Archive for February 25th, 2008

Will subprime crisis lower global imbalances?

February 25, 2008

I have written a number of posts on global imbalances.

The subprime crisis also led to a discussion on whether it could help unwind the global imbalances or not? I also covered the issue here.

IMF in its latest analysis says imbalances are narrowing but more needs to be done. 

Human beings are predicatably irrational

February 25, 2008

Posting on behavior economics has become more regular over a few days. I just find this subject so fascinating that I just can’t get over it. The findings of how humans respond to different incentives is really exciting.

I got an email from Karl Lief Bates of Duke University pointing to a book by Prof Dan Ariely (has moved from MIT to Duke University) aptly titled – Predictably Irrational. This article posted on the Duke Research Centre website provides brief information about his book. This para takes the cake:

“We all make the same types of mistakes over and over. It has to do with the basic wiring of our brains,” Ariely says in an exuberant Israeli accent. “Wouldn’t economics make a lot more sense if it were based on how people actually behave, instead of how they should behave?”

And he is joining Duke to set up a Centre on Behavioral economics (wow!, we need more of these centres as I have argued in this paper; I am looking forward to research from this centre)

The emerging field that Ariely hopes to make a formal discipline at Duke is something called Behavioral Economics — the merger of mathematically pristine economic theory with the messy lust and greed of actual human nature. The field seeks nothing less than to understand why investors, employees and customers sometimes make ridiculous choices.

For those interested in his book, here is a very good review from Liz Kolbert. It is actually a review of two books- first by Ariely and second by Thaler (the BE stalwart) and and Sustein. Both tell you the same broad idea- we are predictably irrational.

Assorted Links

February 25, 2008

1. Econbrowser on crony capitalism in US. Though it defends saying it is not crony capitalism and US economy has reached a point where we just can’t say no to all that intervention. However, this is what crony capitalism is. Show you believe in free markets in good times and look to government in bad times.

2. MR points whether IMF should became a SWF?

3. Rodrik reviews Shleifer’s latest paper

4. Madahv Mehta offers valuation lessons. He also shows how there is distorted reporting of earnings that overstates incomes and trend of rising other incomes in Indian companies.

5. PSD Blog points to a micro-finance comic

6. WSJ Blog points to a new speech where he warns inflation fears. It also points to a Dallas Fed essay competition for students with the theme- Economics in the movies 

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