Unit 2 Macro: Evaluation on Supply-Side Policies
Lots of students will be revising the economics of supply-side policies this week with their AS macro paper coming into view. There are different interpretations of what constitutes a supply-side policy measure. I like to label SSP (supply-side policy) to any policy or group of measures where emphasis is given to improving the working of markets, raising factor efficiency, improving the quantity and quality of labour and in lifting the capacity and competitiveness of an economy in a constantly-changing international environment.
Many supply side policies focus on improving incentives and outcomes in the labour market, others are geared towards bettering the performance of markets for goods and services, All of them centre on helping to sustain non-inflationary growth, improve trade performance, lift living standards and create new and fulfilling jobs opportunities.
This revision blog looks in particular at some evaluation points on supply-side approaches:
read more...»Oxbridge Economics: Introduction to Game Theory
Here is an “Introduction to Game Theory” lecture, which offers a broad introduction to the field, with some exercises to do at the end. (The yellow-underlined text hyperlinks out to other resources).
read more...»Unit 1 Micro: Public Bads
A public bad is the opposite of a public good – it provides disutility or dis-satisfaction to people when consumed and therefore reduces our economic welfare.
read more...»Unit 4 Macro: Mini Documentary on Financial Instability
“It is not that human beings are irrational, it is that they are human” Here is a terrific short film on the causes of financial instability and the cracking of faith in markets. The Institute for New Economic Thinking has just launched the first of a series of short documentaries on economics Click below for the first of them
read more...»Unit 1 Micro: Ban on cigarette display advertising
In a fresh move to reduce consumption of cigarettes, legislation has come in force banning the displays of cigarettes for sale in large retail stores. The display ban will apply to shops of more than 280 sq m (3,014 sq ft). Newsagents and small stores can display cigarettes until 2015, giving them time to refit shelves and cabinets.. It is part of the armoury of interventions that have been tried over the years to change consumer behavioural - from real terms increases in cigarette taxes to bans on advertising and ever-stronger advertising and health campaigns. The focus of the ban is to influence younger smokers by removing cigarettes from point of sale display - will it be effective?
This news report below from Al Zajeerah looks at the new measure
read more...»Unit 3 Economics: Cooperation and Competition
Paul Ormerod blogs here about the growing academic interest in cooperation between businesses and within our economic system. Our discipline will move towards embracing cooperative strategies between agents in markets because often it provides a way to reduce the fragility of businesses and economic systems in an age of systemic shocks and threats. Paul links to another really interesting blog by Ed Mayo.
Daniel Kahneman on decision-making
Here is a quick link to a guest blog on the Economist website provided by Daniel Kahneman - a handy overview of some of his key insights concerning psychological explanations for departures from rationality. Follow this link
Introduction to Neuroeconomics - Fusing Psychology with Economics
This autumn I have been given lots of practice interviews with and helping to support the reading of students interested in reading Economics at many UK and US universities, but also those keen to explore degrees including Human Sciences and Psychology. I have no background in the sciences but it has been fascinating to find out more as an interested lay person. Some of this has happened at the superb lectures and discussions at the RSA whose Social Brain Project is well worth following. Just recently I went to hear Andrew Oswald talk about the psychology of herd behaviour
Neuroeconomics brings together the disciplines of economics, psychology and neuroscience. I have put together a selection of recent articles that seem to me to explain what it might offer and I will happily add more links if colleagues have some other good resources to share.
read more...»Rory Sutherland at Zeitgeist
This is a gem of a talk with so much of interest - drawing on insights from behavioural economics - funny, insightful, a terrific talk to show to ambitious sixth form students who are not prepared to accept the tenets of neo-classical economics!
read more...»Behavioural Economics: Herd Behaviour
Professor Andrew Oswald from the University of Warwick delivered a pitch-perfect lecture on the significance of herd behaviour in his talk at the LSE tonight. If you take time to scan most leading economics textbooks at school, college and undergraduate level, the idea of herd or imitative behaviour scarcely warrants a mention. But we know that it matters deeply in many economic, social, environmental and political domains.
Why has the Economics discipline been so tawdry in understanding better some of the Biology and Psychology behind the behaviour of groups? It is as fundamental to a modern networked society as it is in the non-human animal kingdom. Check out the wonderful murmuration of starlings in the video clip below for an inspirational illustration of herd instincts in action.
read more...»LSE Lecture: Daniel Kahneman - Thinking Fast and Slow
This is a blog drawing on a lecture at the LSE with Professor Richard Layard in discussion with Nobel winner Daniel Kahneman!
read more...»LSE lecture: Darwin economy
Last week I took some of my pupils to the LSE for Professor Robert Frank on “Liberty, Competition and the Common Good: The Darwin Economy”, chaired by Paul Mason. Frank’s book is about the fact that Charles Darwin understanding of competition offers a better guide to economic reality than Adam Smith and rational choice theory. Smith’s view is putting us all at risk by preventing us from seeing that competition alone will not solve our problems.
read more...»Behavioural Economics: Daniel Kahneman in town!
