest theory 2–3, 6, 8–9, 20 taxation principles 17–18 the evil of cartels and monopolies 10–11 the invisible hand 7–9 the market mechanism 15–16 The Wealth of Nations (1776) 2–3, 6, 7–25, 188 verdict 23–4 Smith, Vernon 218 Smoot-Hawley Tariff Act (US) 42 social security systems 179 social welfare function 182–3 socialism 134–6 sovereign debt crisis in Greece 113–14 Soviet Union, collapse of 140, 158 Sraffa, Piero 130–1 stagflation in the 1970s 154, 173–4 Standard Oil Company of New Jersey 21 state-owned monopolies, privatisation programmes 21 Statecraft (Thatcher, 2002) 19 status quo bias 227–8 stimulus measures, debate over effects of 43–4 stimulus versus austerity debate 43–4, 140–1 Stockholm School of Economics 168 Stolper, Wolfgang 184–5 Stolper–Samuelson theorem 184–5 Strachey, Lytton 94 structural unemployment 155 substitution effect, response to price change 82, 83 Summers, Anita 190 Summers, Lawrence 190 Summers, Robert 190 Sunstein, Cass 234 248Index supply and demand market mechanism 8–9, 15–16, 75–84 supply side economics 127, 201 surplus value of labour (Marx) 54–6 taxation policy influence on private savings 43–4 views of Adam Smith 16–18 taxpayers, view of government debt (Ricardo) 38–9 Thaler, Richard 232, 234, 235 Thatcher, Margaret 19, 138–9, 155, 160–1 The General Theory of Employment, Interest and Money (Keynes, 1936) 99–106 The Principles of Political Economy (Mill, 1848) 188 The Principles of Political Economy and Taxation (Ricardo, 1817) 28, 31–3, 188 The Road to Serfdom (Hayek, 1944) 135, 138, 140 The Wealth of Nations (Smith, 1776) 2–3, 6, 7–25, 188 Thinking, Fast and Slow (Kahneman, 2012) 226–7, 234 time factor and the value of capital (Hayek) 124–6 in the supply and demand model 77–9 Townshend, Charles 5, 6–7 Toyota, production systems 21 trade barriers 22–3, 41–2, 185 Corn Laws 33–5 trade imbalances, Samuelson’s explanation 184–5 trade unions 19 transient income concept 149 Treatise on Human Nature (Hume) 4 Treaty of Versailles 95–6 Tversky, Amos 218, 220, 221–5, 228–33, 235 Ulam, Stanislaw 37 uncertainty and investment volatility 104–5 unemployment causes of (Keynes) 101 frictional 155 ‘natural’ rate of (Friedman) 153–5 relationship with inflation 153–5 structural 155 United States housing market crisis (2008) 61–2, 112 import tariffs after the Wall Street Crash 42 savings and investment imbalance with China 113 trade imbalance with China 45 US Federal Reserve 111–12 action to control inflation 161 and the 2008 financial crisis 235 influence of monetary policy 159 money supply and the Great Depression (1930s) 150–2 quantitative easing (2009 onward) 162 role in the Great Depression (1930s) 159 utilitarianism 31, 182 value and costs of production 75–7 distribution of economic value (Marx) 54–6 surplus value of labour (Marx) 54–6 Voltaire 7 wages drivers of wage rates (Smith) 12–13 effects of reducing (Keynes) 101–2 relationship to rents and profits 32–3 surplus value of labour (Marx) 54–6 Wall Street Crash (1929) 23, 42 Wallich, Henry 190–1 warrant pricing (Samuelson) 187 wealth creation and distribution, view of Ricardo 31–3 Index249 welfare economics 181–3 White, Harry Dexter 108 Wilberforce, William 10 Wittgenstein, Ludwig 121 women in the workforce 202 Wood, Kingsley 106 Woolf, Leonard 94 World Bank Group 109 World Trade Organization (WTO) 22, 40–1, 185


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

accounting loophole / creative accounting, Albert Einstein, Alvin Roth, Andrei Shleifer, Anton Chekhov, Asian financial crisis, classic study, congestion charging, corporate governance, corporate raider, crony capitalism, Dava Sobel, decentralized internet, Deng Xiaoping, Dutch auction, electricity market, experimental economics, experimental subject, fear of failure, first-price auction, frictionless, frictionless market, George Akerlof, George Gilder, global village, Great Leap Forward, Hacker News, Hernando de Soto, I think there is a world market for maybe five computers, income inequality, income per capita, independent contractor, informal economy, information asymmetry, invisible hand, Isaac Newton, job-hopping, John Harrison: Longitude, John Perry Barlow, John von Neumann, Kenneth Arrow, land reform, lone genius, manufacturing employment, market clearing, market design, market friction, market microstructure, means of production, Network effects, new economy, offshore financial centre, ought to be enough for anybody, pez dispenser, pre–internet, price mechanism, profit maximization, profit motive, proxy bid, purchasing power parity, Robert Solow, Ronald Coase, Ronald Reagan, sealed-bid auction, search costs, 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, world market for maybe five computers, Xiaogang Anhui farmers, yield management

Each seller is a little monopolist. Because of the buyers’ cost of searching, the merchants make a large profit. Big effects can come from small transaction costs. Today’s economics has the problem of information at its core. The “biggest new concept in economics in the last thirty years,” Kenneth Arrow said in 2000, “is the development of the importance of information, along with the dispersion of information.”4 Two kinds of market frictions arise from the uneven supply of information. There are search costs: the time, effort, and money spent learning what is available where for how much. And there are evaluation costs, arising from the difficulties buyers have in assessing quality.

As a purchasing manager said, if an issue comes up, you telephone your counterpart “and deal with the problem. You don’t read legalistic clauses at each other if you ever want to do business again.”13 “The freedom and extent of human commerce depend entirely on a fidelity with regard to promises,” said David Hume in 1739. Two and a half centuries later, Kenneth Arrow said, “Virtually every commercial transaction has within itself an element of trust, certainly any transaction conducted over a period of time.” As a result, “much of the economic backwardness in the world can be explained by a lack of mutual confidence.”14 A well-designed market has a range of mechanisms to build mutual confidence.

Léon Walras took the first big step toward answering this question in the late nineteenth century, formulating a mathematical model of an economy in which, for each good or service in the economy, there was an equation representing the balance of supply and demand. Walras left unanswered the key question of whether it was possible for supply to equal demand simultaneously in every market. This stayed unresolved until 1954, when Kenneth Arrow and Gerard Debreu, in a densely mathematical article that was to earn them Nobel Prizes, “confirmed the internal logical consistency of Smith’s and Walras’s model of the market economy” (to quote the Nobel committee).11 One of the supreme achievements of economics, the Arrow-Debreu theory identifies certain precise conditions under which individuals’ separate decisions add up to a consistent overall outcome.


pages: 998 words: 211,235

A Beautiful Mind by Sylvia Nasar

Al Roth, Albert Einstein, Andrew Wiles, Bletchley Park, book value, Brownian motion, business cycle, cognitive dissonance, Columbine, Dr. Strangelove, experimental economics, fear of failure, Gunnar Myrdal, Henri Poincaré, Herman Kahn, invisible hand, Isaac Newton, John Conway, John Nash: game theory, John von Neumann, Kenneth Arrow, Kenneth Rogoff, linear programming, lone genius, longitudinal study, market design, medical residency, Nash equilibrium, Norbert Wiener, Paul Erdős, Paul Samuelson, prisoner's dilemma, RAND corporation, Robert Solow, Ronald Coase, second-price auction, seminal paper, Silicon Valley, Simon Singh, spectrum auction, Suez canal 1869, The Wealth of Nations by Adam Smith, Thorstein Veblen, upwardly mobile, zero-sum game

” — Brian Hayes, The Sciences “A must-read with something for everyone.” — Keith Devlin, New Scientist “Fascinating, complicated, and studious.” — Mark H. Fleisher, JAMA “A deeply moving love story, an account of the centrality of human relationships.” — Richard Wyatt and Kay Jamison, The New England Journal of Medicine “A gripping narrative.” — Kenneth Arrow, Nobel Laureate, The Times Higher Education Supplement Simon & Schuster Paperbacks A Division of Simon & Schuster, Inc. 1230 Avenue of the Americas New York, NY 10020 www.SimonandSchuster.com Copyright © 1998 by Sylvia Nasar All rights reserved, including the right of reproduction in whole or in part in any form.

At that point, the military was the only government sponsor of pure research in the social sciences — a role later taken over by the National Science Foundation — and it bankrolled a great many ideas that turned out to have little true relevance for the military but a great deal for other endeavors. RAND attracted a younger generation of mathematically sophisticated economists who embraced the new methods and tools, including the computer, and attempted to turn economics from a branch of political philosophy into a precise, predictive science. Take Kenneth Arrow, one of the early Nobel Laureates in economics. When Arrow came to RAND in 1948, he was an unknown youngster.17 His famous thesis, written in the as-yet-unfamiliar language of symbolic logic, was a product of a RAND assignment. The assignment was to demonstrate that it was okay to apply game theory, which is formulated in terms of individuals, to aggregations of many individuals, namely nations.

By the time Nash arrived, a “trust” of game theory research had grown up at RAND including such game theorists as Lloyd S. Shapley, J. C. McKinsey, N. Dalkey, F. B. Thompson, and H. F. Bohnenblust, such pure mathematicians as John Milnor, statisticians David Blackwell, Sam Karlin, and Abraham Girschick, and economists Paul Samuelson, Kenneth Arrow, and Herbert Simon.13 Most of the RAND military applications of game theory concerned tactics. Air battles between fighters and bombers were modeled as duels.14 The strategic problem in a duel is one of timing. For each opponent, having the first shot maximizes the chance of a miss. But having the better shot also maximizes the chance for being hit.


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The Inner Lives of Markets: How People Shape Them—And They Shape Us by Tim Sullivan

Abraham Wald, Airbnb, airport security, Al Roth, Alvin Roth, Andrei Shleifer, attribution theory, autonomous vehicles, barriers to entry, behavioural economics, Brownian motion, business cycle, buy and hold, centralized clearinghouse, Chuck Templeton: OpenTable:, classic study, clean water, conceptual framework, congestion pricing, constrained optimization, continuous double auction, creative destruction, data science, deferred acceptance, Donald Trump, Dutch auction, Edward Glaeser, experimental subject, first-price auction, framing effect, frictionless, fundamental attribution error, George Akerlof, Goldman Sachs: Vampire Squid, Gunnar Myrdal, helicopter parent, information asymmetry, Internet of things, invisible hand, Isaac Newton, iterative process, Jean Tirole, Jeff Bezos, Johann Wolfgang von Goethe, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, late fees, linear programming, Lyft, market clearing, market design, market friction, medical residency, multi-sided market, mutually assured destruction, Nash equilibrium, Occupy movement, opioid epidemic / opioid crisis, Pareto efficiency, Paul Samuelson, Peter Thiel, pets.com, pez dispenser, power law, pre–internet, price mechanism, price stability, prisoner's dilemma, profit motive, proxy bid, RAND corporation, ride hailing / ride sharing, Robert Shiller, Robert Solow, Ronald Coase, school choice, school vouchers, scientific management, sealed-bid auction, second-price auction, second-price sealed-bid, sharing economy, Silicon Valley, spectrum auction, Steve Jobs, Tacoma Narrows Bridge, techno-determinism, technoutopianism, telemarketer, The Market for Lemons, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, transaction costs, two-sided market, uber lyft, uranium enrichment, Vickrey auction, Vilfredo Pareto, WarGames: Global Thermonuclear War, winner-take-all economy

As with Samuelson, they focused on questions that were central to the development of economics as a science, but not necessarily for the reasons you might think—not just because they intended to advance the field of economics but because they were looking for challenging problems to solve, and to solve them first. It turned out that some of the fundamental building blocks of the discipline provided exactly the tough nuts they were after. One of the foremost among this postwar group was Kenneth Arrow, a brilliant mathematical mind in search of hard economics problems to solve. And he helped solve some of the hardest, all of which related in one way or another to Radford’s experiences in Stalag VII-A. But there is a difference between Radford’s observation of a particular market and what Arrow and his colleagues accomplished: the mathematical modeling of the general idea of a market.

At the Toulouse School of Economics, where he has worked since 1996, graduate students joked that there must be a dozen little Jean Tiroles hidden in his basement writing the manuscripts, given the rate at which they appeared. Tirole wrote the book, quite literally, on industrial organization, the field within economics that aims to understand why markets are organized as they actually appear—why some industries consist of two dominant players (like Coke and Pepsi), while others more closely resemble Kenneth Arrow’s perfectly competitive ideal. You can only confront these questions if you consider the strategic choices companies like Microsoft or Coke might make to try to ensure they’re the only game in town, and the regulatory decisions an enlightened government might choose to make sure they aren’t. Tirole’s Theory of Industrial Organization remains the standard reference on the topic, despite being published nearly three decades ago.

We’d also like to thank Benjamin Adams, our editor, and his colleagues at PublicAffairs, including Melissa Veronesi, our project manager, Kate Mueller, our copyeditor (who saved us from more than one embarrassing mistake), and Tony Forde, our publicist. We’d also like to thank Iain Campbell, our publisher in the United Kingdom, and his team at John Murray. We’d like to thank the following people who read the manuscript, or parts of it, or who graciously agreed to talk with us about ideas in the book: George Akerlof, Kenneth Arrow, Pierre Azoulay, Seth Dicthick, Frank Dobbin, Ben Edelman, Teppo Felin, Ronald Findlay, Todd Fitch, Margo Beth Fleming, Walter Frick, Joshua Gans, Ed Glaeser, Andrei Hagiu, Matthew Kahn, Judd Kessler, Barbara Kiviat, Scott Kominers, Ilyana Kuziemko, Kevin Li, Roger Martin, Eric Maskin, Dan McGinn, Ben Olken, Joel Podolny, Jeff Pontiff, Canice Prendergast, Paul Romer, Marc Rysman, Peng Shi, Paolo Siconolfi, Paulo Soumaini, Michael Spence, Kendall Sullivan, Morgan Sword, Steve Tadelis, Jonas Vlachos, Ania Wieckowski, and Feng Zhu.


pages: 425 words: 122,223

Capital Ideas: The Improbable Origins of Modern Wall Street by Peter L. Bernstein

Albert Einstein, asset allocation, backtesting, Benoit Mandelbrot, Black Monday: stock market crash in 1987, Black-Scholes formula, Bonfire of the Vanities, Brownian motion, business cycle, buy and hold, buy low sell high, capital asset pricing model, corporate raider, debt deflation, diversified portfolio, Eugene Fama: efficient market hypothesis, financial innovation, financial intermediation, fixed income, full employment, Glass-Steagall Act, Great Leap Forward, guns versus butter model, implied volatility, index arbitrage, index fund, interest rate swap, invisible hand, John von Neumann, Joseph Schumpeter, junk bonds, Kenneth Arrow, law of one price, linear programming, Louis Bachelier, mandelbrot fractal, martingale, means of production, Michael Milken, money market fund, Myron Scholes, new economy, New Journalism, Paul Samuelson, Performance of Mutual Funds in the Period, profit maximization, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk free rate, risk/return, Robert Shiller, Robert Solow, Ronald Reagan, stochastic process, Thales and the olive presses, the market place, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, transfer pricing, zero-coupon bond, zero-sum game

The investor’s sensitivity to changing wealth and risk is known as the utility function, and the elements that determine the shape of the utility function are obscure. As Roy put it, “A man who seeks advice about his actions will not be grateful for the suggestion that he maximize his expected utility.”19 The complexity of the subject has attracted the attention of some of the best thinkers of our time, including Kenneth Arrow, a Nobel Prize-winner, and Oskar Morgenstern and John von Neumann, famous for having invented game theory. But this is not the only feature of the Markowitz paradigm with controversial implications. The calculation of the Efficient Frontier is a task that would defy the abilities and capabilities of many investors, and even the capacities of many computers. so it is fair to ask whether the relationship between risk and return is as neat as Markowitz postulates.

But, of course, not all that is beautiful in science need also be practical. And surely, not all that is practical in science is beautiful. Here we have both.”19 Although it bears an unmistakable resemblance to the Capital Asset Pricing Model, Merton’s theory has philosophical roots in the work of Kenneth Arrow and Gerard Debreu, both Nobel Prize winners. Arrow and Debreu describe a world in which everything is tradable, from the value of an education to the housewife’s ironing of the family sheets, and under an infinite variety of conditions, or “states of nature.” The continuous-time model provides a framework for converting such “pure” securities into a form that will permit them to be traded.

He graduated from Berkeley in the class of 1963 with a degree in economics. While still a senior, he was fortunate enough to take Gerard Debreu’s graduate course sequences in statistics, economics, and mathematical economics. Debreu was already a distinguished scholar who would subsequently be awarded the Nobel Prize in economic sciences for his work with Kenneth Arrow in these areas. Rosenberg went on to earn a master’s degree in mathematical economics and econometrics at the London School of Economics. He continued to pursue those studies while working for his doctorate at Harvard. Econometrics in particular caught his fancy; this was the field of study that Alfred Cowles had helped to launch and that brings sophisticated statistical techniques to the measurement of economic variables.


pages: 500 words: 145,005

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

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

Briefly stated, the argument is that even if people are not capable of actually solving the complex problems that economists assume they can handle, they behave “as if” they can. To understand the “as if” critique, it is helpful to look back a bit into the history of economics. The discipline underwent something of a revolution after World War II. Economists led by Kenneth Arrow, John Hicks, and Paul Samuelson accelerated an ongoing trend of making economic theory more mathematically formal. The two central concepts of economics remained the same—namely, that agents optimize and markets reach a stable equilibrium—but economists became more sophisticated in their ability to characterize the optimal solutions to problems as well as to determine the conditions under which a market will reach an equilibrium.

Rationalists and behavioralists were to come together and try to sort out whether there was really any reason to take psychology and behavioral economics seriously. If anyone had been laying odds on who would win this debate, the home team would have been considered the strong favorite. The behavioral team was led by Herb Simon, Amos, and Danny, and was buttressed by Kenneth Arrow, an economic theorist who, like Paul Samuelson, deserved to win several Nobel Prizes in economics, though he had to settle for just one. The younger behavioral crowd, which included Bob Shiller, Richard Zeckhauser, and me, were given speaking roles as discussants. The rationalists’ team was formidable, with Chicago locals serving as team captains: Robert Lucas and Merton Miller.

The economists thought that fairness was a silly concept mostly used by children who don’t get their way, and the skeptics just brushed aside our survey data. The Ultimatum Game experiments were a bit more troubling, since actual money was at stake, but of course it wasn’t all that much money, and all the usual excuses could be raised. The talk that gave me the most to think about, and the one I have gone back to read again most often, was by Kenneth Arrow. Arrow’s mind goes at light speed, and his talks tend to be highly layered fugues, with digressions inserted into digressions, sometimes accompanied by verbal footnotes to obscure scholars from previous centuries, followed by a sudden jump up two or three levels in the outline that he has in his head.


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

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

I had also spent another two years working for a CongressionalPresidential Commission (the Outdoor Recreation Resources Review Commission) that was tasked with determining the optimal use for the extensive public land owned by the US federal government. This commission produced several reports that set the stage for the future use of public land. During the years I spent at Harvard, in the first half of the 1960s, some of the leading economists of the time – Paul Samuelson, Robert Solow, Simon Kuznets, Kenneth Arrow, Franco Modigliani, Wassily Leontief, Kenneth Galbraith, Robert Dorfman, Alvin Hansen, Otto Eckstein, James Duesenberry, and several others – were in the Boston area, either at Harvard or at MIT. Richard Musgrave, who was then considered the leading public finance economist in the United States, would come to Harvard a little later and would be the second reader of my doctoral dissertation; I thus completed my public finance preparation under a third refugee from Nazi Germany.

The work of most, though not all, of the aforementioned economists reflected an optimistic view that the government could do more and better than it had been doing in the past in the economic sphere, and that, with its action, it could improve the lives and the welfare of many citizens. Some of the aforementioned economists, especially Kenneth Arrow, had raised some fundamental questions about the difficulties that would need to be dealt with, if the government increased its economic role, to promote social welfare. The identification of what was the “public interest” or “social welfare” was a particularly difficult enterprise. Nevertheless, the optimistic view had become the prevailing view in Cambridge, Massachusetts, both at Harvard and at MIT.

These works included the writings 8 Termites of the State of Adam Smith and of other famous philosophers and political scientists of the past, such as Thomas Hobbes, John Locke, J. J. Rousseau, Edmund Burke, and Alexis de Tocqueville, and also of classical French economists of the nineteenth century, as well as more recent works by F. A. Hayek, John Maynard Keynes, Richard Musgrave, Milton Friedman, James Buchanan, Kenneth Arrow, Amartya Sen, Robert Nozick, and others. The aforementioned works were always illuminating, but I had the feeling that today’s world had become different from that of the past, especially, but not only, because of the growth in the frequency and importance of negative externalities, and because of the impact of globalization and new technological developments on economic activities and on the power of national states.


pages: 261 words: 103,244

Economists and the Powerful by Norbert Haring, Norbert H. Ring, Niall Douglas

accounting loophole / creative accounting, Affordable Care Act / Obamacare, Alan Greenspan, Albert Einstein, asset allocation, bank run, barriers to entry, Basel III, Bear Stearns, Bernie Madoff, book value, British Empire, buy and hold, central bank independence, collective bargaining, commodity trading advisor, compensation consultant, corporate governance, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, diversified portfolio, financial deregulation, George Akerlof, illegal immigration, income inequality, inflation targeting, information asymmetry, Jean Tirole, job satisfaction, Joseph Schumpeter, Kenneth Arrow, knowledge worker, land bank, law of one price, light touch regulation, Long Term Capital Management, low interest rates, low skilled workers, mandatory minimum, market bubble, market clearing, market fundamentalism, means of production, military-industrial complex, minimum wage unemployment, Money creation, moral hazard, new economy, obamacare, old-boy network, open economy, Pareto efficiency, Paul Samuelson, pension reform, Ponzi scheme, price stability, principal–agent problem, profit maximization, purchasing power parity, Renaissance Technologies, Robert Solow, rolodex, Savings and loan crisis, Sergey Aleynikov, shareholder value, short selling, Steve Jobs, The Chicago School, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tragedy of the Commons, transaction costs, ultimatum game, union organizing, Vilfredo Pareto, working-age population, World Values Survey

In reality, the market will not necessarily find this equilibrium because there is always trading going on at the wrong prices. This trading at offequilibrium prices can take the economy away from the equilibrium and there is no guarantee that equilibrium will be reached or that it will be optimal in some sense (Screpanti and Zamagni 1993). Nobel Memorial Prize winners Kenneth Arrow and Gerard Debreu later were able to prove that under certain conditions a unique equilibrium did exist (Arrow and Debreu 1954), with these conditions later taking the unwieldy moniker of the “Sonnenschein–Mantel–Debreu theorem” better known to postgraduate students as the “SMD conditions.” However, this proof of equilibrium should rather have been recorded as proof of its non-existence because the conditions are extremely demanding and hardly ever fulfilled in reality.

According to Mirowski (2002), it was RAND who pushed the Commission to abandon (unsuccessful) efforts to find empirical evidence for neoclassical theory in favor of an THE ECONOMICS OF THE POWERFUL 23 abstract axiomatic approach pursued by RAND scholar and later Nobel Memorial Prize laureate Kenneth Arrow, against substantial resistance from its members. In 1953, Oskar Morgenstern proposed in a letter that it should be a requirement for membership in the Econometric Society (Econometrics is the statistical study of economic behavior) that a researcher had come “in one way or another in actual contact with data.”

The other major influence of RAND on economic doctrine was through its support of the rational choice movement from the very beginning, which laid the foundation for the strictly individualistic approach of the modern economic mainstream. Several of the canonical works of the rational choice approach to economics and politics were devised either at RAND or in close association with its researchers. The most notable one is Kenneth Arrow’s Social Choice and Individual Values (1951), containing his famous impossibility theorem. It is one of the most often cited modern texts in economics. Other examples are An Economic Theory of Democracy (1957) by Arrow’s student Anthony Downs and Mancur Olson’s The Logic of Collective Action (1965).


The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities by Mancur Olson

barriers to entry, British Empire, business cycle, California gold rush, collective bargaining, correlation coefficient, David Ricardo: comparative advantage, full employment, income per capita, Kenneth Arrow, market clearing, Norman Macrae, Pareto efficiency, Phillips curve, price discrimination, profit maximization, rent-seeking, Robert Solow, Sam Peltzman, search costs, selection bias, Simon Kuznets, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, urban decay, working poor

In distributional struggles, by contrast, none can gain without others losing as much or (normally) more, and this can generate resentment. Thus when special-interest groups become more important and distributional issues accordingly more significant, political life tends to be more divisive. Moreover, as Dennis Mueller,' I building on the work of Kenneth Arrow,'-' has shown, the increased emphasis on distributional issues due to accumulations of special-interest groups can also increase the likelihood that a democratic political system can repudiate its prior choices, even if all the individuals in the electorate have the same preferences as before-it can (for some reasons that cannot be explained briefly or without technical language) encourage intransitive or irrational and cyclical political choices.

Fifth, an adequate macroeconomic theory must be consistent with booms as well as with busts-with periods of unusual prosperity and with periods of underutilized productive capacity. It must be consistent with what we loosely call the "business cycle," although the absence of strong regularities in the length and extent of periods of prosperity and recession suggests that "business fluctuations" would perhaps be a better term. In other words, as Kenneth Arrow points out,' 2 the theory must be consistent with the observation that neither depressions nor fullemployment levels of production appear to sustain themselves indefinitely. Sixth, the theory should be able to explain, without ad hockery, the really dramatic differences across societies and historical periods in the nature of the macroeconomic problem.

See also Harvey Leibenstein on Xefficiency, Inflation, Income Distribution and X-Efficiency Theory (London: Croom Helm; New York: Harper and Row, Barnes and Noble, 1980). 10. To the best of my recollection, in a guest lecture at Princeton University in the 1960s. 11. See Dennis C. Mueller's concluding essay in the book he edited on The Political Economy of Growth (New Haven: Yale University Press, 1983). 12. Kenneth Arrow, Social Choice and Individual Values, 2d ed. (New Haven: Yale University Press, 1963). For a more accessible proof of Arrow's theorem and a survey of related issues, see Dennis Mueller, Public Choice (Cambridge: At the University Press, 1979). 13. See, for example, Morris Fiorina, "The Decline of Collective Responsibility in American Politics," Daedalus 109 (Summer 1980):25-46; this issue has the title The End of Consensus.


pages: 524 words: 146,798

Anarchy State and Utopia by Robert Nozick

distributed generation, Herbert Marcuse, invisible hand, Jane Jacobs, Kenneth Arrow, laissez-faire capitalism, Machinery of Freedom by David Friedman, means of production, Menlo Park, moral hazard, night-watchman state, Norman Mailer, Pareto efficiency, price discrimination, prisoner's dilemma, rent control, risk tolerance, Ronald Coase, school vouchers, The Death and Life of Great American Cities, The Nature of the Firm, transaction costs, Yogi Berra

At an arbitrarily given set of prices, a producer may find it profitable to offer an infinite supply; the realization of his plans will, of course, require him to demand at the same time an infinite amount of some factor of production. Such situations are of course incompatible with equilibrium, but since the existence of equilibrium is itself in question here, the analysis is necessarily delicate.” Kenneth Arrow, “Economic Equilibrium,” International Encyclopedia of the Social Sciences, vol. 4, p. 381. 3 See John Rawls, A Theory of Justice (Cambridge, Mass.: Harvard University Press, 1971), chap. 9, sect. 79, “The Idea of a Social Union,” and Ayn Rand, Atlas Shrugged (New York: Random House, 1957), pt.

bu Such risks could not be insured against for every project. There will be different estimates of these risks; and once having insured against them there will be less incentive to act fully to bring about the favorable alternative. So an insurer would have to watch over or monitor one’s activities to avoid what is termed the “moral hazard.” See Kenneth Arrow, Essays in the Theory of Risk-Bearing (Chicago: Markham, 1971). Alchian and Demsetz, American Economic Review (1972), pp. 777-795, discuss monitoring activities; they arrive at the subject through considering problems about estimating marginal product in joint activities through monitoring input, rather than through considerations about risk and insurance.

Corresponding to the different decision criteria discussed by decision theorists are different principles of institutional design. The talk of designing institutions so that bad men at their head can do little harm, and of checks and balances, can be interpreted as prompted by a minimax principle, or, more accurately, by minimax considerations built into a less stringent principle. [See Kenneth Arrow and Leonid Hurwicz, “An Optimality Criterion for Decision-Making Under Ignorance,” in Uncertainty and Expectations in Economics, ed. C. F. Carter and J. L. Ford (Clifton, N.J.: Augustus M. Kelley, 1972), pp. I-II.] Everyone who has considered the matter agrees that the maximax principle, which chooses the action that has of its many possible consequences one which is better than any possible consequence of any other available action, is an insufficiently prudent principle which one would be silly to use in designing institutions.


pages: 523 words: 111,615

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

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

The adjustments made in these early estimates fall short of the ideal—improvements in human capital due to improved health are left out, as are losses of fish stocks—but it is certainly the avenue to pursue. Kirk Hamilton and Michael Clemens (1999) and the World Bank (2006) estimated comprehensive investment in the period 1970–2000 in over 120 countries. Their analysis is inevitably preliminary. Still, it is a start. Kenneth Arrow and his coauthors (2007) also used estimates of comprehensive wealth and concluded that economic development had gone backward in a large number of developing countries in the years 1970–2000. China was one exception; other countries, including India and Pakistan, had seen total comprehensive wealth rise, but not in per capita terms because of their high rates of population growth.

James Buchanan, one of the originators of public choice theory, put it this way: he noted that the focus in economics tends to be on choices by individuals, whereas seeing the economy through the lens of contracts between people is equally illuminating.8 Another conclusion is therefore that the “market versus government” opposition is not a fruitful way to think about what institutional framework for the economy is best, and we should also consider households, firms, and perhaps other organizational types such as co-ops or residents’ associations. Kenneth Arrow said: “Truly among man’s innovations, the use of organization to accomplish his ends is among both his greatest and his earliest.”9 The literature of institutional economics is rich with examples of how collective arrangements of many kinds evolve in different contexts. Two key aspects of the context are the regulatory framework and the availability of information and in particular asymmetries of information—things that some people do know and others can’t know.

Indeed, there seems to be a pattern of swings from periods of inequality and social tension, coinciding with innovation and a dynamic economy (the 1870s, 1920s, 1960s) to periods of sobriety and cohesion (1890s, 1930s, 1970s). If there is a “trilemma,” which means only two of the three elements of social welfare are attainable at the same time, this chimes with a wider “impossibility theorem” in social welfare theory. Famously, in 1951 economist Kenneth Arrow asked whether individual tastes and preferences could be aggregated in a way that was logically consistent, obeying a set of seemingly innocuous conditions—and concluded that the answer was “no.” Among the assumptions were that citizens had free choice and a range of credible alternatives before them.


pages: 426 words: 118,913

Green Philosophy: How to Think Seriously About the Planet by Roger Scruton

An Inconvenient Truth, barriers to entry, carbon credits, carbon footprint, carbon tax, Cass Sunstein, Climategate, Climatic Research Unit, corporate social responsibility, demand response, Easter island, edge city, endowment effect, energy security, Exxon Valdez, failed state, food miles, garden city movement, Garrett Hardin, ghettoisation, happiness index / gross national happiness, Herbert Marcuse, hobby farmer, Howard Zinn, income inequality, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jane Jacobs, joint-stock company, joint-stock limited liability company, Kenneth Arrow, knowledge economy, Lewis Mumford, market friction, Martin Wolf, moral hazard, Naomi Klein, New Urbanism, Peter Singer: altruism, phenotype, precautionary principle, rent-seeking, Robert Solow, Ronald Coase, Sam Peltzman, Silicon Valley, Simon Kuznets, tacit knowledge, the built environment, The Death and Life of Great American Cities, the market place, Thomas Malthus, Tragedy of the Commons, transaction costs, University of East Anglia, urban planning, urban sprawl, Vilfredo Pareto, women in the workforce, zero-sum game

But they have also created moral hazards that seem fully to justify the anger and scorn that so many people (and not only those on the left) feel towards the unbridled capitalist economy. By separating ownership from control, and insulating both the shareholder and the director from the full costs of their mistakes, these legal devices encourage risk-taking beyond anything that the market would otherwise allow. In the words of Kenneth Arrow, ‘the law steps in and forces a risk shifting not created in the market-place’.193 Hence in the last two years we have seen bankers carelessly destroying the savings entrusted to them, and paying themselves vast bonuses at the very moment of doing so. Whatever the adverse effects of limited liability and shareholding, however, we should not take them as a reason for welcoming the intrusion of the state.

But see Chapter 10 below, where I discuss the work of Robert Putnam, documenting the decline of volunteers in America. 187 Such situations have been explored in the various ‘impossibility theorems’ in social choice theory, for example those of K. J. Arrow and Amartya Sen. For a brief summary see entries for Arrow’s Theorem and Paretian Liberal in Roger Scruton, The Palgrave Macmillan Dictionary of Political Thought, London, 2007. For a full account of Arrow’s Theorem see Kenneth Arrow, Social Choice and Individual Values, New Haven, 1990. 188 Hence the proliferation, under Labour governments in Britain, of quasi-autonomous non-government organizations (quangos), through which government appointees expropriate one by one the affairs of self-regulating communities. As of 23 May 2010 it was reported that there were 1,162 such organizations, employing more than 100,000 people, some with salaries as high as £624,000, at a total cost to date of £64 billion.

David, ‘The Historical Origins of “Open Science”: An essay on Patronage, Reputation and Common Agency Contracting in the Scientific Revolution’, Capitalism and Society, November 2008. See www.bepress.com/cas/vol3/iss2/art5 for download of the full article, and www.bepress.com/cas/announce/20081103 for the whole issue that contains Kenneth Arrow’s ‘Discussion’ of this article. See also Richard R. Nelson, ‘The Market Economy, and the Scientific Commons’, working paper to the Laboratory of Economics and Management at Sant’Anna School of Advanced Studies in Pisa, www.lem.sssup.it/WPLem/2003-24.html. 370 See Lee Lane et al., ‘Institutions for Developing New Climate Solutions’, Proceedings of the International Seminars on Planetary Emergencies, 42nd Session, 19 August 2010. 371 Cf. the notorious patenting of basmati rice by RiceTec.


