behavioural economics

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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

Economists working in these areas have more reason than most to know that the assumptions of competitive ‘free’ markets and rational choice are unlikely to be valid. They draw on a longstanding tradition of analysing departures from competition, as well as increasingly on the newer behavioural economics literature as applied to consumer choice. One nice example of why competition authorities are paying more attention to behavioural economics is given by Rufus Pollock, who looked at why deregulation of directory inquiries in the UK in 2003 failed to improve competition in that market. He concluded that consumers, faced with a wide range of unfamiliar numbers combined with limitations on their capacity to process information, gravitated toward one (The Number) that was easy to remember, 118 118, and was marketed with genius, the advertising campaign using identical twins.

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To pile on the contradictions, while economists are often very uncomfortable about making explicit normative judgements of this kind, preferring to believe that our recommendations stick to the territory of positive economics, behavioural economics is inherently paternalistic. This is because of its construction that people make ‘non-rational’ or ‘biased’ decisions, which implies ‘rational’ is better. For instance, economics predicts that rational consumers will use APRs to compare the cost of loans, but if that were the case none of us would borrow on credit cards, never mind take out payday loans. This means behavioural economics may prove more effective in policies ranging from financial and consumer regulation to social policy.

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Veronesi, 2018, Inequality Aversion, Populism, and the Backlash Against Globalization, NBER Working Paper 24900, National Bureau of Economic Research, Cambridge, MA. Perez, C., 2002, Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages, London: Elgar. Pesendorfer, W., 2006, ‘Behavioral Economics Comes of Age: A Review Essay on Advances in Behavioral Economics’, Journal of Economic Literature, 44 (3), 712–721. Petty, William, 1672, Essays in Political Arithmetick. Philippon, Thomas, 2019, The Great Reversal: How America Gave Up on Free Markets, Cambridge, MA: Harvard University Press. Pigou, A. C., 1908, Economic Science in Relation to Practice: An Inaugural Lecture Given at Cambridge 30th October, 1908, London: Macmillan.

Licence to be Bad by Jonathan Aldred

"Friedman doctrine" OR "shareholder theory", Affordable Care Act / Obamacare, Alan Greenspan, Albert Einstein, availability heuristic, Ayatollah Khomeini, behavioural economics, Benoit Mandelbrot, Berlin Wall, Black Monday: stock market crash in 1987, Black Swan, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, Charles Babbage, clean water, cognitive dissonance, corporate governance, correlation does not imply causation, cuban missile crisis, Daniel Kahneman / Amos Tversky, Donald Trump, Douglas Engelbart, Douglas Engelbart, Dr. Strangelove, Edward Snowden, fake news, Fall of the Berlin Wall, falling living standards, feminist movement, framing effect, Frederick Winslow Taylor, From Mathematics to the Technologies of Life and Death, full employment, Gary Kildall, George Akerlof, glass ceiling, Glass-Steagall Act, Herman Kahn, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Jeff Bezos, John Nash: game theory, John von Neumann, Linda problem, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, meta-analysis, Mont Pelerin Society, mutually assured destruction, Myron Scholes, Nash equilibrium, Norbert Wiener, nudge unit, obamacare, offshore financial centre, Pareto efficiency, Paul Samuelson, plutocrats, positional goods, power law, precautionary principle, profit maximization, profit motive, race to the bottom, RAND corporation, rent-seeking, Richard Thaler, ride hailing / ride sharing, risk tolerance, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, scientific management, Skinner box, Skype, Social Responsibility of Business Is to Increase Its Profits, spectrum auction, The Nature of the Firm, The Wealth of Nations by Adam Smith, Tragedy of the Commons, transaction costs, trickle-down economics, Vilfredo Pareto, wealth creators, zero-sum game

But how could anyone believe that homo economicus tells us anything about the behaviour of real people? Economists nowadays present behavioural economics as the answer to these concerns. We are told it represents a major step forward in terms of realism. In truth, it is a minor tweak. The ‘people’ described by behavioural economics still bear no resemblance to real humans. They behave just as robotically as homo economicus but they also make mistakes. In essence, behavioural economics is just homo economicus with bugs. Notably, the error-prone robots of behavioural economics are, like homo economicus, predictable – they are ‘predictably irrational’.18 But real humans are not easily predictable because they are capable of genuine choices – choices which are not predetermined by their environment.

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THE WEIRD WORLD OF NUDGE A widely discussed development in economics in recent years has been the emergence of behavioural economics. In essence, behavioural economics tries to study how people actually behave – in contrast to fantasies such as homo economicus which dominate orthodox economics. It uses ideas and methods from psychology, and it was two psychologists, Daniel Kahneman and Amos Tversky, who perhaps did more than anyone else to dislodge old orthodoxies in economics about how we think and choose. One big idea in behavioural economics began with Kahneman and Tversky’s Asian disease problem: Suppose you are told that an unusual Asian disease is expected to kill 600 people in your country.

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No wonder Nudge has proved popular with politicians of all shades: desirable social outcomes can be engineered without the heavy-handed use of financial incentives or coercion via laws and regulations. Instead, Nudge works with the grain of human nature and respects freedom of choice. Or so it seems. The trouble with Nudge – and behavioural economics more generally – is that it still shares too many ideas with orthodox economics. Behavioural economics inspired by Kahneman and Tversky’s work is often labelled research on heuristics and biases. That last word reveals the underlying assumption of most behavioural economics: human decision-making is biased – in other words, flawed. While Kahneman and Tversky had launched a revolution in irrefutably demonstrating that people do not behave like homo economicus, they left unquestioned the equally central pillar of orthodox economics that people ought to behave like that – leaving homo economicus untouched as the ideal of what it means to be rational.

Inside the Nudge Unit: How Small Changes Can Make a Big Difference by David Halpern

Affordable Care Act / Obamacare, availability heuristic, behavioural economics, carbon footprint, Cass Sunstein, centre right, choice architecture, cognitive dissonance, cognitive load, collaborative consumption, correlation does not imply causation, Daniel Kahneman / Amos Tversky, data science, different worldview, endowment effect, gamification, happiness index / gross national happiness, hedonic treadmill, hindsight bias, IKEA effect, illegal immigration, job satisfaction, Kickstarter, language acquisition, libertarian paternalism, light touch regulation, longitudinal study, machine readable, market design, meta-analysis, Milgram experiment, nudge unit, peer-to-peer lending, pension reform, precautionary principle, presumed consent, QR code, quantitative easing, randomized controlled trial, Richard Thaler, Right to Buy, Ronald Reagan, Rory Sutherland, Simon Kuznets, skunkworks, supply chain finance, the built environment, theory of mind, traffic fines, twin studies, World Values Survey

But of particular relevance here, echoing the 2003 PMSU review, Kahneman and others’ work, and the Downing Street Cialdini session, was one particular recommendation: Embrace behavioural economics Behavioural economics provides a powerful new set of tools for policymakers and citizens to address the challenges of today and improve the quality of our lives. But even though many of the key insights are twenty to thirty years old, policymakers have been slow to apply them … The application of behavioural economics could offer substantial gains in relation to the environment, crime, pro-social behaviour, education, welfare and health. (The Hidden Wealth of Nations, 2009, here.)

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But Thaler and Sunstein gave the ideas a major extra push in at least three ways. First, as non-psychologists they helped to break the ideas out of psychology, and applied them in an accessible form to problems that faced economists and lawmakers. Second, they blended into these existing literatures new ideas from ‘behavioural economics’, including a more formal recognition of the widespread power of defaults and ‘choice architecture’ – or the way in which choices are presented to people.1 Third, they engaged directly in policy, not least through an old Chicago friend and colleague, Barak Obama. Obama and Sunstein: ‘nudge’ comes to Washington In a move that attracted widespread attention, the new President Obama appointed the co-author of Nudge, Cass Sunstein, to be his ‘regulatory tsar’ in his government in 2008.

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During periods of Republican administration, it was criticised as acting as an executive-controlled brake to block new regulation. But now, in Cass’s hands, the focus shifted on to how regulations could be reshaped to have both bigger impacts and lower burdens. A key tool for achieving this improvement in the cost-effectiveness of regulation was to use the lessons of behavioural economics and insight. An everyday example that Cass cited was the food pyramid. This was a US Department of Agriculture graphic, first issued in 1992, intended to guide the eating habits of children, parents and schools, and drive underlying production and consumption of a healthy balanced diet. However, many people found it a pretty puzzling graphic.

The Choice Factory: 25 Behavioural Biases That Influence What We Buy by Richard Shotton

active measures, behavioural economics, call centre, cashless society, cognitive dissonance, Daniel Kahneman / Amos Tversky, data science, David Brooks, Estimating the Reproducibility of Psychological Science, Firefox, framing effect, fundamental attribution error, Goodhart's law, Google Chrome, Kickstarter, loss aversion, nudge unit, Ocado, placebo effect, price anchoring, principal–agent problem, Ralph Waldo Emerson, replication crisis, Richard Feynman, Richard Thaler, Robert Shiller, Rory Sutherland, TED Talk, Veblen good, When a measure becomes a target, World Values Survey

Turner [1953] ‘Bystander Intervention in Emergencies: Diffusion of Responsibility’, by John Darley and Bibb Latané [Journal of Personality and Social Psychology, Vol. 8, No. 4, pp. 377–383, 1968] Creative Mischief by Dave Trott [2009] Ugly Is Only Skin-Deep: The Story of the Ads That Changed the World by Dominik Imseng [2016] Bias 25: Scarcity ‘Effects of Supply and Demand on Ratings of Object Value’, by Stephen Worchel, Jerry Lee and Akanbi Adewole [Journal of Personality and Social Psychology, Vol. 32, No. 5, pp. 906–914, 1975] Mindless Eating by Brian Wansink [2006] Thinking, Fast and Slow by Daniel Kahneman [2011] Why Smart People Make Big Money Mistakes and How to Correct Them: Lessons From The New Science of Behavioural Economics by Gary Belsky and Thomas Gilovich [1999] Ethics ‘Should Behavioural Economics in marketing be regulated – or hyped-down?’, by Lazar Dzamic, www.bobcm.net/2017/01/21/should-behavioural-economics-in-marketing-be-regulated-or-hyped-down Inside the Nudge Unit: How Small Changes Can Make a Big Difference by David Halpern [2015], ‘The Dishonesty of Honest People: A Theory of Self-Concept Maintenance’, by Nina Mazar, On Amir, Dan Ariely [Journal of Marketing Research, Vol. 45, No. 6, pp.633–644, 2008].

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” — Ian Leslie, author of Born Liars and Curious Richard delivers a wealth of cases proving the efficacy of working with, rather than against, the grain of human nature. This is catnip for the industry. — Phil Barden, author of Decoded: The Science Behind Why We Buy Richard Shotton’s application of behavioural economics is bang on the button. This book is timely, insightful, fascinating and entertaining. — Dominic Mills, former editor, Campaign “If you’re a marketer, understanding what really makes people tick – as opposed to what they might tell you – is vital. The Choice Factory book takes us on an elegant, witty and digestible tour of the 25 main principles of behavioural science.

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Your enjoyment of the wine is being influenced by the price. Experience has taught you that expensive products tend to be higher quality. It’s such an ingrained belief that it becomes self-fulfilling. The power of price in steering perceptions has been studied by Dan Ariely, Professor of Psychology and Behavioural Economics at Duke University. In 2008 he recruited 82 participants from Craigslist who were willing to receive two small electric shocks in the name of science: one before taking a painkiller and one after. Half the participants were told the painkiller cost $2.50 a dose and half that it was only 10c.

Transport for Humans: Are We Nearly There Yet? by Pete Dyson, Rory Sutherland

Abraham Maslow, Alan Greenspan, autonomous vehicles, barriers to entry, behavioural economics, bitcoin, Black Swan, Boeing 747, BRICs, butterfly effect, car-free, carbon footprint, Charles Babbage, choice architecture, cognitive bias, cognitive load, coronavirus, COVID-19, Crossrail, Daniel Kahneman / Amos Tversky, decarbonisation, demand response, Diane Coyle, digital map, driverless car, Dunning–Kruger effect, Elon Musk, fake news, functional fixedness, gender pay gap, George Akerlof, gig economy, global supply chain, Goodhart's law, Greta Thunberg, Gödel, Escher, Bach, high-speed rail, hive mind, Hyperloop, Induced demand, informal economy, Isaac Newton, Jane Jacobs, lockdown, longitudinal study, loss aversion, low cost airline, Lyft, megaproject, meta-analysis, Network effects, nudge unit, Ocado, overview effect, Paul Samuelson, performance metric, pneumatic tube, RAND corporation, randomized controlled trial, remote working, ride hailing / ride sharing, risk tolerance, Rory Sutherland, Sapir-Whorf hypothesis, selection bias, Skype, smart transportation, social distancing, South Sea Bubble, systems thinking, TED Talk, the map is not the territory, The Market for Lemons, the scientific method, The Wisdom of Crowds, Thomas Malthus, Uber and Lyft, uber lyft, urban planning, Veblen good, When a measure becomes a target, yield management, zero-sum game

Introducing Homo transporticus Homo economicus, a long-running academic joke, refers to an idealized species of beings who make decisions using rational cost–benefit analysis in an environment of perfect trust, fully aware of all the available options, acting purely in their own self-interest. Outside of academia these conditions exist rarely, if ever. However, there was one place where Homo economicus has thrived: in economic models. The species persists because it has made the modelling of complex human decisions possible for economists. Lately, the contribution of behavioural economics and the recognition that the differences between humans, households and businesses are important has improved these models immensely. Together, these developments are allowing us to consider situations in which it is important to understand that we don’t know everything, that we cannot trust everything, and that we really do need to consider the welfare of others.

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Spain has created a ‘Ministry of Transport, Mobility and Urban Agenda’, Germany has transitioned to a ‘Federal Ministry of Transport and Digital Infrastructure’, and France, in typically existential style, has a ‘Ministry for the Ecological and Inclusive Transition’. Why behavioural science? The term behavioural science describes all of the disciplines that examine how people think, feel and act. It’s a long list: cognitive and social psychology, behavioural economics, behaviour change theory, evolutionary biology, anthropology, sociology, human geography, organizational psychology, semiotics and design thinking. Marketing, when practised rigorously, is an application of behavioural science. If this seems like the study of common sense, then that is the point!

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But ‘fluffy’ is often the word attached to this young science, often because organizations adopt ‘thinking behaviourally’ merely as a perspective, without applying analytical models, creative frameworks or rigorous trials. Amos Tversky – the pioneering economist who, with his colleague Daniel Kahneman, created much of the theory that underpins behavioural economics – explained that they ‘merely examined, in a scientific way, things about behaviour that were already known to advertisers and used-car salesmen’.26 Their work (for which Kahneman won the Nobel Memorial Prize in Economic Sciences) is the opposite of fluffy. They created a rigorous common language and framework for understanding and codifying these insights.

The Mind Is Flat: The Illusion of Mental Depth and the Improvised Mind by Nick Chater

Albert Einstein, battle of ideas, behavioural economics, classic study, computer vision, Daniel Kahneman / Amos Tversky, deep learning, double helix, Geoffrey Hinton, Henri Poincaré, Jacquard loom, lateral thinking, loose coupling, machine translation, speech recognition, tacit knowledge

Cooperative connectionist computation does not merely appear to clash with the reason-based explanations of common-sense psychology. It is also extremely difficult to reconcile with many scientific theories of human thought, from areas as diverse as artificial intelligence, cognitive, developmental and clinical psychology, linguistics and behavioural economics – theories that have taken common-sense ideas about minds stocked with beliefs, desires and the like as their starting point. Taking account of the computational style of the brain threatens, therefore, to have some far-reaching, and potentially destructive, consequences. After thirty years working with computational and mathematical models of the mind, and surveying and gathering experimental data, I have come to accept that our intuitive conceptions of our own minds, and many of our scientific theories of the mind that have been built upon that conception, are fundamentally flawed.

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The second reason for my long resistance to adopting the radical perspective outlined in this book is that it clashes, not just with common sense, but with theories of perception, reasoning, categorization, decision-making and more, which have been central to psychology, cognitive science, artificial intelligence, linguistics and behavioural economics. So much of our most sophisticated thinking in these disciplines has involved extending, modifying and elaborating our intuitive conception of our minds – an intuitive conception that is founded on an illusion. Jettisoning such a large portion of the ideas in disciplines I have been closely involved with for so long feels a little like vandalism.

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Economists worked on the assumption that consumers and companies would have a complete and consistent theory of the ‘world’ (or the economically relevant parts anyway), including a complete understanding of their own preferences. The behaviour of markets could be seen as ‘emerging’ from the interaction of these ‘super-rational’ agents. This programme, for all its mathematical elegance, has also foundered. For one thing, countless experiments in psychology and behavioural economics have shown just how spectacularly ill-defined and self-contradictory our beliefs and preferences are. For another, the confusion of individual decision-makers (their exuberant hopes, desperate panics, their tendency to blindly follow or wildly over-react) can generate unexpected turbulence at the level of markets or of entire economies.

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

In many cases it is far better to do what you want to do, or what you are good at, or what you think is good, and not waste time on the calculation. We ought more often to be in the state of mind of not counting the cost at all. Behavioural economics Behavioural economics is an attempt by economists to replace the caricature homo economicus, the human robot, with a more realistic actor. As such, it attempts to make use of the insights of psychology and neuroscience, hitherto a closed book to the economist. Behavioural economics does not challenge the idea that behaving like homo economicus is the best way for individuals to secure their own well-being. The disagreement comes over the extent to which this behaviour actually occurs.13 For neoclassical economists, deviations from rationality are assumed to be non-systemic.

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Mainstream critics say that the quirks detected by the behavioural economists cancel each other out, that average behaviour ends up much as economists would have predicted, before behavioural economics started to complicate matters with unnecessary puzzles. But the real objection to behavioural economics concerns not the frequency or infrequency of ‘quirks’, but calling irrational any behaviour which doesn’t correspond to the neoclassical model of rational choice. Many kinds of human behaviour are rooted in uncertainty. We cling to our sunk costs because we have no certain evidence that they are sunk for good: what is civilisation but a web of sunk costs? We hope for miracles because miracles sometimes happen. Another finding of behavioural economics is that imperfect information, complexity, uncertainty, and limited calculating capacity force agents to use of rules of thumb, or heuristics, rather than ‘pure’ optimising behaviour.

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The toy models exclude the all-pervasive influence of power and uncertainty in shaping outcomes. Another criticism would be that my account ignores developments in the mainstream since the 1980s. The crash of the global economy in 2008 was undoubtedly a shock, and it led to genuine soul-searching. ‘Behavioural economics’ has been its main fruit so far; and beside behavioural economics, there have been hundreds of papers in the specialist journals explaining how cascades, crashes, and fads can happen. All this is to be welcomed, if only as a belated discovery of behaviours which have long been obvious to non-economists. My criticism of these new approaches to realism is that they start life crippled by the attempt to render them consistent with a method which has as its root the contrary hypothesis of rational calculation.

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

By doing this he was able, as his Nobel citation said, to lay the foundation for a new field of research. Kahneman can therefore be seen as the father of behavioural economics, which is now seen as a field in its own right. Many of those who worked with him, studied under him, or were simply inspired by him, have built on his findings to further refine the genre. Policymakers increasingly accept the findings of the research by Kahneman and others into behavioural economics and finance. In the UK, the Cabinet Office has established a Behavioural Insights Team while the Department for Food and Rural Affairs has set up a Centre of Expertise on Influencing Behaviour.

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In the UK, the Cabinet Office has established a Behavioural Insights Team while the Department for Food and Rural Affairs has set up a Centre of Expertise on Influencing Behaviour. Regulatory bodies across the world such as the US Federal Trade Commission, the UK Office for Fair Trading, the OECD and the Australian Productivity Commission have begun to take behavioural economics into serious consideration and have already carried out behavioural studies to inform some of their regulatory policies. The EU’s competition authority used behavioural economics in the recent Microsoft competition case when it insisted that its products offered a selection of rival internet browsers as well as Microsoft’s own Explorer. 234 The Great Economists We have seen how Thaler coined the term endowment effect to capture and expand on Kahneman’s finding that people value things more highly once they own them.

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He coined the phrase choice architecture with law professor Cass Sunstein to describe the way in which decisions may (and can) be influenced by how the choices are presented. Thaler has developed many strands of thinking in behavioural economics, encapsulated in his book written with Sunstein aimed at a mass market, Nudge: improving decisions about health, wealth and happiness, which makes use of Kahneman’s three heuristics. This book particularly focuses on how policymakers can use behavioural economics to adapt laws to achieve outcomes by using non-coercive policies to encourage people to save more and become smarter investors. Perhaps the most famous example is the recommendation to change the default option on employment contracts so that a new worker automatically joins the pension scheme unless they opt out (rather than the other way round).

The Skeptical Economist: Revealing the Ethics Inside Economics by Jonathan Aldred

airport security, behavioural economics, Berlin Wall, carbon credits, carbon footprint, citizen journalism, clean water, cognitive dissonance, congestion charging, correlation does not imply causation, Diane Coyle, endogenous growth, experimental subject, Fall of the Berlin Wall, first-past-the-post, framing effect, Goodhart's law, GPS: selective availability, greed is good, happiness index / gross national happiness, hedonic treadmill, Intergovernmental Panel on Climate Change (IPCC), invisible hand, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, labour market flexibility, laissez-faire capitalism, libertarian paternalism, longitudinal study, new economy, Paradox of Choice, Pareto efficiency, pension reform, positional goods, precautionary principle, price elasticity of demand, Ralph Waldo Emerson, RAND corporation, risk tolerance, school choice, social discount rate, spectrum auction, Thomas Bayes, trade liberalization, ultimatum game, When a measure becomes a target

In other words, my criticisms are outdated, redundant. Perhaps the strongest evidence in their favour lies in the recent explosive growth of behavioural economics. Behavioural economics tries to study how people actually behave, and takes seriously much of the psychological research into choice discussed in Chapter 2. It is true that the rise of behavioural economics has led to many of the old certainties — like assuming all economic actors are self-interested — being questioned. However, behavioural economics and other new developments in economics fall far short of rendering my arguments obsolete, for several reasons. First, although it represents a quiet revolution in economic thinking, the revolution is still in its early stages and relatively little has yet changed.

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See also Frederick and Loewenstein (1999), p312, who cite a large number of studies reaching the same conclusions. 26 Loewenstein and Schkade (1999), p90. 27 Schkade and Kahneman (1998). 28 Frank (1999), Ch 6; Frederick and Loewenstein (1999) Clark, et al (2008). 29 Van Praag and Frijters (1999). 30 Frank (1999), Ch 6. 31 Frederick and Loewenstein (1999), pp314-317. 32 See deBotton (2004) and Marmot (2004). 33 For balanced discussion of various aspects of this debate see Anand (1993a), Schmid (2004), Hargreaves-Heap et al (1992) and Hausman and McPherson (2006). 34 Note for economists: it might be objected that behavioural economics is beginning to influence the entire profession. But this conclusion seems premature; for example, orthodox game theory remains highly influential, but it uses a model of choice untouched by behavioural economics. In any case there remains a huge gap between the view of choice implicit in most behavioural economics, and that espoused by psychologists, a point emphasized by Kahneman in the conclusion to his Nobel lecture: Kahneman (2003), p1469. 35 Morgan et al (2006) and Varian (2003) are examples.

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To begin with, while the cutting-edge economists studying how we choose have adopted the psychological perspective of Kahneman and others, this adoption has not filtered down to economists working in other fields. This new perspective has been termed behavioural economics because it studies how people actually behave — in contrast to the approach taken in orthodox economics.34 Whether studying the decisions of company managers, or the choices of employees in the labour market, economists almost always assume that the decision makers are self-interested and think like the sovereign consumer; and they advise governments and clients on that basis. Nor is there any sign of this default view changing in the near future, not least because behavioural economics has had little impact on core undergraduate economics texts, which make absolutely no mention of it.35 Unsurprisingly therefore, it remains business as usual for the conventional wisdom on, say, advertising and economic growth.

Why Nudge?: The Politics of Libertarian Paternalism by Cass R. Sunstein

Affordable Care Act / Obamacare, Andrei Shleifer, availability heuristic, behavioural economics, Cass Sunstein, choice architecture, clean water, cognitive load, Daniel Kahneman / Amos Tversky, Edward Glaeser, endowment effect, energy security, framing effect, invisible hand, late fees, libertarian paternalism, loss aversion, nudge unit, randomized controlled trial, Richard Thaler

These initiatives enlist such tools as disclosure, warnings, and default rules, and they can be found in many areas, involving fuel economy, energy efficiency, environmental protection, health care, and obesity.23 Indeed, behavioral findings are providing an important reference point for regulatory and other policymaking in the United States.24 In the United Kingdom, Prime Minister David Cameron created a Behavioural Insights Team with the specific goal of incorporating an understanding of human behavior into policy initiatives.25 The official website states that its “work draws on insights from the growing body of academic research in the fields of behavioural economics and psychology which show how often subtle changes to the way in which decisions are framed can have big impacts on how people respond to them.”26 The Behavioural Insights Team has used this research to promote initiatives in numerous areas, including smoking cessation, energy efficiency, organ donation, consumer protection, charitable donation, and compliance strategies in general.27 Other nations have expressed keen interest in its work, and its operations are expanding.28 In 2013, the Obama administration created its own team to consider behavioral science and to bring empirical evidence to bear on government decisions. Behavioral economics has drawn attention in Europe as a whole. For example, the Organisation for Economic Development and Cooperation (OECD) has published a Consumer Policy Toolkit that recommends a number of initiatives rooted in behavioral findings.29 The European Union’s Directorate-General for Health and Consumers has also shown the influence of behavioral economics.30 Green Behavior, a report from the European Commission, enlists behavioral economics to outline policy initiatives to protect the environment.31 Efforts to catalogue the large and growing set of behaviorally informed initiatives have called attention to “the Rise of the Psychological State.”32 This term is not the best advertising, because it seems a bit alarming; no one is likely to vote for a candidate who says that he supports “the Psychological State.”

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But behavioral findings are creating serious problems for the Epistemic Argument, because they show that people make a lot of mistakes, some of which can prove extremely damaging.9 Consider the instructive words of federal judge Richard Posner, a longtime critic of behavioral economics and a longtime advocate for the view that human beings are essentially rational: What is called “behavioral economics” . . . has undermined the economic model of man as a rational maximizer of his self-interest and helped to expose the rampant exploitation by business of consumer psychology. Businesses know, and economists are learning, that consumers are easily manipulated by sellers into making bad choices—choices they would never make if they knew better—in borrowing and investing, and in buying goods and services, such as food, health care, and education.10 Human beings can be myopic and impulsive, giving undue weight to the short term (perhaps by smoking, or texting while driving, or eating too much chocolate).11 What is salient greatly matters.12 If an important feature of a situation, an activity, or a product lacks salience, people might ignore it, possibly to their advantage (perhaps because it is in the other room, and fattening) and possibly to their detriment (if it could save them money or extend their lives).

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., Gordon Tullock, Arthur Seldon & Gordon Lo Brady, Government Failure: A Primer in Public Choice (2002). 15. See Timur Kuran & Cass R. Sunstein, Availability Cascades and Risk Regulation, 51 Stan. L. Rev. 683 (1999). The point regarding the shortcomings of behavioral economics is emphasized in Wright & Ginsburg, supra note 5. 16. See Glaeser, supra note 10, for arguments in this vein; Wright & Ginsburg, supra note 5; Niclas Berggren, Time for Behavioral Political Economy? An Analysis of Articles in Behavioral Economics (The Ratio Institute, Ratio Working Paper No. 166, 2011), http://www.ratio.se/media/81477/nb_behavioral.pdf. 17. For a general discussion, see Cass R. Sunstein, The Office of Information and Regulatory Affairs: Myths and Realities, 126 Harv.

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

That skill has enabled humans to make the leaps of imagination involved in tackling ill-defined problems which constitute scientific discovery or the artistic innovation epitomised by Brunelleschi and his contemporaries. Behavioural economics has contributed to our understanding of decision-making in business, finance and government by introducing observation of how people actually behave. But, like the proselytisers for the universal application of probabilistic reasoning, practitioners and admirers of behavioural economics have made claims far more extensive than could be justified by their findings. Kahneman offers an explanation of why earlier and inadequate theories of choice persisted for so long – a ‘theory-induced blindness: once you have accepted a theory and used it as a tool in your thinking, it is extraordinarily difficult to notice its flaws’. 19 We might say the same about behavioural economics.

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It is as though God had given us two legs so that we could run or walk, but made one leg shorter than the other so that we could not run or walk very well. An intelligent creator would not do that, and evolution did not. There is an alternative story to that told by behavioural economics. It is that many of the characteristics of human reasoning which behavioural economics describes as biases are in fact adaptive – beneficial to success – in the large real worlds in which people live, even if they are sometimes misleading in the small worlds created for the purposes of economic modelling and experimental psychology.

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Risk-taking behaviour which might appear inconsistent with axiomatic rationality is the central dynamic of a capitalist society – a key part of ‘the secret of our success’. Dual systems Daniel Kahneman, the towering figure in behavioural economics, has written of ‘system one’ and ‘system two’, differentiating intuitive reaction from the rational process of conscious thought. The ‘biases’ of behavioural economics arise when system one leads us to results which the more considered judgement of system two would reject. There is a widespread belief in folk psychology about the different influences of left brain and right brain.

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

An asymmetry in power is observed between us and those who hold and sell our personal data.” Hannak et al., “Measuring Price Discrimination and Steering on E-Commerce Web Sites.” 63. Chisholm, Why “Sleepers” Can’t Always Be Left to “Sleep.” 64. “David Currie speaks about the CMA experience of behavioural economics,” April 20, 2015. Available on the CMA website: https://www.gov.uk /government/speeches/david-currie-speaks-about-the-cma-experience-of -behavioural-economics. 12 • Behavioral Discrimination: Economic and Social Perspectives 1. Michael Eisen, “Amazon’s $23,698,655.93 Book about Flies,” It Is NOT Junk (April 22, 2011), http://www.michaeleisen.org/blog/?p =358. 2. P.

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Karen Freeman, “Amos Tversky, Expert on Decision Making, Is Dead at 59,” New York Times, June 6, 1996, http://www.nytimes.com/1996/06/06/us/amos -tversky-expert-on-decision-making-is-dead-at-59.html. 16. Ned Welch, “A Marketer’s Guide to Behavioral Economics,” McKinsey Quarterly, February 2010, http://www.mckinsey.com/insights/marketing _ sales/a _marketers _ guide _to_behavioral _economics. 17. Robert B. Cialdini, Influence: The Psychology of Persuasion (New York: HarperBusiness, 2007). 18. Dan Ariely, Predictably Irrational: The Hidden Forces that Shape Our Decisions (New York: HarperCollins, 2009), 2. 19. Welch, “A Marketer’s Guide to Behavioral Economics”; Sheryl E. Kimes, Robert Phillips, and Lisabet Summa, “Pricing in Restaurants,” in The Oxford Handbook of Pricing Management, A.

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Thaler, “Fairness as a Constraint on Profit Seeking: Entitlements in the Market,” in Advances in Behavioral Economics, Colin F. Camerer, George Loewenstein, and Matthew Rabin, eds. (Princeton, NJ: Princeton University Press, December 28, 2003), 252, 257. 53. Organisation for Economic Co-operation and Development, Competition and Regulation in Agriculture: Monopsony Buying and Joint Selling, DAF/ COMP(2005)44 (December 21, 2005), 8, http://www.oecd.org/competition /abuse/35910977.pdf. 54. Colin F. Camerer, “Prospect Theory in the Wild: Evidence from the Field,” in Advances in Behavioral Economics, Colin F. Camerer, George Loewenstein, and Matthew Rabin, eds.

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

But most of the time we operate on the software of system one – usually with remarkable success and accuracy. Unfortunately, it is prone to making systematic errors, even with very simple mathematical questions. 22 2.7 Behavioural economics Work such as Kahneman’s has inspired an entirely new area of economics, called behavioural economics, which investigates what happens in markets in which some people display human limitations and complications. Unlike ­rational choice theory, behavioural economics allows human nature to be bounded in three ways: bounded (or limited) rationality, bounded willpower and bounded selfishness. With regard to bounded rationality, it is surprising that economists are just now catching on to the importance of framing – advertisers have understood this concept for years.

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And empirically we find that unskilled workers in more profitable sectors or companies are paid more than identical unskilled workers elsewhere. When textbook economics ignores our instinct for fair shares, it misses a critical element of many economic ­interactions. 24 The impact of behavioural economics on the mainstream What impact has this research had on mainstream economics? The answer is: not much. Nowadays, most textbooks contain a box somewhere mentioning behavioural economics and describing a few ‘anomalies’ – but they are treated as exceptions that prove the rule. Take, for example, bounded selfishness: individuals have a desire to do the right thing. Mainstream economists argue that this desire can’t be that strong or there would be no pollution problem and no overfishing.

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Knowing this and how much price has changed allows the change in quantity (the base of the triangle) to be estimated. 9 This change in treatment from the earlier edition to the third edition is explained in a footnote on p. 678. 10 Nowadays it is seriously challenged by behavioural economics. One indication that behavioural economics has become mainstream is the 9 December 2002 ­article by Justin Fox in Fortune entitled ‘Is the market rational? No, say the experts. But neither are you – so don’t go thinking you can outsmart it’. 11 The amount it pays out as dividends is immaterial. Either the firm disperses its profits as dividends or it ploughs them back to grow its assets – either way, the shareholder benefits. 12 The next several paragraphs draw heavily on Mullainathan and Thaler (2004). 13 Closed-end funds are like typical (open-end) mutual funds except that to cash out of the fund, investors must sell their shares on the open market.

The Happiness Industry: How the Government and Big Business Sold Us Well-Being by William Davies

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, 1960s counterculture, Abraham Maslow, Airbnb, behavioural economics, business intelligence, business logic, corporate governance, data science, dematerialisation, experimental subject, Exxon Valdez, Frederick Winslow Taylor, Gini coefficient, income inequality, intangible asset, invisible hand, joint-stock company, Leo Hollis, lifelogging, market bubble, mental accounting, military-industrial complex, nudge unit, Panopticon Jeremy Bentham, Philip Mirowski, power law, profit maximization, randomized controlled trial, Richard Thaler, road to serfdom, Ronald Coase, Ronald Reagan, science of happiness, scientific management, selective serotonin reuptake inhibitor (SSRI), sentiment analysis, sharing economy, Slavoj Žižek, smart cities, Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia, social contagion, social intelligence, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, TED Talk, The Chicago School, The Spirit Level, theory of mind, urban planning, Vilfredo Pareto, W. E. B. Du Bois, you are the product

These critics have long argued that social bonds are more fundamental than market prices. The achievement of behavioural economics is to take this insight, but to then instrumentalize it in the interests of power. The very idea of the ‘social’ is being captured.3 John B. Watson had promised in 1917 that, in an age of behaviourist science, ‘the educator, the physician, the jurist and the businessman could utilize our data in a practical way, as soon as we are able, experimentally, to obtain them.’ Behavioural economics has been true to this mission statement. One of its key insights is that, if one wants to control other human beings, it is often far more effective to appeal to their sense of morality and social identity than to their self-interest.

