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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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
Want free wifi and breakfast all in? Choose a cheaper hotel!
This super piece by Jonah Lehrer on behavioural economics on our frequent reliance on mental accounting as a cognitive short-cut reminded me of a bad choice made last week when I stayed at Jury’s Inn in Chelsea ahead of our Global Economy Enrichment Event.
I should have known better than to accept the offer of a £20 upgrade to an executive room which included free broadband internet.
For all I know the room on the 6th floor was no different to any of the two hundred below. New to the area and unaware of a friendly coffee shop that might have offered web access for a few quid, I mentally assigned the extra cost to a bill that was already in three figures and which I would not have to pay for another 24 hours - choosing instead the easy route to a more convenient existence. Then the hotel scalped me for a pretty sub-standard breakfast the next morning and my copy of the FT never arrived.
Revenge of a certain type has come in the form of a stinging review for fellow travellers on the Trip Advisor web site!
Back to the Lehrer article - it draws on a well-known experiment from behavioural economist Richard Thaler about the loss of money or a ticket (worth the same) on the way to an event and the inconsistent choices that many seem to make when asked about their likely response. If you are interested, the problem is posed in this article dated 2007 from the Washington Post.
One question to consider is whether the loss of a ticket or cash that on the surface has the same value IS equivalent? For example providing you have proof of purchase of the ticket, you might be able to claim another one from the venue.
I forked out £20 for a paltry room upgrade and some expensive web access .... and four nights later I spent the same on a ticket to the O2 to watch an evening of Premier League darts. Now that was worth it! Over 10,000 people at a darts match and a fantastic atmosphere from beginning to end!
Behavioural nudges at the gym
A Boston economics student drew on lessons from behavioural economics lectures to persuade her local gym to trial some innovative gym membership fees as a way of incentivising more regular attendance .....read about it here.
Tuesday Talks - the art of choosing
In this second Tuesday Talks post, for students and teachers looking for some extension material, I’ve picked out another insightful TED talk on how we make choices - you can find it here.
I’ve seen quite a lot of literature over the past few months both in the academic press and more mainstream publications relating to consumer choice, and our inability to make effective decisions when we are faced with too much choice. This seems to fly in the face of classical economic theory which argues that consumer choice is key in ensuring competition and associated efficiencies. One great example of this deliberate reduction in choices available to consumers relates to Morrison’s decision to reduce the size of it’s range of balsamic vinegar available in store. Much of this debate over consumer choice has, I think, stemmed from Thaler and Sunstein’s bestselling book Nudge, which is well worth a read! There is also an interesting blog relating to the ‘nudge’ concept.
Once you’ve digested the talk, and some of the other associated material that I’ve mentioned, you could think about the following questions:
1. How many options do you think consumers can realistically cope with, and still make the most efficient decision?
2. Carry out some research to come up with examples where choice has been deliberately restricted in order to help consumers with their decisions.
3. Carry out some research to come up with examples where consumers are faced with a wide range of choices. How do consumers make their decisions in these markets?
4. Is it right that governments may try to affect the outcome of our decision-making? For example, should governments change the system of organ donation to an opt-out system, rather than the current opt-in system (some details here).
Winner of the Fun Theory Competition
Here is the winner of the Fun Theory competition to find innovative and fun ways to get people to change their behaviour in socially beneficial ways! For Dan Ariely of “Predictably Irrational” fame the Fun Theory programme provides simple ideas about how human motivations and incentives drive change. In this case speeding drivers pay fines into a fund that provides money for a lottery to reward law-abiding drivers.
Ariely on Limitations of Rational Economics
A hat tip to Mark Seccombe for spotting this - Dan Ariely on the limitations of rational Economics. And to tick the cross-curricular boxes Mark always leads into it with a bit of Shakespeare: “What a piece of work is a man, how noble in reason, how infinite in faculties, in form and moving how express and admirable, in action how like an angel, in apprehension how like a god!” – Hamlet Act II, scene II
Rory Sutherland To Speak at 2011 Economics Teacher National Conference
We are delighted to announce that Rory Sutherland, Vice-Chairman of the Ogilvy Group UK has agreed to join us as one of the speakers at the 2011 Economics Teacher National Conference at the British Library on the 29th June.
Rory is a passionate and gifted communicator who has specialised in analysing how ideas drawn from behavioural economics can be harnessed in marketing and in developing public policy. His two TED
talks (Life Lessons from an Ad Man and Sweating the Small Stuff) have fast become legendary on the internet and a great hit with Economics teachers and students alike. You can view those talks using the links further below.
The 2011 Economics teacher National Conference takes place at the superb British Library Conference Auditorium, St Pancras, London on Wednesday 29 June 2011. The aim of the day is for Economics teachers from many different countries to enjoy some presentations and discussions on issues of contemporary importance and also to refresh their passion and enthusiasm for this great subject! In the last couple of years our speakers have included Hamish McRae, Linda Yueh, Tim Harford, John Micklewait, Paul Collier, David Smith and Stephen King.
Provisional bookings for the 2011 Conference can be made here:
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Behavioural Economics - Nudge Squared!
This article today from the Telegraph picks up on the recent work of Paul Ormerod in understanding the power of network effects in influening people’s behaviour. I re-watched Paul’s talk at the RSA and it really is very good - having spent some time tonight considering purchases on Amazon UK and reviews on Trip Advisor, I am now alert to the impact of comments and feedback from people that I will in all probability never meet!