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Plenitude: The New Economics of True Wealth by Juliet B. Schor

Asian financial crisis, behavioural economics, big-box store, business climate, business cycle, carbon footprint, carbon tax, clean tech, Community Supported Agriculture, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, decarbonisation, degrowth, dematerialisation, demographic transition, deskilling, Edward Glaeser, en.wikipedia.org, Gini coefficient, global village, Herman Kahn, IKEA effect, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, Jevons paradox, Joseph Schumpeter, Kenneth Arrow, knowledge economy, life extension, McMansion, new economy, ocean acidification, off-the-grid, peak oil, pink-collar, post-industrial society, prediction markets, purchasing power parity, radical decentralization, ride hailing / ride sharing, Robert Shiller, sharing economy, Simon Kuznets, single-payer health, smart grid, systematic bias, systems thinking, The Chicago School, Thomas L Friedman, Thomas Malthus, too big to fail, transaction costs, Yochai Benkler, Zipcar

If we continue to compromise atmosphere, climate, water, and other species, we jeopardize life itself. In 2004 what many had hoped would be a breakthrough paper was published by The Journal of Economic Perspectives. A collaboration of some of the world’s most distinguished environmental economists and ecologists, such as Kenneth Arrow, Partha Dasgupta, Lawrence Goulder, Paul Ehrlich, Stephen Schneider, and Gretchen Daily, asked a question that had been off the table since the debate about limits: “Are we consuming too much?” This type of collaboration itself was rare (perhaps a first). The paper stayed within the standard economic framework that takes human well-being as the ultimate goal, and asked if we are consuming too much either to reproduce today’s levels of well-being into the future or to maximize well-being.

The New York Times Magazine, May 21. Available from http://www.nytimes.com/2009/05/24/magazine/24labor-t.html (accessed September 7, 2009). Daily, Gretchen C. 1997. Nature’s services: Societal dependence on natural ecosystems. Washington, D.C.: Island Press. Daily, Gretchen C., Tore Soderqvist, Sara Aniyar, Kenneth Arrow, Partha Dasgupta, Paul R. Ehrlich, Carl Folke, et al. 2000. The value of nature and the nature of value. Science 289 (5478) (July 21): 395-96. Daly, Herman E. 2005. Economics in a full world. Scientific American 293 (3) (September): 100-107. ———. 1996. Beyond growth: The economics of sustainable development.


pages: 272 words: 83,798

A Little History of Economics by Niall Kishtainy

Alvin Roth, behavioural economics, British Empire, Capital in the Twenty-First Century by Thomas Piketty, car-free, carbon tax, central bank independence, clean water, Corn Laws, Cornelius Vanderbilt, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Dr. Strangelove, Eugene Fama: efficient market hypothesis, first-price auction, floating exchange rates, follow your passion, full employment, George Akerlof, Great Leap Forward, greed is good, Hyman Minsky, inflation targeting, invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, loss aversion, low interest rates, market clearing, market design, means of production, Minsky moment, moral hazard, Nash equilibrium, new economy, Occupy movement, Pareto efficiency, Paul Samuelson, Phillips curve, prisoner's dilemma, RAND corporation, rent-seeking, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Solow, Ronald Reagan, sealed-bid auction, second-price auction, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade route, Vickrey auction, Vilfredo Pareto, washing machines reduced drudgery, wealth creators, Winter of Discontent

Often we’re only really made aware of the issue of economic coordination when things go wrong: when a firm making computer components goes out of business and you discover that the laptop you want is out of stock. But under our noses something really rather extraordinary is going on, week in, week out. Most of the time the economy works well without anyone setting a timetable for it. Why isn’t it in constant chaos, then? In the 1950s a group of economists led by the American Kenneth Arrow (b. 1921) and the French-born Gérard Debreu (1921–2004) tried to answer the question. The basic theory of markets perfected by Alfred Marshall in the nineteenth century looked at supply and demand in a single market. The demand and supply for headphones depend on the price of headphones, those for oil on the price of oil.

Economists are sometimes accused of not taking a strong position on the distribution of income. Some of them say that it’s better to be in a wealthy society where a few people are much richer than the rest, than in a poor one where we’re all equal but live on scraps. And a lot of modern economics is about efficiency rather than distribution. In Chapter 25 we met Kenneth Arrow and Gerard Debreu, who proved the First Welfare Theorem: under certain conditions markets are efficient in the sense that no resources are wasted. The problem is that many outcomes are efficient, including very unequal ones. They also proved something else. Suppose that out of the efficient outcomes there was one that society preferred, that with an even distribution of incomes.


pages: 304 words: 80,965

What They Do With Your Money: How the Financial System Fails Us, and How to Fix It by Stephen Davis, Jon Lukomnik, David Pitt-Watson

activist fund / activist shareholder / activist investor, Admiral Zheng, banking crisis, Basel III, Bear Stearns, behavioural economics, Bernie Madoff, Black Swan, buy and hold, Carl Icahn, centralized clearinghouse, clean water, compensation consultant, computerized trading, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, crowdsourcing, David Brooks, Dissolution of the Soviet Union, diversification, diversified portfolio, en.wikipedia.org, financial engineering, financial innovation, financial intermediation, fixed income, Flash crash, Glass-Steagall Act, income inequality, index fund, information asymmetry, invisible hand, John Bogle, Kenneth Arrow, Kickstarter, light touch regulation, London Whale, Long Term Capital Management, moral hazard, Myron Scholes, Northern Rock, passive investing, Paul Volcker talking about ATMs, payment for order flow, performance metric, Ponzi scheme, post-work, principal–agent problem, rent-seeking, Ronald Coase, seminal paper, shareholder value, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, Steve Jobs, the market place, The Wealth of Nations by Adam Smith, transaction costs, Upton Sinclair, value at risk, WikiLeaks

• Give explicit consideration to human desires, how they affect our behavior, and how this in turn affects economic decisions. • Focus on an understanding of institutions, the checks and balances that regulate economic relations. A market of buyers and sellers needs some degree of trust if it is to thrive. The economist and Nobel laureate Kenneth Arrow pointed out that “ethical elements enter in some measure into every contract; without them no market could function.” He also noted that “trust and similar values, loyalty or truth telling, are … not commodities for which trade on the open market is technically possible or even meaningful.”44 In finance, we would do well to note this.

As leading participants in the corporate governance movement that encouraged some of these actions, the authors themselves must accept some of the blame for encouraging this form of contracting. 42. Smith, Wealth of Nations, bk. 5, chap 1. 43. Alfred Marshall, Principles of Economics (Macmillan, 1946), 303. 44. Kenneth Arrow, Information and Economic Behaviour (Federation of Swedish Industries, 1973), 24. For discussion, see O. Williamson, The Economic Institutions of Capitalism (Free Press, 1985), 405. 45. John R. Hicks, “ ‘Revolutions’ in Economics,” in Spiro J. Latsis, ed., Method and Appraisal in Economics (Cambridge University Press, 1976), 207–18.


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The Case Against Education: Why the Education System Is a Waste of Time and Money by Bryan Caplan

affirmative action, Affordable Care Act / Obamacare, assortative mating, behavioural economics, conceptual framework, correlation does not imply causation, deliberate practice, deskilling, disruptive innovation, do what you love, driverless car, en.wikipedia.org, endogenous growth, experimental subject, fear of failure, Flynn Effect, future of work, George Akerlof, ghettoisation, hive mind, job satisfaction, Kenneth Arrow, Khan Academy, labor-force participation, longitudinal study, low interest rates, low skilled workers, market bubble, mass incarceration, meta-analysis, Peter Thiel, price discrimination, profit maximization, publication bias, risk tolerance, Robert Gordon, Ronald Coase, school choice, selection bias, Silicon Valley, statistical model, Steven Pinker, The Bell Curve by Richard Herrnstein and Charles Murray, the scientific method, The Wisdom of Crowds, trickle-down economics, twin studies, Tyler Cowen, unpaid internship, upwardly mobile, women in the workforce, yield curve, zero-sum game

Students who value worldly success therefore strive to impress educators with their brilliance and industry—or at least avoid appalling us with their stupidity and sloth. Practical relevance makes little difference: you won’t use Shakespeare on the job, but without the right credentials, the job you crave will forever elude you. Basics of Signaling Signaling is no fringe idea. Michael Spence, Kenneth Arrow, Joseph Stiglitz, Thomas Schelling, and Edmund Phelps—all Nobel laureates in economics—made seminal contributions.13 The Nobel committee hailed Michael Spence’s work on signaling as his prize-winning discovery and added: An important example is education as a signal of high individual productivity in the labor market.

Signaling=100% signaling. The most egregious straw man treats signaling as all-or-nothing. Critics then “refute” signaling by pointing out that schools teach reading, writing, and arithmetic. What a devastating objection . . . to a version of the signaling model no one holds. Nobel Prize winner Kenneth Arrow anticipated and disavowed “100% signaling” way back in 1973: Perhaps I should make clear that I personally do not believe that higher education performs only a screening purpose. Clearly professional schools impart real skills valued in the market and so do undergraduate courses in the sciences.

But so does an IQ test.28 Why should employers insist on a four-year degree if a three-hour exam is equally revealing?29 Firms that refused to test would pointlessly cull qualified applicants. The right lesson to draw is not that the signaling model is wrong, but that education signals more than intelligence. Most of the model’s friends learned this lesson long ago. Kenneth Arrow, as usual, knew it from the start. “Higher Education as a Filter” calls education a signal of ability, and explicitly states that ability depends on “socialization” as well as intelligence.30 Or as Peter Wiles succinctly said one year later, “What employers need is intelligent conformism, or great independence and originality within a narrow range.”31 Signaling shouldn’t take years.


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

Airbus A320, Alan Greenspan, Albert Einstein, Albert Michelson, algorithmic trading, anti-fragile, Antoine Gombaud: Chevalier de Méré, Arthur Eddington, autonomous vehicles, availability heuristic, banking crisis, Barry Marshall: ulcers, battle of ideas, Bear Stearns, behavioural economics, Benoit Mandelbrot, bitcoin, Black Swan, Boeing 737 MAX, Bonfire of the Vanities, Brexit referendum, Brownian motion, business cycle, business process, capital asset pricing model, central bank independence, collapse of Lehman Brothers, correlation does not imply causation, credit crunch, cryptocurrency, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, DeepMind, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, Donald Trump, Dutch auction, easy for humans, difficult for computers, eat what you kill, Eddington experiment, Edmond Halley, Edward Lloyd's coffeehouse, Edward Thorp, Elon Musk, Ethereum, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, fear of failure, feminist movement, financial deregulation, George Akerlof, germ theory of disease, Goodhart's law, Hans Rosling, Helicobacter pylori, high-speed rail, Ignaz Semmelweis: hand washing, income per capita, incomplete markets, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Jeff Bezos, Jim Simons, Johannes Kepler, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Snow's cholera map, John von Neumann, Kenneth Arrow, Kōnosuke Matsushita, Linda problem, Long Term Capital Management, loss aversion, Louis Pasteur, mandelbrot fractal, market bubble, market fundamentalism, military-industrial complex, Money creation, Moneyball by Michael Lewis explains big data, Monty Hall problem, Nash equilibrium, Nate Silver, new economy, Nick Leeson, Northern Rock, nudge theory, oil shock, PalmPilot, Paul Samuelson, peak oil, Peter Thiel, Philip Mirowski, Phillips curve, Pierre-Simon Laplace, popular electronics, power law, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, railway mania, RAND corporation, reality distortion field, rent-seeking, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Solow, Ronald Coase, sealed-bid auction, shareholder value, Silicon Valley, Simon Kuznets, Socratic dialogue, South Sea Bubble, spectrum auction, Steve Ballmer, Steve Jobs, Steve Wozniak, Suez crisis 1956, Tacoma Narrows Bridge, Thales and the olive presses, Thales of Miletus, The Chicago School, the map is not the territory, The Market for Lemons, The Nature of the Firm, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Davenport, Thomas Malthus, Toyota Production System, transaction costs, ultimatum game, urban planning, value at risk, world market for maybe five computers, World Values Survey, Yom Kippur War, zero-sum game

In addition to his principle of comparative advantage, David Ricardo developed a model of economic rent: the amount received by the supplier of an input in excess of the amount necessary to ensure its supply (many people in the sports and financial services industries would surely work there for lower rewards than they currently receive). It is no longer fashionable to tell a story with illustrative calculations in the manner of Smith and Ricardo. More formal mathematical expression is required, and sometimes the maths can be sophisticated. In the early 1950s, an American, Kenneth Arrow, and a Frenchman, Gerard Debreu, used fixed point theorems (drawn from the latest advances in topology) to prove, under certain assumptions, the existence and efficiency of an equilibrium of a competitive market economy. 9 But although their mathematics is complicated, the conclusions are not; the authors provided a clear statement of the conditions under which a decentralised economy could successfully match supplies and demands, and offered a further expression of the conditions under which that equilibrium might be in a certain sense efficient.

In the nineteenth century, Leon Walras, a French economist working at the University of Lausanne, attempted to express in a system of equations the idea that the uncoordinated decisions of millions of people might produce aggregate outcomes that were not only coherent but efficient. 10 But Walrasian analysis only reached fruition when, as described in chapter 14 , new and powerful mathematical tools were applied to economics by Kenneth Arrow and Gerard Debreu. 11 For some devotees of laissez faire, this was the analysis they had been waiting for – a rigorous mathematical demonstration of the maxim that ‘you can’t buck the market’. Building on Walras, Arrow and Debreu envisaged a ‘grand auction’, to which consumers brought their demand curves, workers and resource owners their supply curves, and producers their technical capabilities.

If you said ‘in that case I will have the fish’ you would violate the independence of irrelevant alternatives axiom (although with a little ingenuity you may be able to think up reasons for such a decision). Independence of irrelevant alternatives gained significance and prominence because the American economist Kenneth Arrow showed that most social and political decision rules, such as majority voting, produce preferences for the group that violate that requirement. 4 The Allais paradox noted in chapter 8 reflected violation of the independence axiom. Maurice Allais initially posed the following question: would you prefer an 11% probability of winning 100 million FF (otherwise nothing), or a 10% probability of winning 500 million FF and otherwise nothing?


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The Wealth of Networks: How Social Production Transforms Markets and Freedom by Yochai Benkler

affirmative action, AOL-Time Warner, barriers to entry, bioinformatics, Brownian motion, business logic, call centre, Cass Sunstein, centre right, clean water, commoditize, commons-based peer production, dark matter, desegregation, digital divide, East Village, Eben Moglen, fear of failure, Firefox, Free Software Foundation, game design, George Gilder, hiring and firing, Howard Rheingold, informal economy, information asymmetry, information security, invention of radio, Isaac Newton, iterative process, Jean Tirole, jimmy wales, John Markoff, John Perry Barlow, Kenneth Arrow, Lewis Mumford, longitudinal study, machine readable, Mahbub ul Haq, market bubble, market clearing, Marshall McLuhan, Mitch Kapor, New Journalism, optical character recognition, pattern recognition, peer-to-peer, power law, precautionary principle, pre–internet, price discrimination, profit maximization, profit motive, public intellectual, radical decentralization, random walk, Recombinant DNA, recommendation engine, regulatory arbitrage, rent-seeking, RFID, Richard Stallman, Ronald Coase, scientific management, search costs, Search for Extraterrestrial Intelligence, SETI@home, shareholder value, Silicon Valley, Skype, slashdot, social software, software patent, spectrum auction, subscription business, tacit knowledge, technological determinism, technoutopianism, The Fortune at the Bottom of the Pyramid, the long tail, The Nature of the Firm, the strength of weak ties, Timothy McVeigh, transaction costs, vertical integration, Vilfredo Pareto, work culture , Yochai Benkler

Because no competitors are permitted into the market for copies of War and Peace, the publishers can price the contents of the book or journal at above their actual marginal cost of zero. They can then turn some of that excess revenue over to Tolstoy. Even if these laws are therefore necessary to create the incentives for publication, the market that develops based on them will, from the technical economic perspective, systematically be inefficient. As Kenneth Arrow put it in 1962, "precisely to the extent that [property] is effective, there is underutilization of the information." 7 Because welfare economics defines a market as producing a good efficiently only when it is pricing the good at its marginal cost, a good like information (and culture and knowledge are, for purposes of economics, forms of information), which can never be sold both at a positive (greater than zero) price and at its marginal cost, is fundamentally a candidate for substantial nonmarket production. 80 This widely held explanation of the economics of information production has led to an understanding that markets based on patents or copyrights involve a trade-off between static and dynamic efficiency.

This insures optimal utilization of the information but of course provides no incentive for investment in research. In a free enterprise economy, inventive activity is supported by using the invention to create property rights; precisely to the extent that it is successful, there is an underutilization of information." Kenneth Arrow, "Economic Welfare and the Allocation of Resources for Invention," in Rate and Direction of Inventive Activity: Economic and Social Factors, ed. Richard R. Nelson (Princeton, NJ: Princeton University Press, 1962), 616-617. 8. Suzanne Scotchmer, "Standing on the Shoulders of Giants: Cumulative Research and the Patent Law," Journal of Economic Perspectives 5 (1991): 29-41. 9.

He concluded that an altruistic blood procurement system is both more ethical and more efficient than a market system, and recommended that the market be kept out of blood donation to protect the "right to give." 31 Titmuss's argument came under immediate attack from economists. Most relevant for our purposes here, Kenneth Arrow agreed that the differences in blood quality indicated that the U.S. blood system was flawed, but rejected Titmuss's central theoretical claim that markets reduce donative activity. Arrow reported the alternative hypothesis held by "economists typically," that if some people respond to exhortation/moral incentives (donors), while others respond to prices and market incentives (sellers), these two groups likely behave independently--neither responds to the other's incentives.


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The Price of Inequality: How Today's Divided Society Endangers Our Future by Joseph E. Stiglitz

affirmative action, Affordable Care Act / Obamacare, airline deregulation, Alan Greenspan, Andrei Shleifer, banking crisis, barriers to entry, Basel III, battle of ideas, Bear Stearns, behavioural economics, Berlin Wall, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collapse of Lehman Brothers, collective bargaining, colonial rule, corporate governance, Credit Default Swap, Daniel Kahneman / Amos Tversky, Dava Sobel, declining real wages, deskilling, electricity market, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, framing effect, full employment, George Akerlof, Gini coefficient, Glass-Steagall Act, Great Leap Forward, income inequality, income per capita, indoor plumbing, inflation targeting, information asymmetry, invisible hand, jobless men, John Bogle, John Harrison: Longitude, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, London Interbank Offered Rate, lone genius, low interest rates, low skilled workers, Marc Andreessen, Mark Zuckerberg, market bubble, market fundamentalism, mass incarceration, medical bankruptcy, microcredit, moral hazard, mortgage tax deduction, negative equity, obamacare, offshore financial centre, paper trading, Pareto efficiency, patent troll, Paul Samuelson, Paul Volcker talking about ATMs, payday loans, Phillips curve, price stability, profit maximization, profit motive, public intellectual, purchasing power parity, race to the bottom, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, search costs, shareholder value, short selling, Silicon Valley, Simon Kuznets, spectrum auction, Steve Jobs, stock buybacks, subprime mortgage crisis, technology bubble, The Chicago School, The Fortune at the Bottom of the Pyramid, The Myth of the Rational Market, The Spirit Level, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, Tragedy of the Commons, transaction costs, trickle-down economics, ultimatum game, uranium enrichment, very high income, We are the 99%, wealth creators, women in the workforce, zero-sum game

At the time, it was still thought that there were major trade-offs between inequality and growth, and Jim Mirrlees was just then beginning his work on how one could design optimal redistributive taxes (work for which he would later receive the Nobel Prize). Another of my teachers at MIT (and then a fellow visitor at Cambridge in 1969–70) was Kenneth Arrow, whose work on information greatly influenced my thinking. Later, his work, paralleling my own, would focus on the impact of discrimination; how information, say about relative abilities, affects inequality; and the role of education in the whole process. A key issue that I touch upon in this volume is the measurement of inequality.

Craig Romaine, “Preserving Monopoly: Economic Analysis, Legal Standards, and Microsoft,” George Mason Law Review 4, no. 7 (1999): 617–1055. 38. See Microsoft’s annual report. 39. As the late Oxford professor and Nobel Prize winner John Hicks said, “The best of all monopoly profits is a quiet life.” J. R. Hicks, “Annual Survey of Economic Theory: The Theory of Monopoly,” Econometrica 1, no. 8 (1935). Kenneth Arrow pointed out that because monopolists restrict production, the saving they get from reducing costs is diminished. See Arrow, “Economic Welfare and the Allocation of Resources for Invention,” in The Rate and Direction of Inventive Activity: Economic and Social Factors (Princeton: Princeton University Press, 1962), pp. 609–26.

Shaun Donovan, secretary of the Department of Housing and Urban Development, argues that “only about 10 or 15 percent of Americans who can still pay their mortgages try to walk away from their debt.” Ibid. The general theory of moral hazard was developed in the midsixties and seventies by Arrow, Mirrlees, Ross, and Stiglitz. See, e.g., Kenneth Arrow, Aspects of the Theory of Risk Bearing (Helsinki, Finland: Yrjö Jahnssonin Säätiö, 1965); James Mirrlees, “The Theory of Moral Hazard and Unobservable Behaviour I,” Review of Economic Studies 66, no. 1 (1999): 3–21; S. Ross, “The Economic Theory of Agency: The Principal’s Problem,” American Economic Review 63, no. 2 (1973): 134–39; and J.


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The Undercover Economist: Exposing Why the Rich Are Rich, the Poor Are Poor, and Why You Can Never Buy a Decent Used Car by Tim Harford

Alan Greenspan, Albert Einstein, barriers to entry, Berlin Wall, business cycle, collective bargaining, congestion charging, Corn Laws, David Ricardo: comparative advantage, decarbonisation, Deng Xiaoping, Fall of the Berlin Wall, George Akerlof, Great Leap Forward, household responsibility system, information asymmetry, invention of movable type, John Nash: game theory, John von Neumann, Kenneth Arrow, Kickstarter, market design, Martin Wolf, moral hazard, new economy, Pearl River Delta, price discrimination, Productivity paradox, race to the bottom, random walk, rent-seeking, Robert Gordon, Robert Shiller, Ronald Reagan, sealed-bid auction, second-price auction, second-price sealed-bid, Shenzhen special economic zone , Shenzhen was a fishing village, special economic zone, spectrum auction, The Market for Lemons, Thomas Malthus, trade liberalization, Vickrey auction

But even if they had believed that private markets were more efficient, this was neither here nor there in the 1940s: the postwar Labour government in Britain would have been content to live with some inefficiency if it meant a fairer society. But the old dilemma between efficiency and fairness was about to be shattered by a young New Yorker called Kenneth Arrow, who knew all about unfairness after watching helplessly as a teen-ager while his father lost his successful business and all his savings in the Great Depression. The desire for social justice stayed with Arrow, but intellectually he couldn’t just ignore the question of efficiency. The young economist set his logical mind to wrestling with the tension between the unerring efficiency of the free market and the imperative that some kind of fairness should prevail.

So although this situation might seem more “fair,” there would be neither the tax revenue, nor the basketball game: the problem of the cappuccino sales tax all over again. So how is it reasonable to call a distribution of income “fair” when everybody concerned, both fans and player, would prefer the “unfair” outcome? Thanks to Kenneth Arrow, we now know that, when faced with a modern-day sports star like Tiger Woods, the solution is • 75 • T H E U N D E R C O V E R E C O N O M I S T to levy a one-time lump-sum tax of several million dollars on him. He would still have the incentive to earn money by playing golf, since he could not avoid the tax by playing less, as he would have to do in order to avoid a heavy income tax.


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Radical Markets: Uprooting Capitalism and Democracy for a Just Society by Eric Posner, E. Weyl

3D printing, activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Airbnb, Amazon Mechanical Turk, anti-communist, augmented reality, basic income, Berlin Wall, Bernie Sanders, Big Tech, Branko Milanovic, business process, buy and hold, carbon footprint, Cass Sunstein, Clayton Christensen, cloud computing, collective bargaining, commoditize, congestion pricing, Corn Laws, corporate governance, crowdsourcing, cryptocurrency, data science, deep learning, DeepMind, Donald Trump, Elon Musk, endowment effect, Erik Brynjolfsson, Ethereum, feminist movement, financial deregulation, Francis Fukuyama: the end of history, full employment, gamification, Garrett Hardin, George Akerlof, global macro, global supply chain, guest worker program, hydraulic fracturing, Hyperloop, illegal immigration, immigration reform, income inequality, income per capita, index fund, informal economy, information asymmetry, invisible hand, Jane Jacobs, Jaron Lanier, Jean Tirole, Jeremy Corbyn, Joseph Schumpeter, Kenneth Arrow, labor-force participation, laissez-faire capitalism, Landlord’s Game, liberal capitalism, low skilled workers, Lyft, market bubble, market design, market friction, market fundamentalism, mass immigration, negative equity, Network effects, obamacare, offshore financial centre, open borders, Pareto efficiency, passive investing, patent troll, Paul Samuelson, performance metric, plutocrats, pre–internet, radical decentralization, random walk, randomized controlled trial, Ray Kurzweil, recommendation engine, rent-seeking, Richard Thaler, ride hailing / ride sharing, risk tolerance, road to serfdom, Robert Shiller, Ronald Coase, Rory Sutherland, search costs, Second Machine Age, second-price auction, self-driving car, shareholder value, sharing economy, Silicon Valley, Skype, special economic zone, spectrum auction, speech recognition, statistical model, stem cell, telepresence, Thales and the olive presses, Thales of Miletus, The Death and Life of Great American Cities, The Future of Employment, The Market for Lemons, The Nature of the Firm, The Rise and Fall of American Growth, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade route, Tragedy of the Commons, transaction costs, trickle-down economics, Tyler Cowen, Uber and Lyft, uber lyft, universal basic income, urban planning, Vanguard fund, vertical integration, women in the workforce, Zipcar

For example, if restoration of Louis XVI would cost Antoine his head, while execution of the king would cause a revolution that greatly harmed all three of our voters albeit at different levels, then letting Louis XVI go free is the best outcome from the standpoint of the three voters. Regular voting can’t pick this outcome. Kenneth Arrow, a student of Vickrey’s, Nobel Laureate, and perhaps the most eminent economist of the twentieth century, would later formalize and generalize this argument in his famous “impossibility theorem,” showing that no voting rule in which individuals rank candidates could overcome problems of this sort.16 Note, in contrast, that in market transactions it is possible for people to signal the intensity of their preferences for goods and services—by offering to pay more or less.

Spanish mathematician and philosopher Ramon Llull had anticipated many of Condorcet’s later ideas in the thirteenth century, but his manuscripts were lost from the time of his life until the early part of the new millennium and thus he had very little impact on the subsequent development of ideas about voting. 16. Kenneth Arrow, Social Choice and Individual Values (Yale University Press, 1970) (originally published in 1951). 17. Witness, for example, the frequent citation of this theorem in a recent poll of economists asking whether an ideal voting system exists. IGM Forum, Primary Voting (March 7, 2016), http://www.igmchicago.org/surveys/primary-voting.


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Rise of the Robots: Technology and the Threat of a Jobless Future by Martin Ford

3D printing, additive manufacturing, Affordable Care Act / Obamacare, AI winter, algorithmic management, algorithmic trading, Amazon Mechanical Turk, artificial general intelligence, assortative mating, autonomous vehicles, banking crisis, basic income, Baxter: Rethink Robotics, Bernie Madoff, Bill Joy: nanobots, bond market vigilante , business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Charles Babbage, Chris Urmson, Clayton Christensen, clean water, cloud computing, collateralized debt obligation, commoditize, computer age, creative destruction, data science, debt deflation, deep learning, deskilling, digital divide, disruptive innovation, diversified portfolio, driverless car, Erik Brynjolfsson, factory automation, financial innovation, Flash crash, Ford Model T, Fractional reserve banking, Freestyle chess, full employment, general purpose technology, Geoffrey Hinton, Goldman Sachs: Vampire Squid, Gunnar Myrdal, High speed trading, income inequality, indoor plumbing, industrial robot, informal economy, iterative process, Jaron Lanier, job automation, John Markoff, John Maynard Keynes: technological unemployment, John von Neumann, Kenneth Arrow, Khan Academy, Kiva Systems, knowledge worker, labor-force participation, large language model, liquidity trap, low interest rates, low skilled workers, low-wage service sector, Lyft, machine readable, machine translation, manufacturing employment, Marc Andreessen, McJob, moral hazard, Narrative Science, Network effects, new economy, Nicholas Carr, Norbert Wiener, obamacare, optical character recognition, passive income, Paul Samuelson, performance metric, Peter Thiel, plutocrats, post scarcity, precision agriculture, price mechanism, public intellectual, Ray Kurzweil, rent control, rent-seeking, reshoring, RFID, Richard Feynman, Robert Solow, Rodney Brooks, Salesforce, Sam Peltzman, secular stagnation, self-driving car, Silicon Valley, Silicon Valley billionaire, Silicon Valley startup, single-payer health, software is eating the world, sovereign wealth fund, speech recognition, Spread Networks laid a new fibre optics cable between New York and Chicago, stealth mode startup, stem cell, Stephen Hawking, Steve Jobs, Steven Levy, Steven Pinker, strong AI, Stuxnet, technological singularity, telepresence, telepresence robot, The Bell Curve by Richard Herrnstein and Charles Murray, The Coming Technological Singularity, The Future of Employment, the long tail, Thomas L Friedman, too big to fail, Tragedy of the Commons, Tyler Cowen, Tyler Cowen: Great Stagnation, uber lyft, union organizing, Vernor Vinge, very high income, warehouse automation, warehouse robotics, Watson beat the top human players on Jeopardy!, women in the workforce

Many people would like to believe that health care is a normal consumer market: if only we could get insurance companies, and especially the government, out of the way and instead push decisions and costs onto the consumer (or patient), then we’d get innovations and outcomes similar to what we’ve seen in other industries (Steve Jobs might be mentioned again here). The reality, however, is that health care is simply not comparable to other markets for consumer products and services, and this has been well understood for over half a century. In 1963, the Nobel laureate economist Kenneth Arrow wrote a paper detailing the ways in which medical care stands apart from other goods and services. Among other things, Arrow’s paper highlighted the fact that medical costs are extremely unpredictable and often very high, so that consumers can neither pay for them out of ongoing income nor effectively plan ahead as they might for other major purchases.

Both of these approaches, in various combinations, are used successfully by other advanced countries. The bottom line is that a pure “free market” approach in which we cut government out of the loop and expect patients to operate like consumers shopping for groceries or smart phones is never going to work. As Kenneth Arrow pointed out over fifty years ago, health care is simply different. This is not to say that there are no significant dangers associated with either approach. Both strategies rely on regulators to either control premiums or set the prices paid to providers. There is an obvious risk of regulatory capture; powerful companies or industries may exert influence that bends government policy in their favor.


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Deaths of Despair and the Future of Capitalism by Anne Case, Angus Deaton

Affordable Care Act / Obamacare, basic income, Bertrand Russell: In Praise of Idleness, Boeing 737 MAX, business cycle, call centre, collapse of Lehman Brothers, collective bargaining, company town, Corn Laws, corporate governance, correlation coefficient, crack epidemic, creative destruction, crony capitalism, declining real wages, deindustrialization, demographic transition, Dissolution of the Soviet Union, Donald Trump, Downton Abbey, Edward Glaeser, Elon Musk, falling living standards, Fellow of the Royal Society, financial engineering, fulfillment center, germ theory of disease, income inequality, Jeff Bezos, Joseph Schumpeter, Ken Thompson, Kenneth Arrow, labor-force participation, Les Trente Glorieuses, low skilled workers, Martin Wolf, meritocracy, Mikhail Gorbachev, obamacare, opioid epidemic / opioid crisis, pensions crisis, pill mill, randomized controlled trial, refrigerator car, rent-seeking, risk tolerance, shareholder value, Silicon Valley, The Spirit Level, The Wealth of Nations by Adam Smith, Tim Cook: Apple, trade liberalization, Tyler Cowen, universal basic income, working-age population, zero-sum game

Or by our own comparison, the cancer that used to be confined to a small healthcare system has metastasized all over the economy. Why Is Healthcare So Difficult? The financing and organization of healthcare is difficult everywhere, not just in the United States. One remedy for most goods and services, but that is no remedy for healthcare, is to leave it to the market. Kenneth Arrow, one of the greatest economists of the twentieth century, proved the master theorems of economics that tell us what the market can and cannot do, and under what circumstances. Arrow’s theorems give a more precise account of the arguments made long ago by Adam Smith. It is no accident that Arrow also wrote the key paper in health economics,50 explaining why a market solution for healthcare would be socially intolerable.

Healthcare The generally powerful arguments for the social benefits of free markets do not apply to healthcare.7 Unregulated markets for health are not socially beneficial, and regulated markets can work well; in Britain, NICE appears to have resisted the political pressures that could have either closed it or turned it into a magnet for rent seekers.8 America should follow other rich countries in providing universal insurance and in controlling healthcare costs; the former is important, and the latter even more so. America currently has the worst of both worlds, where government interference, instead of controlling costs, creates opportunities for rent-seeking that inflate costs. It is not possible for an unregulated market to provide a socially acceptable degree of coverage; as Kenneth Arrow noted long ago, “The laissez-faire solution for medicine is intolerable.”9 Some amount of compulsion is required, as are subsidies for those who cannot pay. Reforms that deny those facts are doomed. While there are many difficulties, there is a hugely positive aspect to a better healthcare system, at least in principle.


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Human Compatible: Artificial Intelligence and the Problem of Control by Stuart Russell

3D printing, Ada Lovelace, AI winter, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, Alfred Russel Wallace, algorithmic bias, AlphaGo, Andrew Wiles, artificial general intelligence, Asilomar, Asilomar Conference on Recombinant DNA, augmented reality, autonomous vehicles, basic income, behavioural economics, Bletchley Park, blockchain, Boston Dynamics, brain emulation, Cass Sunstein, Charles Babbage, Claude Shannon: information theory, complexity theory, computer vision, Computing Machinery and Intelligence, connected car, CRISPR, crowdsourcing, Daniel Kahneman / Amos Tversky, data science, deep learning, deepfake, DeepMind, delayed gratification, Demis Hassabis, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Ernest Rutherford, fake news, Flash crash, full employment, future of work, Garrett Hardin, Geoffrey Hinton, Gerolamo Cardano, Goodhart's law, Hans Moravec, ImageNet competition, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invention of the wheel, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, John Nash: game theory, John von Neumann, Kenneth Arrow, Kevin Kelly, Law of Accelerating Returns, luminiferous ether, machine readable, machine translation, Mark Zuckerberg, multi-armed bandit, Nash equilibrium, Nick Bostrom, Norbert Wiener, NP-complete, OpenAI, openstreetmap, P = NP, paperclip maximiser, Pareto efficiency, Paul Samuelson, Pierre-Simon Laplace, positional goods, probability theory / Blaise Pascal / Pierre de Fermat, profit maximization, RAND corporation, random walk, Ray Kurzweil, Recombinant DNA, recommendation engine, RFID, Richard Thaler, ride hailing / ride sharing, Robert Shiller, robotic process automation, Rodney Brooks, Second Machine Age, self-driving car, Shoshana Zuboff, Silicon Valley, smart cities, smart contracts, social intelligence, speech recognition, Stephen Hawking, Steven Pinker, superintelligent machines, surveillance capitalism, Thales of Miletus, The Future of Employment, The Theory of the Leisure Class by Thorstein Veblen, Thomas Bayes, Thorstein Veblen, Tragedy of the Commons, transport as a service, trolley problem, Turing machine, Turing test, universal basic income, uranium enrichment, vertical integration, Von Neumann architecture, Wall-E, warehouse robotics, Watson beat the top human players on Jeopardy!, web application, zero-sum game

The nineteenth-century British logician and economist William Stanley Jevons (also the inventor of an early mechanical computer called the logical piano) argued in 1871 that interpersonal comparisons are impossible:15 The susceptibility of one mind may, for what we know, be a thousand times greater than that of another. But, provided that the susceptibility was different in a like ratio in all directions, we should never be able to discover the profoundest difference. Every mind is thus inscrutable to every other mind, and no common denominator of feeling is possible. The American economist Kenneth Arrow, founder of modern social choice theory and 1972 Nobel laureate, was equally adamant: The viewpoint will be taken here that interpersonal comparison of utilities has no meaning and, in fact, there is no meaning relevant to welfare comparisons in the measurability of individual utility. The difficulty to which Jevons and Arrow are referring is that there is no obvious way to tell if Alice values pinpricks and lollipops at −1 and +1 or −1000 and +1000 in terms of her subjective experience of happiness.