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But remembering the philosophical contradictions inherent in these ventures, and their historical and political origins, may at least offer a source of something which has no simple bodily or neural correlate, and involves a strange tinge of happiness in spite of unhappiness: hope. Acknowledgements My interest in economic psychology, broadly understood, originated in 2009 when I noticed, to my astonishment, that behavioural economics and neuroscience were being presented as credible explanations of the global financial crisis. I subsequently spent two years as a Research Fellow at the Institute for Science Innovation and Society, University of Oxford, which allowed me to start reading the burgeoning literature in behavioural economics, happiness economics and the policy applications of both. This research resulted in a couple of articles, ‘The Political Economy of Unhappiness’, New Left Review, 71, Sept.

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In the early twenty-first century, the term ‘behaviour’ is everywhere. ‘Behaviour change’ preoccupies policy-makers, in their efforts to combat obesity, environmental degradation and civic disengagement. ‘Health behaviours’ regarding nutrition and exercise allegedly hold the key to controlling spiralling healthcare budgets. ‘Behavioural economics’ and ‘behavioural finance’ indicate the ways in which people miscalculate the optimal use of their time and money, as popularized in the best-selling Nudge, whose two authors advise presidents around the world. We are encouraged to learn tricks to alter our own ‘behaviour’ (or ‘nudge ourselves’, as some experts put it), to help us pursue more active, resilient lifestyles.17 In 2010, the British government opened a ‘Behavioural Insights Unit’ to bring such findings into policy-making.

Alchemy: The Dark Art and Curious Science of Creating Magic in Brands, Business, and Life by Rory Sutherland

"World Economic Forum" Davos, 3D printing, Alfred Russel Wallace, barriers to entry, basic income, behavioural economics, Black Swan, Brexit referendum, butterfly effect, California gold rush, call centre, Captain Sullenberger Hudson, Cass Sunstein, cognitive dissonance, confounding variable, Daniel Kahneman / Amos Tversky, Dava Sobel, delayed gratification, Donald Trump, double helix, Downton Abbey, driverless car, Easter island, Edward Jenner, Elon Musk, Firefox, Ford Model T, General Magic , George Akerlof, gig economy, Google Chrome, Google X / Alphabet X, Grace Hopper, Hyperloop, Ignaz Semmelweis: hand washing, IKEA effect, information asymmetry, it is difficult to get a man to understand something, when his salary depends on his not understanding it, James Dyson, John Harrison: Longitude, loss aversion, low cost airline, Mason jar, Murray Gell-Mann, nudge theory, Peter Thiel, placebo effect, race to the bottom, Richard Feynman, Richard Thaler, Rory Sutherland, shareholder value, Silicon Valley, social intelligence, Steve Jobs, supply-chain management, systems thinking, TED Talk, the map is not the territory, The Market for Lemons, The Wealth of Nations by Adam Smith, ultimatum game, universal basic income, Upton Sinclair, US Airways Flight 1549, Veblen good, work culture

But, strange though it may seem, the study of economics has long been detached from how people behave in the real world, preferring to concern itself with a parallel universe in which people behave as economists think they should. It is to correct this circular logic that behavioural economics – made famous by experts such as Daniel Kahneman, Amos Tversky, Dan Ariely and Richard Thaler – has come to prominence. In many areas of policy and business there is much more value to be found in understanding how people behave in reality than how they should behave in theory.* Behavioural economics might well be described as the study of the nonsensical and the non-sensical aspects of human behaviour. Sometimes our behaviour is nonsensical because we evolved for conditions different to those we now find ourselves in.* However, much ‘irrational’ human behaviour is not really nonsensical at all; it is non-sensical.

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Even though I know this is true, so great is my desire to appear rational that I would find it very hard to stand in front of a board of directors and recommend that their advertising should feature rabbits, or perhaps a family of lemurs, because it sounds like nonsense. It isn’t, though. It’s a different kind of thing, which I call ‘non-sense’. Behavioural economics is an odd term. As Warren Buffett’s business partner Charlie Munger once said, ‘If economics isn’t behavioural, I don’t know what the hell is.’ It’s true: in a more sensible world, economics would be a subdiscipline of psychology.* Adam Smith was as much a behavioural economist as an economist – The Wealth of Nations (1776) doesn’t contain a single equation.

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Economic exchanges are heavily affected by context and attempts to shoehorn human behaviour into a single, one-size-fits-all straitjacket are flawed from the outset – they are driven by our dangerous love of certainty: However, this can only come from theory, which by its very universal nature doesn’t take context into account. Adam Smith, the father of economics – but also, in a way, the father of behavioural economics* – clearly spotted this fallacy over two centuries ago. He warned against the ‘man of system’, who: ‘is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it.

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

The main challenge to the economists’ assumption of optimising behaviour comes from ‘behavioural economics’, a relatively new field often associated with Daniel Kahneman, Richard Thaler and Amos Tversky.20 It studies the emotional and psychological dimensions of economic choices.21 Behavioural economics has identified an impressive array of cognitive biases in the way people behave in practice. For example, people are observed both to display overconfidence in their ability to judge probabilities and to underestimate the likelihood of rare events. But behavioural economics assumes that deviations from traditional optimising behaviour result from the fact that humans are hardwired to behave in a way that is ‘irrational’.

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Information is quickly incorporated into stock prices, and explaining why prices moved in the past is no basis on which to predict the future. The stock market is a good example of the tendency of economists ‘to excel in hindsight (fitting) but fail in foresight (prediction)’.23 The danger in the assumption of behavioural economics that people are intrinsically irrational is that it leads to the view that governments should intervene to correct ‘biases’ in individual decisions or to ‘nudge’ them towards optimal outcomes. But why do we feel able to classify behaviour as irrational? Are policy-makers more rational than the voters whose behaviour they wish to modify?

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Rather than viewing unconscious emotions and conscious reasoning as two systems in conflict, Tuckett sees them as engaging in a continuous two-way communication. As he argues, ‘emotion exists to help economic human actors when reason alone is insufficient’.24 In other words, emotions help us to cope with an unknowable future and should not be seen as ‘irrational’. The problem with behavioural economics is that it does not confront the deep question of what it means to be rational when the assumptions of the traditional optimising model fail to hold. Individuals are not compelled to be driven by impulses, but nor are they living in a world for which there is a single optimising solution to each problem.

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

Economists have long believed that people are rational, that they accurately weigh the costs and benefits of the options facing them before acting. Kahneman and Tversky found that this wasn’t so. They spent decades observing people’s real-life decision-making and helped create the field of ‘behavioural economics’. All economics is about behaviour, of course, but behavioural economics was new because it built its theories around the quirks in people’s actual decision-making, rather than simply assuming that they were completely rational. One quirk is that people weigh up gains and losses differently. Rationally, a gain of $50 should exactly offset a loss of $50.

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Some economists acknowledge the quirks in people’s decision-making but say that they aren’t important, and that describing the economy as rational is a useful approximation. Behavioural economists, on the other hand, argue that their special theories are needed to explain major economic events. For example, behavioural economics has been used to explain why in the 1990s the American stock market took off and then in 2000 crashed, bankrupting companies and wiping out fortunes. The American stock market had been on the rise since the early 1980s. In the 1990s people rushed to buy shares in new technology companies that offered exciting products like web browsers, search engines and online shopping.

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Eventually shopkeepers, cabdrivers and teachers were buying shares in their lunch hours. In the late 1990s, the stock market leapt by 20, even 30 per cent a year. The problem was that the income of the economy hadn’t risen anything like as fast. A few economists warned that the trend couldn’t go on. One was Robert Shiller (b. 1946), who’d applied behavioural economics to financial markets. The market was being lifted up by overexcited investors and soon it would thud to the ground, he said. In March 2000 he was embarking on a tour to promote his new book Irrational Exuberance – just when, with perfect timing, the stock market was about to crash. One day Shiller took part in a radio talk-show.

The Hidden Half: How the World Conceals Its Secrets by Michael Blastland

air freight, Alfred Russel Wallace, banking crisis, Bayesian statistics, behavioural economics, Berlin Wall, Brexit referendum, central bank independence, cognitive bias, complexity theory, Deng Xiaoping, Diane Coyle, Donald Trump, epigenetics, experimental subject, full employment, George Santayana, hindsight bias, income inequality, Jeremy Corbyn, manufacturing employment, mass incarceration, meta-analysis, minimum wage unemployment, nudge unit, oil shock, p-value, personalized medicine, phenotype, Ralph Waldo Emerson, random walk, randomized controlled trial, replication crisis, Richard Thaler, selection bias, the map is not the territory, the scientific method, The Wisdom of Crowds, twin studies

See, for example, the blogs and columns of Noah Smith of Bloomberg View for a discussion of this trend. 10 Abhijit Banerjee, ‘Inside the Machine’, Boston Review, March/April 2007. 11 See ‘Buzzwords and Tortuous Impact Studies Won’t Fix a Broken Aid System,’ jointly authored by fifteen leading economists: Guardian, 16 July 2018. 12 Cabinet Office Behavioural Insights Team, ‘Applying Behavioural Insights to Organ Donation: Preliminary Results from a Randomized Controlled Trial’, December 2013. 13 Tim Harford, ‘Behavioural Economics and Public Policy’, Financial Times, 21 March 2014. Full disclosure: Tim is also presenter of More or Less, a radio programme I helped start some years ago. 14 Quoted by Tim Harford, in ‘Behavioural Economics and Public Policy’ cited above. 15 In public health, this has been referred to as ‘particularism’: are there general explanations why some places grow healthier and others don’t, or does each trajectory have its own explanation?

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One of the three social-proof inspired messages – shown with a photo (in previous work, photos have increased response) – was the least successful of all eight variants they tried. The writer and broadcaster Tim Harford drew my attention to this example. Tim has a background and particular interest in behavioural economics,13 and described the success of social-proof theory in some places, followed by failure in this one, as ‘unnerving’. He wrote: ‘Social proof is a widely accepted idea in psychology but, as the donor experiment shows, it does not always apply and it can be hard to predict when or why. This patchwork of sometimes-fragile psychological results hardly invalidates the whole field but complicates the business of making practical policy.’

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This strikes me as the ultimate challenge for all theory – to maintain its general fitness while being refined to cope with ever more particulars. Something often has to give – either the coherence of the theory, or its power in particular cases. Richard Thaler, one of the leading thinkers in behavioural economics, has said: ‘If you want one unifying theory of economic behaviour, you won’t do better than the neoclassical model, which is not particularly good at describing actual decision making.’14 It’s a wretched but unavoidable trade-off:15 unified and often impractical; or particular, and perhaps more locally helpful, but fragmented and messy.

Money and Government: The Past and Future of Economics by Robert Skidelsky

"Friedman doctrine" OR "shareholder theory", Alan Greenspan, anti-globalists, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, barriers to entry, Basel III, basic income, Bear Stearns, behavioural economics, Ben Bernanke: helicopter money, Big bang: deregulation of the City of London, book value, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, constrained optimization, Corn Laws, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Graeber, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, Donald Trump, Eugene Fama: efficient market hypothesis, eurozone crisis, fake news, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, forward guidance, Fractional reserve banking, full employment, Gini coefficient, Glass-Steagall Act, Goodhart's law, Growth in a Time of Debt, guns versus butter model, Hyman Minsky, income inequality, incomplete markets, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, Kondratiev cycle, labour market flexibility, labour mobility, land bank, law of one price, liberal capitalism, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, long and variable lags, low interest rates, market clearing, market friction, Martin Wolf, means of production, Meghnad Desai, Mexican peso crisis / tequila crisis, mobile money, Modern Monetary Theory, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, new economy, Nick Leeson, North Sea oil, Northern Rock, nudge theory, offshore financial centre, oil shock, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, Phillips curve, placebo effect, post-war consensus, price stability, profit maximization, proprietary trading, public intellectual, quantitative easing, random walk, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, rising living standards, risk/return, road to serfdom, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, shareholder value, short selling, Simon Kuznets, structural adjustment programs, technological determinism, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, tontine, too big to fail, trade liberalization, value at risk, Washington Consensus, yield curve, zero-sum game

They will also point to the progressive elements in the economists’ research programme. What is called ‘behavioural economics’ only really took off after the crisis, although in 1984 Robert Shiller, the doyen of behavioural economics, had already labelled the Efficient Market Hypothesis ‘one of the most remarkable errors in the history of economic thought’.53 Behavioural economics utilizes empirical psychology to explain why individual behaviour does not conform to the neo-classical model of rationality. One might think this is an act of supererogation, were it not for the primitive character of economists’ understanding of psychology. Thus behavioural economics studies the emotional factors involved when an investor buys a stock and, unsurprisingly, alights on ‘herd behaviour’.

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Herd behaviour causes speculative bubbles as investors buy on escalating market sentiment 388 r e i n v e n t i ng p ol i t ic a l e c onom y rather than underlying stock value. So while rational expectations theory says that investors are always right in aggregate (exceptions are too small to matter), behavioural economics tells us that they can all be wrong at once. Behavioural economics has other revelations up its sleeve. We learn that people can exhibit cognitive biases such as over-confidence. Robert Nielsen explains how ‘many display an “it-won’t-happen-tome” approach. While it is obvious that some people will lose money on the stock market, each individual believes they have above-average talents that mean it won’t be them.

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London: Centre for Policy Studies. 460 Index Italic figures refer to graphs and charts Abramovitz, Moses, 157, 158 the Acadamy and scholarship, 11–12, 13 ageing populations, 301–2, 371 AIG bail-out (2008), 325 Albermarle, Duke of, 78 Alesina, Alberto, 192, 231, 233, 241 anthropology, classical, 24 anti-Semitism, 30–31, 131 ‘Aquarius’ CDO structure, 326 Aquinas, Thomas, 28–9 Aristotle, 22, 23, 31 Asian Development Bank Institute, 327 ‘asset-backed commercial paper’ (ABCP), 326 ‘asset-backed securities’ (ABSs), 322–6, 327, 330 Attwood, Thomas, 48 austerity policy, 3, 49, 84, 114, 219, 225 and Bocconi School, 192, 231 and comparative recovery patterns, 241–4, 242, 243, 273, 273–4 cost of to British economy, 243–4, 244, 245 and financial folklore, 235–6 and inequality, 245–6 neo-classical errors, 232–3 Osborne’s crucial mistake, 229–30 Reinhart-Rogoff work, 232 theory behind, 228–35, 236–9 Austria, 91, 92 Austrian School, 46, 104, 192, 226, 296, 349–50 automation, 299, 370–71 Bagehot, Walter, Lombard Street (1873), 50 balance of payments, 103, 142, 143, 144, 145, 150, 152, 153, 159–60, 165, 332 balanced budget theory and gold standard, 56–7 and Keynesian economics, 126–7, 137–8, 142, 143–4, 146, 149–50, 151, 155 as mainstream until Keynes, 76, 95, 98 mandated by EU fiscal rules, 242–3 neo-Victorian reassertion of (from 1980s), 76, 114, 185, 193, 215, 221–2 nineteenth-century fiscal policy, 9, 29, 43, 76, 85, 87–8, 92 and post-2008 austerity policies, 223–4, 227–39, 242–6 461 i n de x balanced budget theory – (cont.) post-W W1 attempts to return to, 106–14 Roosevelt on, 130 Stiglitz’s balanced-budget multiplier, 235* Baldwin, Stanley, 108 Balogh, Thomas, 169 Bank of England 1950s view on monetary policy, 146 actions during 2008 crisis, 234–5, 253–4, 254, 257 Bank Charter Act (1844), 50 Bank Rate, 58, 101–2, 113, 115, 116, 145, 146, 249, 251, 253–6, 254, 261–2, 276 ‘Consols’ (consolidated debt), 43, 80–81 Currency School vs Banking School debate, 49–50 founding of (1694), 42–3, 80 given ‘operational independence’ (1998), 249, 272–3 imposes ‘Corset’ (1973), 168 inflation targeting, 188, 189, 249–53 and ‘law of reflux’, 46 as ‘lender of last resort’, 50, 249 ‘loss function’ for inflation target, 252 macroeconomic model (2004–10), 233, 310, 310–11 Monetary Policy Committee (MPC), 249, 254, 265, 275 during Napoleonic wars, 45–8 power over credit conditions, 105, 115–16 Prudential Regulatory Authority, 363 quantitative easing (QE) by, 254, 257, 259–62, 263–73, 274, 275–7, 276 Bank of International Settlements, 342–3 Bank of Japan, 271 Bank Rate after 2007–8 crisis, 254, 261–2, 279 during 2008 crisis, 253–6, 254, 278 and Bank of England, 58, 101–2, 113, 115, 116, 145, 146, 249, 251, 253–6, 254, 261–2, 276 and broad money monetarism, 186 in Cunliffe’s model, 54, 54–5, 102, 145 after First World War, 101–2 and inflation targeting, 188, 249, 251, 252, 358–9 and Keynes, 101, 102, 115, 166, 255* and managed gold standard, 71 in pre-crash USA, 340 and Radcliffe Report (1959), 146 set by independent central banks, 188, 249–50 and Thornton, 47, 278 transmission mechanism of, 250, 250–51 and Wicksell, 69, 70, 358–9 Banking School, 49–50 banks Austrian School’s 100 per cent reserve requirement, 350, 367 bail-outs, 30, 217, 223, 319–20, 364–5 ‘bank lending channel’, 64 Basel I (1988) and Basel II (2003), 320, 363 Basel III, 363, 364 capital adequacy requirements, 320, 363–4 capital/collateral requirements weakened, 320 collapse of in 2008 crisis, 217, 223, 319 and consolidated debt, 43, 80–81 continued bonuses after crash, 319–20 462 i n de x continued complaints by over regulation, 363–4, 367 creation of money by, 27, 34, 61, 67–8, 71, 311 damage inflicted by, 361–2 deposit and joint-stock banking, 92 deregulation, 307–9, 310–16, 318–22, 328, 332–3 development of modern system, 34 functional separation proposals, 362–3 funding of CR As by, 326–7, 329 Glass–Steagall overturned in USA (1999), 319 growth of unregulated sector, 168 late-medieval rediscovery of, 33–4 leverage concept, 317–18, 322 liquidity concept, 316–17 ‘living wills’, 365 LTROs (long-term refinancing operations), 257 macroprudential regulation, 363–5 maturity mismatch of SPVs, 326 ‘money multiplier’, 35, 64, 146, 179, 185, 258–9, 268–9, 277–8, 280 off balance-sheet assets, 318, 324, 325–6 post-crash reform agenda, 361–8 pre-crash orthodoxy, 5, 308–11 and quantity theory, 61, 64, 65–6, 67–70 reasons for regulation of, 316 reserve or liquidity requirements, 364 root of problem as greed, 365–6 solvency concept, 316–17 ‘stress testing’, 364 see also financial system Barber, Anthony, 167 Barings Bank demise of (1995), 366 rescue of (1890), 50 basic income guarantee, 371 Bavarian Banking Association, 266 Bayes’ theorem, 209 Bear Stearns, 217 ‘behavioural economics’, 388–90 Bernanke, Ben, 105, 179, 188, 248, 256, 275, 278, 334, 344 Besley, Tim, 226, 235 Bible, 30 Bismarck, Otto, 89, 92 Blanchard, Olivier, 230–31, 239 BNDES (Brazilian Development Bank), 354 Bocconi School, 192, 231 Bodin, Jean, 33 Boer War, 86 bond markets, 7, 90–92, 148, 186, 218, 219, 235, 246, 287, 341 Borio, C., 342–3 Brash, Donald, 188 Bretton Woods system, 16, 139, 159, 374–3, 381 collapse of in 1970s, 16–17, 162, 164–5, 166–7, 184 Brexit vote (June 2016), 257, 316*, 373 Britain, xviii adoption of Keynesian policy, 141, 142–3 austerity policy see austerity policy: cost to British economy bullionist vs ‘real bills’ controversy, 44, 45–9 centralization of tax collection, 80 Currency School vs Banking School debate, 44, 49–50 debate on post-crash policy, 225–8 deficit and public sector borrowing statistics (1956–2013), 156 Employment White Paper (1944), 141, 142 463 i n de x Britain – (cont.) final suspension of gold standard (1931), 113, 125 First World War borrowing, 95 fiscal experience (1692–2012), 77 forced out of ERM (1992), 188 GDP per capita growth (1919–2007), 154 ‘Geddes Axe’ (1920s), 108 and gold standard, 9, 42, 43, 44, 45–50, 53, 57–9, 80, 101 and Great Depression, 97, 98, 110–13 growth Keynesianism (1960–70), 148–9, 150–51, 152 industrial relations system, 147, 167–8, 169 inflation peak (1975), 166 inter-war cyclical downturns, 107, 113 and mercantilism, 78–81, 82 monetarism in, 185, 186–8, 189, 192–3, 249 nationalization in post-war period, 142, 158 post-crash bank liquidity ratios, 364 pre-crash housing bubble, 304 ‘prices and incomes policy’ in, 147, 150, 151, 167–8 public finances before 2008 crash, 224, 225 Public Sector Borrowing Requirement (PSBR), 155–6 public spending and tax revenue (1950–2000), 157 rearmament in late 1930s, 113 recession of early 1980s, 186–7 recoinage debate (1690s), 40, 41–3 return to gold standard (1925), 102, 103, 107 sharp rise in inequality since 1970s, 288–9, 299–300, 300 slow recovery from 2008 crash, 241, 242, 243–4, 245, 273, 273–4 ‘stop-go’ in post-war period (‘fine tuning’), 142–3, 145–6, 150, 152 victories over France (eighteenthcentury), 43, 80, 81 see also Bank of England; Conservative Party; Labour Party British Empire, 57, 58, 80 Brittan, Samuel, 225 Brown, Gordon, 193, 220, 221–3, 354, 357 and 2008 crash, 220, 223, 224 declares era of ‘boom and bust’ over, 215 ‘prudence’ as watchword, 226 Bryan, William Jennings, 52 budget deficit see balanced budget theory Buchanan, James, 198 Buffett, Warren, 326 Bundesbank, 140, 154, 257, 275 Bush, George W., 242 business schools, financing of, 13 Cairncross, A.

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

This is what we should expect, for where there are obvious mistakes of perspective and judgement, it is the function of the impartial spectator within Smith’s system to correct for them. And as some have pointed out, there is ample scope for further work now in behavioural economics along lines already laid out by Smith, including people’s desire to be well regarded by posterity; their negative reactions to being misjudged; their mistaken belief in the objectivity of tastes; and their sympathy for the rich and great. No less that he is for economics as a whole, Smith is the father of behavioural economics. Secondly, any such simple account of motivation runs directly contrary to Smith’s very nuanced understanding of human psychology.

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Virtually every great economist of the past two centuries has claimed Smith’s influence; virtually every major modern branch of economics, from the so-called neoclassical mainstream to the Austrian and Marxist schools—of which more anon—and the more recent offshoots of institutional, developmental and behavioural economics, traces its lineage back to Smith. Politicians, academics and pub bores around the world have found the authority of The Wealth of Nations and the simplicity of its core ideas an irresistible combination, and routinely draw on them to dignify and adorn their own beliefs or arguments. The result has been to obscure Smith, to mistake the range and power of his ideas and to breed myths without number.

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In very rough chronological order, they include Marxism, focused on production, class conflict, capital accumulation, business cycles and technological change; Austrian economics, stressing limitations on human rationality, the importance of norms, spontaneous order, prices as signals, innovation and entrepreneurship; post-Keynesianism, emphasizing uncertainty and ‘animal spirits’, stagnation, unemployment and the scope for active government fiscal interventions; developmental economics, analysing the industrial linkages which hinder or assist improvements in productive capabilities, protection and the role of policy in nurturing infant industries; institutional economics, exploring how institutions shape individual and collective behaviour, and more recently the specific role of transaction costs; and monetarism, emphasizing the importance of the money supply and the influence of monetary factors on inflation, economic performance and national output. The boundaries are porous: many would argue, for example, that institutional economics or behavioural economics should now be considered part of the mainstream. Mainstream economics thus represents one set of ideas elaborated from The Wealth of Nations. But it is far from clear that Smith would have endorsed many aspects of it. Such is the power of his original insights about the centrality of markets, and such is the range of his wider views, that every single other modern school of economics can with justice claim him as a progenitor as well.

Frugal Innovation: How to Do Better With Less by Jaideep Prabhu Navi Radjou

3D printing, additive manufacturing, Affordable Care Act / Obamacare, Airbnb, Albert Einstein, barriers to entry, Baxter: Rethink Robotics, behavioural economics, benefit corporation, Bretton Woods, business climate, business process, call centre, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, circular economy, cloud computing, collaborative consumption, collaborative economy, Computer Numeric Control, connected car, corporate social responsibility, creative destruction, crowdsourcing, disruptive innovation, driverless car, Elon Musk, fail fast, financial exclusion, financial innovation, gamification, global supply chain, IKEA effect, income inequality, industrial robot, intangible asset, Internet of things, job satisfaction, Khan Academy, Kickstarter, late fees, Lean Startup, low cost airline, M-Pesa, Mahatma Gandhi, Marc Benioff, megacity, minimum viable product, more computing power than Apollo, new economy, payday loans, peer-to-peer lending, Peter H. Diamandis: Planetary Resources, planned obsolescence, precision agriculture, race to the bottom, reshoring, risk tolerance, Ronald Coase, Salesforce, scientific management, self-driving car, shareholder value, sharing economy, Silicon Valley, Silicon Valley startup, six sigma, smart grid, smart meter, software as a service, standardized shipping container, Steve Jobs, supply-chain management, tacit knowledge, TaskRabbit, TED Talk, The Fortune at the Bottom of the Pyramid, the long tail, The Nature of the Firm, Tony Fadell, transaction costs, Travis Kalanick, unbanked and underbanked, underbanked, value engineering, vertical integration, women in the workforce, work culture , X Prize, yield management, Zipcar

Social comparison Most mainstream economists would argue that the best way to get consumers to regulate their use of energy is through pricing or subsidies. But less conventional behavioural economics has encouraged more psychological approaches. Opower mails a regular home-energy report (HER) to customers comparing their energy use with that of their neighbours. In this way, consumers can be goaded towards frugality. Opower now works with 93 utility partners in 35 states and eight countries around the world to reach over 32 million households and businesses. A study by ideas42, a behavioural economics consultancy, found that “the HERs programme on average reduces energy consumption by 2%”.

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Based on case studies of Kingfisher, Levi Strauss, method, Tarkett and Unilever, the chapter provides insights into how R&D and manufacturing managers can develop self-sustaining solutions that help both businesses and the environment. Shape customer behaviour. Drawing on research in psychology and behavioural economics, as well as on the pioneering work of organisations such as Barclays, IKEA, Khan Academy, Nest and Progressive, Chapter 5 shows how companies can influence consumers into behaving differently (for example, driving less or more safely) and feeling richer while consuming less. It also shows how marketing managers can improve brand loyalty and market share by tailoring frugal products and services more closely to the way customers actually think, feel and behave – and by properly positioning and communicating the aspirational value of these frugal solutions.

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Three contradictions of contemporary consumption Consumers care about the environment and yet are profligate with resources In survey after survey, Western consumers say they care about the environment and that they would like to be more prosocial (voluntary behaviour intended to benefit others). Yet data on their actual behaviour (for example, their energy and water use) suggests that these noble-minded consumers frequently allow behavioural, economic and technical barriers to get in the way. For example, in the GfK Roper Yale 2008 survey on environmental issues a majority of Americans said that “it is important that the products they purchase be environmentally friendly”. Specifically, when buying cars, laundry detergent and computer-printer paper, 66%, 62% and 51% of respondents respectively said that environmental concerns are important or essential to their decisions.

The Costs of Connection: How Data Is Colonizing Human Life and Appropriating It for Capitalism by Nick Couldry, Ulises A. Mejias

"World Economic Forum" Davos, 23andMe, Airbnb, Amazon Mechanical Turk, Amazon Web Services, behavioural economics, Big Tech, British Empire, call centre, Cambridge Analytica, Cass Sunstein, choice architecture, cloud computing, colonial rule, computer vision, corporate governance, dark matter, data acquisition, data is the new oil, data science, deep learning, different worldview, digital capitalism, digital divide, discovery of the americas, disinformation, diversification, driverless car, Edward Snowden, emotional labour, en.wikipedia.org, European colonialism, Evgeny Morozov, extractivism, fake news, Gabriella Coleman, gamification, gig economy, global supply chain, Google Chrome, Google Earth, hiring and firing, income inequality, independent contractor, information asymmetry, Infrastructure as a Service, intangible asset, Internet of things, Jaron Lanier, job automation, Kevin Kelly, late capitalism, lifelogging, linked data, machine readable, Marc Andreessen, Mark Zuckerberg, means of production, military-industrial complex, move fast and break things, multi-sided market, Naomi Klein, Network effects, new economy, New Urbanism, PageRank, pattern recognition, payday loans, Philip Mirowski, profit maximization, Ray Kurzweil, RFID, Richard Stallman, Richard Thaler, Salesforce, scientific management, Scientific racism, Second Machine Age, sharing economy, Shoshana Zuboff, side hustle, Sidewalk Labs, Silicon Valley, Slavoj Žižek, smart cities, Snapchat, social graph, social intelligence, software studies, sovereign wealth fund, surveillance capitalism, techlash, The Future of Employment, the scientific method, Thomas Davenport, Tim Cook: Apple, trade liberalization, trade route, undersea cable, urban planning, W. E. B. Du Bois, wages for housework, work culture , workplace surveillance

The nudge is also a useful technique for data colonialism, generating at scale not the gentle subtlety Thaler and Sunstein intended but the force of what legal scholar Karen Yeung calls the “hypernudge”: dynamic and interactive behavior modulation enabled by continuous connectivity and continuous data flows.144 Nudge’s guest appearance in social science is just a token in the contemporary battle over economics’ explanatory status. Behavioral economics emerged in response to an impasse over the model of rational-choice actor that mainstream economics has assumed for so long. Behavioral economics insists that alongside utility maximization the human subject has another dimension, less rational and more impulsive (in the jargon these are called, respectively, “System One” and “System Two”).145 Behavioral economics is having significant influence in the broader marketing profession, at least in the United States. As Anthony Nadler and Lee McGuigan argue, behavioral economics, through its selective emphasis on the less conscious, less reflective side of brain functioning, “refine[s] marketers’ existing conceptions of human nature,” which have always sought to tap into the irrational.

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Some interpretative sociologists have challenged the idea that individual economic calculations are irrational and are reinterpreting them not in terms of numbers but of the complex moral relations in which economic transactions are in fact embedded (Zelizer, Economic Lives, discussed in Wherry, “Relational Accounting”). Yet the rise of behavioral economics continues unimpeded. For a lively if controversial critique, see Shaw, “Invisible Manipulators.” 146. Nadler and McGuigan, “Impulse to Exploit,” 7; compare Padios, “Mining the Mind” on “emotional extraction.” 147. Quoted in Lewis, “What If He’s Right?,” 30. 148. See, for example, Camerer, Loewenstein, and Prelec, “Neuroscience.” 149. Camerer, “Neuroeconomics,” C28, emphasis added. 150. For critique, see McMahon, “Behavioral Economics.” 151. Ariely and Berns, “Neuromarketing.” We also found inspiring a paper by Oscar Gandy and Selena Nemorin, “Political Economy of Nudge.” 152.

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“TASER Makes Two Acquisitions to Create Axon AI.” February 9, 2017. https://www.prnewswire.com/news-releases/taser-makes-two-acquisitions-to-create-axon-ai-300404780. Prosser, William L. “Privacy.” California Law Review 48 (1960): 383–423. Pykett, Jessica. “Neurocapitalism and the New Neuros: Using Neuroeconomics, Behavioural Economics and Picoeconomics for Public Policy.” Journal of Economic Geography 13, no. 5 (2013): 845–69. Qiu, Jack Linchuan. Goodbye iSlave. Champaign: University of Illinois Press, 2016. Quijano, Aníbal. “Coloniality and Modernity/Rationality.” Cultural Studies 21, nos. 2–3 (2007): 168–78. . “Coloniality of Power, Eurocentrism, and Latin America.”

The Biology of Desire: Why Addiction Is Not a Disease by Marc Lewis Phd

behavioural economics, deep learning, delayed gratification, helicopter parent, impulse control, language acquisition, meta-analysis, no-fly zone, Rat Park, Ronald Reagan, Skype, Stanford marshmallow experiment, Walter Mischel

But that’s not a problem for the disease model, because it’s also true of many well-known illnesses, including heart disease, diabetes, and some forms of cancer. For those too there are treatments but not cures. The idea that addiction is a choice comes from a cognitive (rather than biological) perspective, emphasizing changes in thought processes. Researchers in behavioural economics, which blends social psychology with economic thinking, try to understand why people make the choices they make, including the choice to take addictive substances. While few people imagine that addiction is a good choice, it is often considered a rational one, at least in the short run—as when the pleasure or relief derived from one’s addiction seems to outweigh other possible choices.

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“But you see,” our typically left-leaning professor said with a grin, “one-third of the information is false!” It pays to remember that brains make decisions based on biased, convoluted, and often just-plain-mistaken input. Daniel Kahneman’s bestselling book Thinking, Fast and Slow summarizes thirty years of progress through which psychologists (and students of behavioural economics) have come to recognize how biased and irrational our thinking can be. None of this should be very surprising. After all, the brain is a body part whose concern is the slaking of desires and avoidance of risk, goals carried out by hand, tongue, teeth, feet, and genitals. Rationality is a useful tool for planning our route in rush-hour traffic, for dinner-table debates, and for getting A’s in school.

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See American Society of Addiction Medicine attention amygdala and, 80 conscious, 158–160 desire and, 174 goal-seeking behaviour and, 92 attention deficit disorder (ADD) Brian and, 72–73, 85 now appeal and, 85 avoidance, 34 Baumeister, Roy, 149 bed-wetting, 120 behavioural addictions DSM and, 165 love and, 166–168 substance addiction characteristics and, 23, 165 behavioural economics, 2 Berridge, Kent, 58–59, 147, 176 bias, 28–29 Biden, Joe, 11 binge eating, 146, 150 See also Alice Birmingham Model, 214–215 brain anatomy, 43–45, 44 (fig.) bias and, 28–29 bulimia and, 146 change, 25–26 cocaine example, 40–41 cognition linked with emotion in, 81–82 as computer, 28 design, basic, of, 27–29 disease model and, 1–2, 7, 25–26, 162–165, 168–169 dopamine and, 81 ego fatigue and, 150 emotional intensity and, 31, 39–40 evolution of, 92 experience and, 30–33 feedback and, 30–31, 34–38 fresh look at, 23–26 habit patterns and, 41–42 as habit-forming machine, 93 imaging studies, 7 irrationality and, 29 learning and, 29–30 love and, 166–168 motivated repetition and, 42 motivational core in, 126, 173 neurons, networking, and, 28, 38–42 neuroplasticity and, 29–32 NIDA on, 6 normal functioning, 81–82, 163–165 permanence and, 30–32 reptile, 29–30 reward and, 27–28 self-organization, self-perpetuation and, 34 symbols and, 144, 147 See also specific region brain stem, 29 Breakdown of Will (Ainslie), 191 Brian (methamphetamine addiction) accelerated learning and, 171, 172 accumbens and, 126 ADD and, 72–73, 85 amygdala and, 79 business plans of, 76 cocaine and, 73 cognitive mutation in, 75 compulsive habit and, 127, 181–182 contradictions and, 78–79 control loss of, 77–79 control maintenance of, 76–77 dealing and, 75 driving to visitation, 77–78 family narrative of, 89–90 gang fight with, 86–87 in garage home, 87–88 lollies and, 73–74 meaningful work of, 91–92 NA and, 88–89 new habits of, 90–91 now appeal and, 84, 85–86, 87 OFC and, 80–81 recovery of, 89–92, 200–201 reflection and, 201–202 relationship and, 74 self-medication model and, 177 sleeping in car, 71–72 sleepless nights and, 74–75 symbols and, 144 bridge metaphor, 45, 131, 137, 146, 156–157 bulimia, 146, 150 See also Alice Burkett, James, 166–167 cat (type of amphetamine), 73 Centers for Disease Control (CDC), 178–179, 180 (fig.)

