Archive for the ‘Behavior Eco/Fin’ Category

Why researchers need to climb down from their ivy towers and see the real world…

August 7, 2014

One doesn’t know when academicians and researchers became ivy league types. One way to look at ivy league is to differentiate a select set of universities/colleges from others. But then it has also moved into another direction where Professors/researchers ( I mean economics ones) are completely cut-off from the real world. The end result has been chasing research which matters little and little as days pass by. Even teaching has been highly inspirational as one sees a very different world from what is taught. What better way to explain this than the famous Occupy Harvard where students walked out of Prof Mankiw’s class.

So it is kind of odd to read articles like this. HBSWK reviews research of Prof Nava Ashraf of HBS. She apparently descends from the Ivy League and involves people for whom the researchis being done.


Seeking the Roots of Entrepreneurship: Insights from Behavioral Economics…

August 5, 2014

Journal of Economic Perspectives’s new edition  has some articles on entrepreneurship.

A team of four econs have written this paper bringing beh econ perspectives to entrepreneurship. They say returns from entrepreneurship are not high. But variance is high. Why do we still have people trying their luck at opening their businesses?


Changing default setting in India’s economic policy …a leaf from beh eco..

July 10, 2014

The big B day is over. Enormous noise and brouhaha going on. The blog will see whether it will write something on the budget laters.

Meanwhile, was trying to scan the economic survey -2013-14 presented yesterday. Chapter 2 which has become kinda famous for being different, this time it speaks on issues and priorities. It has the usual set of words which will please the market sentiment.

Came across these interesting lines in the middle:

Default setting for government intervention in the economy needs to change from ‘prohibited unless permitted’ to ‘permitted
unless prohibited.

Nice to see the words picked from behavioral eco literature. So far, the default for most eco activity in India is “Well, it must be banned till it is allowed”..this was fine in command and control economy. This default needs to change in the market economy to” Well, it is allowed till not banned”.

Simple play of words but changes the entire approach. That is what nudges strategy is all about…:-)

Behavioral economics and macroeconomic models…a review

June 26, 2014

John C. Driscol of Fed and Steinar Holden of University of Oslo write this paper.

It gives a good account of the progress made so far in introducing beh eco in macro models and challenges as well:

Over the past 20 years, macroeconomists have incorporated more and more results from behavioral economics into their models. We argue that doing so has helped fixed deficiencies with standard approaches to modeling the economy—for example, the counterfactual absence of inertia in the standard New Keynesian model of economic fluctuations. We survey efforts to use behavioral economics to improve some of the underpinnings of the New Keynesian model—specifically, consumption, the formation of expectations and determination of wages and employment that underlie aggregate supply, and the possibility of multiple equilibria and asset price bubbles. We also discuss more broadly the advantages and disadvantages of using behavioral economics features in macroeconomic models.

Nice way to start figuring the developments..

Moving on to behavioral indifference curves…

June 25, 2014

Prof. John Komlos of Ludwig-Maximilians University has this interesting paper.

He says it is high time we move onto behavioral indifference curves (which have kinks) from the usual indiff curves (which are smooth downward sloping):


Importance of framing questions – an interesting example..

June 17, 2014

There is another interesting debate over whether the western world has run out of major innovations and are now going to be on a steady decline. Robert Gordan has been making this argument for a while. Ofcourse, there are people who disagree and say innovation likely to continue and generate future growth. Here are the debates — one, two, three.

Coming to the title of the post. Prof Gordon often asks this question which innovation do you value most – A toilet with piped water or a smartphone?

Are all of mankind’s best inventions behind us?

Economist Robert Gordon thinks so. When giving speeches, the Northwestern University professor often flashes a photo of a smartphone and a toilet on a screen and asks his audience what they would do if they had only two options: Keep everything invented up until 2002, or keep everything invented up until today—but give up running water and toilets. The answer to him is obvious: Indoor plumbing changed how people live, he says, smartphones are just a handier form of what already exists.

Which would you choose?

The answer here most likely (atleast for me) is toilets. Here there is a case of lack of supply as well. Much of India does not have toilets but phones have become too common.

But the same post takes a poll but frames the question differently:

Which invention of the past would you rather live without?

Here the choice is smartphones not toilets. But unknowingly you end up ticking on toilets!

Importance of framing the questions and nudging people into making choices.


Teaching Economic Concepts with a Bag of Chocolate..

May 27, 2014

Came across this paper via MR blog (the blog points to a different version though). It is written by Nicholas G. Rupp  of East Carolina University.

He points to an interesting way to teach basic principles of economics to a elementary school class via an experiment.


Behavioral economics of unemployment and obesity

May 15, 2014

Nice article in WaPo (HT: MR blog).

It looks at this side-effect of rising unemp – rise in obesity. People are depressed on being unemployed and start eating:


Road Safety – Choice Architecture in Sweden..

May 15, 2014

This blog had earlier pointed to this fascinating story on how Sweden managed to lower its road accidents and deaths.

Gulzar adds to the discussion from a behavioral perspective. He is mostly alert to the various nudges being implemented around the world:


Economics of apologies…

May 13, 2014
Ben Ho  of Vassar College has this nice and different voxeu piece on economics of apologies.
Using beh eco ideas, he says apologies given with intent can be really powerful:


Is enonomic performance mostly about telling macro stories effectively?

March 24, 2014

The behavioral impressions and biases are not just limited to micro behavior. They seem to be aggregating to macro level as well.

