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The Prize in Economic Sciences 2017

nobelprize.org

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Re: The Prize in Economic Sciences 2017

#71

Post by KingMob »

ekianjo wrote: post #36
KingMob wrote: post #21

While I love the behavioral economists (esp. Kahnemann and Tversky), a lot of psychologists have told economists for a long time that assuming basic rationality as a starting point was a fundamental error in the field. Taking it as an axiom has led to all sorts of misguided efforts and wasted time. From the article: "That's the point: It's obvious to anyone who pays any attention at all to himself or his fellow human…

Because you don't need to go to the individual level to explain the behavior of crowds. That's like saying "hey, you don't know how quarks actually work in an atom, so how can you claim to understand physics at the macroscopic level?". That kind of argument does not hold very well.

Umm, actually you do. I don't know about particle physics, but you absolutely need to understand real human behavior to grasp when crowds are wise (market pricing), and when crowds are foolish (asset bubbles, social proof marketing).

Re: The Prize in Economic Sciences 2017

#72

Post by KingMob »

matt4077 wrote: post #35
KingMob wrote: post #21

While I love the behavioral economists (esp. Kahnemann and Tversky), a lot of psychologists have told economists for a long time that assuming basic rationality as a starting point was a fundamental error in the field. Taking it as an axiom has led to all sorts of misguided efforts and wasted time. From the article: "That's the point: It's obvious to anyone who pays any attention at all to himself or his fellow human…

It's really not like economists don't know these things. Kahnemann got his Nobel a long time ago, after all. They also didn't grow tired to mention the flaws in the model when I learned them as an undergrad 10+ years ago. It's like people insisting physicists are ignoring wind resistance with their laws of motion. They know!

If we're just waiting for the old guard to die out, I apologize. My econ 101 class was 24 years ago, and we definitely started with rationality as the basis. I'm very happy to hear behavioral economics ideas are now undergrad-level topics. I'll be happier still when they're econ 101 topics, and there's no "behavioral" label at all, because the ideas have taken over the entire field.

Re: The Prize in Economic Sciences 2017

#73

Post by r00fus »

KingMob wrote: post #21

While I love the behavioral economists (esp. Kahnemann and Tversky), a lot of psychologists have told economists for a long time that assuming basic rationality as a starting point was a fundamental error in the field. Taking it as an axiom has led to all sorts of misguided efforts and wasted time. From the article: "That's the point: It's obvious to anyone who pays any attention at all to himself or his fellow human…

"Assume rational actors" in econ ≈ "assume a perfect sphere" in physics.

Re: The Prize in Economic Sciences 2017

#74

Post by nickik »

bluetwo wrote: post #63
nickik wrote: post #60

Honestly, I really don't really like this pick. Behavioral economics is extremely popular, especially outside economists themselves. But the problem is that it keeps repeating the same findings. We get it, people are not rational. You can read 150 year old economics books that mention these things. There is a 'behavioral economics' movement every 40 year. The research that I find 100x more interesting is the research…

"Limited rationality" not "highly irrational". The traditional economic view is people act in their own self-interest. I would summarize this research by saying people act in their own perceived self-interest. Lots of times the two align, but there are cases when they don't, which I do find interesting and worthy of research.

Point taken.

I think the research is very valid and interesting. I just question if this is most importent, or just a whats by far the most popular economics subject in the mainstream.

Its a good PR move for the constent critics economics suffer from.

Re: The Prize in Economic Sciences 2017

#75

Post by Bromskloss »

pcarolan wrote: post #32
KingMob wrote: post #21

While I love the behavioral economists (esp. Kahnemann and Tversky), a lot of psychologists have told economists for a long time that assuming basic rationality as a starting point was a fundamental error in the field. Taking it as an axiom has led to all sorts of misguided efforts and wasted time. From the article: "That's the point: It's obvious to anyone who pays any attention at all to himself or his fellow human…

Physicists assume things are spheres and use that to solve a bunch of problems. It's important to know 'why' economists use this abstraction for modeling before patently dismissing it. Economists notice that on average, people in the aggregate tend to behave rationally sometimes. Scrutiny should be applied to the assumptions, but it can still help explain economic systems.

Also, it's the natural reference to which to compare other behaviours.

Re: The Prize in Economic Sciences 2017

#76

Post by bo1024 »

throwaway287391 wrote: post #55

I have a question about an example referenced in the Bloomberg article linked from a previous discussion [1]. Quoting from the article: > He began with his own students, telling them to imagine that by attending his lecture, they had exposed themselves to a rare fatal disease. There was a 1 in 1,000 chance they had caught it. There was a single dose of the antidote: How much would they be willing to pay for it? > The…

You've identified the issue in the example: risk aversion, which is often not modeled in 'classical' econ, e.g. not in auction theory generally.

In Scenario 1, you have a choice between definitely not dying (buy the antidote) and dying with 1/1000 chance (don't buy it). They're asking how much you'd pay to switch from the second to the first.

In Scenario 2, you have a choice between definitely not dying (stay home) and dying with 1/1000 chance (go to the lecture). They're asking how much you want to be paid to switch from the first to the second.

If your utility is quasilinear in money (meaning it equals utility for dying plus final quantity of money), as in 'classical' econ, then these decisions are the same assuming you don't care about attending the lecture.

Re: The Prize in Economic Sciences 2017

#77

Post by dhimes »

chrisseaton wrote: post #48
dhimes wrote: post #44

Earlier quoted context omitted.

I took GP's "irrational" in the economic sense of always trying for the best economic outcome, not the psychological outcome.