A standard text on sequential decisions under uncertainty: Martin Puterman, Markov Decision Processes: Discrete Stochastic Dynamic Programming (Wiley, 1994). 46. On axiomatic assumptions that justify additive representations of utility over time: Tjalling Koopmans, “Representation of preference orderings over time,” in Decision and Organization, ed. C. Bartlett McGuire, Roy Radner, and Kenneth Arrow (North-Holland, 1972). 47. The 2019 humans (who might, in 2099, be long dead or might just be the earlier selves of 2099 humans) might wish to build the machines in a way that respects the 2019 preferences of the 2019 humans rather than pandering to the undoubtedly shallow and ill-considered preferences of humans in 2099.


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The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory by Kariappa Bheemaiah

"World Economic Forum" Davos, accounting loophole / creative accounting, Ada Lovelace, Adam Curtis, Airbnb, Alan Greenspan, algorithmic trading, asset allocation, autonomous vehicles, balance sheet recession, bank run, banks create money, Basel III, basic income, behavioural economics, Ben Bernanke: helicopter money, bitcoin, Bletchley Park, blockchain, Bretton Woods, Brexit referendum, business cycle, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, cashless society, cellular automata, central bank independence, Charles Babbage, Claude Shannon: information theory, cloud computing, cognitive dissonance, collateralized debt obligation, commoditize, complexity theory, constrained optimization, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-border payments, crowdsourcing, cryptocurrency, data science, David Graeber, deep learning, deskilling, Diane Coyle, discrete time, disruptive innovation, distributed ledger, diversification, double entry bookkeeping, Ethereum, ethereum blockchain, fiat currency, financial engineering, financial innovation, financial intermediation, Flash crash, floating exchange rates, Fractional reserve banking, full employment, George Akerlof, Glass-Steagall Act, Higgs boson, illegal immigration, income inequality, income per capita, inflation targeting, information asymmetry, interest rate derivative, inventory management, invisible hand, John Maynard Keynes: technological unemployment, John von Neumann, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, knowledge economy, large denomination, Large Hadron Collider, Lewis Mumford, liquidity trap, London Whale, low interest rates, low skilled workers, M-Pesa, machine readable, Marc Andreessen, market bubble, market fundamentalism, Mexican peso crisis / tequila crisis, Michael Milken, MITM: man-in-the-middle, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, natural language processing, Network effects, new economy, Nikolai Kondratiev, offshore financial centre, packet switching, Pareto efficiency, pattern recognition, peer-to-peer lending, Ponzi scheme, power law, precariat, pre–internet, price mechanism, price stability, private sector deleveraging, profit maximization, QR code, quantitative easing, quantitative trading / quantitative finance, Ray Kurzweil, Real Time Gross Settlement, rent control, rent-seeking, robo advisor, Satoshi Nakamoto, Satyajit Das, Savings and loan crisis, savings glut, seigniorage, seminal paper, Silicon Valley, Skype, smart contracts, software as a service, software is eating the world, speech recognition, statistical model, Stephen Hawking, Stuart Kauffman, supply-chain management, technology bubble, The Chicago School, The Future of Employment, The Great Moderation, the market place, The Nature of the Firm, the payments system, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, trade liberalization, transaction costs, Turing machine, Turing test, universal basic income, Vitalik Buterin, Von Neumann architecture, Washington Consensus

On the 4th of July 2012, the ATLAS and CMS experiments at CERN’s Large Hadron Collider discovered the Higgs boson, the elementary particle that explains why particles have mass. It was, and will be, one of the most important scientific discoveries of the century. 11Some of the early trailblazers who combined the study of complexity theory with economics include, Kenneth Arrow (economist), Philip Anderson (physicist), Larry Summers (economist), John Holland (physicist), Tom Sargent (economist), Stuart Kauffman (physicist), David Pines (physicist), José Scheinkman (economist), William Brock (economist) and of course, W. B. Arthur (economist), who coined the term complexity economics and has been largely responsible for its initial growth and exposure to mainstream academia. 12Knightian uncertainty is an economic term that refers to risk.

The rule is based on three factors: (i) Targeted versus actual inflation levels; (ii) Full employment versus actual employment levels; (iii) The short-term interest rate appropriately consistent with full employment (Investopedia). Its mathematical interpretation is: r = p + 0.5y + 0.5(p - 2) + 2. Where, r = the federal funds rate, p = the rate of inflation, y = the percent deviation of real GDP from a target (Bernanke, 2015). 16Contract theory was first developed in the late 1960’s by Kenneth Arrow (winner of the 1972 Nobel prize in economics), Oliver Hart and Bengt R. Holmström. The latter two shared the Nobel prize in economics in 2016. 17 https://www.federalreserve.gov/econresdata/frbus/us-models-about.htm 18As per Turner, Monetary finance is defined as a fiscal deficit which is not financed by the issue of interest-bearing debt, but by an increase in the monetary base - i.e. of the irredeemable fiat non-interest-bearing monetary liabilities of the government/central bank.


pages: 354 words: 118,970

Transaction Man: The Rise of the Deal and the Decline of the American Dream by Nicholas Lemann

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, Abraham Maslow, Affordable Care Act / Obamacare, Airbnb, airline deregulation, Alan Greenspan, Albert Einstein, augmented reality, basic income, Bear Stearns, behavioural economics, Bernie Sanders, Black-Scholes formula, Blitzscaling, buy and hold, capital controls, Carl Icahn, computerized trading, Cornelius Vanderbilt, corporate governance, cryptocurrency, Daniel Kahneman / Amos Tversky, data science, deal flow, dematerialisation, diversified portfolio, Donald Trump, Elon Musk, Eugene Fama: efficient market hypothesis, Fairchild Semiconductor, financial deregulation, financial innovation, fixed income, future of work, George Akerlof, gig economy, Glass-Steagall Act, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, Ida Tarbell, index fund, information asymmetry, invisible hand, Irwin Jacobs, Joi Ito, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kickstarter, life extension, Long Term Capital Management, Mark Zuckerberg, Mary Meeker, mass immigration, means of production, Metcalfe’s law, Michael Milken, money market fund, Mont Pelerin Society, moral hazard, Myron Scholes, Neal Stephenson, new economy, Norman Mailer, obamacare, PalmPilot, Paul Samuelson, Performance of Mutual Funds in the Period, Peter Thiel, price mechanism, principal–agent problem, profit maximization, proprietary trading, prudent man rule, public intellectual, quantitative trading / quantitative finance, Ralph Nader, Richard Thaler, road to serfdom, Robert Bork, Robert Metcalfe, rolodex, Ronald Coase, Ronald Reagan, Sand Hill Road, Savings and loan crisis, shareholder value, short selling, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, Snow Crash, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, TaskRabbit, TED Talk, The Nature of the Firm, the payments system, the strength of weak ties, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, too big to fail, transaction costs, universal basic income, War on Poverty, white flight, working poor

Another challenge was the growing prestige and influence of Keynesian economics, which was skeptical of the kinds of economic remedies—direct regulation of the activities of corporations—that Berle and his allies had been advocating for decades. Probably the most important economics publication of the 1950s was a paper called “Existence of an Equilibrium for a Competitive Economy.” Using dozens of dense mathematical formulas, its authors, Kenneth Arrow and Gerard Debreu, endeavored to demonstrate that under the right economic conditions, prices will always find their natural level—which made their findings a far cry from Berle’s, Means’s, and Galbraith’s argument that it was a good idea for government to set prices. No one who was not an academic economist may have read the Arrow-Debreu article, but from 1948 on, millions of college students learned about economics from an introductory textbook by Arrow’s relative by marriage, Paul Samuelson, which presented Keynesian economic management as gospel and was highly skeptical of Berle-style planning (and, in later editions, specifically made fun of Galbraith for being an unrigorous popularizer).

Not long afterward, he took up a senior position at Citigroup, his friend Sanford Weill’s firm, whose rise to the status of financial superpower he had helped from his government position. Summers succeeded Rubin as Treasury secretary, and it fell to him to complete the work on derivatives that Brooksley Born’s attack had made necessary. Summers was an academic economist, the scion of an economics royal family—the Nobel Prize winners Kenneth Arrow and Paul Samuelson were both his uncles. The inventors of modern derivatives were the kind of people for whom he had the greatest respect. “Larry thought I was overly concerned with the risks of derivatives,” Rubin, who had run the trading floor at Goldman Sachs and thought of himself as an expert on prudent assessment of risk, wrote in his memoir.


pages: 288 words: 16,556

Finance and the Good Society by Robert J. Shiller

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

But now such practitioners are so numerous—look at all the graduate programs in mathematical nance, or attend one of the Institute for Quantitative Research in Finance (Q Group) conferences—that they compete heavily against one another, thus bringing options prices closer to their fundamental values. Justifications for Derivatives Markets In a classic 1964 article, economic theorist Kenneth Arrow argued that a major source of economic ine ciency is the absence of markets for risks. 4 Financial theorist Stephen Ross made Arrow’s theory the raison d’être for options markets. In his 1976 article “Options and E ciency,” he argued that nancial options have a central place because an immense variety of useful complex contracts can be “ ‘built up’ as portfolios of simple options.”5 But in fact only a small fraction of our risks are traded in any derivatives markets.

Legal and nancial advisers who are committed to serving their customers’ interests will easily see through such a sales pitch, and will in fact warn their clients away from it. If we move to a world in which people have access to better nancial advice, then the options market could move closer to the ideal market initially envisioned by theorists like Kenneth Arrow and Stephen Ross. The market might even expand further in its usefulness, by aligning itself more squarely with the real interests of real people. Options could be created that represent genuine, personally signi cant risks to individuals, like the risks of a decline in home prices or a decline in career incomes.


The Limits of the Market: The Pendulum Between Government and Market by Paul de Grauwe, Anna Asbury

Alan Greenspan, banking crisis, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, conceptual framework, crony capitalism, Easter island, Erik Brynjolfsson, eurozone crisis, Honoré de Balzac, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kitchen Debate, means of production, Money creation, moral hazard, Paul Samuelson, price discrimination, price mechanism, profit motive, Robert Gordon, Robert Solow, Ronald Coase, Simon Kuznets, The Nature of the Firm, The Rise and Fall of American Growth, too big to fail, transaction costs, trickle-down economics, ultimatum game, very high income

.* This is an example in which the introduction * Another effect of commercializing blood donation has been a drop in the quality of blood, since the blood donors now tend to come from lower income groups, people who  THE L IMI TS OF TH E MAR KET of financial incentives corrupts the nature of the act. Financial reward, an extrinsic motive, suppresses the sense of responsibility. The other school states that the triumph of the market does not necessarily lead to suppression of intrinsic motivation. A representative of this school is Kenneth Arrow, winner of the Nobel Prize in Economics in . In his view both motivations can coexist in a market system.10 Take the example of art. Today market mechanisms play a large role, perhaps the most significant role in the market for paintings. Top painters such as Luc Tuymans are millionaires. The extrinsic motivation to work as an artist is exceptionally high, but this does not necessarily mean that the intrinsic motivation is suppressed.


pages: 436 words: 76

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

Alan Greenspan, Albert Einstein, Asian financial crisis, Barry Marshall: ulcers, behavioural economics, Berlin Wall, Big bang: deregulation of the City of London, Bletchley Park, business cycle, California gold rush, Charles Babbage, 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, Dr. Strangelove, Dutch auction, Edward Lloyd's coffeehouse, electricity market, equity premium, equity risk premium, Ernest Rutherford, European colonialism, experimental economics, Exxon Valdez, failed state, Fairchild Semiconductor, financial innovation, flying shuttle, Ford Model T, Francis Fukuyama: the end of history, George Akerlof, George Gilder, Goodhart's law, Great Leap Forward, greed is good, Gunnar Myrdal, haute couture, Helicobacter pylori, illegal immigration, income inequality, industrial cluster, information asymmetry, intangible asset, invention of the telephone, invention of the wheel, invisible hand, John Meriwether, John Nash: game theory, John von Neumann, junk bonds, Kenneth Arrow, Kevin Kelly, knowledge economy, Larry Ellison, light touch regulation, Long Term Capital Management, loss aversion, Mahatma Gandhi, market bubble, market clearing, market fundamentalism, means of production, Menlo Park, Michael Milken, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Naomi Klein, Nash equilibrium, new economy, oil shale / tar sands, oil shock, Pareto efficiency, Paul Samuelson, pets.com, Phillips curve, popular electronics, price discrimination, price mechanism, prisoner's dilemma, profit maximization, proprietary trading, purchasing power parity, QWERTY keyboard, Ralph Nader, RAND corporation, random walk, rent-seeking, Right to Buy, risk tolerance, road to serfdom, Robert Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, second-price auction, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, Steve Jobs, Stuart Kauffman, telemarketer, The Chicago School, The Market for Lemons, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, total factor productivity, transaction costs, tulip mania, urban decay, Vilfredo Pareto, Washington Consensus, women in the workforce, work culture , yield curve, yield management

But to vote strategically, you must guess not just at the preferences of others, but at their own strategic behavior. Voting mechanisms have their own problems of incentive compatibility. Condorcet demonstrated two hundred years ago that majorities can easily be assembled for inconsistent proposals. Kenneth Arrow-coauthor of the Arrow-Debreu results-generalized this to an "impossibility theorem": no voting mechanism can derive consistent social preferences from conflicting views about how society should be organized. Arrow, who lives in California, must have recognized the practical force of his impossibility theorem as the lights flickered and faded.

As Mankiw himself observes, quoting Paul Samuelson, the most successful of all writers of economics textbooks: "I don't care who writes a nation's laws, or crafts its advanced treaties, if I can write its economics textbooks." 23 (This is before Mankiw took a position in the Bush administration.) Current Policy Controversies ••••••••••••••••••••••••••••••••••••• But a majority of working economists-including the leaders of the neoclassical tradition, such as Kenneth Arrow and Paul Samuelsonwere, like most social scientists, predominantly liberal. Many economists found a means of reconciling their neoclassical economics with liberal sentiments in redistributive market liberalism, a doctrine described in a previous chapter and, as I noted there, popular with economists but with few other people.


pages: 607 words: 133,452

Against Intellectual Monopoly by Michele Boldrin, David K. Levine

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

The original theoretical argument was sketched by Allyn Young before the Second World War and developed in greater detail by Joseph Schumpeter during the war. The first formal treatment of the idea that competitive markets are intrinsically incapable of handling innovations can be found in writings by Kenneth Arrow and subsequently Karl Shell, published in the early and middle 1960s. In the second half of the 1980s, Robert Lucas, Paul Romer, and many followers used new analytical instruments to apply this P1: KNP head margin: 1/2 gutter margin: 7/8 CUUS245-07 cuus245 978 0 521 87928 6 May 21, 2008 16:55 Defenses of Intellectual Monopoly 159 point of view to the problem of economic development, creating a theory now known as the new growth theory.

The conventional notion that ideas are a nonrivalrous public good is a major theme of Romer’s work (1986, 1990a, 1990b), and is reflected also in Lucas (1988). Variations on this theme in the setting of monopolistic competition can be found in the work of Grossman and Helpman (1991). These ideas build on the earlier ideas of Allyn Young (1928), and especially the work of Kenneth Arrow (1962), further developed by Karl Shell (1966, 1967). To give credit where it belongs, we should point out that Arrow’s original argument was meant to lead to the conclusion that R&D, because it produced a public good (nonrivalrous knowledge), ought to be financed by public expenditure. There is nothing in Arrow’s seminal paper, nor in his subsequent writings on the topic, that suggests he had in mind intellectual monopoly as a solution to the allocational inefficiency that he – in our view, incorrectly – detected in the production of knowledge.


pages: 464 words: 139,088

The End of Alchemy: Money, Banking and the Future of the Global Economy by Mervyn King

Alan Greenspan, Andrei Shleifer, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, behavioural economics, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Monday: stock market crash in 1987, Black Swan, Boeing 747, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, classic study, collapse of Lehman Brothers, creative destruction, Credit Default Swap, crowdsourcing, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Doha Development Round, Edmond Halley, Fall of the Berlin Wall, falling living standards, fiat currency, financial engineering, financial innovation, financial intermediation, floating exchange rates, foreign exchange controls, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, German hyperinflation, Glass-Steagall Act, Great Leap Forward, Hyman Minsky, inflation targeting, invisible hand, Japanese asset price bubble, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labour market flexibility, large denomination, lateral thinking, liquidity trap, Long Term Capital Management, low interest rates, manufacturing employment, market clearing, Martin Wolf, Mexican peso crisis / tequila crisis, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Nick Leeson, no-fly zone, North Sea oil, Northern Rock, oil shale / tar sands, oil shock, open economy, paradox of thrift, Paul Samuelson, Ponzi scheme, price mechanism, price stability, proprietary trading, purchasing power parity, quantitative easing, rent-seeking, reserve currency, Richard Thaler, rising living standards, Robert Shiller, Robert Solow, Satoshi Nakamoto, savings glut, secular stagnation, seigniorage, stem cell, Steve Jobs, The Great Moderation, the payments system, The Rise and Fall of American Growth, Thomas Malthus, too big to fail, transaction costs, Tyler Cowen: Great Stagnation, yield curve, Yom Kippur War, zero-sum game

For over two hundred years, economists tried to formalise Smith’s proposition and discover under exactly what conditions a competitive market economy would allocate resources efficiently. In the nineteenth century, important contributions came from Frenchman Léon Walras, who taught in Lausanne, and Englishman Alfred Marshall, who taught in Cambridge. Then, in the early 1950s, two economists, Kenneth Arrow and Gerard Debreu, both working in America, finally produced a rigorous explanation of the invisible hand (for which they were subsequently awarded the Nobel Prize).47 They imagined a hypothetical grand auction held at the beginning of time in which bids are made for every possible good and service that people might want to buy or sell at all possible future dates.

How could one explain this apparent paradox? Keynes was less than clear on this point, and it was his misfortune to write The General Theory some twenty years before economic theorists provided a rigorous framework within which it was possible to understand his intuition. As explained in Chapter 2, Kenneth Arrow and Gerard Debreu described how a grand auction could indeed equate supply and demand overall if, and only if, all of the markets for future goods and services were incorporated into the auction process. Self-evidently, that world is fictional – radical uncertainty means that many of the markets for future goods and services are simply missing.


pages: 162 words: 51,473

The Accidental Theorist: And Other Dispatches From the Dismal Science by Paul Krugman

"World Economic Forum" Davos, Alan Greenspan, Bonfire of the Vanities, Bretton Woods, business cycle, carbon tax, clean water, collective bargaining, computerized trading, corporate raider, declining real wages, floating exchange rates, full employment, George Akerlof, George Gilder, Home mortgage interest deduction, income inequality, indoor plumbing, informal economy, invisible hand, It's morning again in America, Kenneth Arrow, knowledge economy, life extension, new economy, Nick Leeson, paradox of thrift, Paul Samuelson, plutocrats, price stability, rent control, Robert Solow, Ronald Reagan, Silicon Valley, trade route, very high income, working poor, zero-sum game

Earth in the Balance Sheet: Economists Go for the Green Like most people who think at all about how much burden their way of life places on Spaceship Earth, I feel a bit guilty. But on Earth Day in 1997 my conscience was clearer than usual—and so were those of 2,500 other economists. A few months earlier, an organization called Redefining Progress enlisted five economists—the Nobel laureates Robert Solow and Kenneth Arrow, together with Harvard’s Dale Jorgenson, Yale’s William Nordhaus, and myself—to circulate an “Economists’ Statement on Climate Change,” calling for serious measures to limit the emission of greenhouse gases. To be honest, I agreed to be one of the original signatories mainly as a gesture of goodwill, and never expected to hear any more about it; but the statement ended up being signed by, yes, more than 2,500 economists.


pages: 920 words: 233,102

Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State by Paul Tucker

"Friedman doctrine" OR "shareholder theory", Alan Greenspan, Andrei Shleifer, bank run, banking crisis, barriers to entry, Basel III, battle of ideas, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bretton Woods, Brexit referendum, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, conceptual framework, corporate governance, diversified portfolio, electricity market, Fall of the Berlin Wall, financial innovation, financial intermediation, financial repression, first-past-the-post, floating exchange rates, forensic accounting, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, George Akerlof, Greenspan put, incomplete markets, inflation targeting, information asymmetry, invisible hand, iterative process, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, liberal capitalism, light touch regulation, Long Term Capital Management, low interest rates, means of production, Money creation, money market fund, Mont Pelerin Society, moral hazard, Northern Rock, operational security, Pareto efficiency, Paul Samuelson, price mechanism, price stability, principal–agent problem, profit maximization, public intellectual, quantitative easing, regulatory arbitrage, reserve currency, risk free rate, risk tolerance, risk-adjusted returns, road to serfdom, Robert Bork, Ronald Coase, seigniorage, short selling, Social Responsibility of Business Is to Increase Its Profits, stochastic process, subprime mortgage crisis, tail risk, The Chicago School, The Great Moderation, The Market for Lemons, the payments system, too big to fail, transaction costs, Vilfredo Pareto, Washington Consensus, yield curve, zero-coupon bond, zero-sum game

The idea of a Pareto improvement is, nevertheless, useful because it captures the thought that if we can make some people better off (improve their well-being) without making anyone worse off, we should. Over the middle decades of the last century, economists pinned down the circumstances under which Adam Smith’s invisible hand can bring about efficiency in this sense. In their famous “welfare theorems,” Kenneth Arrow, Gerard Debreu, and Lionel McKenzie uncovered the ideal or abstract conditions under which a market economy (the price mechanism) would deliver an efficient allocation of resources, with no gains from trade—no potential Pareto improvements—left unexploited and, therefore, with everyone left with their well-being as high as possible given the original distribution of resources.

If this can be accomplished in a way that reveals the General Will, all is well. More prosaically, if administrative power is to be delegated, we need a rigorous mechanism for determining a social welfare function that everyone can accept (chapter 3). In the middle of the twentieth century, however, Kenneth Arrow demonstrated that, analytically, it is impossible to square democracy, as opposed to dictatorship, with a series of apparently innocuous prerequisites for collective decision making, including consistency, the contemplation of all conceivable options, and a person’s choice between two options being unaffected by other options.10 This generalized a phenomenon identified two hundred years earlier by French political economist Nicolas de Condorcet: that individual preferences can be such that there is a majority for A over B and B over C, but also for C over A, leaving the electorate locked into a never-ending cycle.

Fortified by a battery of further analytical “impossibility results” on collective decision making, this intellectual juncture caused degrees of panic and delight in different parts of the academy, as it seemed to show that democracy cannot be relied upon to track the people’s collective purposes. Here, it was said, was the basis for preferring constrained liberal democracy over democratic populism, and also for prioritizing choice via competitive markets over choice via politics given Kenneth Arrow’s parallel welfare theorems (chapter 3). Needless to say, democracy carried on oblivious. Maybe that was because we do not expect to have all conceivable options on the table when choices are made. Democracies try things out in the firm expectation that experience will reveal options that had been obscured or ignored.11 In that spirit, the less analytical variant of the voting conception of democracy sees it as a way of making fallible, for-the-time-being choices in the face of disagreement, with the prospect of those choices being revisited down the road in light of experience or swings in public opinion.


pages: 542 words: 145,022

In Pursuit of the Perfect Portfolio: The Stories, Voices, and Key Insights of the Pioneers Who Shaped the Way We Invest by Andrew W. Lo, Stephen R. Foerster

Alan Greenspan, Albert Einstein, AOL-Time Warner, asset allocation, backtesting, behavioural economics, Benoit Mandelbrot, Black Monday: stock market crash in 1987, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, Charles Babbage, Charles Lindbergh, compound rate of return, corporate governance, COVID-19, credit crunch, currency risk, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, Donald Trump, Edward Glaeser, equity premium, equity risk premium, estate planning, Eugene Fama: efficient market hypothesis, fake news, family office, fear index, fiat currency, financial engineering, financial innovation, financial intermediation, fixed income, hiring and firing, Hyman Minsky, implied volatility, index fund, interest rate swap, Internet Archive, invention of the wheel, Isaac Newton, Jim Simons, John Bogle, John Meriwether, John von Neumann, joint-stock company, junk bonds, Kenneth Arrow, linear programming, Long Term Capital Management, loss aversion, Louis Bachelier, low interest rates, managed futures, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, new economy, New Journalism, Own Your Own Home, passive investing, Paul Samuelson, Performance of Mutual Funds in the Period, prediction markets, price stability, profit maximization, quantitative trading / quantitative finance, RAND corporation, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, selection bias, seminal paper, shareholder value, Sharpe ratio, short selling, South Sea Bubble, stochastic process, stocks for the long run, survivorship bias, tail risk, Thales and the olive presses, Thales of Miletus, The Myth of the Rational Market, The Wisdom of Crowds, Thomas Bayes, time value of money, transaction costs, transfer pricing, tulip mania, Vanguard fund, yield curve, zero-coupon bond, zero-sum game

This in turn piqued his interest in fundamental economic research, which led to his financial support toward the establishment of the commission, with an initial budget of $12,000. The Cowles Commission would become known for its leadership in economic thought and the incredible number of Nobel laureates it was to produce: Kenneth Arrow, Tjalling Koopmans, Milton Friedman, Herbert Simon, Lawrence Klein, James Tobin, Gerard Debreu, Franco Modigliani, and, of course, Harry Markowitz. “If you count the number of Nobel Prizes which have been given to people who were at the Cowles Commission … you might say ‘Oh, this must be a huge player cranking out thousands of dissertations, and two percent of them get to be Nobel Prizes.’

In 1968, he started working jointly with Samuelson to extend Samuelson’s earlier research into the pricing of warrants, resulting in another publication (and another dissertation chapter) in 1969.21 In the fall of 1968, Merton gave his first academic seminar presentation at the inaugural MIT-Harvard Mathematical Economics seminar. The audience included future economics Nobel laureates Kenneth Arrow (who would win the prize in 1972) and Wassily Leontief (who would win in 1973). Merton continued his publication success even before completing his dissertation. In one paper, he tackled the important issue of the decision faced by every investor, known formally as the “portfolio selection problem”: deciding how much to consume today versus saving for tomorrow and allocating those savings between risky and risk-free investments (for example, buying Treasury bills), all the while trying to maximize lifetime utility or satisfaction.22 In another paper, published just after completing his dissertation, he examined the same problem using a more realistic “continuous-time” framework, in which prices are constantly changing.23 Merton’s experience and knowledge of the financial markets inspired many of the assumptions that were incorporated into his models: “Because I traded markets, I knew something about the idea that even if you were watching the [ticker] tape very, very close to it, it’s still the case that you couldn’t predict the next price.


pages: 827 words: 239,762

The Golden Passport: Harvard Business School, the Limits of Capitalism, and the Moral Failure of the MBA Elite by Duff McDonald

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Albert Einstein, Apollo 13, barriers to entry, Bayesian statistics, Bear Stearns, Bernie Madoff, Bob Noyce, Bonfire of the Vanities, business cycle, business process, butterfly effect, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, Carl Icahn, Clayton Christensen, cloud computing, collateralized debt obligation, collective bargaining, commoditize, compensation consultant, corporate governance, corporate raider, corporate social responsibility, creative destruction, deskilling, discounted cash flows, disintermediation, disruptive innovation, Donald Trump, eat what you kill, Fairchild Semiconductor, family office, financial engineering, financial innovation, Frederick Winslow Taylor, full employment, George Gilder, glass ceiling, Glass-Steagall Act, global pandemic, Gordon Gekko, hiring and firing, Ida Tarbell, impact investing, income inequality, invisible hand, Jeff Bezos, job-hopping, John von Neumann, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kickstarter, Kōnosuke Matsushita, London Whale, Long Term Capital Management, market fundamentalism, Menlo Park, Michael Milken, new economy, obamacare, oil shock, pattern recognition, performance metric, Pershing Square Capital Management, Peter Thiel, planned obsolescence, plutocrats, profit maximization, profit motive, pushing on a string, Ralph Nader, Ralph Waldo Emerson, RAND corporation, random walk, rent-seeking, Ronald Coase, Ronald Reagan, Sam Altman, Sand Hill Road, Saturday Night Live, scientific management, shareholder value, Sheryl Sandberg, Silicon Valley, Skype, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, Steve Jurvetson, survivorship bias, TED Talk, The Nature of the Firm, the scientific method, Thorstein Veblen, Tragedy of the Commons, union organizing, urban renewal, vertical integration, Vilfredo Pareto, War on Poverty, William Shockley: the traitorous eight, women in the workforce, Y Combinator

“[More] often than not,” wrote Nohria in the same article as above, “managers are thrown into situations in which they must act quickly and without certainty. To quote economist Kenneth Arrow, in many situations, ‘we must simply act, fully knowing our ignorance of possible consequences.’” Likewise if the forecast calls for a 50 percent chance of rain, we must simply choose to take an umbrella or not, fully knowing our ignorance of possible weather. What Nohria is arguing is that the case method gives one the ability to choose how to proceed in a given situation. With all respect to Kenneth Arrow, most of us don’t need an economist to tell us that we don’t always know what’s going to happen next, and that we sometimes have to make a decision before we’d like to.

On the other hand, there was this feeling of bewilderment that the lives of so many men should add up to no more than two simple columns.”28 The late Robert Bellah, an influential sociologist and moral philosopher, points to flaws in rational choice theory, which originated at the RAND Corporation, found support from the Ford Foundation, and an enthusiastic practitioner in Robert McNamara, as the sources of McNamara’s failure. The theory, which assumes that social life can be explained as the outcome of rational choices by individual actors, found an early foothold in economics with Kenneth Arrow’s 1951 book, Social Choice and Individual Values, and it remains the dominant economic idea at the University of Chicago. But the theory didn’t come from economics departments. It originated at the RAND Corporation in response to the desire of policy makers to mathematically model the decisions the Soviet Union might make during the Cold War.


pages: 226 words: 59,080

Economics Rules: The Rights and Wrongs of the Dismal Science by Dani Rodrik

airline deregulation, Alan Greenspan, Albert Einstein, bank run, barriers to entry, behavioural economics, Bretton Woods, business cycle, butterfly effect, capital controls, carbon tax, Carmen Reinhart, central bank independence, collective bargaining, congestion pricing, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Donald Davies, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, Fellow of the Royal Society, financial deregulation, financial innovation, floating exchange rates, fudge factor, full employment, George Akerlof, Gini coefficient, Growth in a Time of Debt, income inequality, inflation targeting, informal economy, information asymmetry, invisible hand, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labor-force participation, liquidity trap, loss aversion, low skilled workers, market design, market fundamentalism, minimum wage unemployment, oil shock, open economy, Pareto efficiency, Paul Samuelson, price elasticity of demand, price stability, prisoner's dilemma, profit maximization, public intellectual, quantitative easing, randomized controlled trial, rent control, rent-seeking, Richard Thaler, risk/return, Robert Shiller, school vouchers, South Sea Bubble, spectrum auction, The Market for Lemons, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, trade liberalization, trade route, ultimatum game, University of East Anglia, unorthodox policies, Vilfredo Pareto, Washington Consensus, white flight

Yet it was the price system, not any central authority, that managed to coordinate their actions so that the pencil would end up in the hands of the consumer.3 Compared to Adam Smith’s and Milton Friedman’s explications, the First Fundamental Theorem itself entails a logic that is highly abstract and almost impenetrably dense. It was first formulated fully in the early 1950s by Kenneth Arrow and Gerard Debreu, using mathematics that was then unfamiliar to most economists.4 The first sentence of Debreu’s 1951 article gives a sense of the nature of the exercise: “The activity of the economic system we study can be viewed as the transformation by n production units and the consumption by m consumption units of l commodities (the quantities of which may or may not be perfectly divisible).”† Even though the Arrow and Debreu articles are foundational, having earned each economist a Nobel Prize, they are rarely read.


pages: 187 words: 62,861

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

Abraham Maslow, Alan Greenspan, behavioural economics, business process, California gold rush, citizen journalism, classic study, Daniel Kahneman / Amos Tversky, do well by doing good, East Village, Everything should be made as simple as possible, experimental economics, experimental subject, framing effect, Garrett Hardin, informal economy, invisible hand, jimmy wales, job satisfaction, Joseph Schumpeter, Kaizen: continuous improvement, Kenneth Arrow, knowledge economy, laissez-faire capitalism, loss aversion, Murray Gell-Mann, Nicholas Carr, peer-to-peer, prediction markets, Richard Stallman, scientific management, Scientific racism, Silicon Valley, social contagion, Steven Pinker, telemarketer, Toyota Production System, Tragedy of the Commons, twin studies, ultimatum game, Washington Consensus, Yochai Benkler, zero-sum game, Zipcar

In comparing the two systems, the sociologist Richard Titmuss found that the British system had higher-quality blood (as measured by the likelihood of recipients contracting hepatitis from transfusions); less blood waste; and fewer blood shortages at hospitals (Titmuss also argued that the U.S. system was less equitable, because the rich exploited the poor and those who are desperate by buying their blood). Ethics aside, he concluded that a voluntary system was safer and more efficient than a market-based one. Predictably, Titmuss’s argument came under immediate attack from economists. Most famously, Nobel laureate Kenneth Arrow agreed that the U.S. blood system was flawed but refused to concede that it was because payments reduced the voluntary donations. Arrow admitted that some donors might be responding to moral or intrinsic incentives (giving blood because it’s the right thing to do), but a completely different group of people was responding to prices and market incentives (giving blood to make money).


pages: 218 words: 62,889

Sabotage: The Financial System's Nasty Business by Anastasia Nesvetailova, Ronen Palan

Alan Greenspan, algorithmic trading, bank run, banking crisis, barriers to entry, Basel III, Bear Stearns, Bernie Sanders, big-box store, bitcoin, Black-Scholes formula, blockchain, Blythe Masters, bonus culture, Bretton Woods, business process, collateralized debt obligation, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, critique of consumerism, cryptocurrency, currency risk, democratizing finance, digital capitalism, distributed ledger, diversification, Double Irish / Dutch Sandwich, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, gig economy, Glass-Steagall Act, global macro, Gordon Gekko, high net worth, Hyman Minsky, independent contractor, information asymmetry, initial coin offering, interest rate derivative, interest rate swap, Joseph Schumpeter, junk bonds, Kenneth Arrow, litecoin, London Interbank Offered Rate, London Whale, Long Term Capital Management, margin call, market fundamentalism, Michael Milken, mortgage debt, new economy, Northern Rock, offshore financial centre, Paul Samuelson, peer-to-peer lending, plutocrats, Ponzi scheme, Post-Keynesian economics, price mechanism, regulatory arbitrage, rent-seeking, reserve currency, Ross Ulbricht, shareholder value, short selling, smart contracts, sovereign wealth fund, Thorstein Veblen, too big to fail

They believed, instead, in controlling the market. By whatever means possible. It would take a bit longer for mainstream economists to reach a broadly similar conclusion, albeit with polite refrain from the negative connotations associated with terms such as sabotage. The subsequent revision yielded two ideas. One was offered by Kenneth Arrow, the Nobel laureate. Inquiring into the nature of the market, Arrow argued that conventional models of the economy are flawed because they assume companies to be passive agents, where ‘each individual participant… is supposed to take prices as given and determine his choices as to purchase and sales accordingly’.6 In reality, he says, market participants are not passive at all; they try to turn the tables on the market and become not price takers, but price givers.


pages: 585 words: 165,304

Trust: The Social Virtue and the Creation of Prosperity by Francis Fukuyama

Alvin Toffler, barriers to entry, Berlin Wall, blue-collar work, business climate, business cycle, capital controls, classic study, collective bargaining, corporate governance, corporate raider, creative destruction, deindustrialization, Deng Xiaoping, deskilling, double entry bookkeeping, equal pay for equal work, European colonialism, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Gilder, glass ceiling, Glass-Steagall Act, global village, Gunnar Myrdal, hiring and firing, industrial robot, Jane Jacobs, job satisfaction, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kanban, Kenneth Arrow, land reform, liberal capitalism, liberation theology, low skilled workers, manufacturing employment, mittelstand, price mechanism, profit maximization, RAND corporation, rent-seeking, Ronald Coase, scientific management, Silicon Valley, Steve Jobs, Steve Wozniak, The Death and Life of Great American Cities, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, transaction costs, transfer pricing, traveling salesman, union organizing, vertical integration, W. E. B. Du Bois

Indeed, in some high-trust relationships, parties do not even have to worry about maximizing profits in the short run, because they know that a deficit in one period will be made good by the other party later. In fact, it is very difficult to conceive of modern economic life in the absence of a minimum level of informal trust. In the words of the economist and Nobel laureate Kenneth Arrow, Now trust has a very important pragmatic value, if nothing else. Trust is an important lubricant of a social system. It is extremely efficient; it saves a lot of trouble to have a fair degree of reliance on other people’s word. Unfortunately this is not a commodity which can be bought very easily.