Daniel Kahneman’s new book Thinking Fast and Slow is no available in bookstores and he is coming to the LSE in London on Tuesday to hold a discussion with Professor Richard Layard. I am taking a group of students to the event and the sense of expectation is palpable, the Nobel prize winner in Economics has a world renown and we will send through a detailed blog on the event early next week.
Here are some fresh teaching resources on his work
Vanity Fair: The quiz that Kahneman wants you to fail!
Michael Lewis (author of the Big Short) writes on Kahneman’s work: The King of Human Error
read more...»Behavioural Economics: Bittersweet Symphony - The Psychology of Food
Last night I attended a discussion with Professor Charles Spence, Head of the Crossmodal Research Laboratory at the Department of Experimental Psychology, Oxford University. He was speaking about the psychology of food, and his work with Heston Blumenthal at the Fat Duck.
It was a tremendously entertaining and revealing talk about the ways in which top chefs are embracing ideas from psychology and neuroscience in creating new products and experiences.
But how many of the innovations will find their way into the everyday meals that we eat rather than the ‘once in a lifetime’ conspicuous consumption of a meal at a Michelin-starred restaurant? Constant trial and error from Chefs in charge of their own destiny is a world away from the financial imperatives and constraints of the mass-volume industrial food processing businesses.
read more...»Unit 3 Micro: Price Discrimination in the E-Book Market
Seth Godin’s Domino Project is an attempt to re-fashion the way in which e-books are published, sold and priced. This blog is particularly interesting for teachers and students who consider different forms of price discrimination. It proposes (at least) three different price tiers:
$1.99 ebooks - a clearing price for the majority of e-books
$5 ebooks. This is the price for bestsellers, hot titles and academic titles required by courses
$10 - $20 ebooks. This is the price you will pay to get the book first, to get it fast, to get it before everyone else
What do you think? How do you see e-book pricing tactics evolving as the market grows? The UK Office of Fair Trading is currently investigating the market for e-books in the UK amid allegations of price fixing / collusion by several leading publishers. You can access the OFT investigation using this link.
Further reading:
Guardian (August 2011): Apple and major publishers face lawsuit over ebook ‘price fixing’
Telegraph: EU raids publishers in ebook price-fixing probe
By way of background - new research has found that the average e-book price of front-list e-books across the world was €10.50 net of taxes. The average price of UK frontlist e-books was €10.80, €1.50 more than equivalent US titles, but less than those in Germany, Spain and France.
Collusion in the Classroom
Today we played a variety of ‘prisoner’s dilemma’ games with my U6th economists, highlighting the game theory element of oligopolistic markets. (A nice mix of collusion between the pupils was apparent, coupled with the usual cheating on agreements and back-stabbing – always fun to have in the classroom!)
read more...»The cure for economic slowdown - drive faster
This is the headline used by Reuters in their report of the government Transport Secretary’s proposal that the speed limit on motorways should be raised from 70 to 80mph.
The justification for the proposal is largely that, when the limit was introduced, cars were less safe than they are now, and that technical improvements have made 80mph a safe speed at which to travel. Other arguments include the desire to conform with the higher motorway speed limits in Europe, which are generally higher than in the UK, and also the fact that many drivers do drive at between 70 and 80 on motorways anyway and tend not to be fined for it, so the law may as well be amended to keep up with actual behaviour.
read more...»Behavioural Economics - The IKEA effect
If you have ever spent a frustrating afternoon assembling IKEA furniture but then stood back and admired your incredible craftmanship then you might be interested in reading this research from behavioural economists on the value we attach to items we have personally assembled or mashed up as a group. Here is the actual research document.
There might be a classroom experiment here? Cross-curricular links with the home-economics department could be cultivated by getting your students to make some cakes or pancakes with ready mix packets (eggs, sugar, water etc) and then asking how much they value the finished product? Turns out that valuation does depend on getting the job done - imagine the effect if you were half way through a cooking session and you told your students to throw everything away into the bin!
Dan Ariely writes about this aspects of behavioural economics here And below there is a link to a super 5 minute video from him on the IKEA effect!
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Unit 1 Micro: Sleep, Money, Happiness and Choices!
Autumn is arriving here in the UK. I cannot have been alone in finding it tough to drag myself out of bed on Friday morning to teach at the end of a tiring week. The marginal utility of an extra hour under a comfy duvet was so appealing, fortunately so too was the prospect of discussing the Greek debt crisis! Here is an interesting choice to put in front of your students - sure to prompt discussion.
read more...»Economics at the Movies - The Game of Chicken
This classic scene from the film Footloose can be used to illustrate the game of Chicken - a popular example of game theory.
Competition Plan for Universities
So the Universities White Paper has been published. Words like “Competition” on news feeds instantly make me sit up and take notice. As my Year 12s embark on their odyssey into market structures and ever more close encounters with efficiency, I think this might just be the case study of the moment. After all its subject matter is foremost in many of their minds.
read more...»The Big Money Test - a behavioural economics experiment
Significant effort is made by teachers, companies and the government to try and educate people about managing their financial affairs, but often to no avail. Indeed, the book Nudge suggests that even financial experts often struggle to make the ‘right’ or ‘best’ decision. A new experiment has been designed that aims to examine how people make financial decisions - and you can take part! Firstly, visit this BBC website to find out a bit more about the experiment, then look at what is being termed ‘money sanity’ here, before taking the Big Money Test.
