Monday, February 16, 2009

Half full?

I am late to the party, just having greatly enjoyed Dan Ariely's Predictably Irrational. Behavioural economics is not new anymore. And the examples and experiments that Ariely writes about are familiar and/or easily recognizable from personal experiences and foibles.

It's all news to those who were weaned on equilibrium/rationality economics. Relax! It's only a model!

Disequilibrium is where people real people get a life -- and make a contribution and make some money.

I had never seen this closing quote from Murray Gell-Mann. "Think how hard physics would be if particles could think." Ariely does not come out and say it, but he does a lot more than hint that physics is an impossible model for the thinking particles.

Humans have done some awful things and some great things. The fact that The Economist can write about the growth of the world's middle classes in terms analogous to Moore's Law, says something profound about what beings with limited intelligence, limited rationality and plenty of failings can do.


I found this in an old exam question -- which I based on an old Jonathan Clements WSJ column which started like this: "Your neighbors save pathetically little, trade stocks like crazy, dabble in overpriced initial public stock offerings and dump hard-hit mutual funds that are ripe for rebound. And you, of course, should cheer them on. Your neighbors may not realize it, but they are performing an enormously valuable service. Without their fear and greed, it would be extraordinarily difficult for the rest of us to make a good deal of money. So go ahead: Give your neighbors a little encouragement."

But what would a 2009 politician do with this insight?