Peak Car: The Future of Travel by David Metz

autonomous vehicles, behavioural economics, bike sharing, Clayton Christensen, congestion charging, Crossrail, crowdsourcing, David Attenborough, decarbonisation, disruptive innovation, driverless car, edge city, Edward Glaeser, Ford Model T, gentrification, high-speed rail, Just-in-time delivery, low cost airline, megaproject, Network effects, Ocado, Richard Florida, Robert Gordon, seminal paper, Silicon Valley, Skype, Suez canal 1869, The future is already here, urban sprawl, yield management, young professional

We must identify and value the long‑run economic benefits, which show up in the first instance as increased land and property values, and as new developments; and subsequently as new employment opportunities and more homes. The transport economists have not yet caught up with one of the more important developments in economics in recent decades—‘behavioural economics’—which arose from the observation of a series of discrepancies between how economic theory predicts rational decision‑makers would act in their own best interests, and how people do in fact act in the real world. The message of behavioural economics, which has gained considerable traction amongst policy makers, is that if we are to influence behaviour to achieve better outcomes then we must base interventions on observations of what people actually do, rather than suppositions what they might do because the latter is easier to model.

The New Economics: A Bigger Picture by David Boyle, Andrew Simms

Abraham Maslow, Alan Greenspan, Alvin Toffler, Apollo 11, Asian financial crisis, back-to-the-land, banking crisis, behavioural economics, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, Bretton Woods, capital controls, carbon footprint, carbon tax, clean water, collateralized debt obligation, colonial rule, Community Supported Agriculture, congestion charging, corporate raider, corporate social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Crossrail, delayed gratification, deskilling, digital divide, en.wikipedia.org, energy transition, financial deregulation, financial exclusion, financial innovation, full employment, garden city movement, Glass-Steagall Act, green new deal, happiness index / gross national happiness, if you build it, they will come, income inequality, informal economy, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, John Elkington, junk bonds, Kickstarter, land bank, land reform, light touch regulation, loss aversion, mega-rich, microcredit, Mikhail Gorbachev, Money creation, mortgage debt, neoliberal agenda, new economy, North Sea oil, Northern Rock, offshore financial centre, oil shock, peak oil, pension time bomb, pensions crisis, profit motive, purchasing power parity, quantitative easing, Ronald Reagan, seigniorage, Simon Kuznets, sovereign wealth fund, special drawing rights, systems thinking, the long tail, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, trickle-down economics, Vilfredo Pareto, Washington Consensus, wealth creators, working-age population

It has been underpinned by a range of new disciplines and ideas that were emerging from economics itself, realizing that the classical economics of William Stanley Jevons, Leon Walras and Vilfredo Pareto were based on A BRIEF HISTORY OF THE NEW ECONOMICS 29 the assumptions of Victorian physics, borrowing from Newtonian physics long after it had been superseded by Einstein, using economic variables in their equations as if they were equations in physics. They simply replaced energy with economic concepts, when there was little evidence that energy and money or the economic concept of ‘utility’ behaved in the same way at all, as if people’s economic behaviour bore any relation to the behaviour of atoms. Behavioural economics, heterodox economics, ecological economics, neuroeconomics (scanning people’s brains while they decide), and a whole range of new mini-disciplines have emerged from inside the mainstream, trying to take account of the divorce between the old assumptions of economics and the real world. What the new economics recognized was that there was just a possibility that conventional economics could be turned on its head – that there were hidden resources among ordinary people and in impoverished communities that could be brought to bear to provide solutions.

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Some so-called ‘choices’ actually reinforce a corporate bias that turns out to be a kind of supermarket choice: a great deal of barely different options, but whole areas of real choice eliminated. Other books to read David Boyle (2003) Authenticity: Brands, Fakes, Spin and the Lust for Real Life, Harper Collins, London Neil Crofts (2003) Authentic, Capstone, London Emma Dawnay (2006) Behavioural Economics, New Economics Foundation, London Joe Dominguez and Vicki Rubin (1994) Your Money or Your Life, Penguin, New York Polly Ghazi and Judy Jones (1997) Downshifting, Coronet, London Jonathon Porritt (2005) Capitalism as if the World Matters, Earthscan, London Dorothy Rowe (1997) The Real Meaning of Money, HarperCollins, London Notes 1 2 3 4 5 6 7 8 9 10 11 12 13 The Times (1988) 5 December.

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Duane Elgin (1993) Voluntary Simplicity, William Morrow, New York. Co-operative Partnership (2004) Ethical Consumerism Report 2004, London. M. Cooper and A. Culyer (1968) The Price of Blood, Institute of Economic Affairs, London. Richard Titmuss (1970) The Gift Relationship: From Human Blood to Social Policy, New Press, London. Emma Dawnay (2006) Behavioural Economics, New Economics Foundation, London. Deborah Campbell (2004) ‘Post-autistic economics’, Adbusters, September/October. Roger Levett, Ian Christie, Michael Jacobs, R. Therival (2003) A Better Choice of Choice, Fabian Society, London. 6 Life: Why do Modern Britons Work Harder than Medieval Peasants?

Digital Transformation at Scale: Why the Strategy Is Delivery by Andrew Greenway,Ben Terrett,Mike Bracken,Tom Loosemore

Airbnb, behavioural economics, bitcoin, blockchain, butterfly effect, call centre, chief data officer, choice architecture, cognitive dissonance, cryptocurrency, data science, Diane Coyle, en.wikipedia.org, fail fast, G4S, hype cycle, Internet of things, Kevin Kelly, Kickstarter, loose coupling, M-Pesa, machine readable, megaproject, minimum viable product, nudge unit, performance metric, ransomware, robotic process automation, Silicon Valley, social web, The future is already here, the long tail, the market place, The Wisdom of Crowds, work culture

Why try to increase organ donation using a provisional licence form used by tens of thousands a year when you can change the end pages on a car tax transaction used by 20 million people a year? Working with the Nudge team, DVLA and the Department for Health, GOV.UK tested eight different versions of calls to action on different end pages. These were based on classic behavioural economic ideas of social norms (‘people like you are donating their organs’). Some used pictures. Others drew on the old advertising trick of reciprocity (‘you might need these organs one day’). The latter won. Within a year, a few simple words increased the number of organ donors in the UK by 400,000.

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The changes had cost almost nothing to design, test, iterate and implement. The whole project was wrapped up within weeks. The organ donation project was an excellent example of what can be done by effectively combining policy, operations and digital in a single team to tackle a social conundrum. Policy or behavioural economics alone lacked the frontline knowledge to avoid the red herrings, or the levers to experiment quickly, with real-time responses. Open-minded, multidisciplinary teams can deliver a lot more than just elegant websites. The internet era has arguably created some genuinely new roles, or at least redefined existing roles to the extent that they will be taken by different people applying a new attitude.

Reinventing Capitalism in the Age of Big Data by Viktor Mayer-Schönberger, Thomas Ramge

accounting loophole / creative accounting, Air France Flight 447, Airbnb, Alvin Roth, Apollo 11, Atul Gawande, augmented reality, banking crisis, basic income, Bayesian statistics, Bear Stearns, behavioural economics, bitcoin, blockchain, book value, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, Cass Sunstein, centralized clearinghouse, Checklist Manifesto, cloud computing, cognitive bias, cognitive load, conceptual framework, creative destruction, Daniel Kahneman / Amos Tversky, data science, Didi Chuxing, disruptive innovation, Donald Trump, double entry bookkeeping, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Evgeny Morozov, flying shuttle, Ford Model T, Ford paid five dollars a day, Frederick Winslow Taylor, fundamental attribution error, George Akerlof, gig economy, Google Glasses, Higgs boson, information asymmetry, interchangeable parts, invention of the telegraph, inventory management, invisible hand, James Watt: steam engine, Jeff Bezos, job automation, job satisfaction, joint-stock company, Joseph Schumpeter, Kickstarter, knowledge worker, labor-force participation, land reform, Large Hadron Collider, lone genius, low cost airline, low interest rates, Marc Andreessen, market bubble, market design, market fundamentalism, means of production, meta-analysis, Moneyball by Michael Lewis explains big data, multi-sided market, natural language processing, Neil Armstrong, Network effects, Nick Bostrom, Norbert Wiener, offshore financial centre, Parag Khanna, payday loans, peer-to-peer lending, Peter Thiel, Ponzi scheme, prediction markets, price anchoring, price mechanism, purchasing power parity, radical decentralization, random walk, recommendation engine, Richard Thaler, ride hailing / ride sharing, Robinhood: mobile stock trading app, Sam Altman, scientific management, Second Machine Age, self-driving car, Silicon Valley, Silicon Valley startup, six sigma, smart grid, smart meter, Snapchat, statistical model, Steve Jobs, subprime mortgage crisis, Suez canal 1869, tacit knowledge, technoutopianism, The Future of Employment, The Market for Lemons, The Nature of the Firm, transaction costs, universal basic income, vertical integration, William Langewiesche, Y Combinator

eBay’s recent troubles: Nicole Perlroth, “EBay Urges New Passwords After Breach,” New York Times, May 21, 2014, https://www.nytimes.com/2014/05/22/technology/ebay-reports-attack-on-its-computer-network.html?_r=0. sellers of Yahoo’s shares: Matt Levine, “How Can Yahoo Be Worth Less Than Zero?” Bloomberg, April 17, 2014, http://www.bloomberg.com/view/articles/2014-04-17/how-can-yahoo-be-worth-less-than-zero; see generally, Richard H. Thaler, Misbehaving: The Making of Behavioural Economics (London: Allen Lane, 2015), 244–253. “electronic markets”: Thomas W. Malone, Joanne Yates, and Robert I. Benjamin, “Electronic Markets and Electronic Hierarchies,” Communications of the ACM, June 1987, https://www.researchgate.net/publication/220425850. a staggering 500 percent upturn: “The Zettabyte Era: Trends and Analysis,” Cisco White Paper No. 1465272001812119, June 7, 2017, http://www.cisco.com/c/en/us/solutions/collateral/service-provider/visual-networking-index-vni/vni-hyperconnectivity-wp.html.

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But much of the efficiency gains have now been absorbed, and to reap further benefits firms will have to focus on improving information processing among a firm’s top decision makers. There, however, firms face a far more difficult challenge: constraints in human cognition. As psychologists Daniel Kahneman and Amos Tversky pointed out in their groundbreaking studies (which fueled the creation of a new academic field, behavioral economics), humans are plagued by a range of fundamental cognitive limitations that impair our general ability to decide well. We have seen this in the context of price, but the constraints are far more universal. For example, we naturally evaluate new information by comparing it to information that we can easily bring to mind.

Smart Money: How High-Stakes Financial Innovation Is Reshaping Our WorldÑFor the Better by Andrew Palmer

Affordable Care Act / Obamacare, Alan Greenspan, algorithmic trading, Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, behavioural economics, Black Monday: stock market crash in 1987, Black-Scholes formula, bonus culture, break the buck, Bretton Woods, call centre, Carmen Reinhart, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Graeber, diversification, diversified portfolio, Edmond Halley, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, eurozone crisis, family office, financial deregulation, financial engineering, financial innovation, fixed income, Flash crash, Google Glasses, Gordon Gekko, high net worth, housing crisis, Hyman Minsky, impact investing, implied volatility, income inequality, index fund, information asymmetry, Innovator's Dilemma, interest rate swap, Kenneth Rogoff, Kickstarter, late fees, London Interbank Offered Rate, Long Term Capital Management, longitudinal study, loss aversion, low interest rates, margin call, Mark Zuckerberg, McMansion, Minsky moment, money market fund, mortgage debt, mortgage tax deduction, Myron Scholes, negative equity, Network effects, Northern Rock, obamacare, payday loans, peer-to-peer lending, Peter Thiel, principal–agent problem, profit maximization, quantitative trading / quantitative finance, railway mania, randomized controlled trial, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Savings and loan crisis, short selling, Silicon Valley, Silicon Valley startup, Skype, South Sea Bubble, sovereign wealth fund, statistical model, subprime mortgage crisis, tail risk, Thales of Miletus, the long tail, transaction costs, Tunguska event, unbanked and underbanked, underbanked, Vanguard fund, web application

Anne Tergesen, “401(k) Law Suppresses Saving for Retirement,” Wall Street Journal, July 7, 2011. 18. M. Keith Chen, Venkat Lakshminarayanan, and Laurie Santos, “How Basic Are Behavioural Biases? Evidence from Capuchin Monkey Trading Behaviour,” Journal of Political Economy (2006). 19. Shlomo Bernartzi and Richard Thaler, “Behavioural Economics and the Retirement Savings Crisis,” Science (March 8, 2013). 20. James Choi et al., “Small Cues Change Savings Choices” (NBER Working Paper 17843, February 2012). 21. Amos Tversky and Daniel Kahnemann, “Judgment Under Uncertainty: Heuristics and Biases,” Science (September 1974). 22.

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The guinea pigs in the trial got e-mails that included extra sentences designed to act as savings cues.20 The idea was to test another big behavioral quirk: the effect that exposure to arbitrary numbers, or “anchors,” can have on people. The effect was first formally identified by Amos Tversky and Daniel Kahneman, a pair of psychologists whose studies of human decision making laid the foundations for the field of behavioral economics. In a 1974 experiment, they rigged a roulette wheel to stop at either 10 or 65 and then asked people to estimate the percentage of African countries in the United Nations. The subjects were instructed to indicate first whether the roulette-wheel number was higher or lower than their estimate for the proportion of African countries in the UN and then to give their estimate.

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

This book brings together the key insights I have discovered along the way – insights into ways of thinking that I wish had crossed my path at the outset of my own economics education, and that I believe should be part of every economist’s toolkit today. It draws on diverse schools of thought, such as complexity, ecological, feminist, institutional and behavioural economics. They are all rich with insight but there is still a risk that they will remain separated in silos, each school of thought nestled in its own journals, conferences, blogs, textbooks and teaching posts, cultivating its niche critique of last century’s thinking. The real breakthrough lies, of course, in combining what they each have to offer and to discover what happens when they dance on the same page, which is just what this book sets out to do.

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That much has been agreed upon since the 1950s when Herbert Simon broke rank with his fellow economists and started to study how people actually behaved, finding their rationality to be severely ‘bounded’. His findings, augmented by those of psychologists Daniel Kahneman and Amos Tversky in the 1970s, gave birth to the field now known as behavioural economics, which studies the many kinds of ‘cognitive bias’ that systematically cause humans to deviate from the ideal model of rationality. Examples abound. We (the WEIRD ones, at least) typically exhibit: availability bias – making decisions on the basis of more recent and more accessible information; loss aversion – the strong preference to avoid a loss rather than to make an equivalent gain; selective cognition – taking on board facts and arguments that fit with our existing frames; and risk bias – underestimating the likelihood of extreme events, while overestimating our ability to cope with them.