Super-cooperators and Game Theory
It was a delight to hear Martin Nowak and Roger Highfield at the RSA last night when they delivered a presentation on aspects of their new book Supercooperators - The Mathematics of Evolution, Altruism and Human Behaviour. The video of the presentation is now available below
Martin Nowak is a celebrated Professor of Biology and Mathematics at Harvard University and his strong presentation was a model of clarity and insight drawing heavily on the classic Prisoners’ Dilemma as the basis for a discussion on the importance of direct and indirect repciprocity as the basis for co-opertaive behaviour between humans. He was joined by Roger Highfield, Editor of the New Scientist.
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Unit 1 Micro: Tackling Obesity - Alternative Approaches
So far, governments in the developed world seem to have failed in terms of developing and implementing effective policies that might reduce the negative externalities associated with the ‘obesity epidemic’. However, based on various different news reports this weekend, it seems that the private sector may actually have come up with some strategies that could be worth a try.
My favourite is the ‘pay what you weigh’ approach in a new style of restaurant in Brazil - the heavier the food on your plate, the higher the price. There’s an interesting short clip on this here.
Another approach, this time from Pizza Hut, is to offer unlimited free salad with all meals to all customers - apparently they expect to give away 50m cherry tomatoes and 1.3m million cucumbers over the next year!
And, whilst I haven’t yet seen evidence of this, there is, apparently, an agreement by supermarkets to include portions of vegetables in ready meals in order to help consumers to eat their recommended 5 a day.
Whether these approaches will actually make the nation healthier is unclear, but getting students to think of possible unintended consequences of this might be a useful pre-exam evaluative exercise.
read more...»Review of “Adapt” by Tim Harford
Tim Harford’s “Adapt - why success always starts with failure” is an ambitious, entertaining and enthralling work that is immensely readable and which offers revealing insights and twists and surprises with remarkable frequency throughout the book.
I sense that the tide is turning in the book publishing industry. After several years of hand-wringing and blood-letting in explaining the genesis of the global financial crisis, a new genre of books is emerging that is more optimistic in tone.
Authors such as Steven Johnson (Where Good Ideas Come From), Martin Nowak and Roger Highfield (Super Co-operators) and John Kay (Obliquity) have all explored the conditions under which innovative ideas, altruistic behaviour and counter-intuitive business models can succeed in a constantly-changing economic and business landscape.
Tim Harford’s book is a hopeful and confident examination of the architecture of success in evolutionary environments where fear of failure, a lack of ambition and rigid policy-making can make matters worse and bring about environmental, economic and organisational collapse.
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Dominos Pizza turns to Behavioural Economics
The hugely successful pizza chain is using some of the emerging ideas from behavioural economics to reshape the incentives for customers. This article explores some of the changes and features Rory Sutherland from Ogilvy who is speaking at our National Economics Conference at the end of June. “Domino’s Pizza has become one of the first brands in the UK to use behavioural economics in overhauling its consumer marketing strategy”
Macroeconomics revision - measuring Consumer Confidence
For students preparing for macroeconomics exams, there is a useful analysis of consumer confidence on the BBC website this morning. Following the GDP figures released by the ONS last month, and the corresponding Nationwide Consumer Confidence figures for March, there is an assessment of the Nationwide index and the importance of expectations of employment and wages in the eyes of Robert Gardner, Nationwide’s Chief Economist.
read more...»Fantastic short piece on nudges and shoves!
Here is a superb short piece from Jonah Lehrer on aspects of behavioural economics and in particular, the sue of nudges to control calorie consumption in restaurants and to get us to use less energy in our homes. The law of unintended consequences makes a guest appearance - compulsory calorie information on menus in New York City have seen calorific consumption edge higher over five years. Data on relative energy consumption within a neighbourhood have shown only marginal gains in energy efficiency. There is a superb phrase in the piece - “the nudges of policy makers must compete against the nudges of the marketplace…Sometimes, we don’t need a nudge. We need a shove”.
A hat tip to Tim Harford for flagging up the article on his Twitter page - and a reminder that I regard Tim’s new book “Adapt” as one of the must-reads this summer. It is a tremendous book for economics students - reviewed here.
The Power of Incentives
Here is an edited version of a talk given recently by economist Ian Ayres, co-Founder of Stickk.com - Carrots? and Sticks: Unlock the Power of Incentives to Get Things Done’. Some interesting examples although the editing does take away some of the flow of the talk.
The Placebo Effect Beautifully Visualised
A St David’s Day hat-tip to Henry Wingfield for spotting this superb visualisation of aspects of the placebo effect. It ties in quite nicely with Rory Sutherland’s placebo segment of his famous TED talk