Sen further argues that users of the revealed-preference concept make use of a hidden assumption that preferences are self-interested, whereas people in reality also have a social side and typically act out of mixed motives. See “Behaviour and the Concept of Preference,” Economics 40 (1973): 214-259. 17F. Y. Edgeworth, as quoted by Amartya Sen in “Rational Fools: A Critique of the Behavioral Foundations of Economic Theory,” Philosophy and Public Affairs 6 (1977): 317-344. 18See Kenneth Arrow’s critique of the assumption of many economists that consumers are rational in their choices. Arrow, “Risk Perception in Psychology and Economics,” Economic Inquiry 20 (1982): 1-9. 19Hence, for example, we decide to buy a brand name like Kellogg’s Corn Flakes rather than the store brand because we assume, in the absence of detailed research, that it is of higher quality. 20See Becker (1976), p. 11. 21Mark Granovetter, “Economic Action and Social Structure: The Problem of Embeddedness” American Journal of Sociology 91 (1985): 481-510. 22See World Bank, The East Asian Miracle (Oxford: Oxford University Press, 1993), pp. 304-316.


pages: 247 words: 64,986

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

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

Acemoglu describes this best of all practical worlds as one in which a “political Coase theorem” holds. If the government is patient enough, the government and the private sector find a way to think win-win. Governments: Overcoming Temptation with Patience It can be plausibly argued that much of the economic backwardness in the world can be explained by the lack of mutual confidence. Kenneth Arrow, “Gifts and Exchanges”10 Most mathematical models of politics that focus on the long run include a role for patience. But political scientists and economists who create these models usually treat patience as a fixed value, something not up for debate. Acemoglu is one important exception to the rule; let’s look at another.


pages: 662 words: 180,546

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

"there is no alternative" (TINA), Adam Curtis, Alan Greenspan, Alvin Roth, An Inconvenient Truth, Andrei Shleifer, asset-backed security, bank run, barriers to entry, Basel III, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, Bernie Sanders, Black Swan, blue-collar work, bond market vigilante , bread and circuses, Bretton Woods, Brownian motion, business cycle, capital controls, carbon credits, Carmen Reinhart, Cass Sunstein, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, constrained optimization, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, dark matter, David Brooks, David Graeber, debt deflation, deindustrialization, democratizing finance, disinformation, do-ocracy, Edward Glaeser, Eugene Fama: efficient market hypothesis, experimental economics, facts on the ground, Fall of the Berlin Wall, financial deregulation, financial engineering, financial innovation, Flash crash, full employment, George Akerlof, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Greenspan put, Hernando de Soto, housing crisis, Hyman Minsky, illegal immigration, income inequality, incomplete markets, information asymmetry, invisible hand, Jean Tirole, joint-stock company, junk bonds, Kenneth Arrow, Kenneth Rogoff, Kickstarter, knowledge economy, l'esprit de l'escalier, labor-force participation, liberal capitalism, liquidity trap, loose coupling, manufacturing employment, market clearing, market design, market fundamentalism, Martin Wolf, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Naomi Klein, Nash equilibrium, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, oil shock, Pareto efficiency, Paul Samuelson, payday loans, Philip Mirowski, Phillips curve, Ponzi scheme, Post-Keynesian economics, precariat, prediction markets, price mechanism, profit motive, public intellectual, quantitative easing, race to the bottom, random walk, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, savings glut, school choice, sealed-bid auction, search costs, Silicon Valley, South Sea Bubble, Steven Levy, subprime mortgage crisis, tail risk, technoutopianism, The Chicago School, The Great Moderation, the map is not the territory, The Myth of the Rational Market, the scientific method, The Theory of the Leisure Class by Thorstein Veblen, The Wisdom of Crowds, theory of mind, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, Tobin tax, tontine, too big to fail, transaction costs, Tyler Cowen, vertical integration, Vilfredo Pareto, War on Poverty, Washington Consensus, We are the 99%, working poor

The constant bewailing of the size of government is a win-win situation for neoliberals: they complain about recent growth of government, which they have themselves fostered, use the outrage they fan to “privatize” more functions, which leads only to more spending and a more intrusive infrastructure of government operations. The same dynamic is now at play in the further privatization and “rationalization” of European state health care systems. 86 Hayek, “The Moral Element in Free Enterprise.” 87 In this regard, the nominally left-liberal tradition of “social-choice theory” (Kenneth Arrow, Amartya Sen, John Rawls) by this criterion is virtually as neoliberal as the right-wing tradition of the “public-choice theory” of Buchanan and Tullock and the Virginia School. See Amadae, Rationalizing Capitalist Democracy; Arnsperger, Critical Political Economy. 88 Plant, The Neoliberal State. 89 Foucault, The Birth of Biopolitics, p. 226. 90 Davis, The Theory of the Individual in Economics and Individuals and Identity in Economics. 91 Milton Friedman in Friedman and Samuelson, Discuss the Responsibility of Government, p. 5. 92 “Neoliberalism figures interest as both a psychology that drives rational choices, and as the good achieved by those choices.

There’s a fairly well developed example of the kind of economics I have in mind: the school of thought known as behavioral finance” (Krugman, “How Did Economics”). 49 Lo, “Reconciling Efficient Markets with Behavioral Finance”; Caplin and Schotter, The Foundations of Positive and Normative Economics; Harrison, “The Behavioral Counter-revolution.” 50 Ernst Fehr interview in Rosser et al., European Economics at a Crossroads, pp. 72–73. 51 Rabin, “A Perspective on Psychology and Economics,” p. 659. Yet even this divergence went too far for the Old Guard of the orthodoxy, such as Kenneth Arrow. The dividing line between the postwar generation of neoclassical economists and the post-1980 cohort is that the former believed they could abjure all dependence on academic psychology, whereas the latter believed they could pick and choose among psychological doctrines to elevate those that seemingly reinforced the neoclassical orthodoxy. 52 Foer, “Nudge-ocracy.” 53 Gennaioli, Shleifer, and Vishny, “Neglected Risks, Financial Innovation and Financial Fragility.”


pages: 654 words: 191,864

Thinking, Fast and Slow by Daniel Kahneman

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

Allais’s Paradox In 1952, a few years after the publication of von Neumann and Morgenstern’s theory, a meeting was convened in Paris to discuss the economics of risk. Many of the most renowned economists of the time were in attendance. The American guests included the future Nobel laureates Paul Samuelson, Kenneth Arrow, and Milton Friedman, as well as the leading statistician Jimmie Savage. One of the organizers of the Paris meeting was Maurice Allais, who would also receive a Nobel Prize some years later. Allais had something up his sleeve, a couple of questions on choice that he presented to his distinguished audience.

It is both much simpler and actually a stronger violation than the original paradox. The left-hand option is preferred in the first problem. The second problem is obtained by adding a more valuable prospect to the left than to the right, but the right-hand option is now preferred. sorely disappointed: As the distinguished economist Kenneth Arrow recently described the event, the participants in the meeting paid little attention to what he called “Allais’s little experiment.” Personal conversation, March 16, 2011. estimates for gains: The table shows decision weights for gains. Estimates for losses were very similar. estimated from choices: Ming Hsu, Ian Krajbich, Chen Zhao, and Colin F.


pages: 270 words: 73,485

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

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

The idea that Keynesian macroeconomics lacked suitable microeconomic foundations was now generally accepted in academia. Meanwhile the reputation of the Walrasian general equilibrium had been reestablished by the new tools of mathematics which had been developed in the postwar period. Students in the 1960s and 1970s had absorbed the works of Kenneth Arrow and Gerard Debreu, who had given a rigorous foundation to the Walrasian general equilibrium theory. They saw the world as the “Arrow-Debreu economy.” There were multiple markets for commodities which all came into equilibrium at the same time for the present and for all instances in the future.


pages: 240 words: 73,209

The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom, and Enlightenment by Guy Spier

Albert Einstein, Atul Gawande, Bear Stearns, Benoit Mandelbrot, big-box store, Black Swan, book value, Checklist Manifesto, classic study, Clayton Christensen, Daniel Kahneman / Amos Tversky, Exxon Valdez, Gordon Gekko, housing crisis, information asymmetry, Isaac Newton, Kenneth Arrow, Long Term Capital Management, Mahatma Gandhi, mandelbrot fractal, mirror neurons, Nelson Mandela, NetJets, pattern recognition, pre–internet, random walk, Reminiscences of a Stock Operator, risk free rate, Ronald Reagan, South Sea Bubble, Steve Jobs, Stuart Kauffman, TED Talk, two and twenty, winner-take-all economy, young professional, zero-sum game

An Amazing Way to Deal with Change in Your Work and in Your Life by Spencer Johnson Working Together: Why Great Partnerships Succeed by Michael Eisner with Aaron Cohen Economics Modern International Economics by Shelagh Heffernan and Peter Sinclair Predictably Irrational: The Hidden Forces That Shape Our Decisions by Dan Ariely The Economy as an Evolving Complex System by Philip Anderson, Kenneth Arrow, and David Pines The Rational Optimist: How Prosperity Evolves by Matt Ridley Games 500 Master Games of Chess by S. Tartakower and J. du Mont Homo Ludens: A Study of the Play Element in Culture by Johan Huizinga Reality Is Broken: Why Games Make Us Better and How They Can Change the World by Jane McGonigal Winning Chess Tactics for Juniors by Lou Hays Wise Choices: Decisions, Games, and Negotiations by Richard Zeckhauser, Ralph Keeney, and James Sebenius Investing A Zebra in Lion Country by Ralph Wanger with Everett Mattlin Active Value Investing: Making Money in Range-Bound Markets by Vitaliy Katsenelson Beating the Street by Peter Lynch Common Stocks and Uncommon Profits by Philip Fisher Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets by Nassim Nicholas Taleb Fooling Some of the People All of the Time: A Long Short Story by David Einhorn and Joel Greenblatt Fortune’s Formula: The Untold Story of the Scientific Betting System that Beat the Casinos and Wall Street by William Poundstone Investing: The Last Liberal Art by Robert Hagstrom Investment Biker: Around the World with Jim Rogers by Jim Rogers More Mortgage Meltdown: 6 Ways to Profit in These Bad Times by Whitney Tilson and Glenn Tongue More Than You Know: Finding Financial Wisdom in Unconventional Places by Michael Mauboussin Of Permanent Value: The Story of Warren Buffett by Andrew Kilpatrick Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment by David Swensen Security Analysis by Benjamin Graham and David Dodd Seeking Wisdom: From Darwin to Munger by Peter Bevelin Short Stories from the Stock Market: Uncovering Common Themes behind Falling Stocks to Find Uncommon Ideas by Amit Kumar The Dhandho Investor: The Low-Risk Value Method to High Returns by Mohnish Pabrai The Manual of Ideas: The Proven Framework for Finding the Best Value Investments by John Mihaljevic The Misbehavior of Markets: A Fractal View of Financial Turbulence by Benoit Mandelbrot and Richard Hudson The Most Important Thing: Uncommon Sense for the Thoughtful Investor by Howard Marks The Warren Buffett Way by Robert Hagstrom Value Investing: From Graham to Buffett and Beyond by Bruce Greenwald, Judd Kahn, Paul Sonkin, and Michael van Biema Where Are the Customers’ Yachts?


pages: 297 words: 77,362

The Nature of Technology by W. Brian Arthur

Andrew Wiles, Boeing 747, business process, Charles Babbage, cognitive dissonance, computer age, creative destruction, double helix, endogenous growth, financial engineering, Geoffrey West, Santa Fe Institute, haute cuisine, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kevin Kelly, knowledge economy, locking in a profit, Mars Rover, means of production, Myron Scholes, power law, punch-card reader, railway mania, Recombinant DNA, Silicon Valley, Simon Singh, sorting algorithm, speech recognition, Stuart Kauffman, technological determinism, technological singularity, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions

Brid Arthur helped me plan the flow of the book, and Niamh Arthur helped edit the final draft. One of the joys of the project has been the company of friends and colleagues who have provided intellectual stimulation and moral support over the years. I thank in particular Cormac McCarthy and my SFI co-conspirator David Lane; also Kenneth Arrow, Jim Baker, John Seely Brown, Stuart Kauffman, Bill Miller, Michael Mauboussin, Richard Palmer, Wolfgang Polak, Nathan Rosenberg, Paul Saffo, Martin Shubik, Jan Vasbinder, and Jitendra Singh. Not least, I am deeply grateful to my partner, Runa Bouius, for her patience and support during the time this book was being written.


pages: 283 words: 73,093

Social Democratic America by Lane Kenworthy

affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, barriers to entry, basic income, benefit corporation, business cycle, carbon tax, Celtic Tiger, centre right, clean water, collective bargaining, corporate governance, David Brooks, desegregation, Edward Glaeser, endogenous growth, full employment, Gini coefficient, hiring and firing, Home mortgage interest deduction, illegal immigration, income inequality, invisible hand, Kenneth Arrow, labor-force participation, manufacturing employment, market bubble, minimum wage unemployment, new economy, off-the-grid, postindustrial economy, purchasing power parity, race to the bottom, rent-seeking, rising living standards, Robert Gordon, Robert Shiller, Ronald Reagan, school choice, shareholder value, sharing economy, Skype, Steve Jobs, too big to fail, Tyler Cowen, Tyler Cowen: Great Stagnation, union organizing, universal basic income, War on Poverty, working poor, zero day

Creating an Opportunity Society. Washington, DC: Brookings Institution Press. Hauser, Robert M., John Robert Warren, Min-Hsiung Huang, and Wendy Y. Carter. 2000. “Occupational Status, Education, and Social Mobility in the Meritocracy.” Pp. 179–229 in Meritocracy and Economic Inequality. Edited by Kenneth Arrow, Samuel Bowles, and Steven Durlauf. Princeton, NJ: Princeton University Press. Hays, Sharon. 2003. Flat Broke with Children. New York: Oxford University Press. Heckman, James J. 2008. “Schools, Skills, and Synapses.” Working Paper 14064. Cambridge, MA: National Bureau of Economic Research. Heckman, James J. and Paul A.


pages: 330 words: 77,729

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

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

The invisible hand idea, that laissez-faire leads to the common good, has become known as the first fundamental theorem of welfare economics (as noted in chapter 1). Welfare economics deals with the issues of efficiency, justice, economic waste, and the political process in the economy. Since the late 1930s, when welfare economics was popularized by John Hicks, Kenneth Arrow, Paul Samuelson, and Ronald Coase (all of whom became Nobel Prize winners), the technique of welfare economics has been extended to issues of monopoly and government policies. In most cases, the welfare economists have demonstrated that government-imposed monopoly and subsidies lead to inefficiency and waste.


pages: 288 words: 76,343

The Plundered Planet: Why We Must--And How We Can--Manage Nature for Global Prosperity by Paul Collier

agricultural Revolution, Berlin Wall, business climate, carbon tax, Doha Development Round, energy security, food miles, G4S, Global Witness, information asymmetry, Kenneth Arrow, megacity, new economy, offshore financial centre, oil shock, price elasticity of demand, profit maximization, rent-seeking, Ronald Coase, Scramble for Africa, search costs, sovereign wealth fund, stem cell, Stewart Brand, Tragedy of the Commons

It is known as “Green Accounting.” In essence, the depletion of natural assets is subtracted from apparent income unless offset by the accumulation of other assets. To date, the most convincing attempt at Green Accounting for the countries of the bottom billion has been done by a team led by Nobel laureate Kenneth Arrow. They have built a more comprehensive measure of wealth for the period 1970–2000, one that included natural assets alongside all the man-made assets. I rely on their estimates, as recently adapted by Professor Sir Partha Dasgupta, a distinguished Indian economist at Cambridge University. What happens when Africa’s national accounts are redone on this basis?


pages: 290 words: 76,216

What's Wrong With Economics: A Primer for the Perplexed by Robert Skidelsky

additive manufacturing, agricultural Revolution, behavioural economics, Black Swan, Bretton Woods, business cycle, carbon tax, Cass Sunstein, central bank independence, cognitive bias, conceptual framework, Corn Laws, corporate social responsibility, correlation does not imply causation, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, degrowth, disruptive innovation, Donald Trump, Dr. Strangelove, full employment, George Akerlof, George Santayana, global supply chain, global village, Gunnar Myrdal, happiness index / gross national happiness, hindsight bias, Hyman Minsky, income inequality, index fund, inflation targeting, information asymmetry, Internet Archive, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, knowledge economy, labour market flexibility, loss aversion, Mahbub ul Haq, Mark Zuckerberg, market clearing, market friction, market fundamentalism, Martin Wolf, means of production, Modern Monetary Theory, moral hazard, paradox of thrift, Pareto efficiency, Paul Samuelson, Philip Mirowski, Phillips curve, precariat, price anchoring, principal–agent problem, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, shareholder value, Silicon Valley, Simon Kuznets, sunk-cost fallacy, survivorship bias, technoutopianism, The Chicago School, The Market for Lemons, The Nature of the Firm, the scientific method, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, Thorstein Veblen, Tragedy of the Commons, transaction costs, transfer pricing, Vilfredo Pareto, Washington Consensus, Wolfgang Streeck, zero-sum game

To sum up: without making unrealistic assumptions about human behaviour, and without assuming stationary conditions, the existence of an equilibrium of supply and demand, either in single markets, or in the system as a whole, cannot be demonstrated. There is nothing in the ‘market’ akin to the law of gravity. There is no coercive force behind the policeman’s authority. In a famous exercise, Nobel Laureates Kenneth Arrow (1921–2017) and Gerard Debreu (1921–2004) specified with great mathematical rigour the conditions under which a market economy could achieve perfect allocation of resources. These included perfect information, no frictions, no public goods, consistent preferences, as well as complete competitive markets which include all contingent and future contracts.11 Theirs was a formidable intellectual feat.


pages: 305 words: 75,697

Cogs and Monsters: What Economics Is, and What It Should Be by Diane Coyle

3D printing, additive manufacturing, Airbnb, Al Roth, Alan Greenspan, algorithmic management, Amazon Web Services, autonomous vehicles, banking crisis, barriers to entry, behavioural economics, Big bang: deregulation of the City of London, biodiversity loss, bitcoin, Black Lives Matter, Boston Dynamics, Bretton Woods, Brexit referendum, business cycle, call centre, Carmen Reinhart, central bank independence, choice architecture, Chuck Templeton: OpenTable:, cloud computing, complexity theory, computer age, conceptual framework, congestion charging, constrained optimization, coronavirus, COVID-19, creative destruction, credit crunch, data science, DeepMind, deglobalization, deindustrialization, Diane Coyle, discounted cash flows, disintermediation, Donald Trump, Edward Glaeser, en.wikipedia.org, endogenous growth, endowment effect, Erik Brynjolfsson, eurozone crisis, everywhere but in the productivity statistics, Evgeny Morozov, experimental subject, financial deregulation, financial innovation, financial intermediation, Flash crash, framing effect, general purpose technology, George Akerlof, global supply chain, Goodhart's law, Google bus, haute cuisine, High speed trading, hockey-stick growth, Ida Tarbell, information asymmetry, intangible asset, Internet of things, invisible hand, Jaron Lanier, Jean Tirole, job automation, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, knowledge worker, Les Trente Glorieuses, libertarian paternalism, linear programming, lockdown, Long Term Capital Management, loss aversion, low earth orbit, lump of labour, machine readable, market bubble, market design, Menlo Park, millennium bug, Modern Monetary Theory, Mont Pelerin Society, multi-sided market, Myron Scholes, Nash equilibrium, Nate Silver, Network effects, Occupy movement, Pareto efficiency, payday loans, payment for order flow, Phillips curve, post-industrial society, price mechanism, Productivity paradox, quantitative easing, randomized controlled trial, rent control, rent-seeking, ride hailing / ride sharing, road to serfdom, Robert Gordon, Robert Shiller, Robert Solow, Robinhood: mobile stock trading app, Ronald Coase, Ronald Reagan, San Francisco homelessness, savings glut, school vouchers, sharing economy, Silicon Valley, software is eating the world, spectrum auction, statistical model, Steven Pinker, tacit knowledge, The Chicago School, The Future of Employment, The Great Moderation, the map is not the territory, The Rise and Fall of American Growth, the scientific method, The Signal and the Noise by Nate Silver, the strength of weak ties, The Wealth of Nations by Adam Smith, total factor productivity, transaction costs, Uber for X, urban planning, winner-take-all economy, Winter of Discontent, women in the workforce, Y2K

In principle, the concept of a social welfare function (SWF) (Bergson 1938; Samuelson 1983) explicitly reintroduced ethical judgements about distribution. The policy-maker can specify an objective function—say equal outcomes, or improving things the most for the worst-off person (the maximin criterion)—and aggregate individual utilities with appropriate weights. However, in his famous (Im)possibility Theorem, Kenneth Arrow (1950) established that there is no way of consistently adding up individual utilities to calculate social welfare that will satisfy the Pareto criterion, and a few other seemingly reasonable assumptions. Arrow’s theorem is really a formal statement of the obvious truth that there are unavoidable conflicts of interest or dilemmas in society.


pages: 270 words: 79,180

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

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

See David Karp, “New California Law Aims to Rid Farmers Markets of Cheaters,” Los Angeles Times, September 29, 2014. 31.David Karp, “Produce Inspectors Keep Farmers Markets Honest,” Los Angeles Times, December 26, 2013. 32.Interview with Carol Shamon, April 2, 2014. 33.Michael Neff, “Poise, Tenacity, and Clancy: An Interview with Deborah Grosvenor,” Algonkian Writer Conferences, retrieved from http://webdelsol.com/Algonkian/interview-dgrosvenor.htm. 34.Michael Neff, “A View from the Top: An Interview with Robert Gottlieb, Chairman of Trident Media Group,” Algonkian Writer Conferences, retrieved from http://webdelsol.com/Algonkian/interview-rgottlieb.htm. 35.Richard Whately, quoted in Richard S. Howey, The Rise of the Marginal Utility School, 1870–1889 (New York: Columbia University Press, 1989), 4. 36.Richard Whately, Introductory Lectures on Political Economy (London: B. Fellowes, 1831), 253. 3 THE ENFORCER: KEEPING EVERYONE HONEST 1.This term comes from the economist Kenneth Arrow. Hidden information can lead to the problem of adverse selection (the lemons problem), while hidden action can lead to moral hazard. For a discussion of hidden information (also called hidden characteristics) and hidden action, see Mark Bergen, Shantanu Dutta, and Orville C. Walker Jr., “Agency Relationships in Marketing: A Review of the Implications and Applications of Agency,” Journal of Marketing 56, no. 3 (July 1992): 1–24. 2.Avinash Dixit, “Governance Institutions and Economic Activity (AEA Presidential Address),” American Economic Review 99, no. 1 (March 2009): 5–24. 3.One cattle breeder in Palermo told Gambetta, “When the butcher comes to me to buy an animal, he knows that I want to cheat him.


pages: 348 words: 83,490

More Than You Know: Finding Financial Wisdom in Unconventional Places (Updated and Expanded) by Michael J. Mauboussin

Alan Greenspan, Albert Einstein, Andrei Shleifer, Atul Gawande, availability heuristic, beat the dealer, behavioural economics, Benoit Mandelbrot, Black Swan, Brownian motion, butter production in bangladesh, buy and hold, capital asset pricing model, Clayton Christensen, clockwork universe, complexity theory, corporate governance, creative destruction, Daniel Kahneman / Amos Tversky, deliberate practice, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, dogs of the Dow, Drosophila, Edward Thorp, en.wikipedia.org, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, fixed income, framing effect, functional fixedness, hindsight bias, hiring and firing, Howard Rheingold, index fund, information asymmetry, intangible asset, invisible hand, Isaac Newton, Jeff Bezos, John Bogle, Kenneth Arrow, Laplace demon, Long Term Capital Management, loss aversion, mandelbrot fractal, margin call, market bubble, Menlo Park, mental accounting, Milgram experiment, Murray Gell-Mann, Nash equilibrium, new economy, Paul Samuelson, Performance of Mutual Funds in the Period, Pierre-Simon Laplace, power law, quantitative trading / quantitative finance, random walk, Reminiscences of a Stock Operator, Richard Florida, Richard Thaler, Robert Shiller, shareholder value, statistical model, Steven Pinker, stocks for the long run, Stuart Kauffman, survivorship bias, systems thinking, The Wisdom of Crowds, transaction costs, traveling salesman, value at risk, wealth creators, women in the workforce, zero-sum game

Too many investors cling to attribute-based approaches and wring their hands when the market doesn’t conform to what they think it should do. 5 Risky Business Risk, Uncertainty, and Prediction in Investing The practical difference between . . . risk and uncertainty . . . is that in the former the distribution of the outcome in a group of instances is known . . . while in the case of uncertainty, this is not true . . . because the situation dealt with is in high degree unique. —Frank H. Knight, Risk, Uncertainty, and Profit Our knowledge of the way things work, in society or in nature, comes trailing clouds of vagueness. Vast ills have followed a belief in certainty. —Kenneth Arrow, “ ‘I Know a Hawk from a Handsaw’ ” Rocket Science Cognitive scientist Gerd Gigerenzer noted something unusual when he took a guided tour through Daimler-Benz Aerospace, maker of the Ariane rocket. A poster tracking the performance of all ninety-four launches of Ariane 4 and 5 showed eight accidents, including launches sixty-three, seventy, and eighty-eight.


pages: 276 words: 81,153

Outnumbered: From Facebook and Google to Fake News and Filter-Bubbles – the Algorithms That Control Our Lives by David Sumpter

affirmative action, algorithmic bias, AlphaGo, Bernie Sanders, Brexit referendum, Cambridge Analytica, classic study, cognitive load, Computing Machinery and Intelligence, correlation does not imply causation, crowdsourcing, data science, DeepMind, Demis Hassabis, disinformation, don't be evil, Donald Trump, Elon Musk, fake news, Filter Bubble, Geoffrey Hinton, Google Glasses, illegal immigration, James Webb Space Telescope, Jeff Bezos, job automation, Kenneth Arrow, Loebner Prize, Mark Zuckerberg, meta-analysis, Minecraft, Nate Silver, natural language processing, Nelson Mandela, Nick Bostrom, Northpointe / Correctional Offender Management Profiling for Alternative Sanctions, p-value, post-truth, power law, prediction markets, random walk, Ray Kurzweil, Robert Mercer, selection bias, self-driving car, Silicon Valley, Skype, Snapchat, social contagion, speech recognition, statistical model, Stephen Hawking, Steve Bannon, Steven Pinker, TED Talk, The Signal and the Noise by Nate Silver, traveling salesman, Turing test

All of them were trying to do the right thing. Whenever we turn to mathematics to find the right thing to do, it gives us the same answer: fairness doesn’t come from logic alone. There are many other examples of problems of fairness escaping definition to be found in the history of mathematics. Kenneth Arrow’s ‘impossibility theorem’ tells us there is no system for choosing between three political candidates under which all voters’ preferences are fairly represented.13 Peyton Young’s book Equity, which uses mathematical game theory to treat the subject matter, is by the author’s own admission ‘a stock of examples that illustrate why equity cannot be reduced to simple, all-embracing solutions’.14 And Cynthia Dwork and her colleagues’ 2012 work ‘Fairness through Awareness’, resorts to looking at how we can best balance affirmative action for groups with fairness to the individual.15 Like in Jon Kleinberg and his colleagues’ work on bias, when these authors did the maths they found paradoxes instead of rational certainty.


pages: 285 words: 86,174

Twilight of the Elites: America After Meritocracy by Chris Hayes

"Hurricane Katrina" Superdome, "World Economic Forum" Davos, affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, asset-backed security, barriers to entry, Bear Stearns, Berlin Wall, Bernie Madoff, carried interest, circulation of elites, Climategate, Climatic Research Unit, collapse of Lehman Brothers, collective bargaining, creative destruction, Credit Default Swap, dark matter, David Brooks, David Graeber, deindustrialization, Fall of the Berlin Wall, financial deregulation, fixed income, full employment, George Akerlof, Gunnar Myrdal, hiring and firing, income inequality, Jane Jacobs, jimmy wales, Julian Assange, Kenneth Arrow, Mark Zuckerberg, mass affluent, mass incarceration, means of production, meritocracy, meta-analysis, military-industrial complex, money market fund, moral hazard, Naomi Klein, Nate Silver, peak oil, plutocrats, Ponzi scheme, post-truth, radical decentralization, Ralph Waldo Emerson, rolodex, Savings and loan crisis, The Spirit Level, too big to fail, University of East Anglia, Vilfredo Pareto, We are the 99%, WikiLeaks, women in the workforce

For Harvard numbers, Ho cites a statement from the university’s Office of Career Services in 2005, indicating that close to half of Harvard students go through “the recruiting process to vie for investment banking and consulting jobs.” 34 “American CEOs looked very different”: Benjamin Wallace-Wells, “The Romney Economy,” New York, October 23, 2011. 35 “It’s the easiest way to see who was lucky enough to get a good elementary school education”: Quoted in Belinda Zhou, “Graduation Speech Ignites Heated Debate,” What’s What, October 26, 2010. 36 “The idea of meritocracy may have many virtues”: Amartya Sen, “Merit and Justice,” in Meritocracy and Economic Inequality, ed. Kenneth Arrow et al. (Princeton, N.J.: Princeton University Press, 2000), p. 5. 37 “meritocratic feedback loop”: Ho, Liquidated, p. 57. 38 Grover Norquist likened progressive taxation … to Hitler’s treatment of the Jews: The dialogue is quoted in Michael J. Graetz and Ian Shapiro, Death by a Thousand Cuts: The Fight Over Taxing Inherited Wealth (Princeton, N.J.: Princeton University Press, 2006), pp. 213–14. 39 “Our workers’ organization has become an end in itself”: Cited in John Kilcullen, “Robert Michels: Oligarchy,” http://www.humanities.mq.edu.au/Ockham/y64l11.html, accessed January 6, 2012. 40 “The most formidable argument against the sovereignty of the masses”: Robert Michels, Political Parties: A Sociological Study of the Oligarchical Tendencies of Modern Democracy, trans.