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Page numbers in italics denote illustrations A Aalborg, Denmark, 290 Abbott, Anthony ‘Tony’, 31 ABCD group, 148 Abramovitz, Moses, 262 absolute decoupling, 260–61 Acemoglu, Daron, 86 advertising, 58, 106–7, 112, 281 Agbodjinou, Sénamé, 231 agriculture, 5, 46, 72–3, 148, 155, 178, 181, 183 Alaska, 9 Alaska Permanent Fund, 194 Alperovitz, Gar, 177 alternative enterprise designs, 190–91 altruism, 100, 104 Amazon, 192, 196, 276 Amazon rainforest, 105–6, 253 American Economic Association, 3 American Enterprise Institute, 67 American Tobacco Corporation, 107 Andes, 54 animal spirits, 110 Anthropocene epoch, 48, 253 anthropocentrism, 115 Apertuso, 230 Apple, 85, 192 Archer Daniels Midland (ADM), 148 Arendt, Hannah, 115–16 Argentina, 55, 274 Aristotle, 32, 272 Arrow, Kenneth, 134 Articles of Association and Memoranda, 233 Arusha, Tanzania, 202 Asia Wage Floor Alliance, 177 Asian financial crisis (1997), 90 Asknature.org, 232 Athens, 57 austerity, 163 Australia, 31, 103, 177, 180, 211, 224–6, 255, 260 Austria, 263, 274 availability bias, 112 AXIOM, 230 Axtell, Robert, 150 Ayres, Robert, 263 B B Corp, 241 Babylon, 13 Baker, Josephine, 157 balancing feedback loops, 138–41, 155, 271 Ballmer, Steve, 231 Bangla Pesa, 185–6, 293 Bangladesh, 10, 226 Bank for International Settlements, 256 Bank of America, 149 Bank of England, 145, 147, 256 banking, see under finance Barnes, Peter, 201 Barroso, José Manuel, 41 Bartlett, Albert Allen ‘Al’, 247 basic income, 177, 194, 199–201 basic personal values, 107–9 Basle, Switzerland, 80 Bauwens, Michel, 197 Beckerman, Wilfred, 258 Beckham, David, 171 Beech-Nut Packing Company, 107 behavioural economics, 11, 111–14 behavioural psychology, 103, 128 Beinhocker, Eric, 158 Belgium, 236, 252 Bentham, Jeremy, 98 Benyus, Janine, 116, 218, 223–4, 227, 232, 237, 241 Berger, John, 12, 281 Berlin Wall, 141 Bermuda, 277 Bernanke, Ben, 146 Bernays, Edward, 107, 112, 281–3 Bhopal gas disaster (1984), 9 Bible, 19, 114, 151 Big Bang (1986), 87 billionaires, 171, 200, 289 biodiversity, 10, 46, 48–9, 52, 85, 115, 155, 208, 210, 242, 299 as common pool resource, 201 and land conversion, 49 and inequality, 172 and reforesting, 50 biomass, 73, 118, 210, 212, 221 biomimicry, 116, 218, 227, 229 bioplastic, 224, 293 Birmingham, West Midlands, 10 Black, Fischer, 100–101 Blair, Anthony ‘Tony’, 171 Blockchain, 187, 192 blood donation, 104, 118 Body Shop, The, 232–4 Bogotá, Colombia, 119 Bolivia, 54 Boston, Massachusetts, 3 Bowen, Alex, 261 Bowles, Sam, 104 Box, George, 22 Boyce, James, 209 Brasselberg, Jacob, 187 Brazil, 124, 226, 281, 290 bread riots, 89 Brisbane, Australia, 31 Brown, Gordon, 146 Brynjolfsson, Erik, 193, 194, 258 Buddhism, 54 buen vivir, 54 Bullitt Center, Seattle, 217 Bunge, 148 Burkina Faso, 89 Burmark, Lynell, 13 business, 36, 43, 68, 88–9 automation, 191–5, 237, 258, 278 boom and bust, 246 and circular economy, 212, 215–19, 220, 224, 227–30, 232–4, 292 and complementary currencies, 184–5, 292 and core economy, 80 and creative destruction, 142 and feedback loops, 148 and finance, 183, 184 and green growth, 261, 265, 269 and households, 63, 68 living metrics, 241 and market, 68, 88 micro-businesses, 9 and neoliberalism, 67, 87 ownership, 190–91 and political funding, 91–2, 171–2 and taxation, 23, 276–7 workers’ rights, 88, 91, 269 butterfly economy, 220–42 C C–ROADS (Climate Rapid Overview and Decision Support), 153 C40 network, 280 calculating man, 98 California, United States, 213, 224, 293 Cambodia, 254 Cameron, David, 41 Canada, 196, 255, 260, 281, 282 cancer, 124, 159, 196 Capital Institute, 236 carbon emissions, 49–50, 59, 75 and decoupling, 260, 266 and forests, 50, 52 and inequality, 58 reduction of, 184, 201, 213, 216–18, 223–7, 239–41, 260, 266 stock–flow dynamics, 152–4 taxation, 201, 213 Cargill, 148 Carney, Mark, 256 Caterpillar, 228 Catholic Church, 15, 19 Cato Institute, 67 Celts, 54 central banks, 6, 87, 145, 146, 147, 183, 184, 256 Chang, Ha-Joon, 82, 86, 90 Chaplin, Charlie, 157 Chiapas, Mexico, 121–2 Chicago Board Options Exchange (CBOE), 100–101 Chicago School, 34, 99 Chile, 7, 42 China, 1, 7, 48, 154, 289–90 automation, 193 billionaires, 200, 289 greenhouse gas emissions, 153 inequality, 164 Lake Erhai doughnut analysis, 56 open-source design, 196 poverty reduction, 151, 198 renewable energy, 239 tiered pricing, 213 Chinese Development Bank, 239 chrematistics, 32, 273 Christianity, 15, 19, 114, 151 cigarettes, 107, 124 circular economy, 220–42, 257 Circular Flow diagram, 19–20, 28, 62–7, 64, 70, 78, 87, 91, 92, 93, 262 Citigroup, 149 Citizen Reaction Study, 102 civil rights movement, 77 Cleveland, Ohio, 190 climate change, 1, 3, 5, 29, 41, 45–53, 63, 74, 75–6, 91, 141, 144, 201 circular economy, 239, 241–2 dynamics of, 152–5 and G20, 31 and GDP growth, 255, 256, 260, 280 and heuristics, 114 and human rights, 10 and values, 126 climate positive cities, 239 closed systems, 74 coffee, 221 cognitive bias, 112–14 Colander, David, 137 Colombia, 119 common-pool resources, 82–3, 181, 201–2 commons, 69, 82–4, 287 collaborative, 78, 83, 191, 195, 196, 264, 292 cultural, 83 digital, 82, 83, 192, 197, 281 and distribution, 164, 180, 181–2, 205, 267 Embedded Economy, 71, 73, 77–8, 82–4, 85, 92 knowledge, 197, 201–2, 204, 229, 231, 292 commons and money creation, see complementary currencies natural, 82, 83, 180, 181–2, 201, 265 and regeneration, 229, 242, 267, 292 and state, 85, 93, 197, 237 and systems, 160 tragedy of, 28, 62, 69, 82, 181 triumph of, 83 and values, 106, 108 Commons Trusts, 201 complementary currencies, 158, 182–8, 236, 292 complex systems, 28, 129–62 complexity science, 136–7 Consumer Reaction Study, 102 consumerism, 58, 102, 121, 280–84 cooking, 45, 80, 186 Coote, Anna, 278 Copenhagen, Denmark, 124 Copernicus, Nicolaus, 14–15 copyright, 195, 197, 204 core economy, 79–80 Corporate To Do List, 215–19 Costa Rica, 172 Council of Economic Advisers, US, 6, 37 Cox, Jo, 117 cradle to cradle, 224 creative destruction, 142 Cree, 282 Crompton, Tom, 125–6 cross-border flows, 89–90 crowdsourcing, 204 cuckoos, 32, 35, 36, 38, 40, 54, 60, 159, 244, 256, 271 currencies, 182–8, 236, 274, 292 D da Vinci, Leonardo, 13, 94–5 Dallas, Texas, 120 Daly, Herman, 74, 143, 271 Danish Nudging Network, 124 Darwin, Charles, 14 Debreu, Gerard, 134 debt, 37, 146–7, 172–3, 182–5, 247, 255, 269 decoupling, 193, 210, 258–62, 273 defeat device software, 216 deforestation, 49–50, 74, 208, 210 degenerative linear economy, 211–19, 222–3, 237 degrowth, 244 DeMartino, George, 161 democracy, 77, 171–2, 258 demurrage, 274 Denmark, 180, 275, 290 deregulation, 82, 87, 269 derivatives, 100–101, 149 Devas, Charles Stanton, 97 Dey, Suchitra, 178 Diamond, Jared, 154 diarrhoea, 5 differential calculus, 131, 132 digital revolution, 191–2, 264 diversify–select–amplify, 158 double spiral, 54 Doughnut model, 10–11, 11, 23–5, 44, 51 and aspiration, 58–9, 280–84 big picture, 28, 42, 61–93 distribution, 29, 52, 57, 58, 76, 93, 158, 163–205 ecological ceiling, 10, 11, 44, 45, 46, 49, 51, 218, 254, 295, 298 goal, 25–8, 31–60 and governance, 57, 59 growth agnosticism, 29–30, 243–85 human nature, 28–9, 94–128 and population, 57–8 regeneration, 29, 158, 206–42 social foundation, 10, 11, 44, 45, 49, 51, 58, 77, 174, 200, 254, 295–6 systems, 28, 129–62 and technology, 57, 59 Douglas, Margaret, 78–9 Dreyfus, Louis, 148 ‘Dumb and Dumber in Macroeconomics’ (Solow), 135 Durban, South Africa, 214 E Earning by Learning, 120 Earth-system science, 44–53, 115, 216, 288, 298 Easter Island, 154 Easterlin, Richard, 265–6 eBay, 105, 192 eco-literacy, 115 ecological ceiling, 10, 11, 44, 45, 46, 49, 51, 218, 254, 295, 298 Ecological Performance Standards, 241 Econ 101 course, 8, 77 Economics (Lewis), 114 Economics (Samuelson), 19–20, 63–7, 70, 74, 78, 86, 91, 92, 93, 262 Economy for the Common Good, 241 ecosystem services, 7, 116, 269 Ecuador, 54 education, 9, 43, 45, 50–52, 85, 169–70, 176, 200, 249, 279 economic, 8, 11, 18, 22, 24, 36, 287–93 environmental, 115, 239–40 girls’, 57, 124, 178, 198 online, 83, 197, 264, 290 pricing, 118–19 efficient market hypothesis, 28, 62, 68, 87 Egypt, 48, 89 Eisenstein, Charles, 116 electricity, 9, 45, 236, 240 and Bangla Pesa, 186 cars, 231 Ethereum, 187–8 and MONIAC, 75, 262 pricing, 118, 213 see also renewable energy Elizabeth II, Queen of the United Kingdom, 145 Ellen MacArthur Foundation, 220 Embedded Economy, 71–93, 263 business, 88–9 commons, 82–4 Earth, 72–6 economy, 77–8 finance, 86–8 household, 78–81 market, 81–2 power, 91–92 society, 76–7 state, 84–6 trade, 89–90 employment, 36, 37, 51, 142, 176 automation, 191–5, 237, 258, 278 labour ownership, 188–91 workers’ rights, 88, 90, 269 Empty World, 74 Engels, Friedrich, 88 environment and circular economy, 220–42, 257 conservation, 121–2 and degenerative linear economy, 211–19, 222–3 degradation, 5, 9, 10, 29, 44–53, 74, 154, 172, 196, 206–42 education on, 115, 239–40 externalities, 152 fair share, 216–17 and finance, 234–7 generosity, 218–19, 223–7 green growth, 41, 210, 243–85 nudging, 123–5 taxation and quotas, 213–14, 215 zero impact, 217–18, 238, 241 Environmental Dashboard, 240–41 environmental economics, 7, 11, 114–16 Environmental Kuznets Curve, 207–11, 241 environmental space, 54 Epstein, Joshua, 150 equilibrium theory, 134–62 Ethereum, 187–8 ethics, 160–62 Ethiopia, 9, 226, 254 Etsy, 105 Euclid, 13, 15 European Central Bank, 145, 275 European Commission, 41 European Union (EU), 92, 153, 210, 222, 255, 258 Evergreen Cooperatives, 190 Evergreen Direct Investing (EDI), 273 exogenous shocks, 141 exponential growth, 39, 246–85 externalities, 143, 152, 213 Exxon Valdez oil spill (1989), 9 F Facebook, 192 fair share, 216–17 Fama, Eugene, 68, 87 fascism, 234, 277 Federal Reserve, US, 87, 145, 146, 271, 282 feedback loops, 138–41, 143, 148, 155, 250, 271 feminist economics, 11, 78–81, 160 Ferguson, Thomas, 91–2 finance animal spirits, 110 bank runs, 139 Black–Scholes model, 100–101 boom and bust, 28–9, 110, 144–7 and Circular Flow, 63–4, 87 and complex systems, 134, 138, 139, 140, 141, 145–7 cross-border flows, 89 deregulation, 87 derivatives, 100–101, 149 and distribution, 169, 170, 173, 182–4, 198–9, 201 and efficient market hypothesis, 63, 68 and Embedded Economy, 71, 86–8 and financial-instability hypothesis, 87, 146 and GDP growth, 38 and media, 7–8 mobile banking, 199–200 and money creation, 87, 182–5 and regeneration, 227, 229, 234–7 in service to life, 159, 234–7 stakeholder finance, 190 and sustainability, 216, 235–6, 239 financial crisis (2008), 1–4, 5, 40, 63, 86, 141, 144, 278, 290 and efficient market hypothesis, 87 and equilibrium theory, 134, 145 and financial-instability hypothesis, 87 and inequality, 90, 170, 172, 175 and money creation, 182 and worker’s rights, 278 financial flows, 89 Financial Times, 183, 266, 289 financial-instability hypothesis, 87, 146 First Green Bank, 236 First World War (1914–18), 166, 170 Fisher, Irving, 183 fluid values, 102, 106–9 food, 3, 43, 45, 50, 54, 58, 59, 89, 198 food banks, 165 food price crisis (2007–8), 89, 90, 180 Ford, 277–8 foreign direct investment, 89 forest conservation, 121–2 fossil fuels, 59, 73, 75, 92, 212, 260, 263 Foundations of Economic Analysis (Samuelson), 17–18 Foxconn, 193 framing, 22–3 France, 43, 165, 196, 238, 254, 256, 281, 290 Frank, Robert, 100 free market, 33, 37, 67, 68, 70, 81–2, 86, 90 free open-source hardware (FOSH), 196–7 free open-source software (FOSS), 196 free trade, 70, 90 Freeman, Ralph, 18–19 freshwater cycle, 48–9 Freud, Sigmund, 107, 281 Friedman, Benjamin, 258 Friedman, Milton, 34, 62, 66–9, 84–5, 88, 99, 183, 232 Friends of the Earth, 54 Full World, 75 Fuller, Buckminster, 4 Fullerton, John, 234–6, 273 G G20, 31, 56, 276, 279–80 G77, 55 Gal, Orit, 141 Gandhi, Mohandas, 42, 293 Gangnam Style, 145 Gardens of Democracy, The (Liu & Hanauer), 158 gender equality, 45, 51–2, 57, 78–9, 85, 88, 118–19, 124, 171, 198 generosity, 218–19, 223–9 geometry, 13, 15 George, Henry, 149, 179 Georgescu-Roegen, Nicholas, 252 geothermal energy, 221 Gerhardt, Sue, 283 Germany, 2, 41, 100, 118, 165, 189, 211, 213, 254, 256, 260, 274 Gessel, Silvio, 274 Ghent, Belgium, 236 Gift Relationship, The (Titmuss), 118–19 Gigerenzer, Gerd, 112–14 Gintis, Herb, 104 GiveDirectly, 200 Glass–Steagall Act (1933), 87 Glennon, Roger, 214 Global Alliance for Tax Justice, 277 global material footprints, 210–11 Global Village Construction Set, 196 globalisation, 89 Goerner, Sally, 175–6 Goffmann, Erving, 22 Going for Growth, 255 golden rule, 91 Goldman Sachs, 149, 170 Gómez-Baggethun, Erik, 122 Goodall, Chris, 211 Goodwin, Neva, 79 Goody, Jade, 124 Google, 192 Gore, Albert ‘Al’, 172 Gorgons, 244, 256, 257, 266 graffiti, 15, 25, 287 Great Acceleration, 46, 253–4 Great Depression (1929–39), 37, 70, 170, 173, 183, 275, 277, 278 Great Moderation, 146 Greece, Ancient, 4, 13, 32, 48, 54, 56–7, 160, 244 green growth, 41, 210, 243–85 Greenham, Tony, 185 greenhouse gas emissions, 31, 46, 50, 75–6, 141, 152–4 and decoupling, 260, 266 and Environmental Kuznets Curve, 208, 210 and forests, 50, 52 and G20, 31 and inequality, 58 reduction of, 184, 201–2, 213, 216–18, 223–7, 239–41, 256, 259–60, 266, 298 stock–flow dynamics, 152–4 and taxation, 201, 213 Greenland, 141, 154 Greenpeace, 9 Greenspan, Alan, 87 Greenwich, London, 290 Grenoble, France, 281 Griffiths, Brian, 170 gross domestic product (GDP), 25, 31–2, 35–43, 57, 60, 84, 164 as cuckoo, 32, 35, 36, 38, 40, 54, 60, 159, 244, 256, 271 and Environmental Kuznets Curve, 207–11 and exponential growth, 39, 53, 246–85 and growth agnosticism, 29–30, 240, 243–85 and inequality, 173 and Kuznets Curve, 167, 173, 188–9 gross national product (GNP), 36–40 Gross World Product, 248 Grossman, Gene, 207–8, 210 ‘grow now, clean up later’, 207 Guatemala, 196 H Haifa, Israel, 120 Haldane, Andrew, 146 Han Dynasty, 154 Hanauer, Nick, 158 Hansen, Pelle, 124 Happy Planet Index, 280 Hardin, Garrett, 69, 83, 181 Harvard University, 2, 271, 290 von Hayek, Friedrich, 7–8, 62, 66, 67, 143, 156, 158 healthcare, 43, 50, 57, 85, 123, 125, 170, 176, 200, 269, 279 Heilbroner, Robert, 53 Henry VIII, King of England and Ireland, 180 Hepburn, Cameron, 261 Herbert Simon, 111 heuristics, 113–14, 118, 123 high-income countries growth, 30, 244–5, 254–72, 282 inequality, 165, 168, 169, 171 labour, 177, 188–9, 278 overseas development assistance (ODA), 198–9 resource intensive lifestyles, 46, 210–11 trade, 90 Hippocrates, 160 History of Economic Analysis (Schumpeter), 21 HIV/AIDS, 123 Holocene epoch, 46–8, 75, 115, 253 Homo economicus, 94–103, 109, 127–8 Homo sapiens, 38, 104, 130 Hong Kong, 180 household, 78 housing, 45, 59, 176, 182–3, 269 Howe, Geoffrey, 67 Hudson, Michael, 183 Human Development Index, 9, 279 human nature, 28 human rights, 10, 25, 45, 49, 50, 95, 214, 233 humanistic economics, 42 hydropower, 118, 260, 263 I Illinois, United States, 179–80 Imago Mundi, 13 immigration, 82, 199, 236, 266 In Defense of Economic Growth (Beckerman), 258 Inclusive Wealth Index, 280 income, 51, 79–80, 82, 88, 176–8, 188–91, 194, 199–201 India, 2, 9, 10, 42, 124, 164, 178, 196, 206–7, 242, 290 Indonesia, 90, 105–6, 164, 168, 200 Indus Valley civilisation, 48 inequality, 1, 5, 25, 41, 63, 81, 88, 91, 148–52, 209 and consumerism, 111 and democracy, 171 and digital revolution, 191–5 and distribution, 163–205 and environmental degradation, 172 and GDP growth, 173 and greenhouse gas emissions, 58 and intellectual property, 195–8 and Kuznets Curve, 29, 166–70, 173–4 and labour ownership, 188–91 and land ownership, 178–82 and money creation, 182–8 and social welfare, 171 Success to the Successful, 148, 149, 151, 166 inflation, 36, 248, 256, 275 insect pollination services, 7 Institute of Economic Affairs, 67 institutional economics, 11 intellectual property rights, 195–8, 204 interest, 36, 177, 182, 184, 275–6 Intergovernmental Panel on Climate Change, 25 International Monetary Fund (IMF), 170, 172, 173, 183, 255, 258, 271 Internet, 83–4, 89, 105, 192, 202, 264 Ireland, 277 Iroquois Onondaga Nation, 116 Israel, 100, 103, 120 Italy, 165, 196, 254 J Jackson, Tim, 58 Jakubowski, Marcin, 196 Jalisco, Mexico, 217 Japan, 168, 180, 211, 222, 254, 256, 263, 275 Jevons, William Stanley, 16, 97–8, 131, 132, 137, 142 John Lewis Partnership, 190 Johnson, Lyndon Baines, 37 Johnson, Mark, 38 Johnson, Todd, 191 JPMorgan Chase, 149, 234 K Kahneman, Daniel, 111 Kamkwamba, William, 202, 204 Kasser, Tim, 125–6 Keen, Steve, 146, 147 Kelly, Marjorie, 190–91, 233 Kennedy, John Fitzgerald, 37, 250 Kennedy, Paul, 279 Kenya, 118, 123, 180, 185–6, 199–200, 226, 292 Keynes, John Maynard, 7–8, 22, 66, 69, 134, 184, 251, 277–8, 284, 288 Kick It Over movement, 3, 289 Kingston, London, 290 Knight, Frank, 66, 99 knowledge commons, 202–4, 229, 292 Kokstad, South Africa, 56 Kondratieff waves, 246 Korzybski, Alfred, 22 Krueger, Alan, 207–8, 210 Kuhn, Thomas, 22 Kumhof, Michael, 172 Kuwait, 255 Kuznets, Simon, 29, 36, 39–40, 166–70, 173, 174, 175, 204, 207 KwaZulu Natal, South Africa, 56 L labour ownership, 188–91 Lake Erhai, Yunnan, 56 Lakoff, George, 23, 38, 276 Lamelara, Indonesia, 105–6 land conversion, 49, 52, 299 land ownership, 178–82 land-value tax, 73, 149, 180 Landesa, 178 Landlord’s Game, The, 149 law of demand, 16 laws of motion, 13, 16–17, 34, 129, 131 Lehman Brothers, 141 Leopold, Aldo, 115 Lesotho, 118, 199 leverage points, 159 Lewis, Fay, 178 Lewis, Justin, 102 Lewis, William Arthur, 114, 167 Lietaer, Bernard, 175, 236 Limits to Growth, 40, 154, 258 Linux, 231 Liu, Eric, 158 living metrics, 240–42 living purpose, 233–4 Lomé, Togo, 231 London School of Economics (LSE), 2, 34, 65, 290 London Underground, 12 loss aversion, 112 low-income countries, 90, 164–5, 168, 173, 180, 199, 201, 209, 226, 254, 259 Lucas, Robert, 171 Lula da Silva, Luiz Inácio, 124 Luxembourg, 277 Lyle, John Tillman, 214 Lyons, Oren, 116 M M–PESA, 199–200 MacDonald, Tim, 273 Machiguenga, 105–6 MacKenzie, Donald, 101 macroeconomics, 36, 62–6, 76, 80, 134–5, 145, 147, 150, 244, 280 Magie, Elizabeth, 149, 153 Malala effect, 124 malaria, 5 Malawi, 118, 202, 204 Malaysia, 168 Mali, Taylor, 243 Malthus, Thomas, 252 Mamsera Rural Cooperative, 190 Manhattan, New York, 9, 41 Mani, Muthukumara, 206 Manitoba, 282 Mankiw, Gregory, 2, 34 Mannheim, Karl, 22 Maoris, 54 market, 81–2 and business, 88 circular flow, 64 and commons, 83, 93, 181, 200–201 efficiency of, 28, 62, 68, 87, 148, 181 and equilibrium theory, 131–5, 137, 143–7, 155, 156 free market, 33, 37, 67–70, 90, 208 and households, 63, 69, 78, 79 and maxi-max rule, 161 and pricing, 117–23, 131, 160 and rational economic man, 96, 100–101, 103, 104 and reciprocity, 105, 106 reflexivity of, 144–7 and society, 69–70 and state, 84–6, 200, 281 Marshall, Alfred, 17, 98, 133, 165, 253, 282 Marx, Karl, 88, 142, 165, 272 Massachusetts Institute of Technology (MIT), 17–20, 152–5 massive open online courses (MOOCs), 290 Matthew Effect, 151 Max-Neef, Manfred, 42 maxi-max rule, 161 maximum wage, 177 Maya civilisation, 48, 154 Mazzucato, Mariana, 85, 195, 238 McAfee, Andrew, 194, 258 McDonough, William, 217 Meadows, Donella, 40, 141, 159, 271, 292 Medusa, 244, 257, 266 Merkel, Angela, 41 Messerli, Elspeth, 187 Metaphors We Live By (Lakoff & Johnson), 38 Mexico, 121–2, 217 Michaels, Flora S., 6 micro-businesses, 9, 173, 178 microeconomics, 132–4 microgrids, 187–8 Micronesia, 153 Microsoft, 231 middle class, 6, 46, 58 middle-income countries, 90, 164, 168, 173, 180, 226, 254 migration, 82, 89–90, 166, 195, 199, 236, 266, 286 Milanovic, Branko, 171 Mill, John Stuart, 33–4, 73, 97, 250, 251, 283, 284, 288 Millo, Yuval, 101 minimum wage, 82, 88, 176 Minsky, Hyman, 87, 146 Mises, Ludwig von, 66 mission zero, 217 mobile banking, 199–200 mobile phones, 222 Model T revolution, 277–8 Moldova, 199 Mombasa, Kenya, 185–6 Mona Lisa (da Vinci), 94 money creation, 87, 164, 177, 182–8, 205 MONIAC (Monetary National Income Analogue Computer), 64–5, 75, 142, 262 Monoculture (Michaels), 6 Monopoly, 149 Mont Pelerin Society, 67, 93 Moral Consequences of Economic Growth, The (Friedman), 258 moral vacancy, 41 Morgan, Mary, 99 Morogoro, Tanzania, 121 Moyo, Dambisa, 258 Muirhead, Sam, 230, 231 MultiCapital Scorecard, 241 Murphy, David, 264 Murphy, Richard, 185 musical tastes, 110 Myriad Genetics, 196 N national basic income, 177 Native Americans, 115, 116, 282 natural capital, 7, 116, 269 Natural Economic Order, The (Gessel), 274 Nedbank, 216 negative externalities, 213 negative interest rates, 275–6 neoclassical economics, 134, 135 neoliberalism, 7, 62–3, 67–70, 81, 83, 84, 88, 93, 143, 170, 176 Nepal, 181, 199 Nestlé, 217 Netherlands, 211, 235, 224, 226, 238, 277 networks, 110–11, 117, 118, 123, 124–6, 174–6 neuroscience, 12–13 New Deal, 37 New Economics Foundation, 278, 283 New Year’s Day, 124 New York, United States, 9, 41, 55 Newlight Technologies, 224, 226, 293 Newton, Isaac, 13, 15–17, 32–3, 95, 97, 129, 131, 135–7, 142, 145, 162 Nicaragua, 196 Nigeria, 164 nitrogen, 49, 52, 212–13, 216, 218, 221, 226, 298 ‘no pain, no gain’, 163, 167, 173, 204, 209 Nobel Prize, 6–7, 43, 83, 101, 167 Norway, 281 nudging, 112, 113, 114, 123–6 O Obama, Barack, 41, 92 Oberlin, Ohio, 239, 240–41 Occupy movement, 40, 91 ocean acidification, 45, 46, 52, 155, 242, 298 Ohio, United States, 190, 239 Okun, Arthur, 37 onwards and upwards, 53 Open Building Institute, 196 Open Source Circular Economy (OSCE), 229–32 open systems, 74 open-source design, 158, 196–8, 265 open-source licensing, 204 Organisation for Economic Co-operation and Development (OECD), 38, 210, 255–6, 258 Origin of Species, The (Darwin), 14 Ormerod, Paul, 110, 111 Orr, David, 239 Ostrom, Elinor, 83, 84, 158, 160, 181–2 Ostry, Jonathan, 173 OSVehicle, 231 overseas development assistance (ODA), 198–200 ownership of wealth, 177–82 Oxfam, 9, 44 Oxford University, 1, 36 ozone layer, 9, 50, 115 P Pachamama, 54, 55 Pakistan, 124 Pareto, Vilfredo, 165–6, 175 Paris, France, 290 Park 20|20, Netherlands, 224, 226 Parker Brothers, 149 Patagonia, 56 patents, 195–6, 197, 204 patient capital, 235 Paypal, 192 Pearce, Joshua, 197, 203–4 peer-to-peer networks, 187, 192, 198, 203, 292 People’s QE, 184–5 Perseus, 244 Persia, 13 Peru, 2, 105–6 Phillips, Adam, 283 Phillips, William ‘Bill’, 64–6, 75, 142, 262 phosphorus, 49, 52, 212–13, 218, 298 Physiocrats, 73 Pickett, Kate, 171 pictures, 12–25 Piketty, Thomas, 169 Playfair, William, 16 Poincaré, Henri, 109, 127–8 Polanyi, Karl, 82, 272 political economy, 33–4, 42 political funding, 91–2, 171–2 political voice, 43, 45, 51–2, 77, 117 pollution, 29, 45, 52, 85, 143, 155, 206–17, 226, 238, 242, 254, 298 population, 5, 46, 57, 155, 199, 250, 252, 254 Portugal, 211 post-growth society, 250 poverty, 5, 9, 37, 41, 50, 88, 118, 148, 151 emotional, 283 and inequality, 164–5, 168–9, 178 and overseas development assistance (ODA), 198–200 and taxation, 277 power, 91–92 pre-analytic vision, 21–2 prescription medicines, 123 price-takers, 132 prices, 81, 118–23, 131, 160 Principles of Economics (Mankiw), 34 Principles of Economics (Marshall), 17, 98 Principles of Political Economy (Mill), 288 ProComposto, 226 Propaganda (Bernays), 107 public relations, 107, 281 public spending v. investment, 276 public–private patents, 195 Putnam, Robert, 76–7 Q quantitative easing (QE), 184–5 Quebec, 281 Quesnay, François, 16, 73 R Rabot, Ghent, 236 Rancière, Romain, 172 rating and review systems, 105 rational economic man, 94–103, 109, 111, 112, 126, 282 Reagan, Ronald, 67 reciprocity, 103–6, 117, 118, 123 reflexivity of markets, 144 reinforcing feedback loops, 138–41, 148, 250, 271 relative decoupling, 259 renewable energy biomass energy, 118, 221 and circular economy, 221, 224, 226, 235, 238–9, 274 and commons, 83, 85, 185, 187–8, 192, 203, 264 geothermal energy, 221 and green growth, 257, 260, 263, 264, 267 hydropower, 118, 260, 263 pricing, 118 solar energy, see solar energy wave energy, 221 wind energy, 75, 118, 196, 202–3, 221, 233, 239, 260, 263 rentier sector, 180, 183, 184 reregulation, 82, 87, 269 resource flows, 175 resource-intensive lifestyles, 46 Rethinking Economics, 289 Reynebeau, Guy, 237 Ricardo, David, 67, 68, 73, 89, 250 Richardson, Katherine, 53 Rifkin, Jeremy, 83, 264–5 Rise and Fall of the Great Powers, The (Kennedy), 279 risk, 112, 113–14 Robbins, Lionel, 34 Robinson, James, 86 Robinson, Joan, 142 robots, 191–5, 237, 258, 278 Rockefeller Foundation, 135 Rockford, Illinois, 179–80 Rockström, Johan, 48, 55 Roddick, Anita, 232–4 Rogoff, Kenneth, 271, 280 Roman Catholic Church, 15, 19 Rombo, Tanzania, 190 Rome, Ancient, 13, 48, 154 Romney, Mitt, 92 Roosevelt, Franklin Delano, 37 rooted membership, 190 Rostow, Walt, 248–50, 254, 257, 267–70, 284 Ruddick, Will, 185 rule of thumb, 113–14 Ruskin, John, 42, 223 Russia, 200 rust belt, 90, 239 S S curve, 251–6 Sainsbury’s, 56 Samuelson, Paul, 17–21, 24–5, 38, 62–7, 70, 74, 84, 91, 92, 93, 262, 290–91 Sandel, Michael, 41, 120–21 Sanergy, 226 sanitation, 5, 51, 59 Santa Fe, California, 213 Santinagar, West Bengal, 178 São Paolo, Brazil, 281 Sarkozy, Nicolas, 43 Saumweder, Philipp, 226 Scharmer, Otto, 115 Scholes, Myron, 100–101 Schumacher, Ernst Friedrich, 42, 142 Schumpeter, Joseph, 21 Schwartz, Shalom, 107–9 Schwarzenegger, Arnold, 163, 167, 204 ‘Science and Complexity’ (Weaver), 136 Scotland, 57 Seaman, David, 187 Seattle, Washington, 217 second machine age, 258 Second World War (1939–45), 18, 37, 70, 170 secular stagnation, 256 self-interest, 28, 68, 96–7, 99–100, 102–3 Selfish Society, The (Gerhardt), 283 Sen, Amartya, 43 Shakespeare, William, 61–3, 67, 93 shale gas, 264, 269 Shang Dynasty, 48 shareholders, 82, 88, 189, 191, 227, 234, 273, 292 sharing economy, 264 Sheraton Hotel, Boston, 3 Siegen, Germany, 290 Silicon Valley, 231 Simon, Julian, 70 Sinclair, Upton, 255 Sismondi, Jean, 42 slavery, 33, 77, 161 Slovenia, 177 Small Is Beautiful (Schumacher), 42 smart phones, 85 Smith, Adam, 33, 57, 67, 68, 73, 78–9, 81, 96–7, 103–4, 128, 133, 160, 181, 250 social capital, 76–7, 122, 125, 172 social contract, 120, 125 social foundation, 10, 11, 44, 45, 49, 51, 58, 77, 174, 200, 254, 295–6 social media, 83, 281 Social Progress Index, 280 social pyramid, 166 society, 76–7 solar energy, 59, 75, 111, 118, 187–8, 190 circular economy, 221, 222, 223, 224, 226–7, 239 commons, 203 zero-energy buildings, 217 zero-marginal-cost revolution, 84 Solow, Robert, 135, 150, 262–3 Soros, George, 144 South Africa, 56, 177, 214, 216 South Korea, 90, 168 South Sea Bubble (1720), 145 Soviet Union (1922–91), 37, 67, 161, 279 Spain, 211, 238, 256 Spirit Level, The (Wilkinson & Pickett), 171 Sraffa, Piero, 148 St Gallen, Switzerland, 186 Stages of Economic Growth, The (Rostow), 248–50, 254 stakeholder finance, 190 Standish, Russell, 147 state, 28, 33, 69–70, 78, 82, 160, 176, 180, 182–4, 188 and commons, 85, 93, 197, 237 and market, 84–6, 200, 281 partner state, 197, 237–9 and robots, 195 stationary state, 250 Steffen, Will, 46, 48 Sterman, John, 66, 143, 152–4 Steuart, James, 33 Stiglitz, Joseph, 43, 111, 196 stocks and flows, 138–41, 143, 144, 152 sub-prime mortgages, 141 Success to the Successful, 148, 149, 151, 166 Sugarscape, 150–51 Summers, Larry, 256 Sumner, Andy, 165 Sundrop Farms, 224–6 Sunstein, Cass, 112 supply and demand, 28, 132–6, 143, 253 supply chains, 10 Sweden, 6, 255, 275, 281 swishing, 264 Switzerland, 42, 66, 80, 131, 186–7, 275 T Tableau économique (Quesnay), 16 tabula rasa, 20, 25, 63, 291 takarangi, 54 Tanzania, 121, 190, 202 tar sands, 264, 269 taxation, 78, 111, 165, 170, 176, 177, 237–8, 276–9 annual wealth tax, 200 environment, 213–14, 215 global carbon tax, 201 global financial transactions tax, 201, 235 land-value tax, 73, 149, 180 non-renewable resources, 193, 237–8, 278–9 People’s QE, 185 tax relief v. tax justice, 23, 276–7 TED (Technology, Entertainment, Design), 202, 258 Tempest, The (Shakespeare), 61, 63, 93 Texas, United States, 120 Thailand, 90, 200 Thaler, Richard, 112 Thatcher, Margaret, 67, 69, 76 Theory of Moral Sentiments (Smith), 96 Thompson, Edward Palmer, 180 3D printing, 83–4, 192, 198, 231, 264 thriving-in-balance, 54–7, 62 tiered pricing, 213–14 Tigray, Ethiopia, 226 time banking, 186 Titmuss, Richard, 118–19 Toffler, Alvin, 12, 80 Togo, 231, 292 Torekes, 236–7 Torras, Mariano, 209 Torvalds, Linus, 231 trade, 62, 68–9, 70, 89–90 trade unions, 82, 176, 189 trademarks, 195, 204 Transatlantic Trade and Investment Partnership (TTIP), 92 transport, 59 trickle-down economics, 111, 170 Triodos, 235 Turkey, 200 Tversky, Amos, 111 Twain, Mark, 178–9 U Uganda, 118, 125 Ulanowicz, Robert, 175 Ultimatum Game, 105, 117 unemployment, 36, 37, 276, 277–9 United Kingdom Big Bang (1986), 87 blood donation, 118 carbon dioxide emissions, 260 free trade, 90 global material footprints, 211 money creation, 182 MONIAC (Monetary National Income Analogue Computer), 64–5, 75, 142, 262 New Economics Foundation, 278, 283 poverty, 165, 166 prescription medicines, 123 wages, 188 United Nations, 55, 198, 204, 255, 258, 279 G77 bloc, 55 Human Development Index, 9, 279 Sustainable Development Goals, 24, 45 United States American Economic Association meeting (2015), 3 blood donation, 118 carbon dioxide emissions, 260 Congress, 36 Council of Economic Advisers, 6, 37 Earning by Learning, 120 Econ 101 course, 8, 77 Exxon Valdez oil spill (1989), 9 Federal Reserve, 87, 145, 146, 271, 282 free trade, 90 Glass–Steagall Act (1933), 87 greenhouse gas emissions, 153 global material footprint, 211 gross national product (GNP), 36–40 inequality, 170, 171 land-value tax, 73, 149, 180 political funding, 91–2, 171 poverty, 165, 166 productivity and employment, 193 rust belt, 90, 239 Transatlantic Trade and Investment Partnership (TTIP), 92 wages, 188 universal basic income, 200 University of Berkeley, 116 University of Denver, 160 urbanisation, 58–9 utility, 35, 98, 133 V values, 6, 23, 34, 35, 42, 117, 118, 121, 123–6 altruism, 100, 104 anthropocentric, 115 extrinsic, 115 fluid, 28, 102, 106–9 and networks, 110–11, 117, 118, 123, 124–6 and nudging, 112, 113, 114, 123–6 and pricing, 81, 120–23 Veblen, Thorstein, 82, 109, 111, 142 Venice, 195 verbal framing, 23 Verhulst, Pierre, 252 Victor, Peter, 270 Viner, Jacob, 34 virtuous cycles, 138, 148 visual framing, 23 Vitruvian Man, 13–14 Volkswagen, 215–16 W Wacharia, John, 186 Wall Street, 149, 234, 273 Wallich, Henry, 282 Walras, Léon, 131, 132, 133–4, 137 Ward, Barbara, 53 Warr, Benjamin, 263 water, 5, 9, 45, 46, 51, 54, 59, 79, 213–14 wave energy, 221 Ways of Seeing (Berger), 12, 281 Wealth of Nations, The (Smith), 74, 78, 96, 104 wealth ownership, 177–82 Weaver, Warren, 135–6 weightless economy, 261–2 WEIRD (Western, educated, industrialised, rich, democratic), 103–5, 110, 112, 115, 117, 282 West Bengal, India, 124, 178 West, Darrell, 171–2 wetlands, 7 whale hunting, 106 Wiedmann, Tommy, 210 Wikipedia, 82, 223 Wilkinson, Richard, 171 win–win trade, 62, 68, 89 wind energy, 75, 118, 196, 202–3, 221, 233, 239, 260, 263 Wizard of Oz, The, 241 Woelab, 231, 293 Wolf, Martin, 183, 266 women’s rights, 33, 57, 107, 160, 201 and core economy, 69, 79–81 education, 57, 124, 178, 198 and land ownership, 178 see also gender equality workers’ rights, 88, 91, 269 World 3 model, 154–5 World Bank, 6, 41, 119, 164, 168, 171, 206, 255, 258 World No Tobacco Day, 124 World Trade Organization, 6, 89 worldview, 22, 54, 115 X xenophobia, 266, 277, 286 Xenophon, 4, 32, 56–7, 160 Y Yandle, Bruce, 208 Yang, Yuan, 1–3, 289–90 yin yang, 54 Yousafzai, Malala, 124 YouTube, 192 Yunnan, China, 56 Z Zambia, 10 Zanzibar, 9 Zara, 276 Zeitvorsoge, 186–7 zero environmental impact, 217–18, 238, 241 zero-hour contracts, 88 zero-humans-required production, 192 zero-interest loans, 183 zero-marginal-cost revolution, 84, 191, 264 zero-waste manufacturing, 227 Zinn, Howard, 77 PICTURE ACKNOWLEDGEMENTS Illustrations are reproduced by kind permission of: archive.org

Can It Happen Here?: Authoritarianism in America by Cass R. Sunstein

active measures, affirmative action, Affordable Care Act / Obamacare, airline deregulation, anti-communist, anti-globalists, availability heuristic, behavioural economics, Black Lives Matter, Brexit referendum, business cycle, Cambridge Analytica, Cass Sunstein, cognitive load, David Brooks, disinformation, Donald Trump, driverless car, Edward Snowden, Estimating the Reproducibility of Psychological Science, failed state, fake news, Filter Bubble, Francis Fukuyama: the end of history, Garrett Hardin, ghettoisation, illegal immigration, immigration reform, Isaac Newton, job automation, Joseph Schumpeter, Long Term Capital Management, microaggression, Nate Silver, Network effects, New Journalism, night-watchman state, nudge theory, obamacare, Paris climate accords, post-truth, Potemkin village, random walk, Richard Thaler, road to serfdom, Ronald Reagan, seminal paper, Steve Bannon, TED Talk, the scientific method, Tragedy of the Commons, Tyler Cowen, War on Poverty, WikiLeaks, World Values Survey

She focuses on the use of threatening/reassuring messages to increase/decrease authoritarian behavior in the electorate. Stenner also publishes and consults extensively on energy consumer behavior, including around the design of messages and behavioral interventions to promote energy efficiency and the uptake of renewable energy. She previously served as Senior Research Scientist and Leader of the Behavioural Economics and Psychological Insights unit at the CSIRO (Commonwealth Scientific and Industrial Research Organisation), Australia’s national science agency. Stenner has eclectic interests across the social and behavioral sciences, and favors evidence-based interdisciplinary research that offers actual solutions to real-world problems.

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It follows from this framework that the choices people make necessarily reflect their preferences (Mayhew 1980). This notion of rationality is extremely plausible (commonsense even) and is highlighted in Freakonomics-style books that extol the power of incentives to guide and explain behavior. But as several decades of psychology and behavioral economics research has demonstrated (Ariely 2008; Gilovich, Griffin, and Kahneman 2002), it ignores what Daniel Kahneman calls “system 2” thinking (Kahneman 2011), which resides in our unconscious brains and can be influenced by, among other things, subtle details in the presentation of options (Thaler and Sunstein 2008)—e.g., default settings (Johnson and Goldstein 2003), cognitive loads imposed by background environmental stresses (Mullainathan and Shafir 2013), and implicit biases arising from cultural stereotypes and irrelevant personal experience (Banaji and Greenwald 2016).

…

., 429 conservatism compared with, 181–84 impact on populism, 201–3 steps to, 365–66 what it does, 184–85 when it does this, 185–88 “Authoritarianism Is Not a Momentary Madness, but an Eternal Dynamic within Liberal Democracies” (Stenner and Haidt), 175–219 Authoritarian Personality, The (Adorno), 183 Authoritarian predisposition, 179, 180, 187, 191–94, 196, 197, 203, 215–16, 219n Authoritarian rule, and Trump, 2–16 Authorization for Use of Military Force (AUMF), 224 Authorization of Regulatory Force and Adjustment (ARFA), 136–37, 144 Autocracy, 24, 140, 154, 267 psychology of, 279–84 Availability cascade, 251 Availability chambers, 249–58, 261–62 Availability heuristic, 251–52 Background circumstances, 344, 348 Balkin, Jack M., 452 “Constitutional Rot,” 19–35 Bannon, Steve, 41 “Basket of deplorables,” 242 Bastid, P., 296, 297, 300 Beattie, James, 335–36, 338 Beaumont, Gustave de, 291–92 Beck, Glenn, 243 Behavioral economics, 341–43 Berlusconi, Silvio, 147, 277 Berton, H., 296 “Beyond Elections: Foreign Interference with American Democracy” (Power), 81–103 Biases, 341–43, 348 Bicameralism, 70, 71, 72 Biddle, Nicholas, 221, 440 Big Five personality traits, 183 Big government, 38, 47, 50–53, 268 Bill of Rights, 79 Black, Hugo, 442 Black Lives Matter, 93, 190, 258 Black sites, 115, 124 Blanc, Louis, 286 Born rulers, 280–82 Brandeis, Louis, 437, 445 Brandenburg v.

Doing Good Better: How Effective Altruism Can Help You Make a Difference by William MacAskill

barriers to entry, basic income, behavioural economics, Black Swan, Branko Milanovic, Cal Newport, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, clean water, corporate social responsibility, correlation does not imply causation, Daniel Kahneman / Amos Tversky, David Brooks, Edward Jenner, effective altruism, en.wikipedia.org, end world poverty, experimental subject, follow your passion, food miles, immigration reform, income inequality, index fund, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, job automation, job satisfaction, Lean Startup, M-Pesa, mass immigration, meta-analysis, microcredit, Nate Silver, Peter Singer: altruism, power law, public intellectual, purchasing power parity, quantitative trading / quantitative finance, randomized controlled trial, self-driving car, Skype, Stanislav Petrov, Steve Jobs, Steve Wozniak, Steven Pinker, The Future of Employment, The Wealth of Nations by Adam Smith, Tyler Cowen, universal basic income, William MacAskill, women in the workforce

Daniel Kahneman and Amos Tversky were psychologists who caused a revolution within economics: For an excellent overview of this pathbreaking research, see Daniel Kahneman, Thinking, Fast and Slow (New York: Farrar, Straus and Giroux, 2011). this field has improved our ability to cause desirable behavior change: For examples, see “Poor Behaviour: Behavioural Economics Meets Development Policy,” The Economist, December 6, 2014, and Dean Karlan and Jacob Appel, More Than Good Intentions: How a New Economics Is Helping to Solve Global Poverty (New York: Dutton, 2011). the distribution of book sales: Newman, “Power Laws,” 5. as is the distribution of Twitter follower counts: State of the Social Media Marketing Industry, HubSpot, January 2010, http://www.hubspot.com/Portals/53/docs/01.10.sot.report.pdf.

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There are far more combinations of fields than there are individual fields, and research tends to be influenced by traditional disciplinary distinctions, so research at the intersection of two disciplines is often particularly neglected and can for that reason be very high-impact. For example, Daniel Kahneman and Amos Tversky were psychologists who caused a revolution within economics: they applied methods developed in psychology to test assumptions about rational choice that were prevalent within economics, thereby leading to the new field of “behavioral economics.” By giving us a better understanding of human behavior, this field has improved our ability to cause desirable behavior change, including in development. Similarly, effective altruism has made the progress it has by combining concepts from moral philosophy and economics. Combining fields can be especially useful when one moves from a more theoretical area to an area with real-world applications.

The Future of Capitalism: Facing the New Anxieties by Paul Collier

"Friedman doctrine" OR "shareholder theory", accounting loophole / creative accounting, Airbnb, An Inconvenient Truth, assortative mating, bank run, Bear Stearns, behavioural economics, Berlin Wall, Bernie Sanders, bitcoin, Bob Geldof, bonus culture, business cycle, call centre, central bank independence, centre right, commodity super cycle, computerized trading, corporate governance, creative destruction, cuban missile crisis, David Brooks, delayed gratification, deskilling, Donald Trump, eurozone crisis, fake news, financial deregulation, full employment, George Akerlof, Goldman Sachs: Vampire Squid, greed is good, income inequality, industrial cluster, information asymmetry, intangible asset, Jean Tirole, Jeremy Corbyn, job satisfaction, John Perry Barlow, Joseph Schumpeter, knowledge economy, late capitalism, loss aversion, Mark Zuckerberg, minimum wage unemployment, moral hazard, negative equity, New Urbanism, Northern Rock, offshore financial centre, out of africa, Peace of Westphalia, principal–agent problem, race to the bottom, rent control, rent-seeking, rising living standards, Robert Shiller, Robert Solow, Ronald Reagan, shareholder value, Silicon Valley, Silicon Valley ideology, sovereign wealth fund, The Wealth of Nations by Adam Smith, theory of mind, too big to fail, trade liberalization, urban planning, web of trust, zero-sum game

Tony Venables, whose profound influence on Chapter 7 is evident, also commented in detail on the entire manuscript. Finally, Denis Snower, President of the Kiel Institute for the World Economy, not only commented in detail on the manuscript but has been invaluable in encouraging and contributing to what we have come to regard as ‘behavioural economics, generation 2’: the attempt to bring the insights of social psychology into the economic analysis of group behaviour, as distinct from individual decision biases. Our colleagues in the network Economic Research on Identity, Narratives and Norms will in various places recognize my intellectual debt to their work.

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O. (2015), Dancing in the Dark: My Struggle (Vol. 4). London and New York: Random House. Lee Kuan Yew (2000), From Third World to First: The Singapore Story 1965–2000. Singapore: Singapore Press Holdings. Levitt, S. D., List, J. A., Neckermann, S., and Sadoff, S. (2016), The behavioralist goes to school: leveraging behavioral economics to improve educational performance’. American Economic Journal: Economic Policy, 8 (4), pp. 183–219. Lewis, M., and Baker, D. (2014), Flash Boys. New York: W. W. Norton. MacIntyre, A. (2013), After Virtue. London: A&C Black (first published 1981). Martin, M. (2018), Why We Fight. London: Hurst.

A Pelican Introduction: Basic Income by Guy Standing

"World Economic Forum" Davos, anti-fragile, bank run, basic income, behavioural economics, Bernie Sanders, Bertrand Russell: In Praise of Idleness, Black Lives Matter, Black Swan, Boris Johnson, British Empire, carbon tax, centre right, collective bargaining, cryptocurrency, David Graeber, declining real wages, degrowth, deindustrialization, Donald Trump, Elon Musk, Fellow of the Royal Society, financial intermediation, full employment, future of work, gig economy, Gunnar Myrdal, housing crisis, hydraulic fracturing, income inequality, independent contractor, intangible asset, Jeremy Corbyn, job automation, job satisfaction, Joi Ito, labour market flexibility, land value tax, libertarian paternalism, low skilled workers, lump of labour, Marc Benioff, Mark Zuckerberg, Martin Wolf, mass immigration, mass incarceration, moral hazard, Nelson Mandela, nudge theory, offshore financial centre, open economy, Panopticon Jeremy Bentham, Paul Samuelson, plutocrats, precariat, quantitative easing, randomized controlled trial, rent control, rent-seeking, Salesforce, Sam Altman, self-driving car, shareholder value, sharing economy, Silicon Valley, sovereign wealth fund, Stephen Hawking, The Future of Employment, universal basic income, Wolfgang Streeck, women in the workforce, working poor, Y Combinator, Zipcar

The Danger of Libertarian Paternalism Many libertarians reveal themselves as little more than moralistic conservatives. Thus Charles Murray sees a basic income as encouraging ‘better’ behaviour and a revival of ‘civic culture’. This is a paternalistic argument, not one about freedom. But he is not as explicit as the new breed of libertarian paternalists, who lean on ‘behavioural economics’ and ‘nudge theory’ to justify giving a very prominent role to government to steer or nudge people to make ‘the right choices’. They have been highly influential, to the extent that one of the authors of Nudge, the seminal book on the subject, became principal regulator in Barack Obama’s White House, while the other became an adviser to the British Prime Minister.11 Libertarian paternalism has become a dominant mode of policy making in the globalization era, advocated and implemented by those calling themselves liberals (as in the case of Britain’s Liberal Democrats when they were in the coalition government) and by social democrats, as well as by conservatives.

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As long as pilots are not used as an excuse for lack of political action, they should be a force for good, if only for showing or suggesting what other interventions would make a basic income optimally successful. The real challenge today is political will. Perhaps the biggest danger in this fluid phase of basic income pilots is that they will evolve into social engineering, testing out morally dubious tactics derived from behavioural economics. The term ‘basic income’ could become a cover for something close to workfare, when pilots are presented as testing ‘the incentive to work’ (sic) and varieties of conditionality. To be a proper test, any ‘basic income’ experiment must be consistent with the proper meaning of a basic income; payment must be universal, unconditional and individual (see Appendix).

A Life Less Throwaway: The Lost Art of Buying for Life by Tara Button

behavioural economics, circular economy, clean water, collaborative consumption, David Attenborough, delayed gratification, Downton Abbey, Fairphone, gamification, Great Leap Forward, hedonic treadmill, Internet of things, Kickstarter, life extension, lock screen, Mark Zuckerberg, Mason jar, meta-analysis, period drama, planned obsolescence, Rana Plaza, retail therapy, Stanford marshmallow experiment, Steve Jobs, TED Talk, thinkpad

‘Warren Buffet’, Forbes, 2017, https://www.forbes.com/profile/warren-buffett/ 5.‘Warren Buffet: his best quotes’, Telegraph, 14 February 2012, http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8381363/Warren-Buffett-his-best-quotes.html. 6.Morris Altman, Handbook of Contemporary Behavioural Economics: Foundations and developments (M. E. Sharpe, 2006). 7.https://www.researchgate.net/publication/236848002_The_relationship_of_materialism_to_debt_and_financial_well-being_The_case_of_Iceland’s_perceived_prosperity. 8.Global umbrella survey results, Sunnycomb Tumblr, 1 July 2014, https://sunnycomb.tumblr.com/post/90373669845/global-umbrella-survey-results. 9.http://www.huffingtonpost.com/2013/05/23/retail-therapy-shopping_n_3324972.html. 10.Viktor E.

