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Heart or Head?

Robert Shiller, a prominent financial economist from Yale, writes today in a NY Times Op-Ed:

Consider financial theory, the cornerstone of modern business education. The mathematical theory that has developed over the decades has proved extremely valuable in general. But when it comes to individuals, the theory runs into some problems. In effect, it portrays people as nothing more than "maximizers" of their own "expected utility." This means that people are expected to be totally selfish, constantly calculating their own advantage, with no thought of others. If the premise is that everyone would steal the silverware if he knew he could get away with it, and if we spend the entire semester developing the implications of this assumption, then it is hard to know where to begin to talk about ethics.

As an undergraduate finance student I struggled with this cold, cynical, detached view of human nature. Common sense tells me that individuals often are anything but rational maximizers. Hell, some even exhibit bouts of "irrational exuberance", the term famously coined by the head of the US Federal Reserve, Alan Greenspan, during the inexplicable heights of the 90's tech-fuelled stock market boom. I wholeheartedly agree with Shiller's viewpoint: rigorous mathematical models can offer valuable insights into peoples' economic behaviour, but they do not offer the whole story.

An interesting development in economics is that of the field of neuroeconomics (Economist article). Instead of defining individuals' behaviour with mathematical models, neuroeconomists conduct experiments using MRI imaging of the brain to directly analyze the decision-making process. Although the field is in its infancy, this development is a step in the right direction. Hopefully economists will eventually be able to include in their analyses the emotive dimension that plays a not-insignificant role in most of the decisions people make.

The Coming of Age

Yesterday was a very special day, as my one and only brother finally became a man. His name is Alastair and he turned the grand age of 21 yesterday. This is a picture of him and yes, that is a coconut on his head. Congratulations Al, hope you had a great day.

Robonomics

Two exams in the last two days and I am now half way through. Think I performed strongly on one and OK on the other. I have a week's hiatus before the next two, a joyful combination of Time Series Analysis and Mathematical Methods for Economists.

Talking with my classmates during this period has shown me the vast difference in approaches to study people have. Some study at home, while others swear they can only get work done at the library. Some stick a strict 9 to 5 regiment, others work through the night to the wee hours. More difficult for me to understand is that some people choose to cram right up to the start of exams. I mean they will literally walk into the exam room still reading their notes, trying to cram in one last formula or factoid. Personally, I find it hard to study at all on the day of an exam. If I don't know it by this stage, I ain't gonna know it. On the day, I will instead keep my mind focused on anything but the exam, by surfing the web, watching Sally Jessy, or something equally mindless. I dunno, has worked for me so far.

I have been thinking about what I am going to use this blog for. As a student of economics, it has always bugged me that when the subject comes up in discussion, most people's eyes invariably glaze over and a look of disgust racks their face. In general, economics is a very misunderstood subject. Yes, at times it can be terribly boring and dry, and some of the models that economists use are abstract to the point of uselessness. However, the analytic scope of the subject reaches into every area of society, from macroeconomic issues of inflation and growth to the economics of drug dealing. It is, after all, the only social science to have its own Nobel prize (if you have a broadband connection, I recommend watching the videos of the laureates delivering their prize lectures - riveting stuff). Thus, in this blog I think I will try to roll back the clouds of misunderstanding a little. I am not naive enough to think I can make economics 'cool', but I will settle for at least a few people hopefully not despising it so much.

Bob bloggin!

Ladies and gentlemen, here is my first foray into the world of blogging. I have no idea how long I will keep this up or even what this blog will be about, but, well, it seemed like a good idea at the time. I suspect my starting to blog now has something to do with the fact that I am in the middle of studying for exams and am desperately trying to procrastinate. I have successfully wasted at least an hour so far, so this pastime is proving to be a fruitful vacuum of time indeed.

That's about all I have to say so far. Please check back soon for more insightful commentary on just about nothing. Good evening.