The Armchair Economist: Economics and Everyday Life by Steven E. Landsburg

Albert Einstein, Arthur Eddington, business cycle, diversified portfolio, Dutch auction, first-price auction, German hyperinflation, Golden Gate Park, information asymmetry, invisible hand, junk bonds, Kenneth Arrow, low interest rates, means of production, price discrimination, profit maximization, Ralph Nader, random walk, Ronald Coase, Sam Peltzman, Savings and loan crisis, sealed-bid auction, second-price auction, second-price sealed-bid, statistical model, the scientific method, Unsafe at Any Speed

Third, a third-party candidate with no chance of winning should not be able to affect the outcome of a two-way race. This rules out the simple "plurality wins" rule. With plurality rule, a candidate's prospects can improve when a third-party candidate draws votes from his opponent. In the early 1950s, the economist Kenneth Arrow (subsequently a Nobel prize winner) wrote down a list of reasonable requirements for a democratic voting procedure. They all have the flavor of the three I've just listed. Then Arrow set out to find all of those voting procedures that meet the requirements. It turns out that there aren't many.


pages: 791 words: 85,159

Social Life of Information by John Seely Brown, Paul Duguid

Alvin Toffler, business process, Charles Babbage, Claude Shannon: information theory, computer age, Computing Machinery and Intelligence, cross-subsidies, disintermediation, double entry bookkeeping, Frank Gehry, frictionless, frictionless market, future of work, George Gilder, George Santayana, global village, Goodhart's law, Howard Rheingold, informal economy, information retrieval, invisible hand, Isaac Newton, John Markoff, John Perry Barlow, junk bonds, Just-in-time delivery, Kenneth Arrow, Kevin Kelly, knowledge economy, knowledge worker, lateral thinking, loose coupling, Marshall McLuhan, medical malpractice, Michael Milken, moral hazard, Network effects, new economy, Productivity paradox, Robert Metcalfe, rolodex, Ronald Coase, scientific management, shareholder value, Shoshana Zuboff, Silicon Valley, Steve Jobs, Superbowl ad, tacit knowledge, Ted Nelson, telepresence, the medium is the message, The Nature of the Firm, the strength of weak ties, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, Turing test, Vannevar Bush, Y2K

The first thing to remember, of course, is that Crusoe is a fictional character. 32. Marx, 1947, p. 48. 33. Sartre, 1957, quoted in Warnock, 1960, pp. 127 28. 34. See Feenburg (1995) for an insightful discussion of the social character of illness. 35. These examples are from Dorothy Leonard-Barton and Silvia Sensiper (1998) and Kenneth Arrow (1984), respectively. 36. See van Maanen and Barley (1984) for "occupational communities"; Strauss (1978) and the following chapter for "social world." 37. Listservs are e-mail lists that forward messages sent to a single address to everyone who subscribes to that list. Members of large lists rarely know who the other members are.


pages: 294 words: 85,811

The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care by T. R. Reid

Berlin Wall, British Empire, double helix, employer provided health coverage, fudge factor, Kenneth Arrow, medical malpractice, profit maximization, profit motive, single-payer health, South China Sea, the payments system

But how much good was achieved, for the patient, for her family, for society as a whole? What does the number of bedridden ninety-five-year-olds tell us about the quality of a nation’s health care? Questions like that are largely the province of a relatively new academic discipline, health care economics. This field was started in the 1960s by the American Nobel laureate Kenneth Arrow. As with many other areas of contemporary economics, most of its leading lights are Americans—not surprising, given that health care spending now represents about one-sixth of the entire American economy.The analytic studies and the mathematical models of the health care economists are essential to the design of effective health care systems; they were extremely helpful to me during my global medical odyssey.


pages: 426 words: 83,128

The Journey of Humanity: The Origins of Wealth and Inequality by Oded Galor

agricultural Revolution, Alfred Russel Wallace, Andrei Shleifer, Apollo 11, Berlin Wall, bioinformatics, colonial rule, Columbian Exchange, conceptual framework, COVID-19, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, deindustrialization, demographic dividend, demographic transition, Donald Trump, double entry bookkeeping, Easter island, European colonialism, Fall of the Berlin Wall, Francisco Pizarro, general purpose technology, germ theory of disease, income per capita, intermodal, invention of agriculture, invention of movable type, invention of the printing press, invention of the telegraph, James Hargreaves, James Watt: steam engine, Joseph-Marie Jacquard, Kenneth Arrow, longitudinal study, loss aversion, Louis Pasteur, means of production, out of africa, phenotype, rent-seeking, rising living standards, Robert Solow, Scramble for Africa, The Death and Life of Great American Cities, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Malthus, Walter Mischel, Washington Consensus, wikimedia commons, women in the workforce, working-age population, World Values Survey

In line with his thesis, recent evidence suggests that kinship ties do indeed differ significantly across Italian regions, as they do more generally across countries. Likewise, tighter nuclear family bonds do tend to adversely affect levels of social trust, political participation, the status of women in the workforce and geographic mobility.[17] And since, as the Nobel Prize–winning American economist Kenneth Arrow noted, business deals often rely on trust while its absence harms trade, lower levels of trust outside of the family setting might have diminished the level of economic development in southern Italy compared to the north.[18] But how did these differences in trust levels and family ties emerge in the first place?


pages: 338 words: 85,566

Restarting the Future: How to Fix the Intangible Economy by Jonathan Haskel, Stian Westlake

"Friedman doctrine" OR "shareholder theory", activist fund / activist shareholder / activist investor, Andrei Shleifer, Big Tech, Black Lives Matter, book value, Boris Johnson, Brexit referendum, business cycle, business process, call centre, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, Charles Lindbergh, charter city, cloud computing, cognitive bias, cognitive load, congestion charging, coronavirus, corporate governance, COVID-19, creative destruction, cryptocurrency, David Graeber, decarbonisation, Diane Coyle, Dominic Cummings, Donald Shoup, Donald Trump, Douglas Engelbart, Douglas Engelbart, driverless car, Edward Glaeser, equity risk premium, Erik Brynjolfsson, Estimating the Reproducibility of Psychological Science, facts on the ground, financial innovation, Francis Fukuyama: the end of history, future of work, general purpose technology, gentrification, Goodhart's law, green new deal, housing crisis, income inequality, index fund, indoor plumbing, industrial cluster, inflation targeting, intangible asset, interchangeable parts, invisible hand, job-hopping, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, knowledge economy, knowledge worker, lockdown, low interest rates, low skilled workers, Marc Andreessen, market design, Martin Wolf, megacity, mittelstand, new economy, Occupy movement, oil shock, patent troll, Peter Thiel, Phillips curve, postindustrial economy, pre–internet, price discrimination, quantitative easing, QWERTY keyboard, remote working, rent-seeking, replication crisis, risk/return, Robert Gordon, Robert Metcalfe, Robert Shiller, Ronald Coase, Sam Peltzman, Second Machine Age, secular stagnation, shareholder value, Silicon Valley, six sigma, skeuomorphism, social distancing, superstar cities, the built environment, The Rise and Fall of American Growth, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, total factor productivity, transaction costs, Tyler Cowen, Tyler Cowen: Great Stagnation, Uber for X, urban planning, We wanted flying cars, instead we got 140 characters, work culture , X Prize, Y2K

It was first used in Samuelson’s famous economic textbook in 1948. The economist Ronald Coase pointed out the fact that lighthouses were privately provided; nonetheless, the lighthouse, as an example of a public good, seems to have remained in many textbooks. 27. Levitt 2020. 28. Van Zandt 1993. The economist Kenneth Arrow (1962) argued that there is a second economic difficulty: unless the lighthouse owner could commit to an acceptable price in advance (for example, by publishing a price schedule), the ship owner might worry about being charged a high price and so not use the lighthouse at all. 29. Lindberg (2013) notes that King James I did not recognise Trinity House’s exclusive right to build lighthouses.


pages: 346 words: 89,180

Capitalism Without Capital: The Rise of the Intangible Economy by Jonathan Haskel, Stian Westlake

23andMe, activist fund / activist shareholder / activist investor, Airbnb, Alan Greenspan, Albert Einstein, Alvin Toffler, Andrei Shleifer, bank run, banking crisis, Bernie Sanders, Big Tech, book value, Brexit referendum, business climate, business process, buy and hold, Capital in the Twenty-First Century by Thomas Piketty, carbon credits, cloud computing, cognitive bias, computer age, congestion pricing, corporate governance, corporate raider, correlation does not imply causation, creative destruction, dark matter, Diane Coyle, Donald Trump, Douglas Engelbart, Douglas Engelbart, driverless car, Edward Glaeser, Elon Musk, endogenous growth, Erik Brynjolfsson, everywhere but in the productivity statistics, Fellow of the Royal Society, financial engineering, financial innovation, full employment, fundamental attribution error, future of work, gentrification, gigafactory, Gini coefficient, Hernando de Soto, hiring and firing, income inequality, index card, indoor plumbing, intangible asset, Internet of things, Jane Jacobs, Jaron Lanier, Jeremy Corbyn, job automation, Kanban, Kenneth Arrow, Kickstarter, knowledge economy, knowledge worker, laissez-faire capitalism, liquidity trap, low interest rates, low skilled workers, Marc Andreessen, Mother of all demos, Network effects, new economy, Ocado, open economy, patent troll, paypal mafia, Peter Thiel, pets.com, place-making, post-industrial society, private spaceflight, Productivity paradox, quantitative hedge fund, rent-seeking, revision control, Richard Florida, ride hailing / ride sharing, Robert Gordon, Robert Solow, Ronald Coase, Sand Hill Road, Second Machine Age, secular stagnation, self-driving car, shareholder value, sharing economy, Silicon Valley, six sigma, Skype, software patent, sovereign wealth fund, spinning jenny, Steve Jobs, sunk-cost fallacy, survivorship bias, tacit knowledge, tech billionaire, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Tim Cook: Apple, total factor productivity, TSMC, Tyler Cowen, Tyler Cowen: Great Stagnation, urban planning, Vanguard fund, walkable city, X Prize, zero-sum game

One way of doing this is to try to build or nurture dynamic clusters—places where innovative businesses and people are more likely to come together and share ideas. As we saw in chapter 4, clusters have played an important but occasional role in the history of economic thought, not least in the work of Alfred Marshall, Kenneth Arrow, Paul Romer, and Edward Glaeser. But clusters are absolute catnip for policymakers and pundits. It is rare to see a modern government that does not have some sort of strategy for supporting or building local clusters, especially in high-innovation sectors. (Witness the dozens of Silicon-soundalike names that have been coined around the world in homage to northern California’s tech cluster—from Silicon Roundabout in London and Silicon Wadi in Israel, to any number of more aspirational variants elsewhere.)


The End of Accounting and the Path Forward for Investors and Managers (Wiley Finance) by Feng Gu

active measures, Affordable Care Act / Obamacare, Alan Greenspan, barriers to entry, book value, business cycle, business process, buy and hold, carbon tax, Claude Shannon: information theory, Clayton Christensen, commoditize, conceptual framework, corporate governance, creative destruction, Daniel Kahneman / Amos Tversky, discounted cash flows, disruptive innovation, diversified portfolio, double entry bookkeeping, Exxon Valdez, financial engineering, financial innovation, fixed income, geopolitical risk, hydraulic fracturing, index fund, information asymmetry, intangible asset, inventory management, Joseph Schumpeter, junk bonds, Kenneth Arrow, knowledge economy, moral hazard, new economy, obamacare, quantitative easing, quantitative trading / quantitative finance, QWERTY keyboard, race to the bottom, risk/return, Robert Shiller, Salesforce, shareholder value, Steve Jobs, tacit knowledge, The Great Moderation, value at risk

These prevalent investors’ mistakes—dubbed Sloan’s “accruals anomaly”—were, however, corrected in the 2000s, as shown by the evidence that large accruals (earnings higher than cash flows) no longer attract investors’ funds; see Jeremiah Green, John Hand, and Mark Soliman, “Going, Going, Gone? The Apparent Demise of the Accruals Anomaly,” Management Science, 57 (2011): 797–816. 4. Someone cynically quipped: History doesn’t repeat itself, only historians do. 5. See, for example, Kenneth Arrow, “Path Dependence and Competitive Equilibrium,” in History Matters: Essays on Economic Growth, Technology, and Demographic Change, ed. William Sundstrom, Timothy Guinnane, and Warren Whatley (Stanford, CA: Stanford University Press, 2003). 6. Even a far larger disaster, British Petroleum’s (BP) 2010 oil spill in the Gulf of Mexico, costing the company tens of billions of dollars, didn’t dethrone BP from its membership in the group of major international oil companies.


pages: 288 words: 89,781

The Classical School by Callum Williams

"Friedman doctrine" OR "shareholder theory", bank run, banking crisis, basic income, Brexit referendum, British Empire, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Charles Babbage, complexity theory, Corn Laws, David Ricardo: comparative advantage, death from overwork, deindustrialization, Donald Trump, double entry bookkeeping, falling living standards, Fellow of the Royal Society, full employment, Gini coefficient, Gordon Gekko, greed is good, helicopter parent, income inequality, invisible hand, Jevons paradox, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, land reform, low skilled workers, Mahatma Gandhi, Martin Wolf, means of production, Meghnad Desai, minimum wage unemployment, Modern Monetary Theory, new economy, New Journalism, non-tariff barriers, Paul Samuelson, Post-Keynesian economics, purchasing power parity, Ronald Coase, secular stagnation, Silicon Valley, spinning jenny, The Wealth of Nations by Adam Smith, Thomas Malthus, universal basic income

Neither is choosing sushi. Nor a burrito. The cycle goes on for ever, and we can never find a democratic choice. Pizza politics But why does this insight matter? In the 19th century the paradox was not much discussed. The reason it is so influential today is probably because of the impact it had on Kenneth Arrow (1921–2017), an economist who devised something called the “impossibility theorem” in the 1950s. Without going into the details of this theory, which is more complicated than Condorcet’s, Arrow showed that under fairly mild assumptions it becomes quite difficult to collect individual preferences and then shape them into collective decisions.


pages: 339 words: 95,988

Freakonomics: A Rogue Economist Explores the Hidden Side of Everything by Steven D. Levitt, Stephen J. Dubner

airport security, Alan Greenspan, behavioural economics, Broken windows theory, crack epidemic, desegregation, Exxon Valdez, feminist movement, George Akerlof, information asymmetry, Joseph Schumpeter, Kenneth Arrow, longitudinal study, mental accounting, moral hazard, More Guns, Less Crime, oil shale / tar sands, Paul Samuelson, peak oil, pets.com, profit maximization, Richard Thaler, school choice, sensible shoes, Steven Pinker, Ted Kaczynski, The Chicago School, The Market for Lemons, Thorstein Veblen, Tragedy of the Commons, twin studies, War on Poverty

Becker, The Economics of Discrimination (Chicago: University of Chicago Press, 1957). / 72 The theory of information-based discrimination is derived from a number of papers, including Edmund Phelps, “A Statistical Theory of Racism and Sexism,” American Economic Review 62, no. 4 (1972), pp. 659–61; and Kenneth Arrow, “The Theory of Discrimination,” Discrimination in Labor Markets, ed. Orley Ashenfelter and Albert Rees (Princeton, N.J.: Princeton University Press, 1973). THE ONLINE DATING STORY: See Günter J. Hitsch, Ali Hortaçsu, and Dan Ariely, “What Makes You Click: An Empirical Analysis of Online Dating,” University of Chicago working paper, 2005.


pages: 317 words: 100,414

Superforecasting: The Art and Science of Prediction by Philip Tetlock, Dan Gardner

Affordable Care Act / Obamacare, Any sufficiently advanced technology is indistinguishable from magic, availability heuristic, behavioural economics, Black Swan, butterfly effect, buy and hold, cloud computing, cognitive load, cuban missile crisis, Daniel Kahneman / Amos Tversky, data science, desegregation, drone strike, Edward Lorenz: Chaos theory, forward guidance, Freestyle chess, fundamental attribution error, germ theory of disease, hindsight bias, How many piano tuners are there in Chicago?, index fund, Jane Jacobs, Jeff Bezos, Kenneth Arrow, Laplace demon, longitudinal study, Mikhail Gorbachev, Mohammed Bouazizi, Nash equilibrium, Nate Silver, Nelson Mandela, obamacare, operational security, pattern recognition, performance metric, Pierre-Simon Laplace, place-making, placebo effect, precautionary principle, prediction markets, quantitative easing, random walk, randomized controlled trial, Richard Feynman, Richard Thaler, Robert Shiller, Ronald Reagan, Saturday Night Live, scientific worldview, Silicon Valley, Skype, statistical model, stem cell, Steve Ballmer, Steve Jobs, Steven Pinker, tacit knowledge, tail risk, the scientific method, The Signal and the Noise by Nate Silver, The Wisdom of Crowds, Thomas Bayes, Watson beat the top human players on Jeopardy!

In 1984, with grants from the Carnegie and MacArthur foundations, the National Research Council—the research arm of the United States National Academy of Sciences—convened a distinguished panel charged with nothing less than “preventing nuclear war.” The panelists included three Nobel laureates—the physicist Charles Townes, the economist Kenneth Arrow, and the unclassifiable Herbert Simon—and an array of other luminaries, including the mathematical psychologist Amos Tversky. I was by far the least impressive member of the panel, a thirty-year-old political psychologist just promoted to associate professor at the University of California, Berkeley.


pages: 831 words: 98,409

SUPERHUBS: How the Financial Elite and Their Networks Rule Our World by Sandra Navidi

"World Economic Forum" Davos, activist fund / activist shareholder / activist investor, Alan Greenspan, Anthropocene, assortative mating, bank run, barriers to entry, Bear Stearns, Bernie Sanders, Black Swan, Blythe Masters, Bretton Woods, butterfly effect, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, cognitive bias, collapse of Lehman Brothers, collateralized debt obligation, commoditize, conceptual framework, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, digital divide, diversification, Dunbar number, East Village, eat what you kill, Elon Musk, eurozone crisis, fake it until you make it, family office, financial engineering, financial repression, Gini coefficient, glass ceiling, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Google bus, Gordon Gekko, haute cuisine, high net worth, hindsight bias, income inequality, index fund, intangible asset, Jaron Lanier, Jim Simons, John Meriwether, junk bonds, Kenneth Arrow, Kenneth Rogoff, Kevin Roose, knowledge economy, London Whale, Long Term Capital Management, longitudinal study, Mark Zuckerberg, mass immigration, McMansion, mittelstand, Money creation, money market fund, Myron Scholes, NetJets, Network effects, no-fly zone, offshore financial centre, old-boy network, Parag Khanna, Paul Samuelson, peer-to-peer, performance metric, Peter Thiel, plutocrats, Ponzi scheme, power law, public intellectual, quantitative easing, Renaissance Technologies, rent-seeking, reserve currency, risk tolerance, Robert Gordon, Robert Shiller, rolodex, Satyajit Das, search costs, shareholder value, Sheryl Sandberg, Silicon Valley, social intelligence, sovereign wealth fund, Stephen Hawking, Steve Jobs, subprime mortgage crisis, systems thinking, tech billionaire, The Future of Employment, The Predators' Ball, The Rise and Fall of American Growth, too big to fail, Tyler Cowen, women in the workforce, young professional

Ever restless and on the lookout for new challenges, pushing boundaries and climbing to new heights, Summers has had several exceedingly successful careers and held some of the most important positions in the U.S. government. His platinum resume was practically preordained in his DNA, as he is the son of two economists and the nephew of two Nobel laureates in economics, Paul Samuelson and Kenneth Arrow. His father taught at Yale University, and Samuelson had been an adviser to President Kennedy. Meteoric Rise Summers’s stellar professional rise occurred with lightning speed. He was accepted into the Massachusetts Institute of Technology at age sixteen and received tenure at Harvard University at only twenty-eight years old.


pages: 297 words: 103,910

Free culture: how big media uses technology and the law to lock down culture and control creativity by Lawrence Lessig

Brewster Kahle, Cass Sunstein, content marketing, creative destruction, digital divide, Free Software Foundation, future of journalism, George Akerlof, Innovator's Dilemma, Internet Archive, invention of the printing press, Joi Ito, Kenneth Arrow, Kevin Kelly, knowledge economy, Louis Daguerre, machine readable, new economy, prediction markets, prisoner's dilemma, profit motive, rent-seeking, Richard Florida, Richard Stallman, Ronald Coase, Ronald Reagan, Saturday Night Live, Silicon Valley, software patent, synthetic biology, transaction costs

One made the argument I've already described: A brief by Hal Roach Studios argued that unless the law was struck, a whole generation of American film would disappear. The other made the economic argument absolutely clear. This economists' brief was signed by seventeen economists, including five Nobel Prize winners, including Ronald Coase, James Buchanan, Milton Friedman, Kenneth Arrow, and George Akerlof. The economists, as the list of Nobel winners demonstrates, spanned the political spectrum. Their conclusions were powerful: There was no plausible claim that extending the terms of existing copyrights would do anything to increase incentives to create. Such extensions were nothing more than "rent-seeking"—the fancy term economists use to describe special-interest legislation gone wild.


pages: 111 words: 1

Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets by Nassim Nicholas Taleb

Alan Greenspan, Antoine Gombaud: Chevalier de Méré, availability heuristic, backtesting, behavioural economics, Benoit Mandelbrot, Black Swan, commoditize, complexity theory, corporate governance, corporate raider, currency peg, Daniel Kahneman / Amos Tversky, discounted cash flows, diversified portfolio, endowment effect, equity premium, financial engineering, fixed income, global village, hedonic treadmill, hindsight bias, junk bonds, Kenneth Arrow, Linda problem, Long Term Capital Management, loss aversion, mandelbrot fractal, Mark Spitznagel, Market Wizards by Jack D. Schwager, mental accounting, meta-analysis, Michael Milken, Myron Scholes, PalmPilot, Paradox of Choice, Paul Samuelson, power law, proprietary trading, public intellectual, quantitative trading / quantitative finance, QWERTY keyboard, random walk, Richard Feynman, risk free rate, road to serfdom, Robert Shiller, selection bias, shareholder value, Sharpe ratio, Steven Pinker, stochastic process, survivorship bias, too big to fail, Tragedy of the Commons, Turing test, Yogi Berra

Taken at a more extreme level, whenever numerous viable possibilities exist, the world splits into many worlds, one world for each different possibility—causing the proliferation of parallel universes. I am an essayist-trader in one of the parallel universes, plain dust in another. Finally, in economics: Economists studied (perhaps unwittingly) some of the Leibnizian ideas with the possible “states of nature” pioneered by Kenneth Arrow and Gerard Debreu. This analytical approach to the study of economic uncertainty is called the “state space” method—it happens to be the cornerstone of neoclassical economic theory and mathematical finance. A simplified version is called “scenario analysis,” the series of “what-ifs” used in, say, the forecasting of sales for a fertilizer plant under different world conditions and demands for the (smelly) product.


pages: 323 words: 100,772

Prisoner's Dilemma: John Von Neumann, Game Theory, and the Puzzle of the Bomb by William Poundstone

90 percent rule, Albert Einstein, anti-communist, cuban missile crisis, Douglas Hofstadter, Dr. Strangelove, Frank Gehry, From Mathematics to the Technologies of Life and Death, Herman Kahn, Jacquard loom, John Nash: game theory, John von Neumann, Kenneth Arrow, means of production, Monroe Doctrine, mutually assured destruction, Nash equilibrium, Norbert Wiener, RAND corporation, Richard Feynman, seminal paper, statistical model, the market place, zero-sum game

It was at RAND rather than in the groves of academia that game theory was nurtured in the years after von Neumann and Morgenstern’s book. In late 1940s and early 1950s, few of the biggest names of game theory and allied fields didn’t work for RAND, either full-time or as consultants. Besides von Neumann, RAND employed Kenneth Arrow, George Dantzig, Melvin Dresher, Merrill Flood, R. Duncan Luce, John Nash, Anatol Rapoport, Lloyd Shapley, and Martin Shubik—nearly all of whom were there at the same time. It is difficult to think of any other scientific field in which talent was concentrated so exclusively at one institution.


Rockonomics: A Backstage Tour of What the Music Industry Can Teach Us About Economics and Life by Alan B. Krueger

"Friedman doctrine" OR "shareholder theory", accounting loophole / creative accounting, Affordable Care Act / Obamacare, Airbnb, Alan Greenspan, autonomous vehicles, bank run, behavioural economics, Berlin Wall, bitcoin, Bob Geldof, butterfly effect, buy and hold, congestion pricing, creative destruction, crowdsourcing, digital rights, disintermediation, diversified portfolio, Donald Trump, endogenous growth, Gary Kildall, George Akerlof, gig economy, income inequality, independent contractor, index fund, invisible hand, Jeff Bezos, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kickstarter, Larry Ellison, Live Aid, Mark Zuckerberg, Moneyball by Michael Lewis explains big data, moral hazard, Multics, Network effects, obamacare, offshore financial centre, opioid epidemic / opioid crisis, Paul Samuelson, personalized medicine, power law, pre–internet, price discrimination, profit maximization, random walk, recommendation engine, rent-seeking, Richard Thaler, ride hailing / ride sharing, Saturday Night Live, Skype, Steve Jobs, the long tail, The Wealth of Nations by Adam Smith, TikTok, too big to fail, transaction costs, traumatic brain injury, Tyler Cowen, ultimatum game, winner-take-all economy, women in the workforce, Y Combinator, zero-sum game

The 1998 Copyright Term Extension Act—also known as the Sonny Bono Act, after the then-congressman and former member of Sonny and Cher—extended copyright protection for new works from the life of the author plus fifty years to the life of the author plus seventy years. A distinguished group of economists, including George Akerlof, Kenneth Arrow, and Milton Friedman, wrote an amicus brief to the Supreme Court arguing that this twenty-year extension, coming long after the death of an author or composer, would have virtually no impact on the economic incentive for creative output. “Because the additional compensation occurs many decades in the future, its present value is small, very likely an improvement of less than 1 percent,” the economists wrote.27 They further warned that extending protection raises costs for consumers and reduces “the set of building-block materials freely available for new works [and therefore] raises the cost of producing new works and reduces the number created.”


pages: 850 words: 254,117

Basic Economics by Thomas Sowell

affirmative action, air freight, airline deregulation, Alan Greenspan, American Legislative Exchange Council, bank run, barriers to entry, big-box store, British Empire, business cycle, clean water, collective bargaining, colonial rule, corporate governance, correlation does not imply causation, cotton gin, cross-subsidies, David Brooks, David Ricardo: comparative advantage, declining real wages, Dissolution of the Soviet Union, diversified portfolio, European colonialism, fixed income, Ford Model T, Fractional reserve banking, full employment, global village, Gunnar Myrdal, Hernando de Soto, hiring and firing, housing crisis, income inequality, income per capita, index fund, informal economy, inventory management, invisible hand, John Maynard Keynes: technological unemployment, joint-stock company, junk bonds, Just-in-time delivery, Kenneth Arrow, knowledge economy, labor-force participation, land reform, late fees, low cost airline, low interest rates, low skilled workers, means of production, Mikhail Gorbachev, minimum wage unemployment, moral hazard, offshore financial centre, oil shale / tar sands, payday loans, Phillips curve, Post-Keynesian economics, price discrimination, price stability, profit motive, quantitative easing, Ralph Nader, rent control, rent stabilization, road to serfdom, Ronald Reagan, San Francisco homelessness, Silicon Valley, surplus humans, The Bell Curve by Richard Herrnstein and Charles Murray, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, transcontinental railway, Tyler Cowen, Vanguard fund, War on Poverty, We are all Keynesians now

In other words, success did not automatically lead to expansions of successful enterprises nor failure to the contraction of unsuccessful ones, as it does in a market economy. Social Order Order includes more than laws and the government apparatus that administers laws. It also includes the honesty, reliability and cooperativeness of the people themselves. “Morality plays a functional role in the operation of the economic system,” as Nobel Prize winning economist Kenneth Arrow put it.{634} Honesty and reliability can vary greatly between one country and another. As a knowledgeable observer put it: “While it is unimaginable to do business in China without paying bribes, to offer one in Japan is the greatest of faux pas.”{635} Losses from shoplifting and employee theft, as a percentage of sales, have been more than twice as high in India as in Germany or Taiwan.{636} When wallets with money in them were deliberately left in public places as an experiment, the percentage of those wallets returned with the money untouched varied greatly from place to place: in Denmark, for example, nearly all of these wallets were returned with the money still in them.{637} Among United Nations representatives who have diplomatic immunity from local laws in New York City, diplomats from various Middle East countries let numerous parking tickets go unpaid—246 by Kuwaiti diplomats—while not one diplomat from Denmark, Japan, or Israel had any unpaid parking tickets.{638} Honesty and reliability can also vary widely among particular groups within a given country, and that also has economic repercussions.

{631} Land Use and Housing on the San Francisco Peninsula, edited by Thomas M. Hagler (Stanford, CA: Stanford Environmental Law Society, 1983), Volume IV. {632} Nikolai Shmelev and Vladimir Popov, The Turning Point, p. 261. {633} Ibid., p. 147. {634} “The Economy of Trust: An Interview with Kenneth Arrow,” Religion & Liberty, Summer 2006, p. 3. {635} Angelo Codevilla, The Character of Nations: How Politics Makes and Breaks Prosperity, Family, and Civility (New York: Basic Book, 2009), p. 42. {636} “Five-Fingered Discounts,” The Economist, October 23, 2010, p. 81. {637} William Easterly, The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good (New York: The Penguin Press, 2006), p. 80


Capital Ideas Evolving by Peter L. Bernstein

Albert Einstein, algorithmic trading, Andrei Shleifer, asset allocation, behavioural economics, Black Monday: stock market crash in 1987, Bob Litterman, book value, business cycle, buy and hold, buy low sell high, capital asset pricing model, commodity trading advisor, computerized trading, creative destruction, currency risk, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, diversification, diversified portfolio, endowment effect, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, fixed income, high net worth, hiring and firing, index fund, invisible hand, Isaac Newton, John Meriwether, John von Neumann, Joseph Schumpeter, Kenneth Arrow, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, market bubble, mental accounting, money market fund, Myron Scholes, paper trading, passive investing, Paul Samuelson, Performance of Mutual Funds in the Period, price anchoring, price stability, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, seminal paper, Sharpe ratio, short selling, short squeeze, Silicon Valley, South Sea Bubble, statistical model, survivorship bias, systematic trading, tail risk, technology bubble, The Wealth of Nations by Adam Smith, transaction costs, yield curve, Yogi Berra, zero-sum game

“I have been around long enough to see empirical results that seem to be really solid until you try a different country or different statistical method or different time period. Maybe that’s why Fischer Black said you should put your trust only in logic and theory and forget about statistical empirical results.” The alternative approach Sharpe now favors is state-preference theory, another unwieldy name, developed some thirty years ago by Kenneth Arrow of Stanford and Gérard Debreu of the University of California, who won the Nobel Prize in Economics together in 1972. The essence of Arrow’s theory is that the same asset can change in character as we look forward to the range of outcomes the future might hold. As Sharpe describes it: The basic premise is really quite straightforward.


pages: 378 words: 110,518

Postcapitalism: A Guide to Our Future by Paul Mason

air traffic controllers' union, Alan Greenspan, Alfred Russel Wallace, bank run, banking crisis, banks create money, Basel III, basic income, Bernie Madoff, Bill Gates: Altair 8800, bitcoin, Bletchley Park, Branko Milanovic, Bretton Woods, BRICs, British Empire, business cycle, business process, butterfly effect, call centre, capital controls, carbon tax, Cesare Marchetti: Marchetti’s constant, Claude Shannon: information theory, collaborative economy, collective bargaining, commons-based peer production, Corn Laws, corporate social responsibility, creative destruction, credit crunch, currency manipulation / currency intervention, currency peg, David Graeber, deglobalization, deindustrialization, deskilling, discovery of the americas, disinformation, Downton Abbey, drone strike, en.wikipedia.org, energy security, eurozone crisis, factory automation, false flag, financial engineering, financial repression, Firefox, Fractional reserve banking, Frederick Winslow Taylor, fulfillment center, full employment, future of work, game design, Glass-Steagall Act, green new deal, guns versus butter model, Herbert Marcuse, income inequality, inflation targeting, informal economy, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), Internet of things, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Perry Barlow, Joseph Schumpeter, Kenneth Arrow, Kevin Kelly, Kickstarter, knowledge economy, knowledge worker, late capitalism, low interest rates, low skilled workers, market clearing, means of production, Metcalfe's law, microservices, middle-income trap, Money creation, money: store of value / unit of account / medium of exchange, mortgage debt, Network effects, new economy, Nixon triggered the end of the Bretton Woods system, Norbert Wiener, Occupy movement, oil shale / tar sands, oil shock, Paul Samuelson, payday loans, Pearl River Delta, post-industrial society, power law, precariat, precautionary principle, price mechanism, profit motive, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, RFID, Richard Stallman, Robert Gordon, Robert Metcalfe, scientific management, secular stagnation, sharing economy, Stewart Brand, structural adjustment programs, supply-chain management, technological determinism, The Future of Employment, the scientific method, The Wealth of Nations by Adam Smith, Transnistria, Twitter Arab Spring, union organizing, universal basic income, urban decay, urban planning, vertical integration, Vilfredo Pareto, wages for housework, WikiLeaks, women in the workforce, Yochai Benkler

But in an information economy, the externalities become the major issue. In the old world, economists categorized information as a ‘public good’: the costs of science, for example, were borne by society – so everybody benefited. But in the 1960s economists began to understand information as a commodity. In 1962, Kenneth Arrow, the guru of mainstream economics, said that in a free-market economy, the purpose of inventing things is to create intellectual property rights. ‘Precisely to the extent that it is successful there is an under-utilisation of information.’37 If you think about it this way, the purpose of patenting the advanced HIV drug Darunavir can only be to keep its price at $1095 a year, which is, as Médecins sans Frontières put it, ‘prohibitively expensive’.


pages: 389 words: 109,207

Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street by William Poundstone

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Albert Einstein, anti-communist, asset allocation, Bear Stearns, beat the dealer, Benoit Mandelbrot, Black Monday: stock market crash in 1987, Black-Scholes formula, Bletchley Park, Brownian motion, buy and hold, buy low sell high, capital asset pricing model, Claude Shannon: information theory, computer age, correlation coefficient, diversified portfolio, Edward Thorp, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial engineering, Henry Singleton, high net worth, index fund, interest rate swap, Isaac Newton, Johann Wolfgang von Goethe, John Meriwether, John von Neumann, junk bonds, Kenneth Arrow, Long Term Capital Management, Louis Bachelier, margin call, market bubble, market fundamentalism, Marshall McLuhan, Michael Milken, Myron Scholes, New Journalism, Norbert Wiener, offshore financial centre, Paul Samuelson, publish or perish, quantitative trading / quantitative finance, random walk, risk free rate, risk tolerance, risk-adjusted returns, Robert Shiller, Ronald Reagan, Rubik’s Cube, short selling, speech recognition, statistical arbitrage, Teledyne, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, traveling salesman, value at risk, zero-coupon bond, zero-sum game

It has provoked sporadic interest ever since. A mention in John Maynard Keynes’s 1921 Treatise on Probability made it part of the mental furniture of nearly every twentieth-century economist. Bernoulli’s wager makes an appearance in von Neumann and Morgenstern’s Theory of Games and Economic Behavior and in papers by Kenneth Arrow, Milton Friedman, and Paul Samuelson. The paradox can be resolved easily by noting that Peter would have to possess infinite wealth to make good on the game’s potential payouts. No one has infinite wealth. Therefore most of the terms of the infinite series are irrelevant. A minuscule chance of winning a quadrillion dollars is not worth what you might compute.


pages: 274 words: 93,758

Phishing for Phools: The Economics of Manipulation and Deception by George A. Akerlof, Robert J. Shiller, Stanley B Resor Professor Of Economics Robert J Shiller

Andrei Shleifer, asset-backed security, Bear Stearns, behavioural economics, Bernie Madoff, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carl Icahn, collapse of Lehman Brothers, compensation consultant, corporate raider, Credit Default Swap, Daniel Kahneman / Amos Tversky, dark matter, David Brooks, desegregation, en.wikipedia.org, endowment effect, equity premium, financial intermediation, financial thriller, fixed income, full employment, George Akerlof, greed is good, income per capita, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, junk bonds, Kenneth Arrow, Kenneth Rogoff, late fees, loss aversion, market bubble, Menlo Park, mental accounting, Michael Milken, Milgram experiment, money market fund, moral hazard, new economy, Pareto efficiency, Paul Samuelson, payday loans, Ponzi scheme, profit motive, publication bias, Ralph Nader, randomized controlled trial, Richard Thaler, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, short selling, Silicon Valley, stock buybacks, the new new thing, The Predators' Ball, the scientific method, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, theory of mind, Thorstein Veblen, too big to fail, transaction costs, Unsafe at Any Speed, Upton Sinclair, Vanguard fund, Vilfredo Pareto, wage slave

For a version of Pareto’s original writings, see Vilfredo Pareto, Manual of Political Economy: A Critical and Variorum Edition, ed. Aldo Montesano et al. (Oxford: Oxford University Press, 2014). This edition derives from Manuale di Economia, published in Italy in 1906, and also a later edition in French. 18. In 1954, Kenneth Arrow and Gerard Debreu published a joint article that proved the existence of such an equilibrium under rather general conditions. In due course both of them would receive the Nobel Prize: Arrow in 1972, and Debreu in 1982, both of them especially cited for this contribution. The existence of the general equilibrium, even with the generality of their assumptions, does not appear to us to be of tremendous interest (especially since it occurs for what to us is the obvious mathematical reason).


pages: 411 words: 108,119

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

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

Professor Akerlof’s research interests include sociology and economics, theory of unemployment, assymetric information, staggered contract theory, money demand, labor market flows, theory of business cycles, economics of social customs, measurement of unemployment, and economics of discrimination. Kenneth J. Arrow, Stanford University Kenneth Arrow is the Joan Kenney Professor of Operations Research (Emeritus) at Stanford University. His work has been primarily in economic theory and operations, focusing on such areas as social choice theory, risk bearing, medical economics, general equilibrium analysis, inventory theory, and the economics of information and innovation.


pages: 344 words: 104,077

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

Abraham Maslow, agricultural Revolution, Airbnb, Albert Einstein, Alvin Toffler, Amazon Mechanical Turk, Apple's 1984 Super Bowl advert, Asperger Syndrome, Baxter: Rethink Robotics, bitcoin, blockchain, Boeing 747, business process, call centre, carbon tax, clean water, Computing Machinery and Intelligence, creative destruction, crowdsourcing, data science, deep learning, Donald Trump, Douglas Engelbart, Douglas Engelbart, driverless car, drone strike, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, experimental economics, Exxon Valdez, Ford Model T, future of work, Future Shock, Galaxy Zoo, Garrett Hardin, gig economy, happiness index / gross national happiness, independent contractor, industrial robot, Internet of things, invention of the telegraph, inventory management, invisible hand, Jeff Rulifson, jimmy wales, job automation, John Markoff, Joi Ito, Joseph Schumpeter, Kenneth Arrow, knowledge worker, longitudinal study, Lyft, machine translation, Marshall McLuhan, Nick Bostrom, Occupy movement, Pareto efficiency, pattern recognition, prediction markets, price mechanism, radical decentralization, Ray Kurzweil, Rodney Brooks, Ronald Coase, search costs, Second Machine Age, self-driving car, Silicon Valley, slashdot, social intelligence, Stephen Hawking, Steve Jobs, Steven Pinker, Stewart Brand, technological singularity, The Nature of the Firm, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Tim Cook: Apple, Tragedy of the Commons, transaction costs, Travis Kalanick, Uber for X, uber lyft, Vernor Vinge, Vilfredo Pareto, Watson beat the top human players on Jeopardy!