Robert Shiller in his recent piece says much of Japan’s recent revival is based on a powerful economic narrative:


Think MBA Students Are Arrogant? Blame Their Narcissistic Teachers…

March 6, 2014

Narcissism  means to be self obsessed and apparently there is research going on this topic. The research has shifted from narcissistic executives who take higher risks in order to glorify themselves. Now the research has shifted to MBA students too.

Paatrick Clark at BW reports:


Don’t believe the hype about behavioral economics..Really?

January 28, 2014

Allison Schrager a NY based economist says beh eco is mainly hype.

She says beh eco has not delivered the expected results:


Keeping New Year’s resolutions…Some Behavioral insights..

January 1, 2014

The usually brilliant Cass Sunstein shares insights from recent research on human behavior (predictably irrational).

He says new year resolutions are like redemption coupons which people fail to redeem despite the apparent monetary benefits:


Why insurance is the most misunderstood industry?

December 20, 2013

Wharon Profs.  Howard C. Kunreuther and Mark V. Pauly, have co-authored a book titled, Insurance and Behavioral Economics: Improving Decisions in the Most Misunderstood Industry.

In this interview, they say why insurance is the most misunderstood industry. Some think it like investments, others do not insure as events are low probability:


Oscar awards to movies/actors giving behavioral economics insights..

December 19, 2013

A terrific post by Cass Sunstein. He gives Oscars to movies which have beh econ insights (HT: MR Blog).

He gives the awards for Best – Actor, Actress, Director and Picture..


Shiller vs. Fama at Economics Nobel ceremony

December 11, 2013

The Prize lectures are up. We have both youtube videos and pdf slides.

Starts with Fama saying he does not know what a bubble is and Shiller defining a bubble..

Have just started watching…Superb stuff..Debate on financial markets at its best..

Britain’s Ministry of Nudges..

December 9, 2013

A brilliant column in NYT by Katrin Benhold on UK’s behavioral insights team. She points to anecdotes which led to formation of the team, the key questions it is asking and some recent successes.

I did not know unemployed people being nudged to write about their jobless experiences get a job faster:

A 24-year-old psychologist working for the British government, Mr. Gyani was supposed to come up with new ways to help people find work. He was intrigued by an obscure 1994 studythat tracked a group of unemployed engineers in Texas. One group of engineers, who wrote about how it felt to lose their jobs, were twice as likely to find work as the ones who didn’t. Mr. Gyani took the study to a job center in Essex, northeast of London, where he was assigned for several months. Sure, it seemed crazy, but would it hurt to give it a shot? Hayley Carney, one of the center’s managers, was willing to try.

Ms. Carney walked up to a man slumped in a plastic chair in the waiting area as Mr. Gyani watched from across the room. The man — 28, recently separated and unemployed for most of his adult life — was “our most difficult case,” Ms. Carney said later.

“How would you like to write about your feelings” about being out of a job? she asked the man. Write for 20 minutes. Once a week. Whatever pops into your head.

An awkward silence followed. Maybe this was a bad idea, Mr. Gyani remembers thinking.

But then the man shrugged. Why not? And so, every week, after seeing a job adviser, he would stay and write. He wrote about applying for dozens of jobs and rarely hearing back, about not having anything to get up for in the morning, about his wife who had left him. He would reread what he had written the week before, and then write again.

Over several weeks, his words became less jumbled. He started to gain confidence, and his job adviser noticed the change. Before the month was out, he got a full-time job in construction — his first.

Superb stuff….

It started from America, showed some policy success in UK and now being looked upon in America:

Uptake of nudging can be slow. In the United States, President Obama appointed Mr. Sunstein as head of the Office of Information and Regulatory Affairs in 2008. Mr. Sunstein’s job was to oversee new regulations, make older ones smarter and scrap those that didn’t work well. Among the successes, as outlined in his latest book, “Simpler,” were simplified mortgages, fuel-economy labels for cars and calorie counts on menus in chain restaurants.

Now experiments seem ready to become part of American policy-making as well. Maya Shankar, a senior policy adviser at the White House Office of Science and Technology Policy, has been building a new social and behavioral science team inspired in part, she said, by the savings achieved in Britain. Her team wants to use such “evidence-based policy-making,” she said, so that “government services are efficient, effective, and serve the needs of the American people.”

Convinced that there is a wider market for such programs, Mr. Cameron is spinning off the nudge unit into an entity free to advise companies and other governments on social projects. Its main clients will remain the Cabinet Office, which has offered a five-year contract, and other British government departments.  A nonprofit research institution is favored to become the team’s partner.

Nudging will never replace traditional public policy, said Mr. Halpern, the nudge unit’s director. Paraphrasing Oliver Letwin, a cabinet minister, he said: “No one is proposing removing the law against murder and replacing it with a nudge.”

But behavioral insights can improve many policies he said. “It’s when this is generalized that we could be talking about billions,” he said.

Hmmm… Need to keep updated over the policy findings of BI team via their blog.

Prof. Kahneman on How to Control Irrational Tendencies

December 5, 2013

Big Think has this video and a brief write-up on the topic and mental accounting.

Prof. Kahnemann explains:


Nudging is a continuous process..

November 22, 2013

Nudging people into making the right choices is a continuous process. One cannot simply make one nudge and hope it will work. People are predictably irrational and get still confuses and make the wrong choices.

I just noticed this at IIM Bangalore (example of another nudge posted earlier). Now here  we have twp kinds of dustbins spread across the campus. Something like these with just green and red colors.



Get every new post delivered to your Inbox.

Join 1,359 other followers