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CONCLUSION 1.Victor Papanek, Design for the Real World: Human ecology and social change (Academy Chicago Publishers, 1971, 1985). 2.Bill Watterson, ‘Some Thoughts on the Real World Who Glimpsed It and Fled’ speech given at Kenyon College, Gambier, Ohio, 20 May 1990, http://web.mit.edu/jmorzins/www/C-H-speech.html. 3.www.footprintnetwork.org. 4.https://earthobservatory.nasa.gov/Features/WorldOfChange/decadaltemp.php. 5.Quoted in Andrew Simms, “A cat in hell’s chance” – why we’re losing the battle to keep global warming below 2C’, Guardian, 19 January 2017, https://www.theguardian.com/environment/2017/jan/19/cat-in-hells-chance-why-losing-battle-keep-global-warming-2c-climate-change. 6.http://www.nationalgeographic.com/magazine/2013/09/rising-seas-ice-melt-new-shoreline-maps/ 7.Simms, op. cit. 8.https://www.theguardian.com/environment/2015/dec/02/worlds-richest-10-produce-half-of-global-carbon-emissions-says-oxfam. Further Reading Adams, Douglas, The Hitchhiker’s Guide to the Galaxy (Pan, 1979). Altman, Morris, Handbook of Contemporary Behavioural Economics: Foundations and developments (M. E. Sharpe, 2006). Botsman, Rachel, and Rogers, Roo, What’s Mine Is Yours: The rise of collaborative consumption (HarperCollins, 2010). Brotheridge, Chloë, The Anxiety Solution: A quieter mind, a calmer you (Michael Joseph, 2017). Brown, Derren, Happy: Why more or less everything is absolutely fine (Bantam Press, 2016).

Randomistas: How Radical Researchers Changed Our World by Andrew Leigh

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

The competition continues to operate through a non-profit foundation, which has announced that it will fund all proposals that receive a high rating from its review panel.8 Simplicity is at the core of the approach taken by the behavioural insights teams which are emerging in central government agencies across the globe. In 2010 the British government became the first to establish a so-called ‘Nudge Unit’, to bring the principles of psychology and behavioural economics into policymaking. The interventions were mostly low-cost – such as tweaking existing mailings – and were tested through randomised trials wherever possible. In some cases they took only a few weeks. Since its creation, the tiny Nudge Unit has carried out more randomised experiments than the British government had conducted in that country’s history.9 The Nudge Unit focused on ‘low cost, rapid’ experiments.10 It found that letters asking people to pay their car tax were 9 percentage points more effective if they included a photograph of the offending vehicle, along with the caption ‘Pay Your Tax or Lose Your Car’.11 A personally scribbled note on the envelope along the lines of ‘Andrew, you really need to open this’ increased taxpaying by 4 percentage points.

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Participants receiving the TMW intervention significantly increased their talk and interaction with their children. Publication of this study is forthcoming.’: http://thirtymillionwords.org/tmw-initiative/. 56Steven D. Levitt, John A. List, Susanne Neckermann & Sally Sadoff, ‘The behavioralist goes to school: Leveraging behavioral economics to improve educational performance’, American Economic Journal: Economic Policy, vol. 8, no. 4, 2016, pp. 183–219. 57For a discussion of the complexity challenge inherent in this program, see Roland G. Fryer, ‘Teacher incentives and student achievement: Evidence from New York City Public Schools’, Journal of Labor Economics, vol. 31, no. 2, 2013, pp. 373–407. 58J.A.

The Precariat: The New Dangerous Class by Guy Standing

8-hour work day, banking crisis, barriers to entry, basic income, behavioural economics, Bertrand Russell: In Praise of Idleness, bread and circuses, call centre, Cass Sunstein, centre right, collective bargaining, company town, corporate governance, crony capitalism, death from overwork, deindustrialization, deskilling, emotional labour, export processing zone, fear of failure, full employment, Herbert Marcuse, hiring and firing, Honoré de Balzac, housing crisis, illegal immigration, immigration reform, income inequality, independent contractor, information security, it's over 9,000, job polarisation, karōshi / gwarosa / guolaosi, labour market flexibility, labour mobility, land reform, libertarian paternalism, low skilled workers, lump of labour, marginal employment, Mark Zuckerberg, mass immigration, means of production, mini-job, moral hazard, Naomi Klein, nudge unit, old age dependency ratio, Panopticon Jeremy Bentham, pension time bomb, pensions crisis, placebo effect, post-industrial society, precariat, presumed consent, quantitative easing, remote working, rent-seeking, Richard Thaler, rising living standards, Ronald Coase, Ronald Reagan, science of happiness, shareholder value, Silicon Valley, technological determinism, The Market for Lemons, The Nature of the Firm, The Spirit Level, Tobin tax, transaction costs, universal basic income, unpaid internship, winner-take-all economy, working poor, working-age population, young professional

Why risk being humiliated online by being rigorous? Give them what they want! This is an illusion of empowerment that degrades responsibility and professionalism. Soon, everybody will be rating everybody else. The state as libertarian paternalist A new perspective on social and economic policy is behavioural economics, which has produced libertarian paternalism. Nudge, an influential book by Cass Sunstein and Richard Thaler (2008), two Chicago-based advisers and friends of Barack Obama, was premised on the idea that people have too much information and so make irrational decisions. People must be steered, or nudged, to make A POLITICS OF INFERNO 139 the decisions that are in their best interest.

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One of its authors said, ‘If you are 140 THE PRECARIAT making life too comfortable at home, why would they get a job?’ At least that recognised that jobs were not attractive in themselves. But here was the state indulging in paternalistic steering while contributing to the demonisation of part of the precariat. They cannot work out how to behave themselves! One could give many examples of the use of behavioural economics and libertarian paternalism to bear on the lives of the precariat, notably through clever use of ‘opt-out’ rules, making it hard to opt out and almost obligatory to ‘opt in’. The new buzz word is ‘conditionality’. There has been a remarkable growth of conditional cash transfer schemes or CCTs.

The Intelligence Trap: Revolutionise Your Thinking and Make Wiser Decisions by David Robson

active measures, Affordable Care Act / Obamacare, Albert Einstein, Alfred Russel Wallace, Atul Gawande, autism spectrum disorder, availability heuristic, behavioural economics, classic study, cognitive bias, corporate governance, correlation coefficient, cuban missile crisis, Daniel Kahneman / Amos Tversky, dark matter, deep learning, deliberate practice, dematerialisation, Donald Trump, Dunning–Kruger effect, fake news, Flynn Effect, framing effect, fundamental attribution error, illegal immigration, Isaac Newton, job satisfaction, knowledge economy, Large Hadron Collider, lone genius, meta-analysis, Nelson Mandela, obamacare, Parler "social media", pattern recognition, post-truth, price anchoring, reality distortion field, Richard Feynman, risk tolerance, Silicon Valley, social intelligence, Steve Jobs, sunk-cost fallacy, tacit knowledge, TED Talk, the scientific method, theory of mind, traveling salesman, ultimatum game, Y2K, Yom Kippur War

All of the quotations have also been taken from Rowe’s translation of Plato’s Apology contained in this volume: Rowe, C. (2010), The Last Days of Socrates, London: Penguin (Kindle Edition). The parallels between Socrates’ trial and the research on the bias blind spot may not be the only instance in which Greek philosophy pre-empted behavioural economics and psychology. In an article for the online magazine Aeon, the journalist Nick Romeo finds examples of framing, confirmation bias and anchoring in Plato’s teaching. See Romeo, N. (2017), ‘Platonically Irrational’, Aeon, https://aeon.co/essays/what-plato-knew-about-behavioural-economics-a-lot. 5 Descartes, R. (1637), A Discourse on the Method, trans. Maclean, I. (2006), Oxford: Oxford University Press, p. 5. 6 Shurkin, J. (1992), Terman’s Kids: The Groundbreaking Study of How the Gifted Grow Up, Boston, MA: Little, Brown, p. 122. 7 Shurkin, Terman’s Kids, pp. 51?

The Art of Execution: How the World's Best Investors Get It Wrong and Still Make Millions by Lee Freeman-Shor

Alan Greenspan, behavioural economics, Black Swan, buy and hold, Carl Icahn, cognitive bias, collapse of Lehman Brothers, credit crunch, Daniel Kahneman / Amos Tversky, diversified portfolio, family office, I think there is a world market for maybe five computers, index fund, Isaac Newton, Jeff Bezos, Long Term Capital Management, loss aversion, Market Wizards by Jack D. Schwager, Pershing Square Capital Management, Richard Thaler, Robert Shiller, rolodex, Skype, South Sea Bubble, Stanford marshmallow experiment, Steve Jobs, technology bubble, The Wisdom of Crowds, too big to fail, tulip mania, world market for maybe five computers, zero-sum game

Thus, you could have two boxes left, one with £1m inside and the other with £50,000. The banker might offer you £150,000 to walk away. Many people do take the certain £150,000 instead of risking walking away with ‘just’ £50,000. It’s emotionally very hard to risk losing a certain profit for a potentially bigger, but uncertain, profit, and most cannot do it. The behavioural economics experts Dan Ariely and Ziv Carmon undertook a fascinating study of Deal or No Deal which every investor who feels the temptation to be a Raider should read.42 “We have an irrational tendency to be less willing to gamble with profits than with losses. This means selling quickly when we earn profits but not selling if we are running losses.”43 – Lars Tvede Why you shouldn’t sell early If the example investments earlier weren’t enough to persuade you of the folly of being a stock market Raider, here are five big reasons that it makes no sense. 1.

Money Moments: Simple Steps to Financial Well-Being by Jason Butler

Albert Einstein, asset allocation, behavioural economics, buy and hold, Cass Sunstein, Cornelius Vanderbilt, diversified portfolio, estate planning, financial independence, fixed income, happiness index / gross national happiness, index fund, intangible asset, John Bogle, longitudinal study, loss aversion, Lyft, Mark Zuckerberg, mortgage debt, Mr. Money Mustache, passive income, placebo effect, Richard Thaler, ride hailing / ride sharing, Steve Jobs, time value of money, traffic fines, Travis Kalanick, Uber and Lyft, uber lyft, Vanguard fund, Yogi Berra

So why did I succumb to an impulsive purchase of an expensive and unnecessary item instead of putting that money in my retirement plan? A key reason is because we have two modes of thinking, one instinctive and the other reflective. Think of these two modes as a bit like having different financial personalities. Richard Thaler and Cass Sunstein, two distinguished professors of behavioural economics describe these personalities as a far-sighted ‘Planner’ and a myopic ‘Doer’. The Planner represents the reflective thinking mode and the Doer represents the instinctive mode. ‘The Planner is trying to promote your long-term welfare but must cope with the feelings, mischief, and strong will of the Doer, who is exposed to the temptations that come with arousal.

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

They were discussing the ‘Linda Problem’. Dammit! The ‘Kill Decision’ session, sadly, would have to wait, as the ‘Linda Problem’ was one of my personal bug bears, and I couldn’t resist taking a chair. The ‘Linda Problem’ was introduced in 1983 by psychologists Daniel Kahneman and Amos Tversky,1 at the headwaters of the field of behavioural economics, which would eventually result in their Nobel Prize in Economics. The problem goes like this: Linda is thirty-one years old, single, outspoken and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations.

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The reason being that, according to probability theory, a conjunction of two conditions (Linda is a bank teller and is active in the feminist movement) has to be less probable than either of the conditions on its own, regardless of all those facts given before the question. The conjunction puts greater restrictions on the question, so the probability has to go down. People’s failure to see this is called the conjunction fallacy. It is one of the many ‘biases’ in human decision-making that are pointed out in behavioural economics, because they indicate that people do not reason ‘correctly’ relative to probability theory. Maybe it was the coffee (I had another cup during my session), but at that moment at SCIFOO, the ‘Linda Problem’ represented everything that I thought was going wrong with AI, and I launched in crusader style.

Reset by Ronald J. Deibert

23andMe, active measures, air gap, Airbnb, Amazon Web Services, Anthropocene, augmented reality, availability heuristic, behavioural economics, Bellingcat, Big Tech, bitcoin, blockchain, blood diamond, Brexit referendum, Buckminster Fuller, business intelligence, Cal Newport, call centre, Cambridge Analytica, carbon footprint, cashless society, Citizen Lab, clean water, cloud computing, computer vision, confounding variable, contact tracing, contact tracing app, content marketing, coronavirus, corporate social responsibility, COVID-19, crowdsourcing, data acquisition, data is the new oil, decarbonisation, deep learning, deepfake, Deng Xiaoping, disinformation, Donald Trump, Doomsday Clock, dual-use technology, Edward Snowden, Elon Musk, en.wikipedia.org, end-to-end encryption, Evgeny Morozov, failed state, fake news, Future Shock, game design, gig economy, global pandemic, global supply chain, global village, Google Hangouts, Great Leap Forward, high-speed rail, income inequality, information retrieval, information security, Internet of things, Jaron Lanier, Jeff Bezos, John Markoff, Lewis Mumford, liberal capitalism, license plate recognition, lockdown, longitudinal study, Mark Zuckerberg, Marshall McLuhan, mass immigration, megastructure, meta-analysis, military-industrial complex, move fast and break things, Naomi Klein, natural language processing, New Journalism, NSO Group, off-the-grid, Peter Thiel, planetary scale, planned obsolescence, post-truth, proprietary trading, QAnon, ransomware, Robert Mercer, Sheryl Sandberg, Shoshana Zuboff, Silicon Valley, single source of truth, Skype, Snapchat, social distancing, sorting algorithm, source of truth, sovereign wealth fund, sparse data, speech recognition, Steve Bannon, Steve Jobs, Stuxnet, surveillance capitalism, techlash, technological solutionism, the long tail, the medium is the message, The Structural Transformation of the Public Sphere, TikTok, TSMC, undersea cable, unit 8200, Vannevar Bush, WikiLeaks, zero day, zero-sum game

., tobacco, casinos), the behavioural modification parts of the story are only dimly understood by consumers, but they are studied intensively by the people who run the platforms and by the social media analytics companies, marketing firms, and PR consultants that orbit around them.127 As New York University professor Tamsin Shaw put it, “The findings of social psychology and behavioural economics are being employed to determine the news we read, the products we buy, the cultural and intellectual spheres we inhabit, and the human networks, online and in real life, of which we are a part.”128 Indeed, psychological experiments on consumers are essential to refining just about all social media and related digital applications.129 It’s not just the platforms alone that zero in on these mechanisms of addiction and compulsion; huge numbers of marketers and PR firms do so as well.

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., Kosinski, M., Nave, G., & Stillwell, D. J. (2017). Psychological targeting as an effective approach to digital mass persuasion. Proceedings of the National Academy of Sciences, 114(48), 12714–12719. Retrieved from https://www.pnas.org/content/114/48/12714 “The findings of social psychology and behavioural economics are being employed to determine the news we read”: Shaw, T. (2017, April 20). Invisible manipulators of your mind. Retrieved from https://www.nybooks.com/articles/2017/04/20/kahneman-tversky-invisible-mind-manipulators/ Psychological experiments on consumers: Matz et al. Psychological targeting as an effective approach to digital mass persuasion; Alter, A. (2017).

21 Lessons for the 21st Century by Yuval Noah Harari

"World Economic Forum" Davos, 1960s counterculture, accounting loophole / creative accounting, affirmative action, Affordable Care Act / Obamacare, agricultural Revolution, algorithmic trading, augmented reality, autonomous vehicles, Ayatollah Khomeini, basic income, behavioural economics, Bernie Sanders, bitcoin, blockchain, Boris Johnson, Brexit referendum, call centre, Cambridge Analytica, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, carbon-based life, Charlie Hebdo massacre, cognitive dissonance, computer age, computer vision, cryptocurrency, cuban missile crisis, decarbonisation, DeepMind, deglobalization, disinformation, Donald Trump, Dr. Strangelove, failed state, fake news, Filter Bubble, Francis Fukuyama: the end of history, Freestyle chess, gig economy, glass ceiling, Google Glasses, illegal immigration, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invisible hand, job automation, knowledge economy, liberation theology, Louis Pasteur, low skilled workers, Mahatma Gandhi, Mark Zuckerberg, mass immigration, means of production, Menlo Park, meta-analysis, Mohammed Bouazizi, mutually assured destruction, Naomi Klein, obamacare, pattern recognition, post-truth, post-work, purchasing power parity, race to the bottom, RAND corporation, restrictive zoning, Ronald Reagan, Rosa Parks, Scramble for Africa, self-driving car, Silicon Valley, Silicon Valley startup, TED Talk, transatlantic slave trade, trolley problem, Tyler Cowen, Tyler Cowen: Great Stagnation, universal basic income, uranium enrichment, Watson beat the top human players on Jeopardy!, zero-sum game

The better we understand the biochemical mechanisms that underpin human emotions, desires and choices, the better computers can become in analysing human behaviour, predicting human decisions, and replacing human drivers, bankers and lawyers. In the last few decades research in areas such as neuroscience and behavioural economics allowed scientists to hack humans, and in particular to gain a much better understanding of how humans make decisions. It turned out that our choices of everything from food to mates result not from some mysterious free will, but rather from billions of neurons calculating probabilities within a split second.

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Abbasid caliphs 94 Abraham, prophet 182–3, 186, 187, 274 advertising 36, 50, 53, 54, 77–8, 87, 97, 113, 114, 267 Afghanistan 101, 112, 153, 159, 172, 210 Africa 8, 13, 20, 58, 76, 79, 100, 103–4, 107, 139, 147, 150–1, 152, 168, 182, 184, 223, 226, 229, 239 see also under individual nation name African Americans 67, 150, 152, 227 agriculture 171, 185; animals and 71, 118–19, 224; automation of jobs in 19–20, 29; climate change and modern industrial 116, 117; hierarchical societies and birth of 73–4, 185, 266–7; religion and 128–30 Aisne, third Battle of the (1918) 160 Akhenaten, Pharaoh 191 Al-Aqsa mosque, Jerusalem 15 al-Baghdadi, Abu Bakr 98 Algeria 144, 145 algorithms see artificial intelligence (AI) Ali, Husayn ibn 288 Alibaba (online retailer) 50 Allah 104, 128, 130, 204, 271–2, 289 AlphaZero 31, 123 al-Qaeda 162, 168 Amazon (online retailer) 39, 40, 50, 52, 91, 267–8 Amazon rainforest 116 Amos, prophet 188 Amritsar massacre (1919) 10 Andéol, Emilie 102 animals xi, 73, 86, 98–9, 182, 190, 218, 245; distinct social behaviours 94–5; ecological collapse and 71, 116, 118–19, 224; farm animals, subjugation of 71, 118–19, 224; morality and 187–8, 200; religious sacrifice of 190 anti-Semitism 142, 143, 194, 195, 235–6 see also Jews Apple (technology company) 91, 178 Arab Spring xi, 91 Arjuna (hero of Bhagavadgita) 269–70, 271, 299 art, AI and 25–8, 55–6, 182 artificial intelligence (AI) xiii, xiv; art and 25–8, 55–6, 182; authority shift from humans to 43, 44–72, 78, 268; biochemical algorithms and 20, 21, 25–8, 47–8, 56, 59, 251, 299; cars and see cars; centaurs (human-AI teams) 29, 30–1; communism and 35, 38; consciousness and 68–72, 122, 245–6; creativity and 25–8, 32; data ownership and 77–81; dating and 263; decision-making and 36–7, 50–61; democracy and see democracy; digital dictatorships and xii, 43, 61–8, 71, 79–80, 121; discrimination and 59–60, 67–8, 75–6; education and 32, 34, 35, 38 39, 40–1, 259–68; emotional detection/manipulation 25–8, 51–2, 53, 70, 79–80, 265, 267; equality and xi, 8, 9, 13, 41, 71–2, 73–81, 246; ethics and 56–61; free will and 46–9; games and 29, 31–2, 123; globalisation and threat of 38–40; government and xii, 6, 7–9, 34–5, 37–43, 48, 53, 61–8, 71, 77–81, 87, 90, 121, 267, 268; healthcare and 22–3, 24–5, 28, 48–9, 50; intuition and 20–1, 47; liberty and 44–72; manipulation of human beings 7, 25–8, 46, 48, 50–6, 68–72, 78, 79–80, 86, 96, 245–55, 265, 267, 268; nationalism and 120–6; regulation of 6, 22, 34–5, 61, 77–81, 123; science fiction and 245–55, 268; surveillance systems and 63–5; unique non-human abilities of 21–2; war and 61–8, 123–4 see also war; weapons and see weapons; work and 8, 18, 19–43 see also work Ashoka, Emperor of India 191–2, 286 Ashura 288, 289 Asia 16, 39, 100, 103, 275 see also under individual nation name Assyrian Empire 171 Athenian democracy, ancient 95–6 attention, technology and human 71, 77–8, 87, 88–91 Australia 13, 54, 116, 145, 150, 183, 187, 232–3 Aztecs 182, 289 Babri Mosque, Ayodhya 291 Babylonian Empire 188, 189 Baidu (technology company) 23, 40, 48, 77, 267–8 Bangladesh 38–9, 273 bank loans, AI and 67 behavioural economics 20, 147, 217 Belgium 103, 165, 172 Bellaigue, Christopher de 94 Berko, Anat 233 bestiality, secular ethics and 205–6 bewilderment, age of xiii, 17, 215, 257 Bhagavadgita 269–70, 271, 299 Bhardwaj, Maharishi 181 Bible 127, 131–2, 133, 186–90, 198, 199, 200, 206, 233, 234–5, 240, 241, 272, 298 Big Data xii, 18, 25, 47, 48, 49, 53, 63, 64, 68, 71–2, 268 biometric sensors 23, 49, 50, 52, 64, 79, 92 biotechnology xii, xiv, 1, 6, 7, 8, 16, 17, 18, 21, 33–4, 41, 48, 66, 75, 80, 83, 88, 109, 121, 122, 176, 211, 251–2, 267 see also under individual area of biotechnology bioterrorism 167, 169 Bismarck, Otto von 98–9 bitcoin 6 Black Death 164 Blair, Tony 168 blockchain 6, 8 blood libel 235–6 body, human: bioengineered 41, 259, 265; body farms 34; technology and distraction from 88–92 Bolshevik Revolution (1917) 15, 248 Bonaparte, Napoleon 96, 178, 231, 284 Book of Mormon 198, 235, 240 Book of the Dead, Egyptian 235 Bouazizi, Mohamed xi brain: biochemical algorithms of 20, 21, 47, 48; brain-computer interfaces 92, 260; brainwashing 242–4, 255, 267, 295; decision-making and 50, 52; equality and 75, 79; flexibility and age of 264–5; free will and 250–2, 255; hominid 122; marketing and 267; meditation and 311, 313–14, 316, 317 Brazil 4, 7, 12, 76, 101, 103, 118, 130 Brexit referendum (2016) 5, 9, 11, 15, 45–6, 93, 99, 115 Brihadaranyaka Upanishad 283–4, 302–3 Britain 5, 9, 10, 11, 13, 15, 44–5, 94, 99, 108, 115, 139, 143, 150, 165, 172, 178, 182, 232–3, 243 Brussels bombings (March, 2016) 160 Buddha/Buddhism 58, 102, 136, 183, 184, 186, 190, 196, 278, 291, 302–6, 315 Bulgaria 169, 195, 227 Burma 304–5 Bush, George W. 4, 168, 176, 178 Caesar, Julius 96, 179 California, U.S. 8, 39, 85, 88, 148, 172, 177, 178, 200, 266 Cambridge Analytica 80, 86 Cambridge University 12, 45, 194 Cameron, David 45, 46 Canaan 189, 190, 289, 291 Canada 13, 38, 74, 107 capitalism xii, 11, 16, 35, 38, 55, 68, 76, 77, 96, 105–6, 108, 113, 130, 131, 132, 134, 135, 148, 210, 217, 245, 273, 292, 309 carbon dioxide 117 care industry 24–5 Caro, Rabbi Joseph 195 cars 133, 135; accidents and 23–4, 54, 56–7, 114, 159, 160; choosing 78; GPS/navigation and 54; self-driving 22, 23–4, 33, 41, 56–7, 58–9, 60–1, 63, 168 Catalan Independence 124, 125 Catholics 108, 132, 133, 137, 213, 292, 299 centaurs (human-AI teams) 29, 30 Chad 103, 119 Chaucer, Geoffrey: Canterbury Tales 235–6 Chemosh 191 chess 29, 31–2, 123, 180 Chigaku, Tanaka 305 child labour 33, 224 chimpanzees 94–5, 98, 122, 187–8, 200, 242 China xi, 4, 5, 8, 9, 10, 12, 13, 15, 64, 76, 100, 104, 105, 106, 107, 109, 113, 114, 115, 118, 119, 120, 121, 135, 145, 150, 151, 159, 168, 169, 171, 172–3, 175, 176, 177–8, 180, 181, 182, 183, 184, 185, 186, 193, 201, 227–8, 232, 251, 259–60, 262, 274, 284–5 Chinese Communist Party 5 Christianity 13, 55, 58, 96, 98, 126, 128–30, 131, 132, 133, 134–5, 137, 142, 143, 148, 183, 184–6, 187, 188, 189–90, 191, 192, 193, 194, 196, 199, 200, 203, 204, 208, 212–13, 233, 234–5, 236, 253, 282, 283, 288, 289, 291, 294, 296, 308; Orthodox 13, 15, 137, 138, 183, 237, 282, 308 Churchill, Winston 53, 108, 243 civilisation, single world xi, 5, 92, 95–109, 110, 138; ‘clash of civilisations’ thesis and 93–8; economics and 105–6; European civilisation and 95–6, 108–9; human tribes and 98–100; science and 107–8 ‘clash of civilisations’ 93–4 climate change x, xi, 15, 75–6, 78, 108, 109, 116–20, 121, 122–3, 124, 127, 128, 130, 133, 138, 168, 195, 219, 223, 228, 244, 265 Clinton, Bill 4, 168, 176 Clinton, Hillary 8, 97, 236 Cnut the Great, King of the Danes 105 Coca-Cola 50, 238, 267 Coldia (fictional nation) 148–50, 152–4 Cold War (1947–91) 99, 100, 113, 114, 131, 176, 180 communism xii, 3, 5, 10, 11, 14, 33, 35, 38, 74, 87, 95, 131, 132, 134, 176–7, 209–10, 251, 262, 273, 277, 279 Communities Summit (2017) 85 community 11, 37, 42, 43, 85–92, 109, 110, 135, 143–4, 201, 230, 241; breakdown of 85–7; Facebook and building of global xiii, 81, 85–91 compassion 62, 63, 71, 186; Buddhism and 305–6; religion and 186, 200, 201–2, 204, 208–9, 234, 305–6; secular commitment to 200, 201–2, 204–6, 208–9, 210 Confucius 15, 136, 181, 190, 260, 284–5 consciousness ix; AI and 36, 68–72, 122; intelligence and 68–70, 245–6; meditation and 315, 316; religion and 197 Conservative Party 45 conservatives: conservation and 219–20; embrace liberal world view 44–5 conspiracy theories 222, 229 Constantine the Great, Roman Emperor 192 Constantius II, Roman Emperor 192 cooperation 12, 29, 134; fictions and mass 134, 137, 233–42, 245; human-AI 29, 31; morality and 47, 187; nationalism and 134, 137, 236–8; religion and 134, 137, 233–6 corruption 12, 13, 15, 188–9 Council of Religion and the Homosexual (CRH) 200 creativity 25–8, 31, 32, 75, 182, 234, 262, 299 Crimea 174–5, 177, 179, 231, 238 Croats 282 Crusades 96, 165, 184, 199, 212, 213, 296 cryptocurrency 6 Cuba 9–10, 11, 114, 176 Cuban Missile Crisis (1962) 114 cultures, differences between 147–55 culturism 150–4 cyberwarfare 127, 176, 178, 179 cyborgs 8, 76–7, 212, 278 Czech Republic 200 Daisy advertisement: US presidential election (1964) and 113, 114 Darwin, Charles 194; On the Origin of Species 98–9 Darwinism 213 data: Big Data xii, 18, 25, 47, 48, 49, 53, 63, 64, 68, 71–2, 268; liberty and 44–72; ownership regulation 77–81, 86 see also artificial intelligence (AI) Davos World Economic Forum 222 Dawkins, Richard 45 Deep Blue (IBM’s chess program) 29, 31 democracies: ‘clash of civilisations’ thesis and 93–8; data processing and 65; equality and 74; individual, trust in and 217, 220; liberal democracy see liberal democracy; liberty and 44–6, 53, 55, 64, 65, 66, 67; media manipulation and 12–13; secular ethics and 204, 210 Denmark 4, 94, 105, 144, 153, 200, 210 dharma 270, 271, 286, 299, 309 Di Tzeitung 97 dictatorships 3, 5, 33, 74, 210, 305; digital xii, 43, 61–8, 71, 79–80, 121 discrimination: AI and 59–60, 67–8, 75–6; brain and structural bias 226–8; religion and 135, 191, 200, 208; racism/culturism, immigration and 147–55 disease 16, 22, 28, 49, 88, 107, 218, 289 disorientation, sense of 5, 6 DNA 49, 66, 67, 79, 98, 150, 182 doctors 22–3, 24, 28, 48–9, 106–7, 128–9, 280 dogmas, faith in 229–30 dollar, American 106 Donbas 238 Donetsk People’s Republic 232 drones 29, 30, 35, 64, 76 East Africa 239 ecological crisis, xi, xiv, 7, 109, 195, 219, 244, 265; climate change x, xi, 15, 75–6, 78, 108, 109, 116–20, 121, 122–3, 124, 127, 128, 130, 133, 138, 168, 195, 219, 223, 228, 244, 265; equality and 75–6; global solution to 115–26, 138, 155; ignorance and 219–20; justice and 223, 228, 244, 265; liberalism and 16; nationalism and 15, 115–26; religion and 127, 128, 130, 133, 138; technological breakthroughs and 118–19, 121, 122–4 economics xii, 3, 4, 7, 9, 11, 16, 68, 99, 222, 224, 225, 240, 262, 309; AI and 6, 7, 8, 9, 19–43; capitalist see capitalism; communism and see communism; data processing and 65–6; economic models 37, 105–6; equality and 9, 71, 73–7 see also equality; liberalism and 3–5, 16, 44–5; nationalism and 115, 117, 118, 120, 121, 124; religion and 130–3; war and 171–5, 177–8, 179–80; work and 19–43 education 11, 16, 66, 74, 75, 111, 112, 113, 184, 194, 259–68; AI and 32, 34, 35, 38 39, 40–1, 259–68; basic level of 40–1; future of 259–68; liberal 217, 219, 261; secular 207, 209 Egypt 63, 74, 128–9, 172, 181, 188–9, 235, 284, 291, 296 Einstein, Albert 45, 181, 193, 194, 195 El Salvador 4, 150 ‘End of History’ 11 Engels, Friedrich: The Communist Manifesto 262, 273 England 105, 139, 235–6 equality xi, 13, 41, 71–2, 73–81, 92, 95, 144, 204, 223; AI and 75–81; history of 73– 4; secularism and 206–7, 208–9 ethics: AI and 56–61, 63, 121; complex nature of modern world and 223–30; nationalism and 121–2; religion and 186–93, 199–202; secular 199–202, 203–14 Europe xi, xii, 5, 10, 11, 16, 40, 47, 79, 93–100, 103–4, 105, 106, 107, 108–9, 113, 114, 115, 124–5, 128, 135, 136, 138, 139, 140, 143–4, 145, 147, 150, 153, 154–5, 159, 160, 164, 169, 171–2, 175, 176, 186, 187, 193, 201, 207, 228, 236, 252, 294, 307 see also under individual nation name European Union xii, 47, 93, 94, 95, 99, 108, 115, 124, 169; Constitution 95, 124; crisis in 138; immigration and 138, 139, 143–4, 154–5; Russia and 177; size and wealth of 176; terrorism and 159 Evangelical Christians 133 evolution 47, 98–9, 110–11, 127, 187, 194, 205, 206, 217, 218, 223, 274, 276, 277 Ex Machina (film) 246 Facebook xiii, 27, 77, 178, 230, 301, 302, 306; community-building and xiii, 85–91, 93; equality and 77, 80; liberty and 55, 64, 65, 67, 80, 86; ownership of personal data 80, 86; post-truth and 233, 235, 238; US presidential election (2016) and 80, 86 failed states 101, 112, 210 fair game rules 187 fake news xi, 231–42 famine 16, 33, 208, 212, 238, 251, 271 farming, modern industrial 29, 116, 118, 127, 128, 129, 224, 260, 262 see also agriculture fascism xii, 3, 9, 10, 11, 33, 142, 148, 154, 237, 251, 292–5, 297, 305 feminism 87, 143, 208, 217, 246, 280 Ferdinand, Archduke Franz 9, 11, 171 Fernbach, Philip 218 financial crisis, global (2008) 4, 171 financial system, computers and complexity of 6 Finland 38, 74 First World War (1914–18) 9, 10, 11, 30, 33, 99–100, 112, 123, 124, 160, 170, 171, 172, 265 Flag Code of India 285–6 flags, national 103, 285–6 fMRI scanner 21, 240 football, power of fictions and 241 France 10, 13, 51, 63, 66, 76, 94, 96, 99, 102, 103, 104, 115, 122, 139, 144, 145, 164, 165, 172, 182, 184, 194, 204, 285, 295–6 Francis, Pope 133 Freddy (chimpanzee) 188 free-market capitalism xii, 3, 4, 11, 16, 44, 55, 217, 245 free will 20, 44, 45–6, 47–8, 250–1, 299–301 French Revolution (1789) 63, 184, 207 Freud, Sigmund 135, 185, 193, 194–5, 286 Friedman, Milton 130 Front National 13 Galilei, Galileo 193, 207 gay marriage 44, 198, 205–6 Gaza 173 genetically modified (GM) crops 219 Georgia 176, 177 Germany 13, 66, 68, 95, 96, 98–9, 108, 118, 139, 147, 148, 155, 169, 171–2, 173, 179, 182, 194, 195, 239, 251, 277; Nazi 10, 66, 96, 134, 136, 212, 213, 226, 237, 251, 279, 294, 295 Gandhi, Mahatma 132 globalisation 8, 9, 113, 139; AI/automation and 38–9; history of 99; inequality and 73, 74, 76; nationalism and 109; reversing process of xiii, 5; spread of 4, 99 global stories, disappearance of 5, 14 global warming see climate change God xi, xiii, 46, 106, 197–202; 245, 252, 254, 269, 281, 285, 287, 303, 304; Bible and see Bible; ethics and 199–202, 205, 206, 208, 209; existence of 197–9; Jewish and Christian ideas of 184–5, 189, 190; justice and 225; mass cooperation and 245; monotheism and 190–3; post-truth and 234–6, 239; sacrifice and 287, 289; state identity and 138 gods xii, 277, 281, 291; agriculture and 128, 129; humans becoming ix, 79, 86; justice and 188, 189; sacrifice and 287–9; state identity and 136, 137 Goebbels, Joseph 237 Goenka, S.