COMPARING DISTRIBUTION OF BENEFITS In order to compare how effectively different types of superminds distribute the benefits of group decision making to their members, we need a way to judge whether one distribution is better than another. But this is a very complex problem that has occupied economists and others—from the Marquis de Condorcet in the 18th century to Kenneth Arrow and many others in the 20th century.12 Many economists have analyzed this problem by saying that we can’t sensibly compare one person’s preferences to another’s because there’s no way of really knowing how strongly I feel about something compared to how strongly you feel about it. For instance, imagine that there is only one piece of deer meat left and that we’re trying to decide whether Mary or John should get it.


pages: 370 words: 107,983

Rage Inside the Machine: The Prejudice of Algorithms, and How to Stop the Internet Making Bigots of Us All by Robert Elliott Smith

"World Economic Forum" Davos, Ada Lovelace, adjacent possible, affirmative action, AI winter, Alfred Russel Wallace, algorithmic bias, algorithmic management, AlphaGo, Amazon Mechanical Turk, animal electricity, autonomous vehicles, behavioural economics, Black Swan, Brexit referendum, British Empire, Cambridge Analytica, cellular automata, Charles Babbage, citizen journalism, Claude Shannon: information theory, combinatorial explosion, Computing Machinery and Intelligence, corporate personhood, correlation coefficient, crowdsourcing, Daniel Kahneman / Amos Tversky, data science, deep learning, DeepMind, desegregation, discovery of DNA, disinformation, Douglas Hofstadter, Elon Musk, fake news, Fellow of the Royal Society, feminist movement, Filter Bubble, Flash crash, Geoffrey Hinton, Gerolamo Cardano, gig economy, Gödel, Escher, Bach, invention of the wheel, invisible hand, Jacquard loom, Jacques de Vaucanson, John Harrison: Longitude, John von Neumann, Kenneth Arrow, Linda problem, low skilled workers, Mark Zuckerberg, mass immigration, meta-analysis, mutually assured destruction, natural language processing, new economy, Northpointe / Correctional Offender Management Profiling for Alternative Sanctions, On the Economy of Machinery and Manufactures, p-value, pattern recognition, Paul Samuelson, performance metric, Pierre-Simon Laplace, post-truth, precariat, profit maximization, profit motive, Silicon Valley, social intelligence, statistical model, Stephen Hawking, stochastic process, Stuart Kauffman, telemarketer, The Bell Curve by Richard Herrnstein and Charles Murray, The Future of Employment, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Bayes, Thomas Malthus, traveling salesman, Turing machine, Turing test, twin studies, Vilfredo Pareto, Von Neumann architecture, warehouse robotics, women in the workforce, Yochai Benkler

Since 1984, SFI has functioned as a not-for-profit think tank that gathers together economists, physicists, computer scientists, biologists and many others from the broadest possible spectrum, to study Complex Systems. Fellows include physics Nobel laureates Murray Gell-Man and Philip Anderson, economics Nobel laureate Kenneth Arrow and Dave’s PhD supervisor, the now deceased MacArthur Genius Award Fellow John Holland. The focus of the institute’s multidisciplinary research is to better understand the principles of complex adaptive systems (systems characterized by interconnected elements and the ability to perpetually change and learn), including physical, computational, biological, environmental and social systems.


pages: 519 words: 104,396

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

availability heuristic, behavioural economics, book value, Cass Sunstein, collective bargaining, Daniel Kahneman / Amos Tversky, delayed gratification, Donald Trump, Dr. Strangelove, East Village, en.wikipedia.org, endowment effect, equal pay for equal work, experimental economics, experimental subject, feminist movement, game design, German hyperinflation, Henri Poincaré, high net worth, index card, invisible hand, John von Neumann, Kenneth Arrow, laissez-faire capitalism, Landlord’s Game, Linda problem, loss aversion, market bubble, McDonald's hot coffee lawsuit, mental accounting, meta-analysis, Nash equilibrium, new economy, no-fly zone, Paul Samuelson, payday loans, Philip Mirowski, Potemkin village, power law, price anchoring, price discrimination, psychological pricing, Ralph Waldo Emerson, RAND corporation, random walk, RFID, Richard Thaler, risk tolerance, Robert Shiller, rolodex, social intelligence, starchitect, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, three-martini lunch, ultimatum game, working poor

Following Graham’s advice is easier said than done. During bull markets, less kindly known as bubbles, Mr. Market shows up every day quoting sky-high prices that only seem to go up. Most investors find it impossible to ignore the siren song. How could Mr. Market be so very wrong, day after day? As early as 1982, Stanford economist Kenneth Arrow identified Tversky and Kahneman’s work as a plausible explanation for stock market bubbles. Lawrence Summers took up this theme in a 1986 paper, “Does the Stock Market Rationally Reflect Fundamental Values?” Summers (now head of the National Economic Council for the Obama administration) was the first to make an extended case for what might now be called the coherent arbitrariness of stock prices.


pages: 355 words: 63

The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics by William R. Easterly

Andrei Shleifer, business climate, business cycle, Carmen Reinhart, central bank independence, clean water, colonial rule, correlation does not imply causation, creative destruction, endogenous growth, financial repression, foreign exchange controls, Gini coefficient, government statistician, Gunnar Myrdal, income inequality, income per capita, inflation targeting, interchangeable parts, inventory management, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, large denomination, low interest rates, manufacturing employment, Money creation, Network effects, New Urbanism, open economy, PalmPilot, Productivity paradox, purchasing power parity, rent-seeking, Robert Solow, Ronald Reagan, selection bias, Silicon Valley, Simon Kuznets, The Wealth of Nations by Adam Smith, Thomas Malthus, total factor productivity, trade liberalization, Tragedy of the Commons, urban sprawl, Watson beat the top human players on Jeopardy!, Yogi Berra, Yom Kippur War

World Bank, World Development Report, 1996, p. 210 (data for 1994).Just to confirm droughts and terrain, see p. 34 World Bank 198%. 19. World Bank, World Development Report, 1996, p. 88 (data for 1995). 20. This kind of self-fulfilling discrimination has long been postulated before by distinguished economists like Kenneth Arrow and Glen Loury, but Kremer was the first to apply it more generally to skill matching and economic growth. 21. Statistical Abstract ofthe United States, 1995, tables 52, 724. 22. Kosmin and Lachman 1993, p. 260. 23. Lipset 1997, pp. 151-152. 24. Psacharopoulos and Patrinos 1994, p. 6. 25. Psacharopoulos and Patrinos 1994, p. 37. 26.


pages: 357 words: 110,017

Money: The Unauthorized Biography by Felix Martin

Alan Greenspan, bank run, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, call centre, capital asset pricing model, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, creative destruction, credit crunch, David Graeber, en.wikipedia.org, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, fixed income, Fractional reserve banking, full employment, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Hyman Minsky, inflation targeting, invention of writing, invisible hand, Irish bank strikes, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kenneth Rogoff, land bank, Michael Milken, mobile money, moral hazard, mortgage debt, new economy, Northern Rock, Occupy movement, Paul Volcker talking about ATMs, plutocrats, private military company, proprietary trading, public intellectual, Republic of Letters, Richard Feynman, Robert Shiller, Savings and loan crisis, Scientific racism, scientific worldview, seigniorage, Silicon Valley, smart transportation, South Sea Bubble, supply-chain management, The Wealth of Nations by Adam Smith, too big to fail

Only a year after the publication of Lombard Street, the French economist Léon Walras had presented a mathematically rigorous formulation of the classical theory of price formation in his Elements of Pure Economics.14 In 1937, the British economist and future Nobel laureate John Hicks had alleged that the central ideas of Keynes’ General Theory could in fact be reconciled with classical orthodoxy.15 It was in 1954, however, that a paper appeared that was, to those who believed, the discovery of a fifth gospel. The American economist Kenneth Arrow and the French mathematician Gerard Debreu published a formal proof that, given certain assumptions, a market economy would indeed tend to gravitate towards a “general equilibrium” in which a unique set of prices would ensure that there could be no excess demand or supply across all markets taken together.16 It was, in other words, a knock-down argument in favour of the canonical classical doctrine—a formal proof of Say’s Law.


pages: 419 words: 109,241

A World Without Work: Technology, Automation, and How We Should Respond by Daniel Susskind

"World Economic Forum" Davos, 3D printing, agricultural Revolution, AI winter, Airbnb, Albert Einstein, algorithmic trading, AlphaGo, artificial general intelligence, autonomous vehicles, basic income, Bertrand Russell: In Praise of Idleness, Big Tech, blue-collar work, Boston Dynamics, British Empire, Capital in the Twenty-First Century by Thomas Piketty, cloud computing, computer age, computer vision, computerized trading, creative destruction, David Graeber, David Ricardo: comparative advantage, deep learning, DeepMind, Demis Hassabis, demographic transition, deskilling, disruptive innovation, Donald Trump, Douglas Hofstadter, driverless car, drone strike, Edward Glaeser, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, fake news, financial innovation, flying shuttle, Ford Model T, fulfillment center, future of work, gig economy, Gini coefficient, Google Glasses, Gödel, Escher, Bach, Hans Moravec, income inequality, income per capita, industrial robot, interchangeable parts, invisible hand, Isaac Newton, Jacques de Vaucanson, James Hargreaves, job automation, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, John von Neumann, Joi Ito, Joseph Schumpeter, Kenneth Arrow, Kevin Roose, Khan Academy, Kickstarter, Larry Ellison, low skilled workers, lump of labour, machine translation, Marc Andreessen, Mark Zuckerberg, means of production, Metcalfe’s law, natural language processing, Neil Armstrong, Network effects, Nick Bostrom, Occupy movement, offshore financial centre, Paul Samuelson, Peter Thiel, pink-collar, precariat, purchasing power parity, Ray Kurzweil, ride hailing / ride sharing, road to serfdom, Robert Gordon, Sam Altman, Second Machine Age, self-driving car, shareholder value, sharing economy, Silicon Valley, Snapchat, social intelligence, software is eating the world, sovereign wealth fund, spinning jenny, Stephen Hawking, Steve Jobs, strong AI, tacit knowledge, technological solutionism, TED Talk, telemarketer, The Future of Employment, The Rise and Fall of American Growth, the scientific method, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, Travis Kalanick, Turing test, Two Sigma, Tyler Cowen, Tyler Cowen: Great Stagnation, universal basic income, upwardly mobile, warehouse robotics, Watson beat the top human players on Jeopardy!, We are the 99%, wealth creators, working poor, working-age population, Y Combinator

In his words, on campus at that time, “the stupid people thought that automation was going to make all the jobs go away” but “the smart people understood that when there was more produced, there would be more income, and therefore there would be more demand.”33 David Autor, perhaps today’s most important labor market economist, makes a similar point, arguing that “people are unduly pessimistic … as people get wealthier, they tend to consume more, so that also creates demand.”34 And Kenneth Arrow, a Nobel Prize–winning economist, likewise argued that historically, “the replacement of men by machines” has not increased unemployment. “The economy does find other jobs for workers. When wealth is created, people spend their money on something.”35 The Changing-Pie Effect Finally, the last few hundred years also suggest a third way for the complementing force to work.


pages: 432 words: 106,612

Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever by Robin Wigglesworth

Albert Einstein, algorithmic trading, asset allocation, Bear Stearns, behavioural economics, Benoit Mandelbrot, Big Tech, Black Monday: stock market crash in 1987, Blitzscaling, Brownian motion, buy and hold, California gold rush, capital asset pricing model, Carl Icahn, cloud computing, commoditize, coronavirus, corporate governance, corporate raider, COVID-19, data science, diversification, diversified portfolio, Donald Trump, Elon Musk, Eugene Fama: efficient market hypothesis, fear index, financial engineering, fixed income, Glass-Steagall Act, Henri Poincaré, index fund, industrial robot, invention of the wheel, Japanese asset price bubble, Jeff Bezos, Johannes Kepler, John Bogle, John von Neumann, Kenneth Arrow, lockdown, Louis Bachelier, machine readable, money market fund, Myron Scholes, New Journalism, passive investing, Paul Samuelson, Paul Volcker talking about ATMs, Performance of Mutual Funds in the Period, Peter Thiel, pre–internet, RAND corporation, random walk, risk-adjusted returns, road to serfdom, Robert Shiller, rolodex, seminal paper, Sharpe ratio, short selling, Silicon Valley, sovereign wealth fund, subprime mortgage crisis, the scientific method, transaction costs, uptick rule, Upton Sinclair, Vanguard fund

Measurement was his lifelong passion, with his son later revealing that among his copious papers were facts and analyses on subjects as varied as admission rates to Yale, blindness in the United States, the most popular breeds of dogs, the weather in Palm Beach, and sharks.15 The Cowles Commission would go on to host and support an all-star cast of great economists and financial academics over the years, such as James Tobin, Joseph Stiglitz, Abba Lerner, Kenneth Arrow, Jacob Marschak, Tjalling Koopmans, Franco Modigliani, and Harry Markowitz, several of whom would go on to win Nobel Prizes for work at the commission. In fact, one could argue that in its heyday it was the most influential economic think tank in history. Not bad for the tuberculosis-ridden son of a newspaperman based in scenic but remote Colorado


pages: 437 words: 115,594

The Great Surge: The Ascent of the Developing World by Steven Radelet

Admiral Zheng, agricultural Revolution, Asian financial crisis, bank run, Berlin Wall, biodiversity loss, Boeing 747, Branko Milanovic, business climate, business process, call centre, Capital in the Twenty-First Century by Thomas Piketty, clean water, colonial rule, creative destruction, demographic dividend, Deng Xiaoping, Dissolution of the Soviet Union, Doha Development Round, Erik Brynjolfsson, European colonialism, export processing zone, F. W. de Klerk, failed state, Francis Fukuyama: the end of history, Gini coefficient, global pandemic, global supply chain, Great Leap Forward, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), invention of the steam engine, James Watt: steam engine, John Snow's cholera map, Joseph Schumpeter, Kenneth Arrow, land reform, low interest rates, low skilled workers, M-Pesa, megacity, middle-income trap, Mikhail Gorbachev, Nelson Mandela, off grid, oil shock, out of africa, purchasing power parity, race to the bottom, randomized controlled trial, Robert Gordon, Robert Solow, Second Machine Age, secular stagnation, Shenzhen special economic zone , Sheryl Sandberg, Simon Kuznets, South China Sea, special economic zone, standardized shipping container, Steven Pinker, The Wealth of Nations by Adam Smith, Thomas Malthus, three-masted sailing ship, trade route, women in the workforce, working poor

In Nigeria, per capita wealth fell because of rapid depletion of petroleum deposits and other resources. In the majority of countries, per capita wealth grew, after adjusting for changes in natural resources and other types of capital assets. More detailed studies on a smaller number of countries provide similar results. Nobel laureate Kenneth Arrow, Partha Dasgupta, and their coauthors provide an in-depth accounting of what they call “comprehensive” wealth and different forms of capital, including natural capital, in five countries: the United States, China, Brazil, India, and Venezuela. They explore the extent to which different types of capital are changing and comprehensive wealth is increasing.


pages: 395 words: 116,675

The Evolution of Everything: How New Ideas Emerge by Matt Ridley

"World Economic Forum" Davos, adjacent possible, affirmative action, Affordable Care Act / Obamacare, Albert Einstein, Alfred Russel Wallace, AltaVista, altcoin, An Inconvenient Truth, anthropic principle, anti-communist, bank run, banking crisis, barriers to entry, bitcoin, blockchain, Boeing 747, Boris Johnson, British Empire, Broken windows theory, carbon tax, Columbian Exchange, computer age, Corn Laws, cosmological constant, cotton gin, creative destruction, Credit Default Swap, crony capitalism, crowdsourcing, cryptocurrency, David Ricardo: comparative advantage, demographic transition, Deng Xiaoping, discovery of DNA, Donald Davies, double helix, Downton Abbey, driverless car, Eben Moglen, Edward Glaeser, Edward Lorenz: Chaos theory, Edward Snowden, endogenous growth, epigenetics, Ethereum, ethereum blockchain, facts on the ground, fail fast, falling living standards, Ferguson, Missouri, financial deregulation, financial innovation, flying shuttle, Frederick Winslow Taylor, Geoffrey West, Santa Fe Institute, George Gilder, George Santayana, Glass-Steagall Act, Great Leap Forward, Greenspan put, Gregor Mendel, Gunnar Myrdal, Henri Poincaré, Higgs boson, hydraulic fracturing, imperial preference, income per capita, indoor plumbing, information security, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Jane Jacobs, Japanese asset price bubble, Jeff Bezos, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kevin Kelly, Khan Academy, knowledge economy, land reform, Lao Tzu, long peace, low interest rates, Lyft, M-Pesa, Mahatma Gandhi, Mark Zuckerberg, means of production, meta-analysis, military-industrial complex, mobile money, Money creation, money: store of value / unit of account / medium of exchange, Mont Pelerin Society, moral hazard, Necker cube, obamacare, out of africa, packet switching, peer-to-peer, phenotype, Pierre-Simon Laplace, precautionary principle, price mechanism, profit motive, RAND corporation, random walk, Ray Kurzweil, rent-seeking, reserve currency, Richard Feynman, rising living standards, road to serfdom, Robert Solow, Ronald Coase, Ronald Reagan, Satoshi Nakamoto, scientific management, Second Machine Age, sharing economy, smart contracts, South Sea Bubble, Steve Jobs, Steven Pinker, Stuart Kauffman, tacit knowledge, TED Talk, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, twin studies, uber lyft, women in the workforce

This received wisdom has been handed down for more than half a century. It was the economist Robert Solow who demonstrated in 1957 that innovation in technology was the source of most economic growth – at least in societies that were not expanding their territory or growing their populations. It was his economist colleagues Richard Nelson and Kenneth Arrow who explained in 1959 and 1962 respectively that government funding of science was necessary, because it is cheaper to copy others than to do original research. This makes science a public good, a service, like the light from a lighthouse, that must be provided at public expense, because nobody will supply it for free.


pages: 403 words: 111,119

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

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

And, he reasoned, if those markets were comprised of fully informed, small-scale competitive sellers and buyers, then the economy would reach a point of equilibrium that maximised total utility. In other words – in a neat echo of Smith’s invisible hand – it would, for any given income distribution, produce the best possible outcome for society as a whole. The mathematical techniques did not yet exist for Walras to prove his hunch but his agenda was later picked up by Kenneth Arrow and Gerard Debreu, who set out its equations in their 1954 model of general equilibrium. It appeared to be a landmark proof, giving microeconomic underpinning to macroeconomic analysis, launching a seemingly unified economic theory and laying the foundations of what has been known ever since as ‘modern macro’.4 The theory looks complete, sounds impressively like physics, and is set out in authoritative equations.


pages: 336 words: 113,519

The Undoing Project: A Friendship That Changed Our Minds by Michael Lewis

Albert Einstein, availability heuristic, behavioural economics, Cass Sunstein, choice architecture, complexity theory, Daniel Kahneman / Amos Tversky, Donald Trump, Douglas Hofstadter, endowment effect, feminist movement, framing effect, hindsight bias, John von Neumann, Kenneth Arrow, Linda problem, loss aversion, medical residency, Menlo Park, Murray Gell-Mann, Nate Silver, New Journalism, Paul Samuelson, peak-end rule, Richard Thaler, Saturday Night Live, Skinner box, Stanford marshmallow experiment, statistical model, systematic bias, the new new thing, Thomas Bayes, Walter Mischel, Yom Kippur War

And so it was on a farm that a theory that would become among the most influential in the history of economics made its public debut. Decision theory was Amos’s field, and so Amos did all the talking. The audience contained at least three current and future Nobel Prize winners in economics: Peter Diamond, Daniel McFadden, and Kenneth Arrow. “When you listened to Amos, you knew you were talking to a first-rate mind,” said Arrow. “You raise a question. He’s thought of the question already, and he has an answer.” After he listened to Amos’s presentation, Arrow had one big question for Amos: What is a loss? The theory obviously turned on the stark difference in people’s feelings when they faced potential losses rather than potential gains.


pages: 457 words: 125,329

Value of Everything: An Antidote to Chaos The by Mariana Mazzucato

"Friedman doctrine" OR "shareholder theory", activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Airbnb, Alan Greenspan, bank run, banks create money, Basel III, behavioural economics, Berlin Wall, Big bang: deregulation of the City of London, bonus culture, Bretton Woods, business cycle, butterfly effect, buy and hold, Buy land – they’re not making it any more, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Carmen Reinhart, carried interest, clean tech, Corn Laws, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, debt deflation, European colonialism, Evgeny Morozov, fear of failure, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, full employment, G4S, George Akerlof, Glass-Steagall Act, Google Hangouts, Growth in a Time of Debt, high net worth, Hyman Minsky, income inequality, independent contractor, index fund, informal economy, interest rate derivative, Internet of things, invisible hand, John Bogle, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour market flexibility, laissez-faire capitalism, light touch regulation, liquidity trap, London Interbank Offered Rate, low interest rates, margin call, Mark Zuckerberg, market bubble, means of production, military-industrial complex, Minsky moment, Money creation, money market fund, negative equity, Network effects, new economy, Northern Rock, obamacare, offshore financial centre, Pareto efficiency, patent troll, Paul Samuelson, peer-to-peer lending, Peter Thiel, Post-Keynesian economics, profit maximization, proprietary trading, quantitative easing, quantitative trading / quantitative finance, QWERTY keyboard, rent control, rent-seeking, Robert Solow, Sand Hill Road, shareholder value, sharing economy, short selling, Silicon Valley, Simon Kuznets, smart meter, Social Responsibility of Business Is to Increase Its Profits, software patent, Solyndra, stem cell, Steve Jobs, The Great Moderation, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, transaction costs, two and twenty, two-sided market, very high income, Vilfredo Pareto, wealth creators, Works Progress Administration, you are the product, zero-sum game

A term that Lerner actually picked up from Vilfredo Pareto, who first set the proposition in 1894. V. Pareto, ‘Il massimo di utilita data dalla libera concorrenza', Giornale degli Economisti 9(2) (1894), pp. 48-66. This proposition was further refined by other economists, among whom we find Lerner, whilst nowadays the accepted proof is the one elaborated by Kenneth Arrow in 1951: ‘An extension of the basic theorem of classical welfare economics', in Proceedings of the Second Berkeley Symposium on Mathematical Statistics and Probability (Berkeley and Los Angeles: University of California Press, 1951), pp. 507-32. 14. E. N. Wolff, Growth, Accumulation, and Unproductive Activity: An Analysis of the Postwar U.S.


pages: 402 words: 110,972

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

"World Economic Forum" Davos, AI winter, Alan Greenspan, algorithmic trading, AOL-Time Warner, Apollo 11, asset allocation, banking crisis, barriers to entry, Bear Stearns, Big bang: deregulation of the City of London, Bob Litterman, book value, business cycle, butter production in bangladesh, butterfly effect, buttonwood tree, buy and hold, buy low sell high, capital asset pricing model, Charles Babbage, citizen journalism, collateralized debt obligation, Cornelius Vanderbilt, corporate governance, Craig Reynolds: boids flock, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Danny Hillis, demand response, disintermediation, distributed generation, diversification, diversified portfolio, electricity market, Emanuel Derman, en.wikipedia.org, experimental economics, fake news, financial engineering, financial innovation, fixed income, Ford Model T, Gordon Gekko, Hans Moravec, Herman Kahn, implied volatility, index arbitrage, index fund, information retrieval, intangible asset, Internet Archive, Ivan Sutherland, Jim Simons, John Bogle, John Nash: game theory, Kenneth Arrow, load shedding, Long Term Capital Management, machine readable, machine translation, Machine translation of "The spirit is willing, but the flesh is weak." to Russian and back, market fragmentation, market microstructure, Mars Rover, Metcalfe’s law, military-industrial complex, moral hazard, mutually assured destruction, Myron Scholes, natural language processing, negative equity, Network effects, optical character recognition, paper trading, passive investing, pez dispenser, phenotype, prediction markets, proprietary trading, quantitative hedge fund, quantitative trading / quantitative finance, QWERTY keyboard, RAND corporation, random walk, Ray Kurzweil, Reminiscences of a Stock Operator, Renaissance Technologies, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Metcalfe, Ronald Reagan, Rubik’s Cube, Savings and loan crisis, semantic web, Sharpe ratio, short selling, short squeeze, Silicon Valley, Small Order Execution System, smart grid, smart meter, social web, South Sea Bubble, statistical arbitrage, statistical model, Steve Jobs, Steven Levy, stock buybacks, Tacoma Narrows Bridge, the scientific method, The Wisdom of Crowds, time value of money, tontine, too big to fail, transaction costs, Turing machine, two and twenty, Upton Sinclair, value at risk, value engineering, Vernor Vinge, Wayback Machine, yield curve, Yogi Berra, your tax dollars at work

I meekly explained that I wasn’t the attendant, and gave the keys back. This remains one of my great regrets. Eventually, I navigated my Trans Am to UCLA and then on to RAND. I was blissfully unaware that I was passing through the same hallways used by some of the seminal thinkers of modern finance and economics: William Sharpe, Harry Markowitz, Kenneth Arrow, and George Dantzig. Markowitz and Sharpe, in particular, pioneered the ideas of balancing risk and reward in a systematic way, which when applied to finance, eventually led to their sharing the Nobel Prize in 1990. To digress just a bit, RAND’s interest in systematically approaching risk and reward, optimization, decision under uncertainty, and game theory was not initially conceived in the context of finance.


Human Frontiers: The Future of Big Ideas in an Age of Small Thinking by Michael Bhaskar

"Margaret Hamilton" Apollo, 3D printing, additive manufacturing, AI winter, Albert Einstein, algorithmic trading, AlphaGo, Anthropocene, artificial general intelligence, augmented reality, autonomous vehicles, backpropagation, barriers to entry, basic income, behavioural economics, Benoit Mandelbrot, Berlin Wall, Big bang: deregulation of the City of London, Big Tech, Bletchley Park, blockchain, Boeing 747, brain emulation, Brexit referendum, call centre, carbon tax, charter city, citizen journalism, Claude Shannon: information theory, Clayton Christensen, clean tech, clean water, cognitive load, Columbian Exchange, coronavirus, cosmic microwave background, COVID-19, creative destruction, CRISPR, crony capitalism, cyber-physical system, dark matter, David Graeber, deep learning, DeepMind, deindustrialization, dematerialisation, Demis Hassabis, demographic dividend, Deng Xiaoping, deplatforming, discovery of penicillin, disruptive innovation, Donald Trump, double entry bookkeeping, Easter island, Edward Jenner, Edward Lorenz: Chaos theory, Elon Musk, en.wikipedia.org, endogenous growth, energy security, energy transition, epigenetics, Eratosthenes, Ernest Rutherford, Eroom's law, fail fast, false flag, Fellow of the Royal Society, flying shuttle, Ford Model T, Francis Fukuyama: the end of history, general purpose technology, germ theory of disease, glass ceiling, global pandemic, Goodhart's law, Google Glasses, Google X / Alphabet X, GPT-3, Haber-Bosch Process, hedonic treadmill, Herman Kahn, Higgs boson, hive mind, hype cycle, Hyperloop, Ignaz Semmelweis: hand washing, Innovator's Dilemma, intangible asset, interchangeable parts, Internet of things, invention of agriculture, invention of the printing press, invention of the steam engine, invention of the telegraph, invisible hand, Isaac Newton, ITER tokamak, James Watt: steam engine, James Webb Space Telescope, Jeff Bezos, jimmy wales, job automation, Johannes Kepler, John von Neumann, Joseph Schumpeter, Kenneth Arrow, Kevin Kelly, Kickstarter, knowledge economy, knowledge worker, Large Hadron Collider, liberation theology, lockdown, lone genius, loss aversion, Louis Pasteur, Mark Zuckerberg, Martin Wolf, megacity, megastructure, Menlo Park, Minecraft, minimum viable product, mittelstand, Modern Monetary Theory, Mont Pelerin Society, Murray Gell-Mann, Mustafa Suleyman, natural language processing, Neal Stephenson, nuclear winter, nudge unit, oil shale / tar sands, open economy, OpenAI, opioid epidemic / opioid crisis, PageRank, patent troll, Peter Thiel, plutocrats, post scarcity, post-truth, precautionary principle, public intellectual, publish or perish, purchasing power parity, quantum entanglement, Ray Kurzweil, remote working, rent-seeking, Republic of Letters, Richard Feynman, Robert Gordon, Robert Solow, secular stagnation, shareholder value, Silicon Valley, Silicon Valley ideology, Simon Kuznets, skunkworks, Slavoj Žižek, sovereign wealth fund, spinning jenny, statistical model, stem cell, Steve Jobs, Stuart Kauffman, synthetic biology, techlash, TED Talk, The Rise and Fall of American Growth, the scientific method, The Wealth of Nations by Adam Smith, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, TikTok, total factor productivity, transcontinental railway, Two Sigma, Tyler Cowen, Tyler Cowen: Great Stagnation, universal basic income, uranium enrichment, We wanted flying cars, instead we got 140 characters, When a measure becomes a target, X Prize, Y Combinator

While the latter in particular has force, surely the most telling thing is that the debate is needed; it would have been much harder to claim that the fruits of the 2IR were not revolutionising all of society. 34 Warsh (2007) 35 Ibid., p. xxii 36 Yueh (2018), p. 266 37 Solow (1956) 38 The great economist Kenneth Arrow, among others in a long intellectual lineage, can also claim credit for establishing the link between knowledge and increasing returns. 39 Romer (1990) 40 Greenspan and Wooldridge (2018), p. 361 41 Jones (2019) 42 Jones (1995) 43 Ibid. 44 See also Laincz and Peretto (2006) for a similar analysis. 45 Jones (2002); Cowan (2011), p. 18.


pages: 416 words: 112,159

Luxury Fever: Why Money Fails to Satisfy in an Era of Excess by Robert H. Frank

Alan Greenspan, business cycle, clean water, company town, compensation consultant, Cornelius Vanderbilt, correlation coefficient, Daniel Kahneman / Amos Tversky, full employment, Garrett Hardin, germ theory of disease, global village, haute couture, hedonic treadmill, impulse control, income inequality, invisible hand, job satisfaction, Kenneth Arrow, lake wobegon effect, loss aversion, market clearing, McMansion, means of production, mega-rich, mortgage debt, New Urbanism, Pareto efficiency, Post-Keynesian economics, RAND corporation, rent control, Richard Thaler, rising living standards, Ronald Reagan, Silicon Valley, Tax Reform Act of 1986, telemarketer, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, Tragedy of the Commons, trickle-down economics, ultimatum game, winner-take-all economy, working poor

The proponents of consumption taxation form an impressive list: David Hume, Adam Smith, John Stuart Mill, Alfred Pigou, and Alfred Marshall were among the early luminaries who extolled the virtues of progressive consumption taxation.7 Contemporary economists of every political stripe have also voiced similar views. Thus conservatives like Nobel laureate Milton Friedman and Martin Feldstein, chairman of the Council of Economic Advisors under Ronald Reagan, are vocal advocates of consumption taxation;8 so are liberals Kenneth Arrow, also a Nobel laureate; Laurence Summers, a Treasury Department official in the Clinton administration and winner of the economics profession’s prestigious Clark Medal; and Lester Thurow, the best-selling author and former dean of MIT’s Sloan School of Management. Liberals and conservatives disagree on many details concerning the consumption tax, including the extent to which it should be progressive (although virtually all forms of the tax that have been proposed are at least mildly progressive).