It still works - I can use the time that I don't spend trying to figure out shipping costs to do some work and earn money instead.

I think you are stretching to argue that the time you spent grieving over a $3 shipping cost could have instead been used to earn money instead, in any practical sense.

Re: The Prize in Economic Sciences 2017

#78

Post by dhimes »

ghaff wrote: post #46
dhimes wrote: post #44

Earlier quoted context omitted.

I took GP's "irrational" in the economic sense of always trying for the best economic outcome, not the psychological outcome.

Even in the economic sense those things can absolutely be considered as costs. They're harder to quantify but no economist would tell you that the most economically rational decision is to always spend the least hard currency.

It's a lot harder to quantify, and it would be irrational to do so here. I mean, how much are you really going to grieve a $3 shipping cost?

It comes down to paying for the convenience of not having to "worry" about the shipping costs.

Personal example: To get to (and from) my boat during boating season I use a launch service. I can pay for the season up front, or I can pay by the ride. The season ticket gives me, let's say, 30 round-trip rides to and from my boat. 30 boat rides is a lot more that the average person actually uses the boat in a normal season.

So at the beginning of the season I can do the math (vacation, work schedule, and so on) about likely usage, then make a decision. If I think I'm going to get out 20 times, I can just say "to heck with it" and get the pass. I'm paying for the convenience of, say, not having to go to the bank every few weeks and get a bunch of bills for the ride. This is a fee I pay for that convenience, and I may end up breaking even after all, and what-not.

But when you buy that item on Amazon you don't have that situation. You're not changing your payment structure- there's no inconvenience if you pay the shipping then or up front (if you had to re-enter your cc for a separate shipping payment you could argue it was one of convenience). You're simply going through the exact same steps as before and spending less money.

Now, if you are arguing that the analysis is up front with your Amazon Prime membership payment at the beginning of the year (like my boating analysis)- estimating your likely shipping charges, then going with Prime if it looks close, then I would agree with you.

But I agree with the original argument-that the convenience of paying more for not having to worry about shipping costs is an irrational behavior, as an economist would define it, one based on emotion rather than an economic analysis.

Re: The Prize in Economic Sciences 2017

#79

Post by FabHK »

eradicatethots wrote: post #53
FabHK wrote: post #50

Earlier quoted context omitted.

Absolutely. And of course, Kahneman and Tversky and Thaler didn't get a Nobel price for saying, "oh, hey, listen guys, actually sometimes people don't follow our standard 'homo economicus' rationality assumptions", but to study these deviations carefully (empirically and theoretically) and note when they're important and put them into a coherent framework with some predictive power (aka, a theory). On a side note, th…

I’m not sure how your second paragraph is relevant, but could you say more?

Sorry if I've been unclear, let me expand:

The core notions of libertarianism (humans are free rational agents voluntarily interacting, government's role necessarily involves force and should be absolutely minimal) make sense at least superficially, and follow a nice axiomatic-deductive structure that is seductive particularly to geeks/nerds.

Good old neo-classical economic thought basically models humans as such: utility maximising rational individuals interacting voluntarily, frictionless, with complete information etc. You then get nice theorems, such as

- the 2 fundamental theorems of welfare economics, which basically show that market equilibrium = pareto-optimal and vice versa,

- free trade is best (Hecksher-Ohlin trade theory),

- competition keeps businesses in check and erodes their profit to zero,

- tariffs and taxes impose dead-weight losses, thus reducing consumer and producer surplus and utility,

- managers (as agents) must maximise shareholder value and nothing else, etc.

James Kwak has a book and blogposts about this phenomenon, that naive economics seems to support libertarian or right-leaning policy positions. He calls it "Economism" [1]

Funnily enough, many of these theoretical arguments rely on hypothetical redistribution of income (e.g. free trade: some people lose, some win, but all in all there will be a surplus, and that can be used (=redistribute) to compensate the losers, so that everyone is better off (or at least not worse), i.e. a pareto improvement. Similarly: maximising shareholder value. Similarly: some tax cuts), and proponents of free-trade-agreements will cite the economic theory with some air of superiority ("everyone will be better off, comparative advantage Ricardo bla bla"), but then conveniently forget about that second part (of compensating losers).

So, I think libertarianism doesn't work in the real world and frequently leads to wrong policy decisions.

And my main point was this:

Advances in economics, among them those from behavioural economists such as Thaler, Tversky, Kahneman, but also others (asymmetric information, e.g. Arrow, Akerlof; minimum wage, e.g. Card & Krueger; etc.) undermine the libertarian fantasy and support the case for politics, with government intervention, regulation, and nudging.

[1] https://economism.net

Re: The Prize in Economic Sciences 2017

#80

Post by noddy1 »

hudibras wrote: post #52
TomorrowMars wrote: post #38

Economic Sciences deserve to take over the whole Nobel prize. They should get all the prizes. They have proven themselves as the ultimate woodo wizards of "applied" scientists. If you go to source page, you will see that the full name of the prize is "The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel" Why? There is no Nobel prize for economics. This was a self-congratulatory add-on instituted…

https://news.ycombinator.com/item?id=12678598 https://news.ycombinator.com/item?id=9915943 https://news.ycombinator.com/item?id=13702830 https://news.ycombinator.com/item?id=8448602 etc... We get it, the economics prize is not a true Nobel prize. It's tiresome to hear it every time the prize is mentioned.

Actually, it does need to be repeated, because economists and their opinions and their "evidence" are being given too much credit by politicians and laypeople.
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