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

We have private companies like SpaceX but precious little crewed space flight; we have the Standard Model of physics but haven't gone beyond it; we have libraries of humanities research that no one reads; we have a decades-long war on cancer, but still have cancer. Our time comes with a litany of big ideas: blockchain, mobile social networks, supermaterials like graphene, deep learning neural networks, quantum biology, massive multiplayer online games, molecular machines, behavioural economics, algorithmic trading, gravitational wave and exoplanet astronomy, parametric architecture, e-sports, the ending of taboos around gender and sexuality, to name a few. But execution and purchase are more problematic than in the past. There is more evidence of struggle, sclerosis, decay and hesitancy than one might assume given everything at humanity's disposal.

…

You might equal it, which is fine; but if your business model requires something unambiguously better, carrying on as you did in the past isn't good enough. For several hundred years we've been on a great adventure of thought. But that adventure is no longer moving forwards but stuck in an endless self-aware loop. In Chapter 4 we saw how various schools of thought, from Wittgensteinian language games to deconstruction, behaviourism to behavioural economics, told us that objective categories like truth and beauty were nonsensical. That there was nothing universal and everything was relative; there was no external and absolute standard by which anything could be judged. That such fundamentals as nature and the self were flawed social constructions.

Financing Basic Income: Addressing the Cost Objection by Richard Pereira

banks create money, basic income, behavioural economics, carbon credits, carbon tax, income inequality, job automation, Lyft, new economy, offshore financial centre, Paul Buchheit, quantitative easing, sovereign wealth fund, Tobin tax, transfer pricing, uber lyft, universal basic income, unpaid internship, Wall-E

People did tolerate much higher marginal income tax rates and a much more progressive tax rate structure than the cost objectors claim is required in their analysis. Such high marginal tax rates were synonymous with a prosperous economy. And this among possibly the most tax-averse public in the world. Employing John Rawls’ concept of a “veil of ignorance” Dan Ariely (Professor of Psychology and Behavioural Economics, Duke University) and Mike Norton surveyed Americans in a unique study and found an overwhelming preference among both Democrat and Republican supporters for the wealth distribution profile in Sweden (93.5% of Democrats and 90.2% of Republicans) with no appreciable difference based on gender and income level of those surveyed.

Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned? by Steve Keen

accounting loophole / creative accounting, Alan Greenspan, banking crisis, banks create money, barriers to entry, behavioural economics, Benoit Mandelbrot, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, book value, business cycle, butterfly effect, capital asset pricing model, cellular automata, central bank independence, citizen journalism, clockwork universe, collective bargaining, complexity theory, correlation coefficient, creative destruction, credit crunch, David Ricardo: comparative advantage, debt deflation, diversification, double entry bookkeeping, en.wikipedia.org, equity risk premium, Eugene Fama: efficient market hypothesis, experimental subject, Financial Instability Hypothesis, fixed income, Fractional reserve banking, full employment, Glass-Steagall Act, Greenspan put, Henri Poincaré, housing crisis, Hyman Minsky, income inequality, information asymmetry, invisible hand, iterative process, John von Neumann, Kickstarter, laissez-faire capitalism, liquidity trap, Long Term Capital Management, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, market microstructure, means of production, minimum wage unemployment, Money creation, money market fund, open economy, Pareto efficiency, Paul Samuelson, Phillips curve, place-making, Ponzi scheme, Post-Keynesian economics, power law, profit maximization, quantitative easing, RAND corporation, random walk, risk free rate, risk tolerance, risk/return, Robert Shiller, Robert Solow, Ronald Coase, Savings and loan crisis, Schrödinger's Cat, scientific mainstream, seigniorage, six sigma, South Sea Bubble, stochastic process, The Great Moderation, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, total factor productivity, tulip mania, wage slave, zero-sum game

F. (1930) ‘The representative firm and increasing returns,’ Economic Journal, 44: 93–116. Silvestre, J. (1993) ‘The market-power foundations of macroeconomic policy,’ Journal of Economic Literature, 31(1): 105–41. Simon, H. A. (1996) The Sciences of the Artificial, Cambridge, MA: MIT Press. Sippel, R. (1997) ‘An experiment on the pure theory of consumer’s behaviour,’ Economic Journal, 107(444): 1431–44. Smith, A. (1838 [1776]) An Inquiry into the Nature and Causes of the Wealth of Nations, Edinburgh: Adam and Charles Black. Solow, R. M. (1956) ‘A contribution to the theory of economic growth,’ Quarterly Journal of Economics, 70(1): 65–94. Solow, R. M. (2001) ‘From neoclassical growth theory to new classical macroeconomics,’ in J.

…

My criticisms are those of someone who loves the field and has seen that affection repaid. Krugman’s observations on methodology in this speech also highlight why he was incapable of truly comprehending Minsky – because he starts from the premise that neoclassical economics itself has proved to be false, that macroeconomics must be based on individual behavior: ‘Economics is about what individuals do: not classes, not “correlations of forces,” but individual actors. This is not to deny the relevance of higher levels of analysis, but they must be grounded in individual behavior. Methodological individualism is of the essence’ (Krugman 1996; emphases added) No it’s not: methodological individualism is one of the key flaws in neoclassical macroeconomics, as the SMD conditions establish.

…

In other words, you get the expected value if, and only if, you repeat the gamble numerous times. But the expected value is irrelevant to the outcome of any individual coin toss. The concept of expected value is thus not a good arbiter for rational behavior in the way it is normally presented in Behavioral Economics and Finance experiments – why, then, is it used? If you’ve read this far into this book, you won’t be surprised to learn that it’s because economists have misread the foundation research on this topic by the mathematician John von Neumann, and his economist collaborator Oskar Morgenstern, The Theory of Games and Economic Behavior (Von Neumann and Morgenstern 1953).

Fun Inc. by Tom Chatfield

Adrian Hon, Alexey Pajitnov wrote Tetris, An Inconvenient Truth, Any sufficiently advanced technology is indistinguishable from magic, behavioural economics, Boris Johnson, cloud computing, cognitive dissonance, computer age, credit crunch, game design, invention of writing, longitudinal study, moral panic, publication bias, Silicon Valley, Skype, stem cell, upwardly mobile

It’s almost as if a video game is not only something that delivers fun by satisfying the innate human love of learning, but also a device that trains people to work far harder than they otherwise would by turning work into a series of tangibly rewarded learning challenges. This motivational power is something Nick Yee has explored in his work, citing in particular the example of a behavioural economics study in which people were given the option of doing ‘a really boring task’ for either half an hour or an hour. They weren’t to be paid for their time as such; instead, half an hour meant earning 30 points, while an hour meant 100 points. These points could then be spent on ice cream, according to two rules: 100 points awarded pistachio flavour and 30 points awarded vanilla.

Work in the Future The Automation Revolution-Palgrave MacMillan (2019) by Robert Skidelsky Nan Craig

3D printing, Airbnb, algorithmic trading, AlphaGo, Alvin Toffler, Amazon Web Services, anti-work, antiwork, artificial general intelligence, asset light, autonomous vehicles, basic income, behavioural economics, business cycle, cloud computing, collective bargaining, Computing Machinery and Intelligence, correlation does not imply causation, creative destruction, data is the new oil, data science, David Graeber, David Ricardo: comparative advantage, deep learning, DeepMind, deindustrialization, Demis Hassabis, deskilling, disintermediation, do what you love, Donald Trump, driverless car, Erik Brynjolfsson, fake news, feminist movement, Ford Model T, Frederick Winslow Taylor, future of work, Future Shock, general purpose technology, gig economy, global supply chain, income inequality, independent contractor, informal economy, Internet of things, Jarndyce and Jarndyce, Jarndyce and Jarndyce, job automation, job polarisation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, John von Neumann, Joseph Schumpeter, knowledge economy, Loebner Prize, low skilled workers, Lyft, Mark Zuckerberg, means of production, moral panic, Network effects, new economy, Nick Bostrom, off grid, pattern recognition, post-work, Ronald Coase, scientific management, Second Machine Age, self-driving car, sharing economy, SoftBank, Steve Jobs, strong AI, tacit knowledge, technological determinism, technoutopianism, TED Talk, The Chicago School, The Future of Employment, the market place, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thorstein Veblen, Turing test, Uber for X, uber lyft, universal basic income, wealth creators, working poor

Economists have tended to see humans as consumer hedonists—they have recognised work only to the extent that it offers a means to consumption and denies leisure. There has been no acknowledgement that humans have needs for creative activity and that they might be drawn to work itself as a source of fulfilment. Modern perspectives linked to the economics of happiness and behavioural economics, to be sure, address the non-pecuniary motives to work. But they do so in ways that leave broader questions unanswered. Work, following the formal method of neoclassical economics, is treated as just another variable in the individual’s utility function. The wider significance of work in human life continues to be missed.

The Long Good Buy: Analysing Cycles in Markets by Peter Oppenheimer

Alan Greenspan, asset allocation, banking crisis, banks create money, barriers to entry, behavioural economics, benefit corporation, Berlin Wall, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, book value, Bretton Woods, business cycle, buy and hold, Cass Sunstein, central bank independence, collective bargaining, computer age, credit crunch, data science, debt deflation, decarbonisation, diversification, dividend-yielding stocks, equity premium, equity risk premium, Fall of the Berlin Wall, financial engineering, financial innovation, fixed income, Flash crash, foreign exchange controls, forward guidance, Francis Fukuyama: the end of history, general purpose technology, gentrification, geopolitical risk, George Akerlof, Glass-Steagall Act, household responsibility system, housing crisis, index fund, invention of the printing press, inverted yield curve, Isaac Newton, James Watt: steam engine, Japanese asset price bubble, joint-stock company, Joseph Schumpeter, Kickstarter, Kondratiev cycle, liberal capitalism, light touch regulation, liquidity trap, Live Aid, low interest rates, market bubble, Mikhail Gorbachev, mortgage debt, negative equity, Network effects, new economy, Nikolai Kondratiev, Nixon shock, Nixon triggered the end of the Bretton Woods system, oil shock, open economy, Phillips curve, price stability, private sector deleveraging, Productivity paradox, quantitative easing, railway mania, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, savings glut, secular stagnation, Shenzhen special economic zone , Simon Kuznets, South Sea Bubble, special economic zone, stocks for the long run, tail risk, Tax Reform Act of 1986, technology bubble, The Great Moderation, too big to fail, total factor productivity, trade route, tulip mania, yield curve

Results indicate that the economy is highly driven by human psychologies, a result which is in conformity with the prediction of Keynes (1930) and Akerlof and Shiller (2010).’27 The renewed focus on psychology in understanding responses to and behaviour regarding decisions is also increasingly used in public policy. In 2008, Richard H. Thaler and Cass R. Sunstein published Nudge: Improving Decisions about Health, Wealth, and Happiness, which focused on behavioural economics. The book became a bestseller and has had a widespread impact on policy. Mr Thaler went on to win the Nobel Prize for Economics in 2017 for his work in the field. So, despite all the political, economic and social changes that have occurred since the 1980s, and notwithstanding the extreme events and difficulty of predicting human sentiment and responses to conditions, there have been repeated patterns in economies and financial markets.

99%: Mass Impoverishment and How We Can End It by Mark Thomas

"there is no alternative" (TINA), "World Economic Forum" Davos, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, additive manufacturing, Alan Greenspan, Albert Einstein, anti-communist, autonomous vehicles, bank run, banks create money, behavioural economics, bitcoin, business cycle, call centre, Cambridge Analytica, central bank independence, circular economy, complexity theory, conceptual framework, creative destruction, credit crunch, CRISPR, declining real wages, distributed ledger, Donald Trump, driverless car, Erik Brynjolfsson, eurozone crisis, fake news, fiat currency, Filter Bubble, full employment, future of work, Gini coefficient, gravity well, income inequality, inflation targeting, Internet of things, invisible hand, ITER tokamak, Jeff Bezos, jimmy wales, job automation, Kickstarter, labour market flexibility, laissez-faire capitalism, Larry Ellison, light touch regulation, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, Modern Monetary Theory, Money creation, money: store of value / unit of account / medium of exchange, Nelson Mandela, Nick Bostrom, North Sea oil, Occupy movement, offshore financial centre, Own Your Own Home, Peter Thiel, Piper Alpha, plutocrats, post-truth, profit maximization, quantitative easing, rent-seeking, Robert Solow, Ronald Reagan, Second Machine Age, self-driving car, Silicon Valley, smart cities, Steve Jobs, The Great Moderation, The Wealth of Nations by Adam Smith, Tyler Cowen, warehouse automation, wealth creators, working-age population

Political parties would therefore need to run their own fact-checking on their policy proposals. Finally, a reform of the discipline of economics is needed to equip policymakers with models that are fit for purpose – e.g. for the purpose of ending mass impoverishment. Fortunately, this reform is to some extent underway and new schools of economic thought are already in development. Behavioural economics seeks to address the fact – known for decades in other disciplines and more recently discovered by economists – that humans are not rational, consistent beings (Homo Economicus) with perfect information about the economy, who seek to maximize the discounted value of their own cash flows. Modern Monetary Theory seeks to ensure that the realities of a fiat currency (which can be created at will by government) and of sectoral balances which sum to zero are taken into account in policy-making.

The System: Who Owns the Internet, and How It Owns Us by James Ball

"World Economic Forum" Davos, behavioural economics, Big Tech, Bill Duvall, bitcoin, blockchain, Cambridge Analytica, Chelsea Manning, cryptocurrency, digital divide, don't be evil, Donald Trump, Douglas Engelbart, Edward Snowden, en.wikipedia.org, fake news, financial engineering, Firefox, Frank Gehry, Internet of things, invention of movable type, Jeff Bezos, jimmy wales, John Gilmore, John Perry Barlow, Julian Assange, Kickstarter, Laura Poitras, Leonard Kleinrock, lock screen, Marc Andreessen, Mark Zuckerberg, Menlo Park, military-industrial complex, Minecraft, Mother of all demos, move fast and break things, Network effects, Oculus Rift, packet switching, patent troll, Peter Thiel, pre–internet, ransomware, RFC: Request For Comment, risk tolerance, Ronald Reagan, Rubik’s Cube, self-driving car, Shoshana Zuboff, Silicon Valley, Silicon Valley startup, Skype, Snapchat, Steve Crocker, Stuxnet, surveillance capitalism, systems thinking, The Chicago School, the long tail, undersea cable, uranium enrichment, WikiLeaks, yield management, zero day

Given that companies are worried about losses, and many have revenue targets and shareholders to satisfy, they can’t afford to leave money on the table. That’s the logic – but it’s rarely been tested. Until now. Alessandro Acquisti is professor of information technology and public policy at Carnegie Mellon University in Pittsburgh, and much of his research focuses on what he describes as the behavioural economics of privacy. Most recently, that work has looked at just how much extra revenue the privacy-invading targeted adverts that pervade the internet actually raise. It turns out to be a question with two very different answers for the networks that distribute the ads – the tech giants – and the publishers who make the content.

Rebel Ideas: The Power of Diverse Thinking by Matthew Syed

adjacent possible, agricultural Revolution, Alfred Russel Wallace, algorithmic bias, behavioural economics, Bletchley Park, Boeing 747, call centre, Cass Sunstein, classic study, cognitive load, computer age, crowdsourcing, cuban missile crisis, deep learning, delayed gratification, drone strike, Elon Musk, Erik Brynjolfsson, Fairchild Semiconductor, fake news, Ferguson, Missouri, Filter Bubble, Firefox, invention of writing, James Dyson, Jeff Bezos, knowledge economy, lateral thinking, market bubble, mass immigration, microbiome, Mitch Kapor, persistent metabolic adaptation, Peter Thiel, post-truth, Richard Thaler, Ronald Reagan, Second Machine Age, self-driving car, seminal paper, Silicon Valley, social intelligence, Steve Jobs, Steve Wozniak, Stuart Kauffman, tech worker, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, traveling salesman, vertical integration

As Uzzi put it: ‘Many of these novel combinations are really two conventional ideas in their own domains. You’re taking well-accepted ideas, which is a wonderful foundation – you need that in science. But when you put them together: wow! That’s suddenly something really different.’11 Classic examples of recombinant science include behavioural economics, which transformed the field by bringing the concepts and insights of psychology to the domain of economics. This isn’t just about science, however. The US Patent and Trademark Office has broad categories such as utility patents (the light bulb), design patents (the Coke bottle) and plant patents (hybrid corn), with 474 technology classes and 160,000 codes.

Escape From Model Land: How Mathematical Models Can Lead Us Astray and What We Can Do About It by Erica Thompson

Alan Greenspan, Bayesian statistics, behavioural economics, Big Tech, Black Swan, butterfly effect, carbon tax, coronavirus, correlation does not imply causation, COVID-19, data is the new oil, data science, decarbonisation, DeepMind, Donald Trump, Drosophila, Emanuel Derman, Financial Modelers Manifesto, fudge factor, germ theory of disease, global pandemic, hindcast, I will remember that I didn’t make the world, and it doesn’t satisfy my equations, implied volatility, Intergovernmental Panel on Climate Change (IPCC), John von Neumann, junk bonds, Kim Stanley Robinson, lockdown, Long Term Capital Management, moral hazard, mouse model, Myron Scholes, Nate Silver, Neal Stephenson, negative emissions, paperclip maximiser, precautionary principle, RAND corporation, random walk, risk tolerance, selection bias, self-driving car, social distancing, Stanford marshmallow experiment, statistical model, systematic bias, tacit knowledge, tail risk, TED Talk, The Great Moderation, The Great Resignation, the scientific method, too big to fail, trolley problem, value at risk, volatility smile, Y2K

That’s why the kinds of considerations I have explored throughout this book are so important. Most people have never been to Model Land Given the importance of models to the scientific community and the ways in which models now influence so much of our daily lives, it is interesting to note that the general public also remain sceptical about Model Land. Two famous results of behavioural economics are presented as ‘paradoxes’ that show people choosing to behave irrationally, against the course of action suggested by a model of the situation. Yet I think their results can be explained much more easily by the trivial observation that real people live in the real world, not in Model Land.

The Great Fragmentation: And Why the Future of All Business Is Small by Steve Sammartino

3D printing, additive manufacturing, Airbnb, augmented reality, barriers to entry, behavioural economics, Bill Gates: Altair 8800, bitcoin, BRICs, Buckminster Fuller, citizen journalism, collaborative consumption, cryptocurrency, data science, David Heinemeier Hansson, deep learning, disruptive innovation, driverless car, Dunbar number, Elon Musk, fiat currency, Frederick Winslow Taylor, game design, gamification, Google X / Alphabet X, haute couture, helicopter parent, hype cycle, illegal immigration, index fund, Jeff Bezos, jimmy wales, Kickstarter, knowledge economy, Law of Accelerating Returns, lifelogging, market design, Mary Meeker, Metcalfe's law, Minecraft, minimum viable product, Network effects, new economy, peer-to-peer, planned obsolescence, post scarcity, prediction markets, pre–internet, profit motive, race to the bottom, random walk, Ray Kurzweil, recommendation engine, remote working, RFID, Rubik’s Cube, scientific management, self-driving car, sharing economy, side project, Silicon Valley, Silicon Valley startup, skunkworks, Skype, social graph, social web, software is eating the world, Steve Jobs, subscription business, survivorship bias, The Home Computer Revolution, the long tail, too big to fail, US Airways Flight 1549, vertical integration, web application, zero-sum game

We’re all still playing the games right now, but like many aspects of commerce, we go deep into the wormhole before we realise it. Gamification not only becomes possible in a connected and social world, it’s inevitable. If I could draw an analogy for gamification, it would be this: Pong is to consoles, what Angry Birds is to gamification. Gamification is all about intersecting behavioural economics and game design methodology for a commercial outcome. When we think about it deeply, it’s not too far removed from commerce in general. What is business other than anthropology with a scoreboard? Gamification is much more about anthropology than it is about technology, but the two elements of anthropology and technology are starting to conspire to create new commercial platforms that, when used well, have the ability to circumvent currency while also creating purchasing power.

The Twittering Machine by Richard Seymour

4chan, anti-communist, augmented reality, behavioural economics, Bernie Sanders, Big Tech, Black Lives Matter, Cal Newport, Californian Ideology, Cass Sunstein, Chelsea Manning, citizen journalism, classic study, colonial rule, Comet Ping Pong, correlation does not imply causation, credit crunch, crisis actor, crowdsourcing, dark triade / dark tetrad, disinformation, don't be evil, Donald Trump, Elon Musk, Erik Brynjolfsson, Evgeny Morozov, fake news, false flag, Filter Bubble, Gabriella Coleman, gamification, Google Chrome, Google Earth, hive mind, informal economy, Internet of things, invention of movable type, invention of writing, James Bridle, Jaron Lanier, Jeremy Corbyn, Jon Ronson, Jony Ive, Kevin Kelly, Kevin Roose, knowledge economy, late capitalism, Lewis Mumford, liberal capitalism, Mark Zuckerberg, Marshall McLuhan, meta-analysis, Mohammed Bouazizi, moral panic, move fast and break things, Network effects, new economy, packet switching, patent troll, Philip Mirowski, post scarcity, post-industrial society, post-truth, RAND corporation, Rat Park, rent-seeking, replication crisis, sentiment analysis, Shoshana Zuboff, Silicon Valley, Silicon Valley ideology, Skinner box, smart cities, Snapchat, Social Justice Warrior, Steve Bannon, Steve Jobs, Stewart Brand, Stuxnet, surveillance capitalism, TaskRabbit, technological determinism, technoutopianism, TED Talk, the scientific method, Tim Cook: Apple, Timothy McVeigh, Twitter Arab Spring, undersea cable, upwardly mobile, white flight, Whole Earth Catalog, WikiLeaks

This belief was not only congruent with behaviourist ideas about conditioning, but was strongly influenced by behaviourism.49 And it was extremely useful for the pharmaceutical giants. For example, if mental states like depression or anxiety could be understood as chemical states, they could be treated with ‘happy’ pills. Behaviourism also inspired the enormously influential discipline of behavioural economics, which extends its reach into the heart of government as well into highly profitable industries such as amusement, gambling and tech. Nir Eyal, a businessman and behavioural economist, argues that successful businesses use these techniques to get customers addicted: the ‘Hook Model’ of business.50 The idea is to use ‘rewards’ to plant an ‘internal trigger’ in the customer’s mind.

The Unknowers: How Strategic Ignorance Rules the World by Linsey McGoey

Alan Greenspan, An Inconvenient Truth, anti-globalists, antiwork, battle of ideas, behavioural economics, Big Tech, Black Lives Matter, Branko Milanovic, British Empire, Cambridge Analytica, carbon tax, Cass Sunstein, Clive Stafford Smith, conceptual framework, Corn Laws, corporate governance, corporate raider, Credit Default Swap, David Ricardo: comparative advantage, Donald Trump, drone strike, en.wikipedia.org, European colonialism, fake news, Frances Oldham Kelsey, hiring and firing, Howard Zinn, income inequality, it is difficult to get a man to understand something, when his salary depends on his not understanding it, joint-stock company, junk bonds, knowledge economy, market fundamentalism, mass incarceration, Michael Milken, minimum wage unemployment, Naomi Klein, new economy, Nick Leeson, p-value, Paul Samuelson, Peter Thiel, plutocrats, post-truth, public intellectual, race to the bottom, randomized controlled trial, rent-seeking, road to serfdom, Robert Mercer, Ronald Reagan, Scientific racism, selective serotonin reuptake inhibitor (SSRI), Social Justice Warrior, Steven Pinker, Suez crisis 1956, The Chicago School, The Wealth of Nations by Adam Smith, union organizing, Upton Sinclair, W. E. B. Du Bois, Washington Consensus, wealth creators

They emphasize that this finding jars with mainstream assumptions within psychology that claim the opposite: that humans tend to share a ‘general need for certainty’ and preference for ‘ambiguity aversion.’22 The design of their study was new, but their findings square with other recent experiments from game theory and behavioural economics that reach the same conclusion: people often prefer to act on the basis of ignorance rather than knowledge.23 In their article, they make a sharp distinction between the psychological realm and the social realm. ‘Agnotology looks at how external sources maintain public ignorance, even against people’s will,’ they write, ‘deliberate ignorance, in contrast, entails maintaining personal ignorance.’24 I don’t think this is the best way to look at ignorance.

Gnomon by Nick Harkaway

"Margaret Hamilton" Apollo, Albert Einstein, back-to-the-land, banking crisis, behavioural economics, Burning Man, choice architecture, clean water, cognitive dissonance, false flag, fault tolerance, fear of failure, Future Shock, gravity well, Great Leap Forward, high net worth, impulse control, Isaac Newton, Khartoum Gordon, lifelogging, neurotypical, off-the-grid, pattern recognition, place-making, post-industrial society, Potemkin village, precautionary principle, Richard Feynman, Scramble for Africa, self-driving car, side project, Silicon Valley, skeuomorphism, skunkworks, the market place, trade route, Tragedy of the Commons, urban planning, urban sprawl

You have to understand that over the course of a year, bad traffic is massively expensive in terms of lost business, public health, unnecessary consumption of resources, and that’s before you factor in the soft variables like how traffic delays influence whether people consider they have had a positive overall experience doing business here. Our performance at Tidal Flow makes a genuine difference to the figures for the capital. So we’re a hotchpotch. Behavioural economics, mathematics, of course neuroscience. Self-organising criticality. They hate us at university departments, because everything we publish is interdisciplinary and doesn’t fit their models, but it’s evidence-based so they have to pay attention. Models are never quite good enough. The territory is always new.’

…

In the midst of a perfect world, where power is in a way truly held by the people and government has almost entirely gone away, there’s a thin strand of horror, of interrogation machines mandated by the majority and algorithms that see everything you do and want to know why you did it, that understand your actions according to an actuarial chart and analyse you as an aspect of behavioural economics. The system applies numbers and probabilities to your life and knows what you will do, what you might do, even what you would-do-if-only, before it has ever occurred to you. Perhaps you have a latent streak of revolution in consequence of your unhappy upbringing. One day you do something that has just a hint of that rebellion in it – so then you’re brought in and adjusted to make you better before you can break the rules.

100 Years of Identity Crisis: Culture War Over Socialisation by Frank Furedi

1960s counterculture, 23andMe, Abraham Maslow, behavioural economics, Brexit referendum, Cass Sunstein, classic study, coronavirus, COVID-19, Donald Trump, epigenetics, Greta Thunberg, Gunnar Myrdal, Herbert Marcuse, Johann Wolfgang von Goethe, knowledge worker, libertarian paternalism, lockdown, New Urbanism, nocebo, nudge theory, nudge unit, scientific management, the scientific method, Thorstein Veblen, work culture

Technocrats are constantly asking the question ‘which nudging techniques can we use to further increase awareness?’764 They believe that through psychological manipulation they can create public awareness that ensures that ‘very large numbers of people form powerful groupings, like a “swarm”, to produce massive social outcomes’.765 The extensive use of nudging and behavioural economics during the coronavirus pandemic illustrates how the engineering of people’s ‘decision making’ rapidly displaced open politically informed guidance and leadership. The ethos and practice of raising awareness is based on the unstated and often unacknowledged assumption that behavioural change is important for both the individual and for society.

Adapt: Why Success Always Starts With Failure by Tim Harford

An Inconvenient Truth, Andrew Wiles, banking crisis, Basel III, behavioural economics, Berlin Wall, Bernie Madoff, Black Swan, Boeing 747, business logic, car-free, carbon footprint, carbon tax, Cass Sunstein, charter city, Clayton Christensen, clean water, cloud computing, cognitive dissonance, complexity theory, corporate governance, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, crowdsourcing, cuban missile crisis, Daniel Kahneman / Amos Tversky, Dava Sobel, Deep Water Horizon, Deng Xiaoping, disruptive innovation, double entry bookkeeping, Edmond Halley, en.wikipedia.org, Erik Brynjolfsson, experimental subject, Fall of the Berlin Wall, Fermat's Last Theorem, financial engineering, Firefox, food miles, Gerolamo Cardano, global supply chain, Great Leap Forward, Herman Kahn, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, Jane Jacobs, Jarndyce and Jarndyce, Jarndyce and Jarndyce, John Harrison: Longitude, knowledge worker, loose coupling, Martin Wolf, mass immigration, Menlo Park, Mikhail Gorbachev, mutually assured destruction, Netflix Prize, New Urbanism, Nick Leeson, PageRank, Piper Alpha, profit motive, Richard Florida, Richard Thaler, rolodex, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, South China Sea, SpaceShipOne, special economic zone, spectrum auction, Steve Jobs, supply-chain management, tacit knowledge, the market place, The Wisdom of Crowds, too big to fail, trade route, Tyler Cowen, Tyler Cowen: Great Stagnation, Virgin Galactic, web application, X Prize, zero-sum game

Some years ago, a consumer-goods company approached Dan Ariely, a marketing professor at Duke and MIT, for advice in running some experiments on its own customers. It was a sharp move: Ariely has since become one of the most celebrated behavioural economists after the success of his book Predictably Irrational. Ariely uses experiments all the time to develop and test ideas in psychology and behavioural economics, such as the hypothesis that ‘free’ isn’t just a price of zero; ‘Buy one get one free!’ feels different to ‘Buy two get both at half price!’, even though the offers are identical. Real-world applications of this insight were something the company might be able to use, and Ariely could use the collaboration to harvest data for his academic research.

Boom and Bust: A Global History of Financial Bubbles by William Quinn, John D. Turner

accounting loophole / creative accounting, Alan Greenspan, algorithmic trading, AOL-Time Warner, bank run, banking crisis, barriers to entry, Bear Stearns, behavioural economics, Big bang: deregulation of the City of London, bitcoin, blockchain, book value, Bretton Woods, business cycle, buy and hold, capital controls, Celtic Tiger, collapse of Lehman Brothers, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, debt deflation, deglobalization, Deng Xiaoping, different worldview, discounted cash flows, Donald Trump, equity risk premium, Ethereum, ethereum blockchain, eurozone crisis, fake news, financial deregulation, financial intermediation, Flash crash, Francis Fukuyama: the end of history, George Akerlof, government statistician, Greenspan put, high-speed rail, information asymmetry, initial coin offering, intangible asset, Irish property bubble, Isaac Newton, Japanese asset price bubble, joint-stock company, Joseph Schumpeter, junk bonds, land bank, light touch regulation, low interest rates, margin call, market bubble, market fundamentalism, Martin Wolf, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, negative equity, Network effects, new economy, Northern Rock, oil shock, Ponzi scheme, quantitative easing, quantitative trading / quantitative finance, railway mania, Right to Buy, Robert Shiller, Shenzhen special economic zone , short selling, short squeeze, Silicon Valley, smart contracts, South Sea Bubble, special economic zone, subprime mortgage crisis, technology bubble, the built environment, total factor productivity, transaction costs, tulip mania, urban planning

When questioned about his losses, he is reputed to have said ‘that he could not calculate the madness of the people’.29 This madness-of-crowds hypothesis has been refined and expanded by the likes of Kindleberger, John Kenneth Galbraith and, most recently, Nobel Laureate Robert Shiller.30 Shiller and other economists argue that bubbles can largely be explained by behavioural economics, with cognitive failings and psychological biases on the part of investors causing prices to rise beyond their objective value.31 A subset of investors, for example, may suffer from an overconfidence bias, whereby they overestimate the future performance of a company stock, or they may have a representativeness bias, whereby they incorrectly extrapolate from a series of good news announcements and overreact.32 Other investors may simply follow or emulate this subset of investors simply because of herd behaviour and naivety on their part.33 The view that bubbles are largely a product of irrationality has been contradicted by economists who, like Nobel Laureate Eugene Fama, believe investors to be rational and markets to be efficient.34 Much recent research on the subject has thus focused on establishing whether a particular bubble was ‘rational’ or not.35 This is unfortunate, because the rational/irrational framework is almost useless for understanding bubbles.

How Will Capitalism End? by Wolfgang Streeck

"there is no alternative" (TINA), accounting loophole / creative accounting, air traffic controllers' union, Airbnb, Alan Greenspan, basic income, behavioural economics, Ben Bernanke: helicopter money, billion-dollar mistake, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, Clayton Christensen, collective bargaining, conceptual framework, corporate governance, creative destruction, credit crunch, David Brooks, David Graeber, debt deflation, deglobalization, deindustrialization, disruptive innovation, en.wikipedia.org, eurozone crisis, failed state, financial deregulation, financial innovation, first-past-the-post, fixed income, full employment, Gini coefficient, global reserve currency, Google Glasses, haute cuisine, income inequality, information asymmetry, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, junk bonds, Kenneth Rogoff, labour market flexibility, labour mobility, late capitalism, liberal capitalism, low interest rates, market bubble, means of production, military-industrial complex, moral hazard, North Sea oil, offshore financial centre, open borders, pension reform, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, post-industrial society, private sector deleveraging, profit maximization, profit motive, quantitative easing, reserve currency, rising living standards, Robert Gordon, savings glut, secular stagnation, shareholder value, sharing economy, sovereign wealth fund, tacit knowledge, technological determinism, The Future of Employment, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transaction costs, Uber for X, upwardly mobile, Vilfredo Pareto, winner-take-all economy, Wolfgang Streeck

Its real turf, of course, are the economics and politics sections, which are undoubtedly much more influential than the science sections, and here sociology is entirely absent, with very rare exceptions. Why should this be so? Among the many reasons that come to mind is that sociology corresponds less than other disciplines to what is popularly considered science and what is found interesting about it. What fascinates a lay audience about psychology, behavioural economics, evolutionary biology and the like seems to be that they purport to identify latent causes of actions that we normally believe to be motivated by manifest reasons – causes that secretly control what we do without us knowing about them. Representative for the sort of research that has recently made waves in German science journalism are T-shirt sniffing experiments showing that women prefer the smell of men who best fit their genetic make-up, in the sense of promising more healthy offspring.

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

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. Eg: Helicopter Money. 19Daniel Kahneman is known for his work on the psychology of judgment and decision-making, as well as behavioural economics, for which he was awarded the 2002 Nobel Memorial Prize in Economic Sciences. 20Case in point - US investment in developing a better theoretical understanding of the economy is very small -around $50 million in annual funding from the National Science Foundation - or just 0.0005 percent of a $10 trillion crisis.

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

The classical economists were well aware that supply and demand changed prices - for example, Marx in Part 1 of vol. 3 of Capital - but saw this as fluctuations around the price determined by labour time. 10. P. Mirowski, ‘Learning the meaning of a dollar: Conservation principles and the social theory of value in economic theory', Social Research 57(3) (1990), pp. 689-718. 11. Behavioural economics, which deploys psychology, sociology, neuroscience and other disciplines to look at how individuals really make choices, casts doubt on the simple assumptions of marginalism. See A. Tversky and D. Kahneman, ‘Advances in prospect theory: Cumulative representation of uncertainty', Journal of Risk and Uncertainty, 5 (4) (1992), pp. 297-323; doi:10.1007/BF00122574 12.