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

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

In the left-hand diagram we assumed a fall in the price of fertilizer shifted the supply curve of wheat to the right. This caused a surplus of wheat at the original equilibrium price. As a result, we are told prices fall. But since no one sets prices, how do they fall? The lack of an explanation for price movements in the demand and supply model is known as Arrow’s Paradox, after the issue raised by Kenneth Arrow (1959): all individuals and firms are assumed to be ‘price-takers’ and to have no influence over the market price, yet somehow the market price adjusts and reaches the equilibrium value. One ‘solution’ to this conundrum is to invent an auctioneer, who is ‘the visible, if imaginary, embodiment of the invisible hand.


pages: 471 words: 124,585

The Ascent of Money: A Financial History of the World by Niall Ferguson

Admiral Zheng, Alan Greenspan, An Inconvenient Truth, Andrei Shleifer, Asian financial crisis, asset allocation, asset-backed security, Atahualpa, bank run, banking crisis, banks create money, Bear Stearns, Black Monday: stock market crash in 1987, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, BRICs, British Empire, business cycle, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, classic study, collateralized debt obligation, colonial exploitation, commoditize, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, deglobalization, diversification, diversified portfolio, double entry bookkeeping, Edmond Halley, Edward Glaeser, Edward Lloyd's coffeehouse, equity risk premium, financial engineering, financial innovation, financial intermediation, fixed income, floating exchange rates, Fractional reserve banking, Francisco Pizarro, full employment, Future Shock, German hyperinflation, Greenspan put, Herman Kahn, Hernando de Soto, high net worth, hindsight bias, Home mortgage interest deduction, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, iterative process, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", John Meriwether, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour mobility, Landlord’s Game, liberal capitalism, London Interbank Offered Rate, Long Term Capital Management, low interest rates, market bubble, market fundamentalism, means of production, Mikhail Gorbachev, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, Naomi Klein, National Debt Clock, negative equity, Nelson Mandela, Nick Bostrom, Nick Leeson, Northern Rock, Parag Khanna, pension reform, price anchoring, price stability, principal–agent problem, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, quantitative hedge fund, RAND corporation, random walk, rent control, rent-seeking, reserve currency, Richard Thaler, risk free rate, Robert Shiller, rolling blackouts, Ronald Reagan, Savings and loan crisis, savings glut, seigniorage, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spice trade, stocks for the long run, structural adjustment programs, subprime mortgage crisis, tail risk, technology bubble, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Malthus, Thorstein Veblen, tontine, too big to fail, transaction costs, two and twenty, undersea cable, value at risk, W. E. B. Du Bois, Washington Consensus, Yom Kippur War

To be sure, actuarial science gives insurance companies an in-built advantage over policy-holders. Before the dawn of modern probability theory, insurers were the gamblers; now they are the casino. The case can be made, as it was by Dickie Scruggs before his fall from grace, that the odds are now stacked unjustly against the punters/policy-holders. But as the economist Kenneth Arrow long ago pointed out, most of us prefer a gamble that has a 100 per cent chance of a small loss (our annual premium) and a small chance of a large gain (the insurance payout after disaster) to a gamble that has a 100 per cent chance of a small gain (no premiums) but an uncertain chance of a huge loss (no payout after a disaster).


pages: 453 words: 122,586

Samuelson Friedman: The Battle Over the Free Market by Nicholas Wapshott

2021 United States Capitol attack, Alan Greenspan, bank run, basic income, battle of ideas, Bear Stearns, Berlin Wall, Bretton Woods, business cycle, California gold rush, collective bargaining, coronavirus, corporate governance, COVID-19, creative destruction, David Ricardo: comparative advantage, Donald Trump, double helix, en.wikipedia.org, fiat currency, financial engineering, fixed income, floating exchange rates, full employment, God and Mammon, greed is good, Gunnar Myrdal, income inequality, indoor plumbing, invisible hand, John von Neumann, Joseph Schumpeter, Kenneth Arrow, laissez-faire capitalism, light touch regulation, liquidity trap, lockdown, low interest rates, Machinery of Freedom by David Friedman, market bubble, market clearing, mass immigration, military-industrial complex, Money creation, money market fund, Mont Pelerin Society, moral hazard, new economy, Nixon shock, Nixon triggered the end of the Bretton Woods system, paradox of thrift, Paul Samuelson, Philip Mirowski, Phillips curve, price mechanism, price stability, public intellectual, pushing on a string, quantitative easing, rent control, road to serfdom, Robert Bork, Robert Solow, Ronald Coase, Ronald Reagan, school vouchers, seminal paper, Simon Kuznets, social distancing, Tax Reform Act of 1986, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, too big to fail, trickle-down economics, universal basic income, upwardly mobile, urban renewal, War on Poverty, We are all Keynesians now, Works Progress Administration, zero-sum game

His myriad technical papers, which flowed from him with such facility, would have been a towering achievement for any academic economist. His application of mathematics to economics transformed the discipline from something akin to a branch of philosophy to a true social science. Samuelson left a personal dynasty of sorts, with a brother, Robert Summers,56 a sister-in-law, Anita Summers,57 a brother-in-law, Kenneth Arrow,58 and a nephew, Larry Summers, all distinguished economists. His most lasting accomplishment, however, is found in the generations of young economists around the world who have learned economics from his textbook, which has made him Keynes’s most effective proselytizer. Samuelson’s neoclassical synthesis remains the most widely acknowledged guide to how macroeconomics can be made to avoid catastrophe.


pages: 476 words: 121,460

The Man From the Future: The Visionary Life of John Von Neumann by Ananyo Bhattacharya

Ada Lovelace, AI winter, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, Albert Einstein, Alvin Roth, Andrew Wiles, Benoit Mandelbrot, business cycle, cellular automata, Charles Babbage, Claude Shannon: information theory, clockwork universe, cloud computing, Conway's Game of Life, cuban missile crisis, Daniel Kahneman / Amos Tversky, DeepMind, deferred acceptance, double helix, Douglas Hofstadter, Dr. Strangelove, From Mathematics to the Technologies of Life and Death, Georg Cantor, Greta Thunberg, Gödel, Escher, Bach, haute cuisine, Herman Kahn, indoor plumbing, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, Jacquard loom, Jean Tirole, John Conway, John Nash: game theory, John von Neumann, Kenneth Arrow, Kickstarter, linear programming, mandelbrot fractal, meta-analysis, mutually assured destruction, Nash equilibrium, Norbert Wiener, Norman Macrae, P = NP, Paul Samuelson, quantum entanglement, RAND corporation, Ray Kurzweil, Richard Feynman, Ronald Reagan, Schrödinger's Cat, second-price auction, side project, Silicon Valley, spectrum auction, Steven Levy, Strategic Defense Initiative, technological singularity, Turing machine, Von Neumann architecture, zero-sum game

Mathematicians, inspired by von Neumann’s achievement, poured into economics and began applying fresh methods to the dismal science. By the 1950s, the subject was transformed. Fixed-point theorems were used to prove key results in economics – including in von Neumann’s own game theory by a young upstart called John Nash. A half-dozen Nobel laureates are reckoned to have been influenced by the work.26 Among them were Kenneth Arrow and Gérard Debreu, who were awarded the prize (in 1972 and 1983 respectively) for their work on the theory of general equilibrium, which models the workings of a free-market economy. A half-century after von Neumann’s Princeton seminar, the historian Roy Weintraub described his paper as ‘the single most important article in mathematical economics’.27 But as was his way, von Neumann had moved on long before anyone really recognized its significance.


Making Globalization Work by Joseph E. Stiglitz

"World Economic Forum" Davos, affirmative action, Alan Greenspan, Andrei Shleifer, Asian financial crisis, banking crisis, barriers to entry, benefit corporation, Berlin Wall, blood diamond, business process, capital controls, carbon tax, central bank independence, corporate governance, corporate social responsibility, currency manipulation / currency intervention, Doha Development Round, Exxon Valdez, Fall of the Berlin Wall, Firefox, full employment, Garrett Hardin, Gini coefficient, global reserve currency, Global Witness, Great Leap Forward, Gunnar Myrdal, happiness index / gross national happiness, illegal immigration, income inequality, income per capita, incomplete markets, Indoor air pollution, informal economy, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), inventory management, invisible hand, John Markoff, Jones Act, Kenneth Arrow, Kenneth Rogoff, low interest rates, low skilled workers, manufacturing employment, market fundamentalism, Martin Wolf, microcredit, moral hazard, negative emissions, new economy, North Sea oil, offshore financial centre, oil rush, open borders, open economy, price stability, profit maximization, purchasing power parity, quantitative trading / quantitative finance, race to the bottom, reserve currency, rising living standards, risk tolerance, Seymour Hersh, Silicon Valley, special drawing rights, statistical model, the market place, The Wealth of Nations by Adam Smith, Thomas L Friedman, trade liberalization, Tragedy of the Commons, trickle-down economics, union organizing, Washington Consensus, zero-sum game

See Ha-Joon Chang, “Kicking Away the Ladder: Infant Industry Promotion in Historical Perspective,” Oxford Development Studies, vol. 31, no. 1 (2003), pp. 21–32; and Partha Dasgupta and Joseph E. Stiglitz, “Learning by Doing, Market Structure, and Industrial and Trade Policies,” Oxford Economic Papers, vol. 40, no. 2 (1988), pp. 246–68. The general theory of “learning”—and why government action may be required—was developed by Nobel Prize–winning economist Kenneth Arrow in “The Economic Implications of Learning by Doing,” Review of Economic Studies, vol. 29, no. 3 (June 1962), pp 155–73. 20.A dramatic illustration was provided by America’s illegal imposition of steel tariffs on March 20, 2002, in response to political pressure from steel producers. (They were ended on December 4, 2003, after an adverse WTO ruling.)


pages: 505 words: 142,118

A Man for All Markets by Edward O. Thorp

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", 3Com Palm IPO, Alan Greenspan, Albert Einstein, asset allocation, Bear Stearns, beat the dealer, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, Black-Scholes formula, book value, Brownian motion, buy and hold, buy low sell high, caloric restriction, caloric restriction, carried interest, Chuck Templeton: OpenTable:, Claude Shannon: information theory, cognitive dissonance, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Edward Thorp, Erdős number, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, Garrett Hardin, George Santayana, German hyperinflation, Glass-Steagall Act, Henri Poincaré, high net worth, High speed trading, index arbitrage, index fund, interest rate swap, invisible hand, Jarndyce and Jarndyce, Jeff Bezos, John Bogle, John Meriwether, John Nash: game theory, junk bonds, Kenneth Arrow, Livingstone, I presume, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, Mason jar, merger arbitrage, Michael Milken, Murray Gell-Mann, Myron Scholes, NetJets, Norbert Wiener, PalmPilot, passive investing, Paul Erdős, Paul Samuelson, Pluto: dwarf planet, Ponzi scheme, power law, price anchoring, publish or perish, quantitative trading / quantitative finance, race to the bottom, random walk, Renaissance Technologies, RFID, Richard Feynman, risk-adjusted returns, Robert Shiller, rolodex, Sharpe ratio, short selling, Silicon Valley, Stanford marshmallow experiment, statistical arbitrage, stem cell, stock buybacks, stocks for the long run, survivorship bias, tail risk, The Myth of the Rational Market, The Predators' Ball, the rule of 72, The Wisdom of Crowds, too big to fail, Tragedy of the Commons, uptick rule, Upton Sinclair, value at risk, Vanguard fund, Vilfredo Pareto, Works Progress Administration

Another nontransitive example with great practical impact is voting preferences. Often a majority of voters prefer candidate A over candidate B, candidate B over candidate C, and candidate C over candidate A. In these elections, where voting preference is nontransitive, who gets elected? It depends on the structure of the election process. Mathematical economist Kenneth Arrow received the Nobel Prize in Economics for showing that no voting procedure exists that satisfies an entire list of intuitively natural desirable properties. A Discover magazine article on this subject argued that, with a more “reasonable” election procedure, based on voter comparisons of all the major Democratic and Republican candidates, in 2000 John McCain would have received the Republican nomination and then been elected president instead of George W.


pages: 484 words: 136,735

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

"World Economic Forum" Davos, Alan Greenspan, bank run, banking crisis, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Black Swan, bond market vigilante , bonus culture, Bretton Woods, BRICs, business cycle, buy and hold, Carmen Reinhart, classic study, cognitive dissonance, collapse of Lehman Brothers, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, currency manipulation / currency intervention, currency risk, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, eat what you kill, Edward Glaeser, electricity market, 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, foreign exchange controls, full employment, geopolitical risk, George Akerlof, global rebalancing, Goodhart's law, Great Leap Forward, Hyman Minsky, income inequality, information asymmetry, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kickstarter, laissez-faire capitalism, long and variable lags, Long Term Capital Management, low interest rates, mandelbrot fractal, market design, market fundamentalism, Martin Wolf, military-industrial complex, Minsky moment, Modern Monetary Theory, Money creation, money market fund, moral hazard, mortgage debt, Nelson Mandela, new economy, Nixon triggered the end of the Bretton Woods system, Northern Rock, offshore financial centre, oil shock, paradox of thrift, Pareto efficiency, Paul Samuelson, Paul Volcker talking about ATMs, 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 Solow, Ronald Reagan, Savings and loan crisis, seminal paper, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, statistical model, systems thinking, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, Vilfredo Pareto, Washington Consensus, zero-sum game

Economist Arthur Laffer was apparently similarly confused: “If you like the Post Office and the Department of Motor Vehicles and you think they’re run well, just wait till you see Medicare, Medicaid, and health care done by the government.” Arthur Laffer on CNN Newsroom, August 4, 2009. Clip available from Media Matters at http://mediamatters.org/mmtv/200908040014. 3 James Buchanan, Public Choice: The Origins and Development of a Research Program. 4 See, for example Kenneth Arrow, Social Choice and Individual Values, and Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups. 5 Buchanan, Public Choice, 8-9. 6 Rent seeking is the economic term used to describe behavior that extracts unearned value from other participants in the economy, without making any contribution to productivity, for example by gaining control of land and natural resources or by taking advantage of regulations that may affect consumers or businesses. 7 Such questions are prevalent throughout both Plato’s Republic and Aristotle’s Politics. 8 A sunset clause creates an expiration date, at which point a law will go off the books unless it is renewed.


pages: 494 words: 142,285

The Future of Ideas: The Fate of the Commons in a Connected World by Lawrence Lessig

AltaVista, Andy Kessler, AOL-Time Warner, barriers to entry, Bill Atkinson, business process, Cass Sunstein, commoditize, computer age, creative destruction, dark matter, decentralized internet, Dennis Ritchie, disintermediation, disruptive innovation, Donald Davies, Erik Brynjolfsson, Free Software Foundation, Garrett Hardin, George Gilder, Hacker Ethic, Hedy Lamarr / George Antheil, history of Unix, Howard Rheingold, Hush-A-Phone, HyperCard, hypertext link, Innovator's Dilemma, invention of hypertext, inventory management, invisible hand, Jean Tirole, Jeff Bezos, John Gilmore, John Perry Barlow, Joseph Schumpeter, Ken Thompson, Kenneth Arrow, Larry Wall, Leonard Kleinrock, linked data, Marc Andreessen, Menlo Park, Mitch Kapor, Network effects, new economy, OSI model, packet switching, peer-to-peer, peer-to-peer model, price mechanism, profit maximization, RAND corporation, rent control, rent-seeking, RFC: Request For Comment, Richard Stallman, Richard Thaler, Robert Bork, Ronald Coase, Search for Extraterrestrial Intelligence, SETI@home, Silicon Valley, smart grid, software patent, spectrum auction, Steve Crocker, Steven Levy, Stewart Brand, systematic bias, Ted Nelson, Telecommunications Act of 1996, the Cathedral and the Bazaar, The Chicago School, tragedy of the anticommons, Tragedy of the Commons, transaction costs, vertical integration, Yochai Benkler, zero-sum game

This has tempted the World Intellectual Property Association to build control for trademark interests into the very architecture of the network. See ¶¶23-28, “Executive Summary of the Interim Report of the Second WIPO Internet Domain Name Process,” available at http://wipo2.wipo.int. 61 The origin of modern economic work here is Kenneth Arrow's “Economic Welfare and the Allocation of Resources for Invention,” in National Bureau Committee for Economic Research, The Rate and Direction of Inventive Activity, Economic and Social Factors, Richard Nelson, ed. (Princeton, N.J.: Princeton University Press, 1962), 609. Harold Demsetz responded to this by arguing in favor of a stronger property-based regime.


pages: 515 words: 142,354

The Euro: How a Common Currency Threatens the Future of Europe by Joseph E. Stiglitz, Alex Hyde-White

"there is no alternative" (TINA), "World Economic Forum" Davos, Alan Greenspan, bank run, banking crisis, barriers to entry, battle of ideas, behavioural economics, Berlin Wall, Bretton Woods, business cycle, buy and hold, capital controls, carbon tax, Carmen Reinhart, cashless society, central bank independence, centre right, cognitive dissonance, collapse of Lehman Brothers, collective bargaining, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, currency peg, dark matter, David Ricardo: comparative advantage, disintermediation, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial innovation, full employment, George Akerlof, Gini coefficient, global supply chain, Great Leap Forward, Growth in a Time of Debt, housing crisis, income inequality, incomplete markets, inflation targeting, information asymmetry, investor state dispute settlement, invisible hand, Kenneth Arrow, Kenneth Rogoff, knowledge economy, light touch regulation, low interest rates, manufacturing employment, market bubble, market friction, market fundamentalism, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mortgage debt, neoliberal agenda, new economy, open economy, paradox of thrift, pension reform, pensions crisis, price stability, profit maximization, purchasing power parity, quantitative easing, race to the bottom, risk-adjusted returns, Robert Shiller, Ronald Reagan, Savings and loan crisis, savings glut, secular stagnation, Silicon Valley, sovereign wealth fund, the payments system, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, trickle-down economics, Washington Consensus, working-age population

They are nothing more than an IOU, a promise to pay, with interest, which can be bought and sold. 32 My earlier book Freefall explained how the neoliberal ideology that underpinned the eurozone led to the financial crisis, and in Globalization and Its Discontents, I explained how the same ideology has resulted in globalization not living up to its promise. Later in this book, I describe some of the basic economic research that overturned the premises of market fundamentalism/neoliberalism. 33 The pathbreaking work was that of Kenneth Arrow and Gerard Debreu (for which both received the Nobel Prize). (Kenneth J. Arrow, “An Extension of the Basic Theorems of Classical Welfare Economics,” in Proceedings of the Second Berkeley Symposium on Mathematical Statistics and Probability, ed. J. Neyman [Berkeley: University of California Press, 1951], pp. 507–32; and Gerard Debreu, “Valuation Equilibrium and Pareto Optimum,” Proceedings of the National Academy of Sciences 40, no. 7 [1954]: 588–92; and Debreu, The Theory of Value [New Haven, CT: Yale University Press, 1959.])


Virtual Competition by Ariel Ezrachi, Maurice E. Stucke

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

Kulick, “Price Discrimination, Two-Sided Markets, and Net Neutrality Regulation,” Tulane Journal of Technology and Intellectual Property 13 (2010): 81, https://www.researchgate.net/profile/Dennis_Weisman /publication/228307995_Price _Discrimination _Two-Sided _ Markets _ and _Net _Neutrality_Regulation/links/0deec5187eadf2a5c8000000.pdf. 7. Josh Wright, “Price Discrimination Is Good, Part I,” Truth on the Market (November 30, 2008), http://truthonthemarket.com/2008/11/30/price -discrimination-is-good-part-i/. This approach, generally associated with Nobel laureate economist Kenneth Arrow, suggests “the increased business generated by an innovation will come mostly from sales that formerly would have gone to competitors, while monopolists may largely cannibalize their own business”; Weisman and Kulick, “Price Discrimination, Two-Sided Markets, and Net Neutrality Regulation.” 8.


pages: 689 words: 134,457

When McKinsey Comes to Town: The Hidden Influence of the World's Most Powerful Consulting Firm by Walt Bogdanich, Michael Forsythe

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", "World Economic Forum" Davos, activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Alistair Cooke, Amazon Web Services, An Inconvenient Truth, asset light, asset-backed security, Atul Gawande, Bear Stearns, Boris Johnson, British Empire, call centre, Cambridge Analytica, carbon footprint, Citizen Lab, cognitive dissonance, collective bargaining, compensation consultant, coronavirus, corporate governance, corporate social responsibility, Corrections Corporation of America, COVID-19, creative destruction, Credit Default Swap, crony capitalism, data science, David Attenborough, decarbonisation, deindustrialization, disinformation, disruptive innovation, do well by doing good, don't be evil, Donald Trump, double entry bookkeeping, facts on the ground, failed state, financial engineering, full employment, future of work, George Floyd, Gini coefficient, Glass-Steagall Act, global pandemic, illegal immigration, income inequality, information security, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), invisible hand, job satisfaction, job-hopping, junk bonds, Kenneth Arrow, Kickstarter, load shedding, Mark Zuckerberg, megaproject, Moneyball by Michael Lewis explains big data, mortgage debt, Multics, Nelson Mandela, obamacare, offshore financial centre, old-boy network, opioid epidemic / opioid crisis, profit maximization, public intellectual, RAND corporation, Rutger Bregman, scientific management, sentiment analysis, shareholder value, Sheryl Sandberg, Silicon Valley, smart cities, smart meter, South China Sea, sovereign wealth fund, tech worker, The future is already here, The Nature of the Firm, too big to fail, urban planning, WikiLeaks, working poor, Yogi Berra, zero-sum game

His government introduced competition, allowing patients to choose their medical providers. Poorly performing hospitals would, in theory, lose out. In reality, competition didn’t work well in a hospital setting. That wasn’t a secret: one of the most praised economists of the twentieth century, Kenneth Arrow, had concluded decades earlier that the magic of markets didn’t function for health care in the way it would for selling bread, cars, or plane tickets. Patients just didn’t have the information to intelligently price health-care services, and more often than not their priority was getting the best care as soon as possible, not finding the cheapest oncologist.


pages: 868 words: 147,152

How Asia Works by Joe Studwell

affirmative action, anti-communist, Asian financial crisis, bank run, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collective bargaining, crony capitalism, cross-subsidies, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Deng Xiaoping, failed state, financial deregulation, financial repression, foreign exchange controls, Gini coefficient, glass ceiling, Great Leap Forward, high-speed rail, income inequality, income per capita, industrial robot, Joseph Schumpeter, Kenneth Arrow, land reform, land tenure, large denomination, liberal capitalism, low interest rates, market fragmentation, megaproject, non-tariff barriers, offshore financial centre, oil shock, open economy, passive investing, purchasing power parity, rent control, rent-seeking, Right to Buy, Ronald Coase, South China Sea, The Wealth of Nations by Adam Smith, TSMC, urban sprawl, Washington Consensus, working-age population

Quoted in Tessa Morris Suzuki, A History of Japanese Economic Thought (London: Routledge, 1989), p. 60. 14. ‘My Six-year-old Son Should Get a Job’, chapter 3, Ha-Joon Chang, Bad Samaritans (London: Random House, 2007). 15. In modern economics the term ‘learning by doing’ was popularised by the Nobel Laureate Kenneth Arrow’s 1962 paper ‘The Economic Implications of Learning by Doing’. To my mind, however, Arrow hijacked a concept that makes much more sense in its everyday usage. Arrow’s paper asserts that the fact that everyone learns by doing means that the learning of new technologies is an automatically generated part of the economic process.


pages: 665 words: 146,542

Money: 5,000 Years of Debt and Power by Michel Aglietta

accelerated depreciation, Alan Greenspan, bank run, banking crisis, Basel III, Berlin Wall, bitcoin, blockchain, Bretton Woods, British Empire, business cycle, capital asset pricing model, capital controls, cashless society, central bank independence, circular economy, collapse of Lehman Brothers, collective bargaining, corporate governance, David Graeber, debt deflation, dematerialisation, Deng Xiaoping, double entry bookkeeping, energy transition, eurozone crisis, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, forward guidance, Francis Fukuyama: the end of history, full employment, German hyperinflation, income inequality, inflation targeting, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, joint-stock company, Kenneth Arrow, Kickstarter, land bank, liquidity trap, low interest rates, margin call, means of production, Money creation, money market fund, moral hazard, Nash equilibrium, Network effects, Northern Rock, oil shock, planetary scale, plutocrats, precautionary principle, price stability, purchasing power parity, quantitative easing, race to the bottom, reserve currency, secular stagnation, seigniorage, shareholder value, special drawing rights, special economic zone, stochastic process, Suez crisis 1956, the payments system, the scientific method, tontine, too big to fail, trade route, transaction costs, transcontinental railway, Washington Consensus

The importance of this debate is in the radical challenge it presents to the ultra-neoliberal drift in economic theory over the last forty years, which has made possible the hegemony of finance over politics. For fundamental reasons, neoliberal economic theory cannot accommodate the perspective of sustainable development. A Principle of Social Justice Is the Foundation of a New Principle of Sovereignty Social wellbeing is not the aggregation of individual preferences. Indeed, Kenneth Arrow’s impossibility theorem shows that it is impossible for any social choice process in a democratic society to aggregate heterogeneous individual preferences according to an incontestable idea of social wellbeing. It follows from this that any attempt to eradicate poverty and reduce inequalities must proceed the other way around, taking a criterion of social justice as its starting point.


pages: 524 words: 155,947

More: The 10,000-Year Rise of the World Economy by Philip Coggan

accounting loophole / creative accounting, Ada Lovelace, agricultural Revolution, Airbnb, airline deregulation, Alan Greenspan, Andrei Shleifer, anti-communist, Apollo 11, assortative mating, autonomous vehicles, bank run, banking crisis, banks create money, basic income, Bear Stearns, Berlin Wall, Black Monday: stock market crash in 1987, Bletchley Park, Bob Noyce, Boeing 747, bond market vigilante , Branko Milanovic, Bretton Woods, Brexit referendum, British Empire, business cycle, call centre, capital controls, carbon footprint, carbon tax, Carl Icahn, Carmen Reinhart, Celtic Tiger, central bank independence, Charles Babbage, Charles Lindbergh, clean water, collective bargaining, Columbian Exchange, Columbine, Corn Laws, cotton gin, credit crunch, Credit Default Swap, crony capitalism, cross-border payments, currency peg, currency risk, debt deflation, DeepMind, Deng Xiaoping, discovery of the americas, Donald Trump, driverless car, Easter island, Erik Brynjolfsson, European colonialism, eurozone crisis, Fairchild Semiconductor, falling living standards, financial engineering, financial innovation, financial intermediation, floating exchange rates, flying shuttle, Ford Model T, Fractional reserve banking, Frederick Winslow Taylor, full employment, general purpose technology, germ theory of disease, German hyperinflation, gig economy, Gini coefficient, Glass-Steagall Act, global supply chain, global value chain, Gordon Gekko, Great Leap Forward, greed is good, Greenspan put, guns versus butter model, Haber-Bosch Process, Hans Rosling, Hernando de Soto, hydraulic fracturing, hydroponic farming, Ignaz Semmelweis: hand washing, income inequality, income per capita, independent contractor, indoor plumbing, industrial robot, inflation targeting, Isaac Newton, James Watt: steam engine, job automation, John Snow's cholera map, joint-stock company, joint-stock limited liability company, Jon Ronson, Kenneth Arrow, Kula ring, labour market flexibility, land reform, land tenure, Lao Tzu, large denomination, Les Trente Glorieuses, liquidity trap, Long Term Capital Management, Louis Blériot, low cost airline, low interest rates, low skilled workers, lump of labour, M-Pesa, Malcom McLean invented shipping containers, manufacturing employment, Marc Andreessen, Mark Zuckerberg, Martin Wolf, McJob, means of production, Mikhail Gorbachev, mittelstand, Modern Monetary Theory, moral hazard, Murano, Venice glass, Myron Scholes, Nelson Mandela, Network effects, Northern Rock, oil shale / tar sands, oil shock, Paul Samuelson, Paul Volcker talking about ATMs, Phillips curve, popular capitalism, popular electronics, price stability, principal–agent problem, profit maximization, purchasing power parity, quantitative easing, railway mania, Ralph Nader, regulatory arbitrage, road to serfdom, Robert Gordon, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, savings glut, scientific management, Scramble for Africa, Second Machine Age, secular stagnation, Silicon Valley, Simon Kuznets, South China Sea, South Sea Bubble, special drawing rights, spice trade, spinning jenny, Steven Pinker, Suez canal 1869, TaskRabbit, techlash, Thales and the olive presses, Thales of Miletus, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Rise and Fall of American Growth, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, Tragedy of the Commons, transaction costs, transatlantic slave trade, transcontinental railway, Triangle Shirtwaist Factory, universal basic income, Unsafe at Any Speed, Upton Sinclair, V2 rocket, Veblen good, War on Poverty, Washington Consensus, Watson beat the top human players on Jeopardy!, women in the workforce, world market for maybe five computers, Yom Kippur War, you are the product, zero-sum game

In an article published in 1957, Robert Solow examined the history of the US economy between 1909 and 1949 and found that just one-eighth of the increase in output per worker was down to the availability of more capital, with the rest being the result of increased productivity.2 A crucial insight, attributed to both Kenneth Arrow and Paul Romer, is that knowledge can be subject to increasing returns. As the latter wrote, an innovation by one company “cannot be perfectly patented or kept secret”.3 Eli Whitney failed to make a fortune out of his cotton gin because other people grasped his idea and found it easy to replicate.


pages: 551 words: 174,280

The Beginning of Infinity: Explanations That Transform the World by David Deutsch

agricultural Revolution, Albert Michelson, anthropic principle, Apollo 13, artificial general intelligence, Bonfire of the Vanities, Charles Babbage, Computing Machinery and Intelligence, conceptual framework, cosmological principle, dark matter, David Attenborough, discovery of DNA, Douglas Hofstadter, Easter island, Eratosthenes, Ernest Rutherford, first-past-the-post, Georg Cantor, global pandemic, Gödel, Escher, Bach, illegal immigration, invention of movable type, Isaac Newton, Islamic Golden Age, Jacquard loom, Johannes Kepler, John Conway, John von Neumann, Joseph-Marie Jacquard, Kenneth Arrow, Loebner Prize, Louis Pasteur, mirror neurons, Nick Bostrom, pattern recognition, Pierre-Simon Laplace, precautionary principle, Richard Feynman, Search for Extraterrestrial Intelligence, seminal paper, Stephen Hawking, supervolcano, technological singularity, Thales of Miletus, The Coming Technological Singularity, the scientific method, Thomas Malthus, Thorstein Veblen, Turing test, Vernor Vinge, Whole Earth Review, William of Occam, zero-sum game

Also, it is not only about people’s top preferences: once we are considering the details of decision-making in large groups – how legislatures and parties and factions within parties organize themselves to contribute their wishes to ‘society’s wishes’ – we have to take into account their second and third choices, because people still have the right to contribute to decision-making if they cannot persuade a majority to agree to their first choice. Yet electoral systems designed to take such factors into account invariably introduce more paradoxes and no-go theorems. One of the first of the no-go theorems was proved in 1951 by the economist Kenneth Arrow, and it contributed to his winning the Nobel prize for economics in 1972. Arrow’s theorem appears to deny the very existence of social choice – and to strike at the principle of representative government, and apportionment, and democracy itself, and a lot more besides. This is what Arrow did.


pages: 512 words: 165,704

Traffic: Why We Drive the Way We Do (And What It Says About Us) by Tom Vanderbilt

Albert Einstein, autonomous vehicles, availability heuristic, Berlin Wall, Boeing 747, call centre, cellular automata, Cesare Marchetti: Marchetti’s constant, cognitive dissonance, computer vision, congestion charging, congestion pricing, Daniel Kahneman / Amos Tversky, DARPA: Urban Challenge, Donald Shoup, endowment effect, extreme commuting, fundamental attribution error, Garrett Hardin, Google Earth, hedonic treadmill, Herman Kahn, hindsight bias, hive mind, human-factors engineering, if you build it, they will come, impulse control, income inequality, Induced demand, invisible hand, Isaac Newton, Jane Jacobs, John Nash: game theory, Kenneth Arrow, lake wobegon effect, loss aversion, megacity, Milgram experiment, Nash equilibrium, PalmPilot, power law, Sam Peltzman, Silicon Valley, SimCity, statistical model, the built environment, The Death and Life of Great American Cities, Timothy McVeigh, traffic fines, Tragedy of the Commons, traumatic brain injury, ultimatum game, urban planning, urban sprawl, women in the workforce, working poor

It is because roads are free that we have run out of spare road space.” From Harford, The Undercover Economist (Oxford: Oxford University Press, 2004), p. 88. more people want to use them?: William Vickrey, “Pricing in Urban and Suburban Transport,” American Economic Review, vol. 53 (1963). Reprinted in Richard Arnott, Kenneth Arrow, Anthony B. Atkinson, and Jacques H. Drèze., eds., Public Economics: William Vickrey (Cambridge: Cambridge University Press, 1994). the results to friends: The Vickrey story is taken from a working paper by Ron Harstad at the University of Missouri, available at www.economics.missouri.edu/working-papers/2005/wp0519_harstad.pdf.


pages: 578 words: 168,350

Scale: The Universal Laws of Growth, Innovation, Sustainability, and the Pace of Life in Organisms, Cities, Economies, and Companies by Geoffrey West

"World Economic Forum" Davos, Alfred Russel Wallace, Anthropocene, Anton Chekhov, Benoit Mandelbrot, Black Swan, British Empire, butterfly effect, caloric restriction, caloric restriction, carbon footprint, Cesare Marchetti: Marchetti’s constant, clean water, coastline paradox / Richardson effect, complexity theory, computer age, conceptual framework, continuous integration, corporate social responsibility, correlation does not imply causation, cotton gin, creative destruction, dark matter, Deng Xiaoping, double helix, driverless car, Dunbar number, Edward Glaeser, endogenous growth, Ernest Rutherford, first square of the chessboard, first square of the chessboard / second half of the chessboard, Frank Gehry, Geoffrey West, Santa Fe Institute, Great Leap Forward, Guggenheim Bilbao, housing crisis, Index librorum prohibitorum, invention of agriculture, invention of the telephone, Isaac Newton, Jane Jacobs, Jeff Bezos, Johann Wolfgang von Goethe, John von Neumann, Kenneth Arrow, laissez-faire capitalism, Large Hadron Collider, Larry Ellison, Lewis Mumford, life extension, Mahatma Gandhi, mandelbrot fractal, Marc Benioff, Marchetti’s constant, Masdar, megacity, Murano, Venice glass, Murray Gell-Mann, New Urbanism, Oklahoma City bombing, Peter Thiel, power law, profit motive, publish or perish, Ray Kurzweil, Richard Feynman, Richard Florida, Salesforce, seminal paper, Silicon Valley, smart cities, Stephen Hawking, Steve Jobs, Stewart Brand, Suez canal 1869, systematic bias, systems thinking, technological singularity, The Coming Technological Singularity, The Death and Life of Great American Cities, the scientific method, the strength of weak ties, time dilation, too big to fail, transaction costs, urban planning, urban renewal, Vernor Vinge, Vilfredo Pareto, Von Neumann architecture, Whole Earth Catalog, Whole Earth Review, wikimedia commons, working poor

Among its founding fathers were two other major figures of twentieth-century academia, both Nobel laureates: Philip Anderson, a condensed matter physicist from Princeton University who had worked on superconductivity and was an inventor, among many other things, of the mechanism of symmetry breaking that underlies the prediction of the Higgs particle; and Kenneth Arrow from Stanford University, whose many contributions to the fundamental underpinnings of economics, from social choice to endogenous growth theory, have been hugely influential. He was the youngest person ever to have been awarded the Nobel Memorial Prize for economics, which five of his students have also received.


pages: 614 words: 174,226

The Economists' Hour: How the False Prophets of Free Markets Fractured Our Society by Binyamin Appelbaum

90 percent rule, airline deregulation, Alan Greenspan, Alvin Roth, Andrei Shleifer, anti-communist, battle of ideas, Benoit Mandelbrot, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, Celtic Tiger, central bank independence, clean water, collective bargaining, Corn Laws, correlation does not imply causation, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, desegregation, Diane Coyle, Donald Trump, Dr. Strangelove, ending welfare as we know it, financial deregulation, financial engineering, financial innovation, fixed income, flag carrier, floating exchange rates, full employment, George Akerlof, George Gilder, Gini coefficient, greed is good, Greenspan put, Growth in a Time of Debt, Ida Tarbell, income inequality, income per capita, index fund, inflation targeting, invisible hand, Isaac Newton, It's morning again in America, Jean Tirole, John Markoff, Kenneth Arrow, Kenneth Rogoff, land reform, Les Trente Glorieuses, long and variable lags, Long Term Capital Management, low cost airline, low interest rates, manufacturing employment, means of production, Menlo Park, minimum wage unemployment, Mohammed Bouazizi, money market fund, Mont Pelerin Society, Network effects, new economy, Nixon triggered the end of the Bretton Woods system, oil shock, Paul Samuelson, Philip Mirowski, Phillips curve, plutocrats, precautionary principle, price stability, profit motive, public intellectual, Ralph Nader, RAND corporation, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Bork, Robert Gordon, Robert Solow, Ronald Coase, Ronald Reagan, Sam Peltzman, Savings and loan crisis, Silicon Valley, Simon Kuznets, starchitect, Steve Bannon, Steve Jobs, supply-chain management, The Chicago School, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, trickle-down economics, ultimatum game, Unsafe at Any Speed, urban renewal, War on Poverty, Washington Consensus, We are all Keynesians now

