Three cheers for the new Nobel laureates in economics: Daniel Kahneman of Princeton University and Vernon Smith of George Mason University in Virginia. Like many Nobel prizes, these awards recognize not only the seminal work undertaken by Kahneman and Smith, but also the schools of thought they help to lead. \nKahneman, a psychologist, has demonstrated how individuals systematically behave in ways less rational than orthodox economists believe they do. His research shows not only that individuals sometimes act differently than standard economic theories predict, but that they do so regularly, systematically, and in ways that can be understood and interpreted through alternative hypotheses, competing with those utilized by orthodox economists. \nTo most market participants -- and indeed, ordinary observers -- this does not seem like big news. Wall Street brokers who peddled stocks they knew to be garbage exploited the irrationality that Kahneman and Smith exposed. Much of the mania that led to the bubble economy was based on exploiting investor psychology. \nIn fact, this irrationality is no news to the economics profession either. John Maynard Keynes long ago described the stock market as based not on rational individuals struggling to uncover market fundamentals, but as a beauty contest in which the winner is the one who guesses best what the judges will say. \nThis year's Nobel prize celebrates a critique of simplistic market economics, just as last year's award (of which I was one of the three winners) did. Last year's laureates emphasized that different market participants have different (and imperfect) information, and these asymmetries in information have profound impact on how an economy functions. \nIn particular, last year's laureates implied that markets were not, in general, efficient; that there was an important role for government to play. Adam Smith's invisible hand -- the idea that free markets lead to efficiency as if by an invisible hand -- is invisible at least in part because it is not there. \nThis, too, is not news to those who work day after day in the market (and make their fortunes by taking advantage of and overcoming asymmetries in information). For more than 20 years economists were enthralled to so called "rational expectations" models which assumed that all participants have the same (if not perfect) information and act perfectly rationally, that markets are perfectly efficient, that unemployment never exists (except when caused by greedy unions or government minimum wages) and where there is never any credit rationing. \nThat such models prevailed, especially in US graduate schools, despite evidence to the contrary bears testimony to a triumph of ideology over science. Unfortunately, students of these graduate programs now act as policy-makers in many countries, and are trying to implement programs based on the ideas that have come to be called market fundamentalism. \nLet me be clear: the rational expectations models made an important contribution to economics. Good science recognizes its limitations, but the prophets of rational expectations have usually shown no such modesty. \nVernon Smith is a leader in the development of experimental economics, the idea that one could test many economic propositions in laboratory settings. One reason that economics is such a difficult subject, and why there are so many disagreements among economists, is that economists cannot conduct controlled experiments. \nIn principle, in a laboratory, we can conduct controlled experiments, and therefore make more reliable inferences. Critics of experimental economics worry that subjects bring to experimental situations modes of thought determined outside of the experiment, and thus that the experiments are not as clean and the inferences not as clear cut as in the physical sciences. Nonetheless, economic experiments provide insights into a number of important issues, such as the improved design of auctions. Most importantly, the irrationality of market participants, which was the focus of Kahneman's work, has been verified repeatedly in laboratory contexts. \nAmong the more amusing results that have come out of experimental economics are those concerning altruism and selfishness. It appears (at least in experimental situations) that experimental subjects are not as selfish as economists have hypothesized -- except for one group -- the economists themselves. \nIs it because economics as a discipline attracts individuals who are by nature more selfish or is it because economics helps shape individuals, making them more selfish? The answer, almost certainly, is a little bit of both. Presumably, future experimental research will help resolve the question of the relative importance of these two hypotheses. \nThe Nobel Prize signifies how important it is to study people and economies as they are, not as we want them to be. Only by understanding better actual human behavior can we hope to design policies that will make our economies work better as well. \nJoseph Stiglitz is professor of economics and science at Columbia University and the winner of the 2001 Nobel Prize in economics. Copyright: Project Syndicate
In the 74 years since its founding, the leaders of the People’s Republic of China have always seen the Republic of China in Taiwan as a thorn in their collective side. The Chinese Communist Party has wished for nothing more than to remove this thorn and fulfill its vision of communist revolution. During the Cold War, Beijing couched these ambitions in the language of “liberating” Taiwan. Now it strikes chords of national unity and sings the new propaganda line of unification of the motherland. But in those 74 years the Republic of China has undergone a revolution of its own: a
It is a good time to be in the air-conditioning business. As my colleagues at Bloomberg News write, an additional 1 billion cooling units are expected to be installed by the end of the decade. It is one of the main ways in which humans are adapting to more frequent and intense heatwaves. With a potentially strong El Nino on the horizon — a climate pattern that increases global temperatures — and greenhouse gas emissions still higher than ever, the world is facing another record-breaking summer, and another one, and another and so on. For many, owning an air conditioner has become a
National Taiwan University (NTU) has come under fire after an offensive set of proposals by two students running for president and vice president of the student council caused an uproar over the weekend. Among the proposals were requiring girls with “boobs smaller than an A cup” to take two national defense credits and boys with “dicks shorter than 10cm” to take home economics class, as well as banning people with a body mass index of more than 20 from taking elevators, and barring LGBTQ students and dogs from playing Arena of Valor during student council meetings. They also opposed admission
The controversial proposals by two candidates running for president and vice president of the student council at National Taiwan University’s (NTU) Economics Department have given society a glimpse of the “character” of NTU students. With sexist proposals like “small-breasted girls need to enroll in national defense class” or “boys with short dicks need to take home economics class,” the candidates might have thought they were being “creative,” but the proposals have only laid bare their childishness and vulgarity. The proposals should have entailed issues that NTU students wish to address. People are born the way they are, and their physical traits
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