Anatomy of the Bear: Lessons From Wall Street's Four Great Bottoms by Russell Napier

Alan Greenspan, Albert Einstein, asset allocation, banking crisis, Bear Stearns, behavioural economics, book value, Bretton Woods, business cycle, buy and hold, collective bargaining, Columbine, cuban missile crisis, desegregation, diversified portfolio, fake news, financial engineering, floating exchange rates, Fractional reserve banking, full employment, Glass-Steagall Act, global macro, hindsight bias, Kickstarter, Long Term Capital Management, low interest rates, market bubble, Michael Milken, military-industrial complex, Money creation, mortgage tax deduction, Myron Scholes, new economy, Nixon triggered the end of the Bretton Woods system, oil shock, price stability, reserve currency, risk free rate, Robert Gordon, Robert Shiller, Ronald Reagan, short selling, stocks for the long run, yield curve, Yogi Berra

What is financial history if not such a study? The behaviouralist school of psychology, around for nearly a century, is based on observing reactions to selected stimuli. Financial history looks at market prices, which are a reflection of the behaviour of thousands of participants to certain stimuli. In behavioural economics, history is a useful tool for observing how financial markets work, rather than theorising about how they should work. Such historical studies have not yet lent themselves to the comforts of empiricism. This, in itself, may be enough of a reason for many to reject the approach. However, the inability to translate all understanding into binary code does not necessarily denude it of value and insight.

Other People's Money: Masters of the Universe or Servants of the People? by John Kay

Affordable Care Act / Obamacare, Alan Greenspan, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, behavioural economics, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Monday: stock market crash in 1987, Black Swan, Bonfire of the Vanities, bonus culture, book value, Bretton Woods, buy and hold, call centre, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, cognitive dissonance, Cornelius Vanderbilt, corporate governance, Credit Default Swap, cross-subsidies, currency risk, dematerialisation, disinformation, disruptive innovation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, Elon Musk, Eugene Fama: efficient market hypothesis, eurozone crisis, financial engineering, financial innovation, financial intermediation, financial thriller, fixed income, Flash crash, forward guidance, Fractional reserve banking, full employment, George Akerlof, German hyperinflation, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Greenspan put, Growth in a Time of Debt, Ida Tarbell, income inequality, index fund, inflation targeting, information asymmetry, intangible asset, interest rate derivative, interest rate swap, invention of the wheel, Irish property bubble, Isaac Newton, it is difficult to get a man to understand something, when his salary depends on his not understanding it, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", Jim Simons, John Meriwether, junk bonds, light touch regulation, London Whale, Long Term Capital Management, loose coupling, low cost airline, M-Pesa, market design, Mary Meeker, megaproject, Michael Milken, millennium bug, mittelstand, Money creation, money market fund, moral hazard, mortgage debt, Myron Scholes, NetJets, new economy, Nick Leeson, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shock, passive investing, Paul Samuelson, Paul Volcker talking about ATMs, peer-to-peer lending, performance metric, Peter Thiel, Piper Alpha, Ponzi scheme, price mechanism, proprietary trading, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, railway mania, Ralph Waldo Emerson, random walk, reality distortion field, regulatory arbitrage, Renaissance Technologies, rent control, risk free rate, risk tolerance, road to serfdom, Robert Shiller, Ronald Reagan, Schrödinger's Cat, seminal paper, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, sovereign wealth fund, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, Steve Wozniak, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tobin tax, too big to fail, transaction costs, tulip mania, Upton Sinclair, Vanguard fund, vertical integration, Washington Consensus, We are the 99%, Yom Kippur War

While the USA was the dominant economic power, Germany’s recovery would earn the description of ‘economic miracle’, and in Japan a pace of economic growth never previously experienced anywhere would turn the country into a major industrial power. France enjoyed the ‘trente glorieuses’; Britain had ‘never had it so good’.19 Financial crises are not natural disasters like hurricanes or earthquakes, which we cannot avoid and must simply learn to manage. Financial crises have their origins in human behaviour. Economic policies can increase or reduce their frequency and size. And they have. The pattern shown in Fig. 1 is striking. The nineteenth century displays a recurrent pattern of boom and bust. In the early part of the twentieth century the amplitude of crisis increases, culminating in the Wall Street Crash and Great Depression.

Bank 3.0: Why Banking Is No Longer Somewhere You Go but Something You Do by Brett King

3D printing, Abraham Maslow, additive manufacturing, Airbus A320, Albert Einstein, Amazon Web Services, Any sufficiently advanced technology is indistinguishable from magic, Apollo 11, Apollo 13, Apollo Guidance Computer, asset-backed security, augmented reality, barriers to entry, behavioural economics, bitcoin, bounce rate, business intelligence, business process, business process outsourcing, call centre, capital controls, citizen journalism, Clayton Christensen, cloud computing, credit crunch, crowdsourcing, disintermediation, en.wikipedia.org, fixed income, George Gilder, Google Glasses, high net worth, I think there is a world market for maybe five computers, Infrastructure as a Service, invention of the printing press, Jeff Bezos, jimmy wales, Kickstarter, London Interbank Offered Rate, low interest rates, M-Pesa, Mark Zuckerberg, mass affluent, Metcalfe’s law, microcredit, mobile money, more computing power than Apollo, Northern Rock, Occupy movement, operational security, optical character recognition, peer-to-peer, performance metric, Pingit, platform as a service, QR code, QWERTY keyboard, Ray Kurzweil, recommendation engine, RFID, risk tolerance, Robert Metcalfe, self-driving car, Skype, speech recognition, stem cell, telepresence, the long tail, Tim Cook: Apple, transaction costs, underbanked, US Airways Flight 1549, web application, world market for maybe five computers

Ironically at the time of press HSBC still doesn’t have a mobile app for most of its customers. In the worst case, the split of this spend should look more like $250m on web and $500m on branch today, even considering the relative cost performance of the channels. Let’s not even start talking about social media. Today’s spend just doesn’t make sense given behavioural economics. Go back and look at your retail channel budget today and figure out how to put at least 30 per cent of your total channel budget into the mobile, tablet, and web. Then you might just be getting closer to an organisation chart and budget mix that is closer to what your bank needs to support customers in the near future.

Live and Let Spy: BRIXMIS - the Last Cold War Mission by Steve Gibson

Adam Curtis, behavioural economics, Berlin Wall, Bletchley Park, British Empire, corporate social responsibility, cuban missile crisis, disinformation, Fall of the Berlin Wall, John Nash: game theory, libertarian paternalism, long peace, means of production, Mikhail Gorbachev, moral panic, mutually assured destruction, precautionary principle, RAND corporation, road to serfdom, Ronald Reagan, unbiased observer, WikiLeaks

The Blair-Brown governments of the late 2000s argued that political freedom could be handed back to the people through the marketisation of all aspects of society – the conferring of monetary value and price upon all products and services in education, health and even defence. Everything could be controlled and explained through mathematical computer-based calculations and systems theory; including notions of individual freedom. Today, rather than interfering so explicitly in private life, the Cameron-Clegg coalition utilises pseudo-scientific behavioural economics, neuroscience and ‘nudge’ politics to implicitly direct individual decision-making through notions of genes and neurons trumping freewill. They want individuals to come to the correct decisions by themselves; provided, those decisions coincide with what the Government predetermines! Far from fulfilling the rhetoric of getting out of people’s lives, government continues to make itself more indispensable.

The Mind in the Cave: Consciousness and the Origins of Art by David Lewis-Williams

Alfred Russel Wallace, behavioural economics, centre right, conceptual framework, intentional community, Isaac Newton, language acquisition, Menlo Park, out of africa, Plato's cave, social intelligence, theory of mind

Consequently, they formulate lists to characterize modern human behaviour, such as the following:68 – abstract thinking, the ability to act with reference to abstract concepts not limited in time or space, – planning depth, the ability to formulate strategies based on past experience and to act upon them in a group context, – behavioural, economic and technological innovation, and – symbolic behaviour, the ability to represent objects, people and abstract concepts with arbitrary symbols, vocal or visual, and to reify such symbols in cultural practice. Given the west European evidence, this list seems reasonable enough. But, as its compilers point out, it is unreasonable to expect all early anatomically modern populations to have expressed these characteristics in exactly the same way.

Humankind: A Hopeful History by Rutger Bregman

"Hurricane Katrina" Superdome, Airbnb, Anton Chekhov, basic income, behavioural economics, Berlin Wall, bitcoin, Bletchley Park, Broken windows theory, call centre, data science, David Graeber, domesticated silver fox, Donald Trump, Easter island, experimental subject, fake news, Fall of the Berlin Wall, Frederick Winslow Taylor, Garrett Hardin, Hans Rosling, invention of writing, invisible hand, knowledge economy, late fees, Mahatma Gandhi, mass incarceration, meta-analysis, Milgram experiment, mirror neurons, Nelson Mandela, New Journalism, nocebo, placebo effect, Rutger Bregman, scientific management, sharing economy, Shoshana Zuboff, Silicon Valley, social intelligence, Stanford prison experiment, Stephen Fry, Stephen Hawking, Steve Jobs, Steven Pinker, surveillance capitalism, TED Talk, The Spirit Level, The Wealth of Nations by Adam Smith, Tragedy of the Commons, transatlantic slave trade, tulip mania, universal basic income, W. E. B. Du Bois, World Values Survey

That happened, for example, when tulip mania hit Holland in January 1637, and a single tulip bulb briefly sold for more than ten times the annual wage of a skilled craftsman, only to become all but worthless days later. Bubbles of this kind are not isolated to the financial world. They’re everywhere. Dan Ariely, a psychologist at Duke University, once gave a brilliant demonstration during a college lecture. To explain his field of behavioural economics, he provided the class with what sounded like an extremely technical definition. Unbeknown to the students, however, all the terms he used had been generated by a computer, cobbled together in a series of random words and sentences to produce gibberish about ‘dialectic enigmatic theory’ and ‘neodeconstructive rationalism’.

Greater: Britain After the Storm by Penny Mordaunt, Chris Lewis

"World Economic Forum" Davos, 2021 United States Capitol attack, 3D printing, accelerated depreciation, Ada Lovelace, Airbnb, banking crisis, battle of ideas, behavioural economics, Bernie Madoff, bitcoin, Black Lives Matter, blockchain, Bob Geldof, Boeing 747, Boris Johnson, Bretton Woods, Brexit referendum, British Empire, carbon footprint, Charles Babbage, collective bargaining, Corn Laws, corporate social responsibility, COVID-19, credit crunch, crowdsourcing, data is not the new oil, data is the new oil, David Attenborough, death from overwork, Deng Xiaoping, Diane Coyle, Donald Trump, Downton Abbey, driverless car, Elon Musk, en.wikipedia.org, experimental economics, failed state, fake news, Firefox, fixed income, full employment, gender pay gap, global pandemic, global supply chain, green new deal, happiness index / gross national happiness, high-speed rail, impact investing, Jeremy Corbyn, Khartoum Gordon, lateral thinking, Live Aid, lockdown, loss aversion, low skilled workers, microaggression, mittelstand, moral hazard, Neil Kinnock, Nelson Mandela, Ocado, off-the-grid, offshore financial centre, Panamax, Ponzi scheme, post-truth, quantitative easing, remote working, road to serfdom, Salesforce, Sheryl Sandberg, Skype, smart cities, social distancing, South China Sea, sovereign wealth fund, Steve Jobs, Steven Pinker, surveillance capitalism, transaction costs, transcontinental railway

Many complain that it is a weak-minded government that encourages overseas aid, but government, in many instances, is just following the people’s lead. It’s not the other way round. Big ideas don’t come from the head. There are stirring, all-powerful, unstoppable, popular movements more powerful than logic. To do something for others is the antidote to so-called rational behaviour. Economic theory would have it that we behave rationally: we earn money so we can spend it – why would we give it away? That’s not logical. But truly great ideas transcend logic: we know the best course of action. Have you ever just known something to be true? Or has everything had to be proven to you?

Bad Pharma: How Medicine Is Broken, and How We Can Fix It by Ben Goldacre

behavioural economics, classic study, data acquisition, framing effect, if you build it, they will come, illegal immigration, income per capita, meta-analysis, placebo effect, publication bias, randomized controlled trial, Ronald Reagan, selective serotonin reuptake inhibitor (SSRI), Simon Singh, sugar pill, systematic bias, WikiLeaks

We should be clear that declaring conflicts is not a final fix, and that like any intervention it can have side effects which should at least be considered alongside the headline benefit. For example, some have argued that forced disclosure of conflict of interest leads doctors to engage in ‘strategic exaggeration’,118 knowing that their utterances will be discounted if it is believed that they are acting as shills, and there is some evidence for this in the behavioural economics literature, although only from psychology experiments conducted under laboratory conditions.119 They may also be affected by a sense of ‘moral licensing’: once you’ve declared your interest, you feel free to let rip with biased advice, because you know the recipient has been warned. These are interesting ideas: overall, I would rather have disclosure.

Ways of Being: Beyond Human Intelligence by James Bridle

Ada Lovelace, Airbnb, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, Anthropocene, Any sufficiently advanced technology is indistinguishable from magic, autonomous vehicles, behavioural economics, Benoit Mandelbrot, Berlin Wall, Big Tech, Black Lives Matter, blockchain, Californian Ideology, Cambridge Analytica, carbon tax, Charles Babbage, cloud computing, coastline paradox / Richardson effect, Computing Machinery and Intelligence, corporate personhood, COVID-19, cryptocurrency, DeepMind, Donald Trump, Douglas Hofstadter, Elon Musk, experimental subject, factory automation, fake news, friendly AI, gig economy, global pandemic, Gödel, Escher, Bach, impulse control, James Bridle, James Webb Space Telescope, John von Neumann, Kickstarter, Kim Stanley Robinson, language acquisition, life extension, mandelbrot fractal, Marshall McLuhan, microbiome, music of the spheres, negative emissions, Nick Bostrom, Norbert Wiener, paperclip maximiser, pattern recognition, peer-to-peer, planetary scale, RAND corporation, random walk, recommendation engine, self-driving car, SETI@home, shareholder value, Silicon Valley, Silicon Valley ideology, speech recognition, statistical model, surveillance capitalism, techno-determinism, technological determinism, technoutopianism, the long tail, the scientific method, The Soul of a New Machine, theory of mind, traveling salesman, trolley problem, Turing complete, Turing machine, Turing test, UNCLOS, undersea cable, urban planning, Von Neumann architecture, wikimedia commons, zero-sum game

Crucially, those relationships extend to things as well as beings: ecology is just as interested in how the availability of nesting materials affects bird populations, or how urban planning shapes the spread of diseases, as it is in how honeybees pollinate marigolds and cleaner wrasses delouse surgeonfish. And that’s just biological ecology. Ecology is fundamentally different to the other sciences in that it describes a scope and an attitude of study, rather than a field. There is an ecology – and ecologists – of mathematics, behaviour, economics, physics, history, art, linguistics, psychology, warfare, and almost any other discipline that you can think of. There is also ecological politics, which has the potential not merely to describe worlds, but to change them. It was as an ecologist that the marine biologist Rachel Carson approached the environment, culminating in her immensely influential Silent Spring of 1962, her ecological understanding enabling her to link pesticides in the rivers and oceans to devastating effects on animal and human health.

Homo Deus: A Brief History of Tomorrow by Yuval Noah Harari

23andMe, Aaron Swartz, agricultural Revolution, algorithmic trading, Anne Wojcicki, Anthropocene, anti-communist, Anton Chekhov, autonomous vehicles, behavioural economics, Berlin Wall, call centre, Chekhov's gun, Chris Urmson, cognitive dissonance, Columbian Exchange, computer age, DeepMind, Demis Hassabis, Deng Xiaoping, don't be evil, driverless car, drone strike, European colonialism, experimental subject, falling living standards, Flash crash, Frank Levy and Richard Murnane: The New Division of Labor, glass ceiling, global village, Great Leap Forward, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, Isaac Newton, job automation, John Markoff, Kevin Kelly, lifelogging, low interest rates, means of production, Mikhail Gorbachev, Minecraft, Moneyball by Michael Lewis explains big data, Monkeys Reject Unequal Pay, mutually assured destruction, new economy, Nick Bostrom, pattern recognition, peak-end rule, Peter Thiel, placebo effect, Ray Kurzweil, self-driving car, Silicon Valley, Silicon Valley ideology, stem cell, Steven Pinker, telemarketer, The future is already here, The Future of Employment, too big to fail, trade route, Turing machine, Turing test, ultimatum game, Watson beat the top human players on Jeopardy!, zero-sum game

For both organisational and financial reasons, the vast majority of experiments are conducted either on individuals or on small groups of participants. Yet it is risky to extrapolate from small-group behaviour to the dynamics of mass societies. A nation of 100 million people functions in a fundamentally different way to a band of a hundred individuals. Take, for example, the Ultimatum Game – one of the most famous experiments in behavioural economics. This experiment is usually conducted on two people. One of them gets $100, which he must divide between himself and the other participant in any way he wants. He may keep everything, split the money in half or give most of it away. The other player can do one of two things: accept the suggested division, or reject it outright.

Them And Us: Politics, Greed And Inequality - Why We Need A Fair Society by Will Hutton

Abraham Maslow, Alan Greenspan, Andrei Shleifer, asset-backed security, bank run, banking crisis, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Blythe Masters, Boris Johnson, bread and circuses, Bretton Woods, business cycle, capital controls, carbon footprint, Carmen Reinhart, Cass Sunstein, centre right, choice architecture, cloud computing, collective bargaining, conceptual framework, Corn Laws, Cornelius Vanderbilt, corporate governance, creative destruction, credit crunch, Credit Default Swap, debt deflation, decarbonisation, Deng Xiaoping, discovery of DNA, discovery of the americas, discrete time, disinformation, diversification, double helix, Edward Glaeser, financial deregulation, financial engineering, financial innovation, financial intermediation, first-past-the-post, floating exchange rates, Francis Fukuyama: the end of history, Frank Levy and Richard Murnane: The New Division of Labor, full employment, general purpose technology, George Akerlof, Gini coefficient, Glass-Steagall Act, global supply chain, Growth in a Time of Debt, Hyman Minsky, I think there is a world market for maybe five computers, income inequality, inflation targeting, interest rate swap, invisible hand, Isaac Newton, James Dyson, James Watt: steam engine, Japanese asset price bubble, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, knowledge worker, labour market flexibility, language acquisition, Large Hadron Collider, liberal capitalism, light touch regulation, Long Term Capital Management, long term incentive plan, Louis Pasteur, low cost airline, low interest rates, low-wage service sector, mandelbrot fractal, margin call, market fundamentalism, Martin Wolf, mass immigration, means of production, meritocracy, Mikhail Gorbachev, millennium bug, Money creation, money market fund, moral hazard, moral panic, mortgage debt, Myron Scholes, Neil Kinnock, new economy, Northern Rock, offshore financial centre, open economy, plutocrats, power law, price discrimination, private sector deleveraging, proprietary trading, purchasing power parity, quantitative easing, race to the bottom, railway mania, random walk, rent-seeking, reserve currency, Richard Thaler, Right to Buy, rising living standards, Robert Shiller, Ronald Reagan, Rory Sutherland, Satyajit Das, Savings and loan crisis, shareholder value, short selling, Silicon Valley, Skype, South Sea Bubble, Steve Jobs, systems thinking, tail risk, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, the scientific method, The Wealth of Nations by Adam Smith, three-masted sailing ship, too big to fail, unpaid internship, value at risk, Vilfredo Pareto, Washington Consensus, wealth creators, work culture , working poor, world market for maybe five computers, zero-sum game, éminence grise

Nor are firms, consumers and workers so economically rational as the free-market economists supposed. The supposition was that, when confronted by a tax reduction, consumers would know it was only temporary and so would rationally save to pay for the inevitable later tax rise. In fact, as behavioural economics suggests, consumers are myopic. They spend the extra cash in their pockets that results from tax cuts, just as they did when Britain lowered VAT from 17.5 per cent to 15 per cent to boost consumer spending in 2009. (This was a far more effective intervention to limit the recession than the consensus has acknowledged.)

Empire of Things: How We Became a World of Consumers, From the Fifteenth Century to the Twenty-First by Frank Trentmann

Abraham Maslow, Airbnb, Alan Greenspan, Anton Chekhov, Ayatollah Khomeini, behavioural economics, Berlin Wall, Big bang: deregulation of the City of London, bread and circuses, British Empire, Capital in the Twenty-First Century by Thomas Piketty, car-free, carbon footprint, Cass Sunstein, choice architecture, classic study, clean water, collaborative consumption, collective bargaining, colonial exploitation, colonial rule, Community Supported Agriculture, company town, critique of consumerism, cross-subsidies, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, deindustrialization, dematerialisation, Deng Xiaoping, deskilling, equity premium, Fall of the Berlin Wall, Fellow of the Royal Society, financial exclusion, fixed income, food miles, Ford Model T, full employment, gentrification, germ theory of disease, global village, Great Leap Forward, haute cuisine, Herbert Marcuse, high net worth, income inequality, index card, informal economy, Intergovernmental Panel on Climate Change (IPCC), Internet of things, it's over 9,000, James Watt: steam engine, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kitchen Debate, knowledge economy, labour mobility, Les Trente Glorieuses, libertarian paternalism, Livingstone, I presume, longitudinal study, mass immigration, McMansion, mega-rich, Michael Shellenberger, moral panic, mortgage debt, Murano, Venice glass, Naomi Klein, New Urbanism, Paradox of Choice, Pier Paolo Pasolini, planned obsolescence, pneumatic tube, post-industrial society, Post-Keynesian economics, post-materialism, postnationalism / post nation state, profit motive, prosperity theology / prosperity gospel / gospel of success, public intellectual, purchasing power parity, Ralph Nader, rent control, retail therapy, Richard Thaler, Right to Buy, Ronald Reagan, school vouchers, scientific management, Scientific racism, Scramble for Africa, seminal paper, sharing economy, Silicon Valley, Skype, stakhanovite, Ted Nordhaus, the built environment, the market place, The Spirit Level, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, Thorstein Veblen, trade liberalization, trade route, transatlantic slave trade, union organizing, upwardly mobile, urban planning, urban sprawl, Washington Consensus, women in the workforce, working poor, young professional, zero-sum game

Daniel Kahneman, Ed Diener & Norbert Schwarz, eds., Well-Being: The Foundations of Hedonic Psychology (New York, 1999); Richard Layard, Happiness: Lessons from a New Science (New York, 2005); and Luigino Bruni & Pier Luigi Porta, eds., Economics and Happiness: Framing the Analysis (New York, 2006). Of course, happiness extends beyond behavioural economics: for other approaches see: Dieter Thomä, Christoph Henning & Olivia Mitscherlich-Schönherr, eds., Glück: Ein interdisziplinäres Handbuch (Stuttgart, 2011). 40. Richard Easterlin, ‘Does Economic Growth Improve the Human Lot? Some Empirical Evidence’, in: Nations and Households in Economic Growth: Essays in Honor of Moses Abramovitz, eds.

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Similar reservations apply to the hope some attach to 3-D printing: why assume that the opportunity for the personalized, bespoke making of stuff will only be used to prolong the life of objects and that people will stop wanting novelty and variety? 20. Richard H. Thaler and Cass R. Sunstein, Nudge: Improving decisions about health, wealth and happiness (London, 2009). For a short overview, see Cass Sunstein, ‘Behavioural economics, consumption and environmental protection’ in Reisch and Thøgersen (eds), Handbook of Research on Sustainable Consumption, pp. 313–27. Index The pagination of this electronic edition does not match the edition from which it was made. To locate a specific passage, please use the search feature on your ebook reader.

Whiteshift: Populism, Immigration and the Future of White Majorities by Eric Kaufmann

4chan, Abraham Maslow, affirmative action, Amazon Mechanical Turk, anti-communist, anti-globalists, augmented reality, battle of ideas, behavioural economics, Berlin Wall, Bernie Sanders, Boris Johnson, Brexit referendum, British Empire, centre right, Chelsea Manning, cognitive dissonance, complexity theory, corporate governance, correlation does not imply causation, critical race theory, crowdsourcing, Daniel Kahneman / Amos Tversky, data science, David Brooks, deindustrialization, demographic transition, Donald Trump, Elon Musk, en.wikipedia.org, facts on the ground, failed state, fake news, Fall of the Berlin Wall, first-past-the-post, Francis Fukuyama: the end of history, gentrification, Great Leap Forward, Haight Ashbury, Herbert Marcuse, illegal immigration, immigration reform, imperial preference, income inequality, it's over 9,000, Jeremy Corbyn, knowledge economy, knowledge worker, liberal capitalism, longitudinal study, Lyft, mass immigration, meta-analysis, microaggression, moral panic, Nate Silver, New Urbanism, Norman Mailer, open borders, open immigration, opioid epidemic / opioid crisis, Overton Window, phenotype, postnationalism / post nation state, Ralph Waldo Emerson, Republic of Letters, Ronald Reagan, Scientific racism, Silicon Valley, Social Justice Warrior, statistical model, Steve Bannon, Steven Pinker, the built environment, the scientific method, The Wisdom of Crowds, transcontinental railway, twin studies, uber lyft, upwardly mobile, urban sprawl, W. E. B. Du Bois, Washington Consensus, white flight, working-age population, World Values Survey, young professional

This is justified on the grounds that ‘affirmation and uplift are more important to a group that has been oppressed and discriminated against than they are to the dominant majority’.11 This is flawed in two respects. First, it assumes clubs exist only for political or economic rather than cultural reasons. This materialistic view of the world is hopelessly outdated after the behavioural-economics and evolutionary-psychology revolutions; it is ignorant of the history of ethnic revival in the world, which is often led by romantic intellectuals in search of meaning and authenticity.12 It is unclear to me why no members of a dominant group would be interested in their cultural traditions, ethno-history and memories.

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

., 186–87 instant endowment effect, 154 Intelligent Investor, The (Graham), 219, 220 interest rates, 77–78, 79, 350 intertemporal choice, 88–99 Into Thin Air (Krakauer), 356–57 intrauterine device (IUD), 342 “Invest Now, Drink Later, Spend Never” (Shafir and Thaler), 71 invisible hand, 52, 87 invisible handwave critique of behavioral economics, 51–53, 149, 209 iPhone, 280, 326 Iran, 130 Irrational Exuberance (Shiller), 234 irrelevance theorem and behavioral economics, 164–67 IRS, 314–15 iTunes, 135–36 Ivester, Douglas, 134–35 Iwry, Mark, 314–15, 316 Jameel Poverty Action Lab (J-PAL), 344 JC Penney, 62–63 Jensen, Michael, 51–52, 53, 105 and efficient market hypothesis, 205, 207, 208 Jevons, William Stanley, 88, 90 Joey (doll), 129 Johnson, Eric, xv, 82, 180n, 299, 300 on default organ donations, 327–28 Johnson, Ron, 62 Johnson, Steven, 39–40 Jolls, Christine, 184, 257, 258, 260, 269 Jordan, Michael, 19 Journal of Economic Behavior and Organization, 53–54 Journal of Economic Perspectives, 170–75 Journal of Finance, 243 Journal of Financial Economics, 208 judgment, 179n–80n “Judgment Under Uncertainty: Heuristics and Biases” (Kahneman and Tversky), 22–23, 24 just noticeable difference (JND), 32–33 Kahneman, Daniel, 21, 22–23, 24, 29, 36, 103n, 104, 125, 126, 140, 148, 157, 162, 176, 221, 335, 338, 353, 357 and “as if” critique of behavioral economics, 46 in behavioral economics debate, 159, 160 in Behavioral Economics Roundtable, 181, 183, 185 book edited by, 187 on changes in wealth, 30–31 endowment effect studied by, 149–55 equity premium puzzle studied by, 197–98 on extreme forecasts with flimsy data, 218, 219, 223 framing studied by, 18 hypothetical choices defended by, 38, 82 lack of incentives in experiments of, 47–48 and “learning” critique of behavioral economics, 49 on long-shot odds, 80–81 narrow framing work of, 186–87, 191 Sunstein’s collaboration with, 258 Thaler’s first meeting with, 36–37 Thaler’s laziness praised by, xv–xvi on theory-induced blindness, 93 and Tversky’s cancer, xiii–xiv two-system view of mind, 103, 109 and Ultimatum Game, 140, 141, 267 unambiguous questions studied by, 295–96 Wanner given advice by, 177 Kan, Raymond, 243 Karlan, Dean, 19 Kashyap, Anil, 272, 273 Katrina, Hurricane, 133, 327 Keynes, John Maynard, 94–95, 96 beauty contest analogy of, 210–11, 212, 214 and behavioral macroeconomics, 349 on conventional wisdom, 210, 292 decline of interest in ideas of, 209 as forerunner of behavioral finance, 209 as investor, 209, 219 on market anomalies, 209–10, 219 kidneys, auctions for, 130 Kitchen Safe, 107n Kleidon, Allan, 167–68, 232 KLM, 356 “Knee-Deep in the Big Muddy” (Staw), 65 Knetsch, Jack, 126, 127–28, 140, 148–49, 267 Kohl’s, 62 Kokonas, Nick, 138–39 Korobkin, Russell, 269 Krakauer, Jon, 356–57 Krueger, Alan B., 139n, 359, 372 Kuhn, Thomas, 167–68, 169, 171, 172, 349 Kunreuther, Howard, 25 Laboratory Experimentation in Economics: Six Points of View (Roth), 148 Labor Department, U.S., 316 Laibson, David, 110, 183, 315n, 353 Lamont, Owen, 244, 250 law and economics, 257–69 law of large numbers, 194–95 law of one price, 237–39, 244, 247, 248, 250, 348 learning critique of behavioral economics, 49–51, 153 Leclerc, France, 257 Lee, Charles, 239 closed-end fund paper of, 240–43, 244 Leno, Jay, 134 Lester, Richard, 44–45 Letwin, Oliver, 331 Levitt, Steven, 354 Lewin, Kurt, 338, 340 liar loans, 252 Liberal Democrats, U.K., 332 libertarian paternalism, 322, 323–25 “Libertarian Paternalism Is Not an Oxymoron” (Sunstein and Thaler), 323–25 Lichtenstein, Sarah, 36, 48 life, value of, see value of a life life-cycle hypothesis, 95–96, 97, 98, 106, 164 “Life You Save May Be Your Own, The” (Schelling), 12–13, 14 limits of arbitrage, 249, 288, 349 Lintner, John, 166, 226, 229 Liquid Assets (Ashenfelter), 68 List, The, 10, 20–21, 24, 25, 31, 33, 36, 39, 43, 58, 68, 303, 347 List, John, 354 lives, statistical vs. identified, 13 loans, for automobiles, 121–23 Loewenstein, George, 88, 111, 176, 180–81, 362 in Behavioral Economics Roundtable, 181 effort project of, 199–201 paternalism and, 323 London, 248 Long Term Capital Management (LTCM), 249, 251 loss aversion, 33–34, 52, 58–59, 154, 261 dividends and, 166 of managers, 187–89, 190 myopic, 195, 198 Lott, John, 265–66 Lovallo, Dan, 186, 187 Lowenstein, Roger, xv–xvi, 12 LSV Asset Management, 228 Lucas, Robert, 159 Luck, Andrew, 289 MacArthur Foundation, 184 Machiguenga people, 364 Machlup, Fritz, 45 macroeconomics: behavioral, 349–52 rational expectations in, 209 Macy’s, 62, 63 Madrian, Brigitte, 315–17 Magliozzi, Ray, 32 Magliozzi, Tom, 32–33 Major League Baseball, 282 “make it easy” mantra, 337–38, 339–40 Malkiel, Burton, 242 managers: growth, 214–15 gut instinct and, 293 loss aversion of, 187–89, 190 risk aversion of, 190–91 value, 214–15 mandated choice, 328–29 marginal, definition of, 27 marginal analysis, 44 marginal propensity to consume (MPC), 94–95, 98 markets, in equilibrium, 44, 131, 150, 207 Markowitz, Harry, 208 marshmallow experiment, 100–101, 102n, 178, 314 Marwell, Gerald, 145 Mas, Alexandre, 372 Massey, Cade, 194, 278–79, 282, 289 Matthew effect, 296n McCoy, Mike, 281–82 McDonald’s, 312 McIntosh, Donald, 103 mean reversion, 222–23 Mechanical Turk (Amazon), 127 Meckling, William, 41, 105 Mehra, Raj, 191 mental accounting, 54, 55, 98, 115, 116, 118, 257 bargains and rip-offs, 57–63 budgeting, 74–79 and equity premium puzzle, 198 on game show, 296–301, 297 getting behind in, 80–84 house money effect, 81–82, 83–84, 193n of savings, 310 sunk costs, 21, 52, 64–73 “two-pocket,” 81–82 Merton, Robert K., 296n “Methodology of Positive Economics, The” (Friedman), 45–46 Mian, Atif, 78 Miljoenenjacht, see Deal or No Deal Miller, Merton, 159, 167–68, 206, 208 annoyed at closed-end fund paper, 242–43, 244, 259 irrelevance theorem of, 164–65, 166–67 Nobel Prize won by, 164 Thaler’s appointment at University of Chicago, reaction to, 255, 256 Minnesota, 335 Mischel, Walter, 100–101, 102, 103, 178, 314 mispricing, 225 models: beta–delta, 110 of homo economicus, 4–5, 6–7, 8–9, 23–24, 180 imprecision of, 23–24 optimization-based, 5–6, 8, 27, 43, 207 Modigliani, Franco: consumption function of, 94, 95–96, 97, 98, 309 irrelevance theorem of, 164–65 Nobel Prize won by, 163–64 Moore, Michael, 122 More Guns, Less Crime (Lott), 265 Morgenstern, Oskar, 29 mortgage brokers, 77–78 mortgages, 7, 77–79, 252, 345 mugs, 153, 155, 263, 264–66, 264 Mullainathan, Sendhil, 58n, 183–84, 366 Mulligan, Casey, 321–22 Murray, Bill, 49–50 mutual fund portfolios, 84 mutual funds, 242 myopic loss aversion, 195, 198 Nagel, Rosemarie, 212 naïve agents, 110–11 Nalebuff, Barry, 170 narrow framing, 185–91 and effort project, 201 NASDAQ, 250, 252 Nash, John, 212 Nash equilibrium, 212, 213n, 367 National Bureau of Economic Research (NBER), 35, 236, 244, 349 National Football League, 139n draft in, 11, 277–91, 281, 283, 285, 286 rookie salaries in, 283 salary cap in, 282–83 surplus value of players in, 285–86, 285, 286, 288 National Public Radio, 32, 305 naturally occurring experiments, 8 NESTA, 343 Net Asset Value (NAV) fund, 238–39, 241 Netherlands, 248, 296–301 neuro-economics, 177, 182 New Contrarian Investment Strategy, The (Dreman), 221–22 New Orleans Saints, 279 New York, 137 New Yorker, 90–91, 91, 92 New York Stock Exchange, 223, 226, 232, 248 New York Times, 292, 327, 328 New York Times Magazine, xv–xvi, 12 Next Restaurant, 138–39 NFL draft, 11, 277–91, 281, 283, 285, 286, 295 Nick (game show contestant), 304–5 Nielsen SoundScan, 135 Nixon, Richard, 363 Nobel, Alfred, 23n Nobel Prize, 23, 40, 207 no free lunch principle, 206, 207, 222, 225, 226n, 227, 230, 233–36, 234, 236, 251, 255 noise traders, 240–42, 247, 251 nomenclature, importance of, 328–29 Norman, Don, 326 normative theories, 25–27 “Note on the Measurement of Utility, A” (Samuelson), 89–94 no trade theorem, 217 Nudge (Thaler and Sunstein), 325–26, 330, 331–32, 333, 335, 345 nudges, nudging, 325–29, 359 number game, 211–14, 213 Obama, Barack, 22 occupations, dangerous, 14–15 Odean, Terry, 184 O’Donnell, Gus, 332–33 O’Donoghue, Ted, 110, 323 Odysseus, 99–100, 101 Office of Information and Regulatory Affairs (OIRA), 343–44 Office of Management and Budget, 343 offices, 270–76, 278 “one-click” interventions, 341–42 open-end funds, 238 opportunity costs, 17, 18, 57–58, 59, 73 of poor people, 58n optimal paternalism, 323 optimization, 5–6, 8, 27, 43, 161, 207, 365 Oreo experiment, 100–101, 102n, 178, 314 organizations, theory of, 105, 109 organs: donations of, 327–28 markets for, 130 Osborne, George, 331 Oullier, Olivier, 333 outside view, inside view vs., 186–87 overconfidence, 6, 52, 124, 355 and high trading volume in finance markets, 217–18 in NFL draft, 280, 295 overreaction: in financial markets, 219–20, 222–24, 225–29 generalized, 223–24 to sense of humor, 218, 219, 223 value stocks and, 225–29 Oxford Handbook of Behavioral Economics and the Law, 269 Palm and 3Com, 244–49, 246, 250, 348 paradigms, 167–68, 169–70 Pareto, Vilfredo, 93 parking tickets, 260 passions, 7, 88, 103 paternalism, 269, 322 dislike of term, 324 libertarian, 322, 323–25 path dependence, 298–300 “pay as you earn” system, 335 payment depreciation, 67 Pearl Harbor, Japanese bombing of, 232 P/E effect, 219–20, 222–23, 233, 235 pensions, 9, 198, 241, 320, 357–58 permanent income hypothesis, 95 Peter Principle, 293 pharmaceutical companies, 189–90 Pigou, Arthur, 88, 90 plane tickets, 138 planner-doer model, 104–10 Plott, Charlie, 40, 41, 48, 49, 148, 149, 177, 181 poker, 80, 81–82, 99 poor, 58n Posner, Richard, 259–61, 266 Post, Thierry, 296 poverty, decision making and, 371 Power, Samantha, 330 “Power of Suggestion, The” (Madrian and Shea), 315 practice, 50 predictable errors, 23–24 preferences: change in, 102–3 revealed, 86 well-defined, 48–49 pregnancy, teenage, 342 Prelec, Drazen, 179 Prescott, Edward, 191, 192 present bias (hyperbolic discounting), 91–92, 110, 227n and NFL draft, 280, 287 savings and, 314 presumed consent, in organ donations, 328–29 price controls, 363 price/earnings ratio (P/E), 219–20, 222–23, 233, 235 prices: buying vs. selling, 17, 18–19, 20, 21 rationality of, 206, 222, 230–33, 231, 237, 251–52 variability of stock, 230–33, 231, 367 price-to-rental ratios, 252 principal-agent model, 105–9, 291 Prisoner’s Dilemma, 143–44, 145, 301–5, 302 “Problem of Social Cost, The” (Coase), 263–64 profit maximization, 27, 30 promotional pricing strategy, 62n prompted choice (in organ donation), 327–29 prospect theory, 25–28, 295, 353 acceptance of, 38–39 and “as if” critique of behavioral economics, 46 and consumer choice, 55 and equity premium puzzle, 198 expected utility theory vs., 29 surveys used in experiments of, 38 psychological accounting, see mental accounting “Psychology and Economics Conference Handbook,” 163 “Psychology and Savings Policies” (Thaler), 310–13 Ptolemaic astronomy, 169–70 public goods, 144–45 Public Goods Game, 144–46 Punishment Game, 141–43, 146 Pythagorean theorem, 25–27 qualified default investment alternatives, 316 quantitative analysis, 293 Quarterly Journal of Economics, 197, 201 quasi-hyperbolic discounting, 91–92 quilt, 57, 59, 61, 65 Rabin, Matthew, 110, 181–83, 353 paternalism and, 323 racetracks, 80–81, 174–75 Radiolab, 305 randomized control trials (RCTs), 8, 338–43, 344, 371 in education, 353–54 Random Walk Down Walk Street, A (Malkiel), 242 rational expectations, 98, 191 in macroeconomics, 209 rational forecasts, 230–31 rationality: bounded, 23–24, 29, 162 Chicago debate on, 159–63, 167–68, 169, 170, 205 READY4K!