Porter, Trust in Numbers: The Pursuit of Objectivity in Science and Public Life (Princeton, N.J.: Princeton University Press, 1995), 162–65. 13. Ibid. 14. Nicholas Kaldor, “Welfare Propositions of Economics and Interpersonal Comparisons of Utility,” Economic Journal 49, no. 195 (1939). 15. Kenneth Arrow already had proved the new version of welfare economics was theoretically flawed. In his 1950 doctoral thesis, “Social Choice and Individual Values” — which was completed at Rand, where Arrow was working on Cold War game theory — Arrow showed that individual expressions of preference, in the form of rank ordering, could not be reliably translated into an accurate statement of collective preferences.


pages: 625 words: 167,349

The Alignment Problem: Machine Learning and Human Values by Brian Christian

Albert Einstein, algorithmic bias, Alignment Problem, AlphaGo, Amazon Mechanical Turk, artificial general intelligence, augmented reality, autonomous vehicles, backpropagation, butterfly effect, Cambridge Analytica, Cass Sunstein, Claude Shannon: information theory, computer vision, Computing Machinery and Intelligence, data science, deep learning, DeepMind, Donald Knuth, Douglas Hofstadter, effective altruism, Elaine Herzberg, Elon Musk, Frances Oldham Kelsey, game design, gamification, Geoffrey Hinton, Goodhart's law, Google Chrome, Google Glasses, Google X / Alphabet X, Gödel, Escher, Bach, Hans Moravec, hedonic treadmill, ImageNet competition, industrial robot, Internet Archive, John von Neumann, Joi Ito, Kenneth Arrow, language acquisition, longitudinal study, machine translation, mandatory minimum, mass incarceration, multi-armed bandit, natural language processing, Nick Bostrom, Norbert Wiener, Northpointe / Correctional Offender Management Profiling for Alternative Sanctions, OpenAI, Panopticon Jeremy Bentham, pattern recognition, Peter Singer: altruism, Peter Thiel, precautionary principle, premature optimization, RAND corporation, recommendation engine, Richard Feynman, Rodney Brooks, Saturday Night Live, selection bias, self-driving car, seminal paper, side project, Silicon Valley, Skinner box, sparse data, speech recognition, Stanislav Petrov, statistical model, Steve Jobs, strong AI, the map is not the territory, theory of mind, Tim Cook: Apple, W. E. B. Du Bois, Wayback Machine, zero-sum game

I marvel that this manuscript was written using typesetting software more than 40 years old, and for which none other than Arthur Samuel himself wrote the documentation. We really do stand on the shoulders of giants. Humbly, I want to acknowledge those who passed away during the writing of this book whose voices I would have loved to include, and whose ideas are nevertheless present: Derek Parfit, Kenneth Arrow, Hubert Dreyfus, Stanislav Petrov, and Ursula K. Le Guin. I want to express a particular gratitude to the University of California, Berkeley. To CITRIS, where I was honored to be a visiting scholar during the writing of this book, with very special thanks to Brandie Nonnecke and Camille Crittenden; to the Simons Institute for the Theory of Computing, in particular Kristin Kane and Richard Karp; to the Center for Human-Compatible AI, in particular Stuart Russell and Mark Nitzberg; and to the many brilliant and spirited members and visitors of the CHAI Workshop.


pages: 678 words: 160,676

The Upswing: How America Came Together a Century Ago and How We Can Do It Again by Robert D. Putnam

affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, Alvin Toffler, Arthur Marwick, classic study, clean water, collective bargaining, correlation does not imply causation, David Brooks, demographic transition, desegregation, different worldview, Donald Trump, Edward Glaeser, en.wikipedia.org, equal pay for equal work, financial deregulation, gender pay gap, ghettoisation, Gordon Gekko, greed is good, Gunnar Myrdal, guns versus butter model, Herbert Marcuse, Ida Tarbell, immigration reform, income inequality, Kenneth Arrow, knowledge economy, labor-force participation, laissez-faire capitalism, low skilled workers, Mark Zuckerberg, market fundamentalism, mass immigration, mega-rich, meta-analysis, minimum wage unemployment, MITM: man-in-the-middle, obamacare, occupational segregation, open economy, opioid epidemic / opioid crisis, Overton Window, plutocrats, post-industrial society, Powell Memorandum, prosperity theology / prosperity gospel / gospel of success, public intellectual, road to serfdom, Robert Shiller, Ronald Reagan, Scientific racism, Second Machine Age, shareholder value, Silicon Valley, Steve Jobs, Steven Pinker, strikebreaker, The Rise and Fall of American Growth, The Spirit Level, trade liberalization, Travis Kalanick, Triangle Shirtwaist Factory, Tyler Cowen, Tyler Cowen: Great Stagnation, union organizing, Upton Sinclair, upwardly mobile, W. E. B. Du Bois, War on Poverty, white flight, women in the workforce, working poor, Works Progress Administration, yellow journalism

Murnane (New York: Russell Sage Foundation, 2011), 165–85 find a similar pattern for absolute educational mobility—rising until roughly 1975 and then falling. Robert M. Hauser et al., “Occupational Status, Education, and Social Mobility in the Meritocracy,” in Meritocracy and Economic Inequality, eds. Kenneth Arrow, Samuel Bowles, and Steven Durlauf (Princeton: Princeton University Press, 2000), 179–229 find a similar pattern for absolute mobility in occupational status. Research is mixed about whether there was a similar turning point in relative intergenerational mobility. Hilger and Hout and Janus find that relative educational mobility (which is closely related to income mobility) increased between roughly 1940 and roughly 1970 and then stabilized or even slightly reversed.


pages: 741 words: 179,454

Extreme Money: Masters of the Universe and the Cult of Risk by Satyajit Das

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", "there is no alternative" (TINA), "World Economic Forum" Davos, affirmative action, Alan Greenspan, Albert Einstein, algorithmic trading, Andy Kessler, AOL-Time Warner, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Basel III, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, bonus culture, book value, Bretton Woods, BRICs, British Empire, business cycle, buy the rumour, sell the news, capital asset pricing model, carbon credits, Carl Icahn, Carmen Reinhart, carried interest, Celtic Tiger, clean water, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, Daniel Kahneman / Amos Tversky, deal flow, debt deflation, Deng Xiaoping, deskilling, discrete time, diversification, diversified portfolio, Doomsday Clock, Dr. Strangelove, Dutch auction, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Fall of the Berlin Wall, financial engineering, financial independence, financial innovation, financial thriller, fixed income, foreign exchange controls, full employment, Glass-Steagall Act, global reserve currency, Goldman Sachs: Vampire Squid, Goodhart's law, Gordon Gekko, greed is good, Greenspan put, happiness index / gross national happiness, haute cuisine, Herman Kahn, high net worth, Hyman Minsky, index fund, information asymmetry, interest rate swap, invention of the wheel, invisible hand, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", job automation, Johann Wolfgang von Goethe, John Bogle, John Meriwether, joint-stock company, Jones Act, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, laissez-faire capitalism, load shedding, locking in a profit, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market bubble, market fundamentalism, Market Wizards by Jack D. Schwager, Marshall McLuhan, Martin Wolf, mega-rich, merger arbitrage, Michael Milken, Mikhail Gorbachev, Milgram experiment, military-industrial complex, Minsky moment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, Naomi Klein, National Debt Clock, negative equity, NetJets, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, Paul Samuelson, pets.com, Philip Mirowski, Phillips curve, planned obsolescence, plutocrats, Ponzi scheme, price anchoring, price stability, profit maximization, proprietary trading, public intellectual, quantitative easing, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Ray Kurzweil, regulatory arbitrage, Reminiscences of a Stock Operator, rent control, rent-seeking, reserve currency, Richard Feynman, Richard Thaler, Right to Buy, risk free rate, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Ronald Reagan: Tear down this wall, Satyajit Das, savings glut, shareholder value, Sharpe ratio, short selling, short squeeze, Silicon Valley, six sigma, Slavoj Žižek, South Sea Bubble, special economic zone, statistical model, Stephen Hawking, Steve Jobs, stock buybacks, survivorship bias, tail risk, Teledyne, The Chicago School, The Great Moderation, the market place, the medium is the message, The Myth of the Rational Market, The Nature of the Firm, the new new thing, The Predators' Ball, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trickle-down economics, Turing test, two and twenty, Upton Sinclair, value at risk, Yogi Berra, zero-coupon bond, zero-sum game

Much of the literature reflected the Gordon-Liebhafsky theorem that: “provided that it achieves a certain threshold of intelligibility, the greater the obscurity of a piece written by an economist, the greater is the likelihood that it will be recognized as a classic or seminal work.”35 For financiers, theory and models were secondary to profit. Merton’s dynamic hedging or replication approach allowed the creation of derivatives and their risk management, helping banks to trade a bewildering variety of instruments. In the 1950s, two economists, Kenneth Arrow and Gerard Debreu, showed that attaining the nirvana of economic equilibrium required state securities, contracts to buy or sell everything at any time period in every place until infinity or the end of the world, whichever was first. This theoretically perfect world now justified any and every type of derivative and financial product.


pages: 651 words: 180,162

Antifragile: Things That Gain From Disorder by Nassim Nicholas Taleb

"World Economic Forum" Davos, Air France Flight 447, Alan Greenspan, Andrei Shleifer, anti-fragile, banking crisis, Benoit Mandelbrot, Berlin Wall, biodiversity loss, Black Swan, business cycle, caloric restriction, caloric restriction, Chuck Templeton: OpenTable:, commoditize, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, discrete time, double entry bookkeeping, Emanuel Derman, epigenetics, fail fast, financial engineering, financial independence, Flash crash, flying shuttle, Gary Taubes, George Santayana, Gini coefficient, Helicobacter pylori, Henri Poincaré, Higgs boson, high net worth, hygiene hypothesis, Ignaz Semmelweis: hand washing, informal economy, invention of the wheel, invisible hand, Isaac Newton, James Hargreaves, Jane Jacobs, Jim Simons, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Arrow, knowledge economy, language acquisition, Lao Tzu, Long Term Capital Management, loss aversion, Louis Pasteur, mandelbrot fractal, Marc Andreessen, Mark Spitznagel, meta-analysis, microbiome, money market fund, moral hazard, mouse model, Myron Scholes, Norbert Wiener, pattern recognition, Paul Samuelson, placebo effect, Ponzi scheme, Post-Keynesian economics, power law, principal–agent problem, purchasing power parity, quantitative trading / quantitative finance, Ralph Nader, random walk, Ray Kurzweil, rent control, Republic of Letters, Ronald Reagan, Rory Sutherland, Rupert Read, selection bias, Silicon Valley, six sigma, spinning jenny, statistical model, Steve Jobs, Steven Pinker, Stewart Brand, stochastic process, stochastic volatility, synthetic biology, tacit knowledge, tail risk, Thales and the olive presses, Thales of Miletus, The Great Moderation, the new new thing, The Wealth of Nations by Adam Smith, Thomas Bayes, Thomas Malthus, too big to fail, transaction costs, urban planning, Vilfredo Pareto, Yogi Berra, Zipf's Law

Kirkpatrick, 2005, “The Evolution of Infidelity in Socially Monogamous Passerines: The Strength of Direct and Indirect Selection on Extrapair Copulation Behavior in Females.” American Naturalist 165 (s5). Aron, Raymond, 1964, Dimensions de la conscience historique. Agora/Librairie Plon. Arrow, Kenneth, 1971, “Aspects of the Theory of Risk-Bearing,” Yrj¨o Jahnsson Lectures (1965), reprinted in Essays in the Theory of Risk Bearing, edited by Kenneth Arrow. Chicago: Markum. Atamas, S. P., and J. Bell, 2009, “Degeneracy-Driven Self-Structuring Dynamics in Selective Repertoires.” Bulletin of Mathematical Biology 71(6): 1349–1365. Athavale, Y., P. Hosseinizadeh, et al., 2009, “Identifying the Potential for Failure of Businesses in the Technology, Pharmaceutical, and Banking Sectors Using Kernel-Based Machine Learning Methods.”


pages: 607 words: 185,487

Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed by James C. Scott

agricultural Revolution, Boeing 747, business cycle, classic study, clean water, colonial rule, commoditize, company town, deskilling, facts on the ground, germ theory of disease, Great Leap Forward, informal economy, invention of writing, invisible hand, Jane Jacobs, Kenneth Arrow, land reform, land tenure, Lewis Mumford, Louis Pasteur, megaproject, new economy, New Urbanism, post-Fordism, Potemkin village, price mechanism, profit maximization, Recombinant DNA, road to serfdom, scientific management, Silicon Valley, stochastic process, Suez canal 1869, the built environment, The Death and Life of Great American Cities, the scientific method, Thorstein Veblen, urban decay, urban planning, urban renewal, vertical integration, working poor

For the case of jet engines, the performance of which "remains notoriously uncertain in the development process" and which have to be adjusted by engineers with long experience after pilots conduct in-flight testing, see Nathan Rosenberg, Inside the Black Box: Technology and Economics (New York: Cambridge University Press, 1982), especially pp. 120-41. Rosenberg makes it clear that the limits of scientific methodology in this case have to do with the impossibility of anticipating the interactive consequences of the enormous number of independent variables (including different technologies) at work in a jet engine. See also Kenneth Arrow, "The Economics of Learning by Doing," Review of Economic Studies, June 1962, pp. 45-73. 53. Charles E. Lindblom, "The Science of Muddling Through," Public Administration Review 19 (Spring 1959): 79-88. Twenty years after this article appeared, Lindblom extended the argument in another article with a catchy title: "Still Muddling, Not Yet Through."


pages: 619 words: 177,548

Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity by Daron Acemoglu, Simon Johnson

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, 4chan, agricultural Revolution, AI winter, Airbnb, airline deregulation, algorithmic bias, algorithmic management, Alignment Problem, AlphaGo, An Inconvenient Truth, artificial general intelligence, augmented reality, basic income, Bellingcat, Bernie Sanders, Big Tech, Bletchley Park, blue-collar work, British Empire, carbon footprint, carbon tax, carried interest, centre right, Charles Babbage, ChatGPT, Clayton Christensen, clean water, cloud computing, collapse of Lehman Brothers, collective bargaining, computer age, Computer Lib, Computing Machinery and Intelligence, conceptual framework, contact tracing, Corn Laws, Cornelius Vanderbilt, coronavirus, corporate social responsibility, correlation does not imply causation, cotton gin, COVID-19, creative destruction, declining real wages, deep learning, DeepMind, deindustrialization, Demis Hassabis, Deng Xiaoping, deskilling, discovery of the americas, disinformation, Donald Trump, Douglas Engelbart, Douglas Engelbart, Edward Snowden, Elon Musk, en.wikipedia.org, energy transition, Erik Brynjolfsson, European colonialism, everywhere but in the productivity statistics, factory automation, facts on the ground, fake news, Filter Bubble, financial innovation, Ford Model T, Ford paid five dollars a day, fulfillment center, full employment, future of work, gender pay gap, general purpose technology, Geoffrey Hinton, global supply chain, Gordon Gekko, GPT-3, Grace Hopper, Hacker Ethic, Ida Tarbell, illegal immigration, income inequality, indoor plumbing, industrial robot, interchangeable parts, invisible hand, Isaac Newton, Jacques de Vaucanson, James Watt: steam engine, Jaron Lanier, Jeff Bezos, job automation, Johannes Kepler, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph-Marie Jacquard, Kenneth Arrow, Kevin Roose, Kickstarter, knowledge economy, labor-force participation, land reform, land tenure, Les Trente Glorieuses, low skilled workers, low-wage service sector, M-Pesa, manufacturing employment, Marc Andreessen, Mark Zuckerberg, megacity, mobile money, Mother of all demos, move fast and break things, natural language processing, Neolithic agricultural revolution, Norbert Wiener, NSO Group, offshore financial centre, OpenAI, PageRank, Panopticon Jeremy Bentham, paperclip maximiser, pattern recognition, Paul Graham, Peter Thiel, Productivity paradox, profit maximization, profit motive, QAnon, Ralph Nader, Ray Kurzweil, recommendation engine, ride hailing / ride sharing, Robert Bork, Robert Gordon, Robert Solow, robotic process automation, Ronald Reagan, scientific management, Second Machine Age, self-driving car, seminal paper, shareholder value, Sheryl Sandberg, Shoshana Zuboff, Silicon Valley, social intelligence, Social Responsibility of Business Is to Increase Its Profits, social web, South Sea Bubble, speech recognition, spice trade, statistical model, stem cell, Steve Jobs, Steve Wozniak, strikebreaker, subscription business, Suez canal 1869, Suez crisis 1956, supply-chain management, surveillance capitalism, tacit knowledge, tech billionaire, technoutopianism, Ted Nelson, TED Talk, The Future of Employment, The Rise and Fall of American Growth, The Structural Transformation of the Public Sphere, The Wealth of Nations by Adam Smith, theory of mind, Thomas Malthus, too big to fail, total factor productivity, trade route, transatlantic slave trade, trickle-down economics, Turing machine, Turing test, Twitter Arab Spring, Two Sigma, Tyler Cowen, Tyler Cowen: Great Stagnation, union organizing, universal basic income, Unsafe at Any Speed, Upton Sinclair, upwardly mobile, W. E. B. Du Bois, War on Poverty, WikiLeaks, wikimedia commons, working poor, working-age population

Building on Smith’s ideas, many free-market advocates have remained skeptical of large corporations, and some of them raise alarms when mergers and acquisitions increase the power of big players. Thwarting the workings of the market is not the only reason for being suspicious of big businesses. A well-known proposition in economics is the Arrow replacement effect, named after the Nobel Prize–winning economist Kenneth Arrow and later popularized by the business scholar Clayton Christensen as the “innovator’s dilemma.” It states that large corporations are timid innovators because they are afraid of eroding their own profits from existing offerings. If a new product will eat into the revenues a corporation enjoys from what it is already doing, why go there?


pages: 741 words: 199,502

Human Diversity: The Biology of Gender, Race, and Class by Charles Murray

23andMe, affirmative action, Albert Einstein, Alfred Russel Wallace, Asperger Syndrome, assortative mating, autism spectrum disorder, basic income, behavioural economics, bioinformatics, Cass Sunstein, correlation coefficient, CRISPR, Daniel Kahneman / Amos Tversky, dark triade / dark tetrad, domesticated silver fox, double helix, Drosophila, emotional labour, epigenetics, equal pay for equal work, European colonialism, feminist movement, glass ceiling, Gregor Mendel, Gunnar Myrdal, income inequality, Kenneth Arrow, labor-force participation, longitudinal study, meritocracy, meta-analysis, nudge theory, out of africa, p-value, phenotype, public intellectual, publication bias, quantitative hedge fund, randomized controlled trial, Recombinant DNA, replication crisis, Richard Thaler, risk tolerance, school vouchers, Scientific racism, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, Skinner box, social intelligence, Social Justice Warrior, statistical model, Steven Pinker, The Bell Curve by Richard Herrnstein and Charles Murray, the scientific method, The Wealth of Nations by Adam Smith, theory of mind, Thomas Kuhn: the structure of scientific revolutions, twin studies, universal basic income, working-age population

Korenman, Sanders, and David Neumark. 1991. “Does Marriage Really Make Men More Productive?” Journal of Human Resources 26 (2): 282–307. Korenman, Sanders, and Christopher Winship. 2000. “A Reanalysis of the Bell Curve: Intelligence, Family Background, and Schooling.” In Meritocracy and Economic Inequality, edited by Kenneth Arrow, Samuel Bowles, and Steven Durlauf. Princeton, NJ: Princeton University Press. Koscik, Tim, Dan O’Leary, David J. Moser et al. 2009. “Sex Differences in Parietal Lobe Morphology: Relationship to Mental Rotation Performance.” Brain and Cognition 69 (3): 451–59. Krapohl, Eva, Kaili Rimfeld, Nicholas G.


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Wealth and Poverty of Nations by David S. Landes

Admiral Zheng, affirmative action, agricultural Revolution, Atahualpa, Ayatollah Khomeini, Bartolomé de las Casas, book value, British Empire, business cycle, Cape to Cairo, classic study, clean water, colonial rule, Columbian Exchange, computer age, David Ricardo: comparative advantage, deindustrialization, deskilling, European colonialism, Fellow of the Royal Society, financial intermediation, Francisco Pizarro, germ theory of disease, glass ceiling, high-speed rail, illegal immigration, income inequality, Index librorum prohibitorum, interchangeable parts, invention of agriculture, invention of movable type, invisible hand, Isaac Newton, it's over 9,000, James Watt: steam engine, John Harrison: Longitude, joint-stock company, Just-in-time delivery, Kenneth Arrow, land tenure, lateral thinking, Lewis Mumford, mass immigration, Mexican peso crisis / tequila crisis, MITM: man-in-the-middle, Monroe Doctrine, Murano, Venice glass, new economy, New Urbanism, North Sea oil, out of africa, passive investing, Paul Erdős, Paul Samuelson, Philip Mirowski, rent-seeking, Right to Buy, Robert Solow, Savings and loan crisis, Scramble for Africa, Simon Kuznets, South China Sea, spice trade, spinning jenny, Suez canal 1869, The Wealth of Nations by Adam Smith, trade route, transaction costs, transatlantic slave trade, Vilfredo Pareto, zero-sum game

T h e sense o f historical c o n t i n g e n c y d o e s n o t d e t r a c t f r o m the e m e r g e n c e of repeated t h e m e s in the e n c o u n t e r s w h i c h led to E u r o p e a n e c o n o m i c l e a d e r s h i p . T h e incred­ ible wealth o f learning is e m b o d i e d in a light a n d v i g o r o u s p r o s e w h i c h carries the reader a l o n g irresistibly." —Kenneth Arrow THE WEALTH AND POVERTY OF NATIONS Also by DAVID S. LANDES BANKERS AND PASHAS T H E UNBOUND PROMETHEUS REVOLUTION IN TIME The Wealth and Poverty of Nations Why Some Are So Rich and Some So Poor DAVID S. LANDES W W N O R T O N & COMPANY New York London Copyright © 1 9 9 8 by David S. Landes All rights reserved Printed in the United States of America First Edition For information about permission to reproduce selections from this book, write to Permissions, W.

Crane Brinton, Alexander Gerschenkron, Richard Pipes, David and Aida Donald, Benjamin Schwartz, Harvey Leibenstein, Robert Fogel, Zvi Griliches, Dale Jorgensen, Amartya Sen, Ray Vernon, Robert Barro, Jeff Sachs, Jess Williamson, Claudia Goldin, Daniel Bell, Nathan Glazer, Talcott Parsons, Brad DeLong, Patrice Higonnet, Martin Peretz, Judith Vichniac, Stephen Marglin, Winnie Rothenberg). Nor should I forget the extraordinary stimulation I received from a year at the Center for Advanced Study in the Behavioral Sciences in Palo Alto. This was in 1 9 5 7 - 5 8 , and I was the beneficiary o f a banner crop of economists: Kenneth Arrow, Milton Friedman, George Stigler, Robert Solow (four future winners o f the Nobel Prize!). Get a paper past them, and one was ready for any audience. And then, in addition to those colleagues mentioned above, others at home and abroad. In the United States: William Parker, Roberto Lopez, Charles Kindleberger, Liah Greenfield, Bernard Lewis, Leila Fawaz, Alfred Chandler, Peter Temin, Mancur Olson, William Lazonick, Richard Sylla, Ivan Berend, D.


pages: 898 words: 266,274

The Irrational Bundle by Dan Ariely

accounting loophole / creative accounting, air freight, Albert Einstein, Alvin Roth, An Inconvenient Truth, assortative mating, banking crisis, Bear Stearns, behavioural economics, Bernie Madoff, Black Swan, Broken windows theory, Burning Man, business process, cashless society, Cass Sunstein, clean water, cognitive dissonance, cognitive load, compensation consultant, computer vision, Cornelius Vanderbilt, corporate governance, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, delayed gratification, Demis Hassabis, Donald Trump, end world poverty, endowment effect, Exxon Valdez, fake it until you make it, financial engineering, first-price auction, Ford Model T, Frederick Winslow Taylor, fudge factor, Garrett Hardin, George Akerlof, Gordon Gekko, greed is good, happiness index / gross national happiness, hedonic treadmill, IKEA effect, Jean Tirole, job satisfaction, John Perry Barlow, Kenneth Arrow, knowledge economy, knowledge worker, lake wobegon effect, late fees, loss aversion, Murray Gell-Mann, name-letter effect, new economy, operational security, Pepsi Challenge, Peter Singer: altruism, placebo effect, price anchoring, Richard Feynman, Richard Thaler, Saturday Night Live, Schrödinger's Cat, search costs, second-price auction, Shai Danziger, shareholder value, Silicon Valley, Skinner box, Skype, social contagion, software as a service, Steve Jobs, subprime mortgage crisis, sunk-cost fallacy, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tragedy of the Commons, ultimatum game, Upton Sinclair, Walter Mischel, young professional

—George Akerlof, Nobel Laureate in Economics, Koshland Professor of Economics, University of California, Berkeley “Dan Ariely’s ingenious experiments explore deeply how our economic behavior is influenced by irrational forces and social norms. In a charmingly informal style that makes it accessible to a wide audience, Predictably Irrational provides a standing criticism to the explanatory power of rational egotistic choice.” —Kenneth Arrow, Nobel Laureate in Economics, Joan Kenney Professor of Economics, Stanford University “A delightfully brilliant guide to our irrationality—and how to overcome it—in the marketplace and everyplace.” —Geoffrey Moore, author of Crossing the Chasm and Dealing with Darwin “Dan Ariely is one of the most original and consistently interesting social scientists I know.


pages: 935 words: 267,358

Capital in the Twenty-First Century by Thomas Piketty

accounting loophole / creative accounting, Asian financial crisis, banking crisis, banks create money, Berlin Wall, book value, Branko Milanovic, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, carbon tax, central bank independence, centre right, circulation of elites, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation coefficient, David Ricardo: comparative advantage, demographic transition, distributed generation, diversification, diversified portfolio, European colonialism, eurozone crisis, Fall of the Berlin Wall, financial intermediation, full employment, Future Shock, German hyperinflation, Gini coefficient, Great Leap Forward, high net worth, Honoré de Balzac, immigration reform, income inequality, income per capita, index card, inflation targeting, informal economy, invention of the steam engine, invisible hand, joint-stock company, Joseph Schumpeter, Kenneth Arrow, low interest rates, market bubble, means of production, meritocracy, Money creation, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, open economy, Paul Samuelson, pension reform, power law, purchasing power parity, race to the bottom, randomized controlled trial, refrigerator car, regulatory arbitrage, rent control, rent-seeking, Robert Gordon, Robert Solow, Ronald Reagan, Simon Kuznets, sovereign wealth fund, Steve Jobs, Suez canal 1869, Suez crisis 1956, The Nature of the Firm, the payments system, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade liberalization, twin studies, very high income, Vilfredo Pareto, We are the 99%, zero-sum game

There is good reason to believe, however, that the price signal has less of an impact on emissions than public investment and changes to building codes (requiring thermal insulation, for example). 56. The idea that private property and the market allow (under certain conditions) for the coordination and efficient use of the talents and information possessed by millions of individuals is a classic that one finds in the work of Adam Smith, Friedrich Hayek, and Kenneth Arrow and Claude Debreu. The idea that voting is another efficient way of aggregating information (and more generally ideas, reflections, etc.) is also very old: it goes back to Condorcet. For recent research on this constructivist approach to political institutions and electoral systems, see the online technical appendix. 57.


pages: 1,205 words: 308,891

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

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

During the 1960s I myself was trained at Harvard in Samuelsonian economics, and during the 1970s I taught at the University of Chicago, which was at the time turning away from Marshall and Knight and toward Samuelson and Arrow. Samuelsonian economics was invented in the 1940s and 1950s by the brilliant and amiable Paul Anthony Samuelson (1915–2009)—long my mother’s mixed-doubles tennis partner—together with his equally brilliant and equally amiable brother in law, Kenneth Arrow (1921– )—long a distantly friendly colleague of mine. Startlingly, they are joint uncles of the crown prince of Samuelsonian economics, Lawrence Summers. 10. Haidt 2006; Epley 2014. 11. For example, Wilson 2010, which is the only substantive use in economics of Wittgenstein’s Philosophical Investigations.


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Money and Power: How Goldman Sachs Came to Rule the World by William D. Cohan

"Friedman doctrine" OR "shareholder theory", "RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Alan Greenspan, asset-backed security, Bear Stearns, Bernie Madoff, Bob Litterman, book value, business cycle, buttonwood tree, buy and hold, collateralized debt obligation, Cornelius Vanderbilt, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, deal flow, diversified portfolio, do well by doing good, fear of failure, financial engineering, financial innovation, fixed income, Ford paid five dollars a day, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Gordon Gekko, high net worth, hiring and firing, hive mind, Hyman Minsky, interest rate swap, John Meriwether, junk bonds, Kenneth Arrow, London Interbank Offered Rate, Long Term Capital Management, managed futures, margin call, market bubble, mega-rich, merger arbitrage, Michael Milken, moral hazard, mortgage debt, Myron Scholes, paper trading, passive investing, Paul Samuelson, Ponzi scheme, price stability, profit maximization, proprietary trading, risk tolerance, Ronald Reagan, Saturday Night Live, short squeeze, South Sea Bubble, tail risk, time value of money, too big to fail, traveling salesman, two and twenty, value at risk, work culture , yield curve, Yogi Berra, zero-sum game

But Corzine stood up for Steck. “Shut the fuck up,” Corzine said. “He just saved the firm.” Steck became a partner. CHAPTER 13 POWER One of the people Goldman hired as a consultant during its consultant-hiring spree was Lawrence Summers, a Philadelphia-born Harvard economist whose two uncles—Paul Samuelson and Kenneth Arrow—had both won Nobel Prizes in economics. Summers’s parents, Robert and Anita, were also economics professors. During the summer of 1986, when Rubin and Friedman were still the co-heads of Goldman’s fixed-income group, Jacob Goldfield, a precocious and gifted young Goldman trader, suggested to Rubin that he and Summers should meet.


pages: 1,073 words: 314,528

Strategy: A History by Lawrence Freedman

Albert Einstein, anti-communist, Anton Chekhov, Ayatollah Khomeini, barriers to entry, battle of ideas, behavioural economics, Black Swan, Blue Ocean Strategy, British Empire, business process, butterfly effect, centre right, Charles Lindbergh, circulation of elites, cognitive dissonance, coherent worldview, collective bargaining, complexity theory, conceptual framework, Cornelius Vanderbilt, corporate raider, correlation does not imply causation, creative destruction, cuban missile crisis, Daniel Kahneman / Amos Tversky, defense in depth, desegregation, disinformation, Dr. Strangelove, Edward Lorenz: Chaos theory, en.wikipedia.org, endogenous growth, endowment effect, escalation ladder, Ford Model T, Ford paid five dollars a day, framing effect, Frederick Winslow Taylor, Gordon Gekko, greed is good, Herbert Marcuse, Herman Kahn, Ida Tarbell, information retrieval, interchangeable parts, invisible hand, John Nash: game theory, John von Neumann, Kenneth Arrow, lateral thinking, linear programming, loose coupling, loss aversion, Mahatma Gandhi, means of production, mental accounting, Murray Gell-Mann, mutually assured destruction, Nash equilibrium, Nelson Mandela, Norbert Wiener, Norman Mailer, oil shock, Pareto efficiency, performance metric, Philip Mirowski, prisoner's dilemma, profit maximization, race to the bottom, Ralph Nader, RAND corporation, Richard Thaler, road to serfdom, Ronald Reagan, Rosa Parks, scientific management, seminal paper, shareholder value, social contagion, social intelligence, Steven Pinker, strikebreaker, The Chicago School, The Myth of the Rational Market, the scientific method, theory of mind, Thomas Davenport, Thomas Kuhn: the structure of scientific revolutions, Torches of Freedom, Toyota Production System, transaction costs, Twitter Arab Spring, ultimatum game, unemployed young men, Upton Sinclair, urban sprawl, Vilfredo Pareto, W. E. B. Du Bois, War on Poverty, women in the workforce, Yogi Berra, zero-sum game

Assuming that all players followed strategies to maximize their utilities, this point would be one from which individual actors had no incentive to deviate. In principle, it would represent the most logical outcome to the strategic game and would set the terms for future empirical work. A key figure in the development of rational choice theory at RAND was Kenneth Arrow, who developed the “impossibility theorem” that explained why democratic systems do not always produce outcomes that conform to the wishes of the majority. His student Anthony Downs, in his Economic Theory of Democracy used the idea of individuals maximizing their self-interest to challenge notions of public interest.


pages: 1,535 words: 337,071

Networks, Crowds, and Markets: Reasoning About a Highly Connected World by David Easley, Jon Kleinberg

Albert Einstein, AltaVista, AOL-Time Warner, Apollo 13, classic study, clean water, conceptual framework, Daniel Kahneman / Amos Tversky, Douglas Hofstadter, Dutch auction, Erdős number, experimental subject, first-price auction, fudge factor, Garrett Hardin, George Akerlof, Gerard Salton, Gerard Salton, Gödel, Escher, Bach, incomplete markets, information asymmetry, information retrieval, John Nash: game theory, Kenneth Arrow, longitudinal study, market clearing, market microstructure, moral hazard, Nash equilibrium, Network effects, Pareto efficiency, Paul Erdős, planetary scale, power law, prediction markets, price anchoring, price mechanism, prisoner's dilemma, random walk, recommendation engine, Richard Thaler, Ronald Coase, sealed-bid auction, search engine result page, second-price auction, second-price sealed-bid, seminal paper, Simon Singh, slashdot, social contagion, social web, Steve Jobs, Steve Jurvetson, stochastic process, Ted Nelson, the long tail, The Market for Lemons, the strength of weak ties, The Wisdom of Crowds, trade route, Tragedy of the Commons, transaction costs, two and twenty, ultimatum game, Vannevar Bush, Vickrey auction, Vilfredo Pareto, Yogi Berra, zero-sum game

We can easily check that each of these k dictatorship systems satisfies Unanimity and IIA. First, if everyone prefers to X to Y , then the dictator does, and hence the group ranking does. Second, the group ranking of X and Y depends only how the dictator ranks X and Y , and does not depend on how any other alternative Z is ranked. Arrow’s Theorem. In the 1950s, Kenneth Arrow proved the following remarkable result [22, 23], which clarifies why it’s so hard to find voting systems that are free of pathological behavior. Arrow’s Theorem: If there are at least three alternatives, then any voting system that satisfies both Unanimity and IIA must correspond to dictatorship by one individual.