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., 311, 314–15, 343 Treisman, Anne, 36, 185 Tversky, Amos, 21, 22–23, 24, 29, 103n, 104, 105n, 125, 157, 162, 176, 201, 221, 261, 353, 357 and “as if” critique of behavioral economics, 46 in behavioral economics debate, 159–60 in Behavioral Economics Roundtable, 181 on changes in wealth, 30–31 equity premium puzzle studied by, 197–98 on extreme forecasts with flimsy data, 218, 219, 223 hypothetical choices defended by, 38, 82 illness and death of, xiii–xv, 187 on importance of stories, xiv–xv, 10 and “invisible handwave” argument, 51 lack of incentives in experiments of, 47–48 and “learning” critique of behavioral economics, 49 on long-shot odds, 80–81 Thaler’s first meeting with, 36–37 unambiguous questions studied by, 295–96 Wanner given advice by, 177 Tversky, Barbara, 36 Tversky, Oren, xiv–xv Tversky, Tal, xv Twain, Mark, 355 “two-pocket” mental accounting, 81–82 two-system view of mind, 103, 109 Uber, 136–38, 200n Ultimatum Game, 140–41, 142, 160, 182, 261, 301 revised version of, 266–67 unemployment rate, 47 United Kingdom, 10, 11, 330–45 tax revenue in, 334–35 university endowment, 197–98 urinals, 326 USA Today, 328 utility, 28–29, 28 acquisition, 59–63, 66 transaction, 59–63, 66, 118 utility functions, 161 value function, 30–32, 31, 34, 58–59, 85 value managers, value investing, 214–15, 220–21, 222, 227–28 “Value of a Life, The” (Thaler), 12, 14–15 value of a life, 12–15, 21, 35 “Value of Saving a Life, The” (Thaler and Rosen), 15, 42 van den Assem, Martijn, 296, 300, 301 van Dolder, Dennie, 300, 301 variability of stock prices, 230–33, 231, 367 Varian, Hal, 170 Viñoly, Rafael, 270, 276 Vishny, Robert, on limits of arbitrage, 249 von Neumann, John, 29 wages, sticky, 131–32 Waldmann, Robert, 240 Wall Street Journal, 121–22, 135, 232 Walmart, 62n, 63 Wanner, Eric, 177–78, 181, 184 as founding funder of behavioral economics, 184 Washington Redskins, 279, 288–90 Washington Wizards, 19 Wason problem, 171–72 “Watching Scotty Die” (song), 177 wealth: fungibility of, 98, 193n levels of vs. changes in, 30–31 mental accounting of, 76–79 Wealth of Nations, The (Smith), 7, 87 Weber-Fechner Law, 32–33 Weil, Roman, 70 well-defined preferences, 48–49 What Works Network, 341 White, Jesse, 328–29 White House Social and Behavioral Sciences Team (SBST), 344 Williams, Ricky, 279, 280, 282–83 willow tree, and Coase theorem, 268 willpower, 87–99, 258, 363 effort required by, 108 Wilson, Russell, 290 windfalls, 311 wine, 17, 34, 46, 68–71, 72–73, 257 winner’s curse, in NFL draft, 280, 295 Winner’s Curse, The (Thaler), 175 World Cup, 326 Wright, Frank Lloyd, 270 Yahoo, 248n Yao Ming, 271n Zamir, Eyal, 269 Zeckhauser, Richard, 13–14, 178 in behavioral economics debate, 159 Zingales, Luigi, 274 ALSO BY RICHARD H.

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But thanks to an influx of creative young economists who have been willing take some risks and break with the traditional ways of doing economics, the dream of an enriched version of economic theory is being realized. The field has become known as “behavioral economics.” It is not a different discipline: it is still economics, but it is economics done with strong injections of good psychology and other social sciences. The primary reason for adding Humans to economic theories is to improve the accuracy of the predictions made with those theories. But there is another benefit that comes with including real people in the mix. Behavioral economics is more interesting and more fun than regular economics. It is the un-dismal science. Behavioral economics is now a growing branch of economics, and its practitioners can be found in most of the best universities around the world.

Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions by Dan Ariely

air freight, Al Roth, Alan Greenspan, Bear Stearns, behavioural economics, Bernie Madoff, Burning Man, butterfly effect, Cass Sunstein, collateralized debt obligation, compensation consultant, computer vision, corporate governance, credit crunch, Daniel Kahneman / Amos Tversky, David Brooks, delayed gratification, endowment effect, financial innovation, fudge factor, Gordon Gekko, greed is good, housing crisis, IKEA effect, invisible hand, John Perry Barlow, lake wobegon effect, late fees, loss aversion, market bubble, Murray Gell-Mann, payday loans, Pepsi Challenge, placebo effect, price anchoring, Richard Thaler, second-price auction, Silicon Valley, Skinner box, Skype, subprime mortgage crisis, The Wealth of Nations by Adam Smith, Upton Sinclair

The discipline that allows me to play with this subject matter is called behavioral economics, or judgment and decision making (JDM). Behavioral economics is a relatively new field, one that draws on aspects of both psychology and economics. It has led me to study everything from our reluctance to save for retirement to our inability to think clearly during sexual arousal. It’s not just the behavior that I have tried to understand, though, but also the decision-making processes behind such behavior—yours, mine, and everybody else’s. Before I go on, let me try to explain, briefly, what behavioral economics is all about and how it is different from standard economics.

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Of course, I ran into the biggest difficulties when arguing for irrationality with card-carrying rational economists, whose disregard of my experimental data was almost as intense as their nearly religious belief in rationality (if Adam Smith’s “invisible hand” doesn’t sound like God, I don’t know what does). This basic sentiment was expressed succinctly by two fabulous Chicago economists, Steven Levitt and John List, suggesting that the practical usefulness of behavioral economics has been shown to be marginal at best: Perhaps the greatest challenge facing behavioral economics is demonstrating its applicability in the real world. In nearly every instance, the strongest empirical evidence in favor of behavioral anomalies emerges from the lab. Yet there are many reasons to suspect that these laboratory findings might fail to generalize to real markets….

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While this is a very depressing time for the economy as a whole, and for all of us individually, the turnabout on Greenspan’s part has created new opportunities for behavioral economics, and for those willing to learn and alter the way they think and behave. From crisis comes opportunity, and perhaps this tragedy will cause us to finally accommodate new ideas, and—I hope—begin to rebuild. WRITING A BOOK in the age of blogging and e-mail is an absolute treat because I get continuous feedback from readers, which causes me to learn about, reconsider, and rethink different aspects of human behavior. I’ve also had some very interesting discussions with readers about the links between behavioral economics and what’s happening in the financial markets, and about random topics relating to everyday irrationalities.

Willful: How We Choose What We Do by Richard Robb

activist fund / activist shareholder / activist investor, Alvin Roth, Asian financial crisis, asset-backed security, Bear Stearns, behavioural economics, Bernie Madoff, Brexit referendum, capital asset pricing model, cognitive bias, collapse of Lehman Brothers, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, delayed gratification, diversification, diversified portfolio, effective altruism, endowment effect, Eratosthenes, experimental subject, family office, George Akerlof, index fund, information asymmetry, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, lake wobegon effect, loss aversion, market bubble, market clearing, money market fund, Paradox of Choice, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, Philippa Foot, principal–agent problem, profit maximization, profit motive, Richard Thaler, search costs, Silicon Valley, sovereign wealth fund, survivorship bias, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, trolley problem, ultimatum game

Conventional thinking offers a palliative: behavioral economics. Behavioral economics has extended rational choice to account for biases and heuristics. A person acting with a behavioral bias also tries to satisfy her desires but routinely misses the mark. Behavioral economists hope that identifying biases will help people mend their ways and act in conformity with economic models. If rational choice theory conceives of people as robots whose behavior is determined by their preferences, then behavioral economists believe that those robots are badly programmed. Both rational choice and behavioral economics assume that action is purposeful, that people seek the outcomes that best gratify their preexisting desires.

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If this were the case, all we had to do was document biases through experiments, like the one on gain-loss asymmetry, and adjust our models accordingly. Rational choice, with all its insights into markets and many other aspects of human behavior, could largely be preserved. But in the end, behavioral economics did not seem to be the solution to what we thought neoclassical theory was lacking. Usually, when behavioral economics offered a psychological solution for some ostensible puzzle, we could explain the data with rational choice if we worked hard enough. With the gain-loss asymmetry experiment, what about the cost of collecting the debt from the professor running the experiment?

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I don’t believe myself to be particularly afflicted with behavioral biases, the place to turn nowadays when we’re not living up to a high standard of rationality. Well, maybe I do fall into traps from time to time, like the “endowment effect” (overvaluing things I already own) or the “Lake Wobegon effect” (rating myself a better-than-average driver, for example, along with 93 percent of Americans). It’s hard to be certain—after all, behavioral economics deals with blind spots. But I don’t think that biases are the cause of my pig­headedness, aversion to leisure, letting problems build up even though I know by now that an ounce of prevention is worth a pound of cure, sloppiness with personal finances, random displays of altruism, or other seemingly nonrational behavior.

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

The discipline that allows me to play with this subject matter is called behavioral economics, or judgment and decision making (JDM). Behavioral economics is a relatively new field, one that draws on aspects of both psychology and economics. It has led me to study everything from our reluctance to save for retirement to our inability to think clearly during sexual arousal. It’s not just the behavior that I have tried to understand, though, but also the decision-making processes behind such behavior—yours, mine, and everybody else’s. Before I go on, let me try to explain, briefly, what behavioral economics is all about and how it is different from standard economics.

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Wouldn’t economics make a lot more sense if it were based on how people actually behave, instead of how they should behave? As I said in the Introduction, that simple idea is the basis of behavioral economics, an emerging field focused on the (quite intuitive) idea that people do not always behave rationally and that they often make mistakes in their decisions. In many ways, the standard economic and Shakespearean views are more optimistic about human nature, since they assume that our capacity for reasoning is limitless. By the same token the behavioral economics view, which acknowledges human deficiencies, is more depressing, because it demonstrates the many ways in which we fall short of our ideals.

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Behavioral economists, on the other hand, believe that people are susceptible to irrelevant influences from their immediate environment (which we call context effects), irrelevant emotions, shortsightedness, and other forms of irrationality (see any chapter in this book or any research paper in behavioral economics for more examples). What good news can accompany this realization? The good news is that these mistakes also provide opportunities for improvement. If we all make systematic mistakes in our decisions, then why not develop new strategies, tools, and methods to help us make better decisions and improve our overall well-being? That’s exactly the meaning of free lunches from the perspective of behavioral economics—the idea that there are tools, methods, and policies that can help all of us make better decisions and as a consequence achieve what we desire.

Scarcity: The True Cost of Not Having Enough by Sendhil Mullainathan

American Society of Civil Engineers: Report Card, Andrei Shleifer, behavioural economics, Cass Sunstein, clean water, cognitive load, computer vision, delayed gratification, double entry bookkeeping, Exxon Valdez, fault tolerance, happiness index / gross national happiness, impulse control, indoor plumbing, inventory management, knowledge worker, late fees, linear programming, mental accounting, microcredit, p-value, payday loans, purchasing power parity, randomized controlled trial, Report Card for America’s Infrastructure, Richard Thaler, Saturday Night Live, Walter Mischel, Yogi Berra

willpower Windows software word searches work hours working memory World War II worry, and scarcity Wright, Steven YouTube Zinman, Jonathan ABOUT THE AUTHORS SENDHIL MULLAINATHAN, a professor of economics at Harvard University, is a recipient of a MacArthur Foundation “genius grant” and conducts research in behavioral economics and development economics. He lives in Cambridge, Massachusetts. ELDAR SHAFIR is the William Stewart Tod Professor of Psychology and Public Affairs at Princeton University. He conducts research in cognitive science, judgment and decision making, and behavioral economics. He lives in Princeton, New Jersey. Mullainathan and Shafir are co-founders of ideas42, a nonprofit that designs behavioral economics solutions to social problems. Times Books Henry Holt and Company, LLC Publishers since 1866 175 Fifth Avenue New York, New York 10010 Henry Holt® is a registered trademark of Henry Holt and Company, LLC.

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Think of how striking this is. The poor in these studies behave more “rationally.” They are closer in this case to the rational economic ideal, closer to homo economicus. This not only tells us something about poverty; it also tells us something about behavioral economics. That money is valued in relative terms is considered a classic finding in behavioral economics: presumably something that characterizes everyone’s thinking. Yet here we see that scarcity overturns—or at the very least waters down—this classic finding. In fact, scarcity alters many other findings as well. WHAT IS THIS REALLY COSTING ME?

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These findings are important because they demonstrate how people routinely violate economists’ standard “rational” models of human behavior. If the value that a person attaches to a dollar changes so easily, traditional analyses of economic behavior are severely stretched. These and related findings have fueled the rise of “behavioral economics,” the attempt to incorporate psychology into economic models. Their impact has been large because the results are broadly applicable. They describe not only Alex’s curious behavior in India but also the behavior of college students, MBAs, professional gamblers, and executives of all stripes.

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

The Difference If so much has been written about the naïve and the uninformed in behavioral economics and finance, there remains the question regarding where we come in. Perhaps there is nothing new here. Even if that is the case, we hope that you have enjoyed this book, and its stories. But we are also hopeful we have added a new perspective. We will now describe three ways in which this book presents a perspective that is, quite possibly, novel relative to current economics. The Role of Equilibrium in Competitive Markets The first of these perspectives concerns the place of behavioral economics within economics. The fundamental thinking of economists, as we indicated back in the introduction, and also discussed at the beginning of this chapter, emanates from Adam Smith.

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In terms of our images, if there were no stall selling Cinnabons®, or the like, at the airport or at the mall, one would open soon. This general way of thinking, with its insistence of general equilibrium, has been the central nervous system for economic thinking for almost two and a half centuries. Yet behavioral economics (we will come to finance in short order) seems oddly divorced from it. Our two examples from behavioral economics, of DellaVigna-Malmendier and Gabaix-Laibson, illustrate. In the style required now for a journal article, their modeling and examples are very special. In the DellaVigna-Malmendier description of health clubs, the budding jocks all have the special weakness of present bias.

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This assumption even has a fancy name, “revealed preferences”: that people reveal what makes them better off by their choices.20 Such an assumption, of course, is exactly at odds with our concept of the difference between what people really want (what is good for them) and what they think they want (their monkey-on-the-shoulder tastes). The particularity of behavioral economics—both its basis on particular psychological biases (such as present bias) and the embedding of those biases in special market situations (such as monopolistic competition)—have reinforced the notion that differences between what people want and their monkey-on-the-shoulder tastes are not the norm. They are to be considered, perhaps, on a case-by-case basis—but just as rare exceptions. This message is not intended, but the presentation of behavioral economics, perhaps unconsciously, yields this implication. Most economists therefore feel they can be comfortable with thinking that people’s choices do reflect what they really want, with the further view that the number and consequences of dysfunctional decisions is small.

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

It’s becoming clear that behavioral economics is being asked to solve problems it wasn’t meant to address . . . Behavioral economics should complement, not substitute for, more substantive economic interventions [of] traditional economics.54 Ultimately, the more perceptive journalists acknowledged this: “While behaviorists and other critics poked a lot of holes in the edifice of rational market finance, they haven’t been willing to abandon that edifice.”55 It’s not even clear they have been all that willing to bring themselves to look out the window. The primary benefit of behavioral economics was conjuration of the warm glow that came from feeling like you had changed your economic stripes without having to change your mind, or even your models.

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For instance, Quiggin argues at one point, “The appealing idea that macroeconomics should develop naturally from standard microeconomic foundations has turned out to be a distraction”; but it is a distraction he himself cannot resist, relying as he does on neoclassical notions of “market failure,” natural monopoly, absence of Arrow-Debreu contingent commodities, information as a public good, and conventional definitions of risk to motivate his version of “real-world” economics. At another juncture, he admits that a relevant macroeconomics “is not simply a matter of modifying the way we model individual behavior,” but as he repeatedly conjures “behavioral economics” as the font of deliverance, he has nothing else on offer. In chapter 5 we suggest that behavioral economics has been a sink of despair. Quiggin frequently wishes for a “newer Keynesianism,” but has to concede that the neoclassical synthesis was “not particularly satisfactory at a theoretical level, but it had the huge practical merit that it worked.”28 Time and again he signals that he is aware that neoclassical economics frustrates and confounds intellectual deliverance from the morass of zombie ideas; but nevertheless, he cannot seriously countenance the possibility that the solution to logical incoherence involves its repudiation.

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That is because there are very few behavioral economists who even specialized in macroeconomics, and so virtually none was willing to take the risk of making any definitive forecast.44 The plea that in the eventuality behavioral economics had more adherents, it would have done more of the things Akerlof promised, is hardly a compelling reason to get enthused about that line of research. Akerlof and Shiller were loathe to admit that they had not proffered any good conceptual reasons to believe behavioral economics was even particularly relevant to the crisis. What this literature had to do with the genesis of credit default swaps, the rise of the shadow banking sector, and the collapse of the manufacturing sector was entirely opaque.

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

Another way we can observe the transformation of the discipline is by looking at the new areas of research that have flourished in recent decades. Three of these are particularly noteworthy: behavioral economics, randomized controlled trials (RCTs), and institutions. What’s striking is that all these areas have been greatly influenced, and in fact stimulated, by fields from outside economics—psychology, medicine, and history, respectively. Their growth disproves the claim that economics is insular and ignores the contributions of other cognate disciplines. In some ways, the rise of behavioral economics marks the greatest departure for standard economics because it undercuts the benchmark, almost canonical assumption of economic models: that individuals are rational.

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As a result, we understand much better the workings of credit and insurance markets, where information asymmetries are rife.†† Today, economists are increasingly turning their attention to markets in which consumers do not behave fully rationally. This reorientation has produced a new field called behavioral economics, which attempts to integrate the insights of psychology with the formal modeling approaches of economics. These new frameworks hold great promise when consumers behave in ways that cannot be explained by extant models—when, for example, they walk half a mile to get to another store where a soccer ball sells for $2 less but would not do the same to save $100 on an expensive stereo.

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The irrelevance of sunk costs (payments already made that cannot be recouped) and the equivalence between financial costs and opportunity costs (the value of choices not exercised) do not hold under less than full rationality, to cite but two examples. Although grossly simplified, this telescopic account should give a sense of the expanding diversity of the profession’s explanatory models. We have moved beyond competitive models to imperfect competition, asymmetric information, and behavioral economics. Idealized, flawless markets have given way to markets that can fail in all sorts of ways. Rational behavior is being overlaid with findings from psychology. Typically, the expansion has its roots in empirical observations that seem to contradict existing models. Why, for example, were many firms paying their workers wages that were substantially higher than the going market wage for apparently similar workers?

The Age of the Infovore: Succeeding in the Information Economy by Tyler Cowen

Albert Einstein, Asperger Syndrome, autism spectrum disorder, behavioural economics, business cycle, Cass Sunstein, cognitive bias, David Brooks, en.wikipedia.org, endowment effect, Flynn Effect, folksonomy, framing effect, Google Earth, Gregor Mendel, impulse control, informal economy, Isaac Newton, loss aversion, Marshall McLuhan, Naomi Klein, neurotypical, new economy, Nicholas Carr, pattern recognition, phenotype, placebo effect, Richard Thaler, selection bias, Silicon Valley, social intelligence, the medium is the message, The Wealth of Nations by Adam Smith, theory of mind, Tyler Cowen

Whereas the Stoics sought to understand the psychology of the Roman Empire, exile, and the slave whip, and Smith studied the pin factory, I am looking at Facebook, Google, and the iPod. The later and more general movement of “behavioral economics” has brought psychology very directly into economics. In addition to all the formal research, behavioral economics is represented by such popular books as Dan Ariely’s Predictably Irrational, Richard Thaler and Cass Sunstein’s Nudge, and Ori and Rom Brafman’s Sway. In the most general terms, behavioral economics suggests that human decision-making is often far from rational. For instance maybe we overestimate our prospects of success when we start a new business or maybe we are very bad at evaluating risks with very small probabilities.

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In the behavioral view we are ruled by emotions and often we use dysfunctional decision-making procedures and rules. However reasonable we may claim to be, so often reason just doesn’t stick. Behavioral economics has made economics more realistic and arguably it is the single most influential trend in the economics profession today. I’m all for behavioral economics and if you wish, you can think of this book as a study in behavioral economics. Nonetheless I am going beyond standard behavioral approaches in at least four ways. First, I emphasize neurodiversity—in this case the autism spectrum—as an important feature of human diversity.

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Tyler’s contributions to public knowledge are many. One of the most impressive things about Tyler is his ability to speak intelligently on a wide variety of topics. This is probably due in part to his well-known ability to read and process information unusually quickly.” —Wehr in the World “In this provocative study of behavioral economics, Cowen reveals that autistic tendencies toward classification, categorization, and specialization can be used as a vehicle for understanding how people use information…. Cowen’s illustration of our neurological filing system may help readers understand the mass consumption of information and just about everything else.”

No Slack: The Financial Lives of Low-Income Americans by Michael S. Barr

active measures, asset allocation, Bayesian statistics, behavioural economics, business cycle, Cass Sunstein, cognitive load, conceptual framework, Daniel Kahneman / Amos Tversky, financial exclusion, financial innovation, Home mortgage interest deduction, income inequality, information asymmetry, it's over 9,000, labor-force participation, late fees, London Interbank Offered Rate, loss aversion, low interest rates, machine readable, market friction, mental accounting, Milgram experiment, mobile money, money market fund, mortgage debt, mortgage tax deduction, New Urbanism, p-value, payday loans, race to the bottom, regulatory arbitrage, Richard Thaler, risk tolerance, Robert Shiller, search costs, subprime mortgage crisis, the payments system, transaction costs, unbanked and underbanked, underbanked

Mental accounting and loss-aversion explanations for tax filers’ preference for overwithholding are less likely to explain the patterns in the data. Dynamic inconsistency among LMI tax filers has important implications for saving policies and for tax administration generally. Chapter 11 explains how insights from behavioral economics can improve our understanding of consumers’ financial services behavior, market responses to that behavior, and different approaches to regulation. Policymakers typically approach human behavior through the perspective of the “rational-agent” model, which relies on normative, a priori analyses.

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Such cross-sector disclosures could improve the ability of consumers to comparison-shop across functionally similar credit products. Tailored disclosures regarding the consequences of certain borrower behaviors, such as making only the minimum payment on credit cards, might also help consumers make better choices (Barr 2007). Moreover, policymakers ought to consider how advances in behavioral economics, which have improved retirement savings outcomes, could be applied in the credit arena (Barr, Mullainathan, and Shafir 2008). While market forces in these two financial areas are quite different, the fundamental mistake that individuals make in not understanding the power of compound interest is strikingly similar.

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Barr, Michael S., and Rebecca M. Blank. 2009. Introduction to Insufficient Funds: Savings, Assets, Credit, and Banking among Low-Income Households, edited by Rebecca M. Blank and Michael S. Barr, 1–24. New York: Russell Sage Foundation. Bertrand, Marianne, Sendhil Mullainathan, and Eldar Shafir. 2006. “Behavioral Economics and Marketing in Aid of Decision Making among the Poor.” Journal of Public Policy and Marketing 25:8–23. Beshouri, Christopher, and others. 2010. “Mobile Money for the Unbanked: Unlocking the Potential in Emerging Markets.” McKinsey on Payments, June (www.mckinsey.com/ clientservice/Financial_Services/Knowledge_Highlights/Recent_Reports/~/media/ Reports/Financial_Services/MoP8_Mobile_money_for_the_unbanked.ashx).

The Upside of Irrationality: The Unexpected Benefits of Defying Logic at Work and at Home by Dan Ariely

Alvin Roth, An Inconvenient Truth, assortative mating, Bear Stearns, behavioural economics, Burning Man, business process, cognitive dissonance, Cornelius Vanderbilt, corporate governance, Daniel Kahneman / Amos Tversky, Demis Hassabis, end world poverty, endowment effect, Exxon Valdez, first-price auction, Ford Model T, Frederick Winslow Taylor, George Akerlof, happiness index / gross national happiness, hedonic treadmill, IKEA effect, Jean Tirole, job satisfaction, knowledge economy, knowledge worker, loss aversion, name-letter effect, Peter Singer: altruism, placebo effect, Richard Thaler, Saturday Night Live, search costs, second-price auction, Skinner box, software as a service, subprime mortgage crisis, sunk-cost fallacy, The Wealth of Nations by Adam Smith, ultimatum game, Upton Sinclair, young professional

Sure, it would be nice if we were more rational and clearheaded about our “should”s. Unfortunately, we’re not. How else do you explain why millions of gym memberships go unused or why people risk their own and others’ lives to write a text message while they’re driving or why . . . (put your favorite example here)? THIS IS WHERE behavioral economics enters the picture. In this field, we don’t assume that people are perfectly sensible, calculating machines. Instead, we observe how people actually behave, and quite often our observations lead us to the conclusion that human beings are irrational. To be sure, there is a great deal to be learned from rational economics, but some of its assumptions—that people always make the best decisions, that mistakes are less likely when the decisions involve a lot of money, and that the market is self-correcting—can clearly lead to disastrous consequences.

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As we gain some understanding about what really drives our behaviors and what steers us astray—from business decisions about bonuses and motivation to the most personal aspects of life such as dating and happiness—we can gain control over our money, relationships, resources, safety, and health, both as individuals and as a society. This is the real goal of behavioral economics: to try to understand the way we really operate so that we can more readily observe our biases, be more aware of their influences on us, and hopefully make better decisions. Although I can’t imagine that we will ever become perfect decision makers, I do believe that an improved understanding of the multiple irrational forces that influence us could be a useful first step toward making better decisions.

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Although I can’t imagine that we will ever become perfect decision makers, I do believe that an improved understanding of the multiple irrational forces that influence us could be a useful first step toward making better decisions. And we don’t have to stop there. Inventors, companies, and policy makers can take the additional steps to redesign our working and living environments in ways that are naturally more compatible with what we can and cannot do. In the end, this is what behavioral economics is about—figuring out the hidden forces that shape our decisions, across many different domains, and finding solutions to common problems that affect our personal, business, and public lives. AS YOU WILL see in the pages ahead, each chapter in this book is based on experiments I carried out over the years with some terrific colleagues (at the end of the book, I have included short biographies of my wonderful collaborators).

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

In the heyday of mail order, it was common to print up multiple versions of a catalog or flyer in order to test the effect of pricing strategies. These findings must have dispelled any illusions about the fixity of prices. Marketers and salespeople knew too well that what a customer was willing to pay was changeable and that there was money to be made from that fact. Economist Donald Cox has gone so far as to say that much of behavioral economics is “old hat to marketing experts, who have long since booted homo economicus out of their focus groups.” Today there is a symbiosis between psychologists studying prices and the marketing and price consultant communities. Many leading theorists, including Tversky, Kahneman, Richard Thaler, and Dan Ariely, have published important work in marketing journals.

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It is tempting to draw a parallel between the physicists’ “ether” and economists’ utility. Both were invisible, impalpable, tasteless somethings that “existed” because everyone assumed they had to exist. By showing that there are no invisible valuations dictating all economic decisions, Lichtenstein and Slovic heralded the relativity of prices—a keystone of what would be called behavioral economics. Lichtenstein and Slovic proposed a simple explanation for preference reversals: anchoring. When asked to price bets, players direct their attention to the prize amounts. The most likely or biggest prize amount becomes a starting point or anchor. The players knew they had to adjust from the anchor to take into account the probabilities and any other prizes or penalties.

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Sage’s foundation, still handsomely endowed, has been a principal financial backer of behavioral research in economics. One of the first Sage grants under Wanner’s tenure allowed Thaler to spend the 1984–85 academic year working with Kahneman at the University of British Columbia. As Kahneman put it, “That was the year that behavioral economics began.” Thaler, then a Cornell associate professor, was just shy of forty, personable and witty. He joined Kahneman and another economist collaborator, Jack Knetsch of nearby Simon Fraser University. There was then a Canadian public works project that paid unemployed university graduates to conduct nationwide telephone surveys on public issues.

Competition Overdose: How Free Market Mythology Transformed Us From Citizen Kings to Market Servants by Maurice E. Stucke, Ariel Ezrachi

"Friedman doctrine" OR "shareholder theory", affirmative action, Airbnb, Alan Greenspan, Albert Einstein, Andrei Shleifer, behavioural economics, Bernie Sanders, Boeing 737 MAX, Cambridge Analytica, Cass Sunstein, choice architecture, cloud computing, commoditize, corporate governance, Corrections Corporation of America, Credit Default Swap, crony capitalism, delayed gratification, disinformation, Donald Trump, en.wikipedia.org, fake news, Garrett Hardin, George Akerlof, gig economy, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Google Chrome, greed is good, hedonic treadmill, incognito mode, income inequality, income per capita, independent contractor, information asymmetry, invisible hand, job satisfaction, labor-force participation, late fees, loss aversion, low skilled workers, Lyft, mandatory minimum, Mark Zuckerberg, market fundamentalism, mass incarceration, Menlo Park, meta-analysis, Milgram experiment, military-industrial complex, mortgage debt, Network effects, out of africa, Paradox of Choice, payday loans, Ponzi scheme, precariat, price anchoring, price discrimination, profit maximization, profit motive, race to the bottom, Richard Thaler, ride hailing / ride sharing, Robert Bork, Robert Shiller, Ronald Reagan, search costs, shareholder value, Sheryl Sandberg, Shoshana Zuboff, Silicon Valley, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Stanford prison experiment, Stephen Hawking, sunk-cost fallacy, surveillance capitalism, techlash, The Chicago School, The Market for Lemons, The Myth of the Rational Market, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Davenport, Thorstein Veblen, Tim Cook: Apple, too big to fail, Tragedy of the Commons, transaction costs, Uber and Lyft, uber lyft, ultimatum game, Vanguard fund, vertical integration, winner-take-all economy, Yochai Benkler