21 st century economics PowerPoint Presentation

21 st  century economics PowerPoint Presentation

2018-11-10 6K 6 0 0

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Paul Ormerod. www.paulormerod.com. Overview. The core model of economics remains the rational agent operating autonomously with fixed preferences, gathering information and making choices based on the attributes of the alternatives. ID: 727060

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Presentations text content in 21 st century economics

Slide1

21st century economics

Paul Ormerod

www.paulormerod.com

Slide2

Overview

The core model of economics remains the rational agent operating autonomously with fixed preferences, gathering information and making choices based on the attributes of the alternatives

This is also the intellectual foundation of a great deal of social and economic policy

How much of it is still relevant to the 21

st

century?

The core model will be one in which the attributes are of much less consequence in making choices

Slide3

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Slide8

Theoretical considerations: the background

Consumers now face a stupendous proliferation of choice – over 10 billion – billion! – choices are available in New York City alone

Many of these products are complex, hard to evaluate

We are

far

more aware than ever before of the behaviour/opinions/choices of others

In 1900, most of the world’s population lived in villages. Now, over half live in cities

The internet is transforming the world like the printing press did in the 15

th

century

The preferences of agents are

not

fixed, they evolve in many ways. Specifically, they can be altered

directly

by the behaviour of other agents

Slide9

Keynes QJE 1937

‘We have, as a rule, only the vaguest idea of any but the most direct consequences of our acts’

‘How do we manage in such circumstances to behave in a manner which saves our faces as rational economic men?’

1. ‘we assume the present is a much more serviceable guide to the future than a candid examination of past experience would show it to have been hitherto’

2. ‘we assume that the existing state of opinion is based on a correct summing up of future prospects, so we can accept it as such unless something new and relevant comes into the picture’

3. ‘We endeavour to fall back on the judgement of the rest of the world...

The psychology of a society of individuals each of whom is endeavouring to copy the

others leads to what may be called a conventional judgement

Slide10

How big is the fiscal multiplier?

No consensus despite decades of econometric research

Laury

, Lewis, Ormerod (1978) for the UK range is 0.5 to 1.2

Ramey (J

Ec

Lit 2011) range for the US is 0.8 to 1.5

True range may be much wider (e.g.

Barro

and

Redlick

QJE 2011)

Because of sentiment - copying

Slide11

A heuristic classifier of ‘rationality’

Adapted from Bentley, O’Brien

Ormerod

(2011) Mind and Society

Independent

Attributes hard to distinguish

Copying

Attributes easy to distinguish

Slide12

Tastes and preferences are

not

fixed in many contexts

Thomas Schelling (2005): ‘binary choice with externalities’

Agents either buy a brand or they don’t

Agents are optimistic or pessimistic

Agents are solvent/not solvent

Your

decision might change directly the decisions of those who might be influenced by you, and vice versa :

‘externalities’

Slide13

Binary choice with externality

Much of the agent based/network literature which focuses on the spread of ideas/behaviour, essentially involves ‘binary choice with externalities’ (Schelling 1973, Watts 2002)

Heterogeneous agents are connected on a network and can be in one of two states of the world

Agents switch depending upon their individual threshold (propensity to switch) and the states of the world of their neighbours

With this model, the process of ‘adoption’ of new norms or shared conceptions is essentially one of copying (imitation

)

A much more general version; Bentley, Ormerod, Batty, ‘

Evolving social influence in large populations’,

Behavioral Ecology and Sociobiology

, 2011S

Slide14

Slide15

The music download experiment: an example of copying

Salganik

,

Dodds

, Watts,

‘Experimental study of inequality and unpredictability in an artificial cultural market’,

Science,

2006

Students downloaded

previously unknown songs either with or without knowledge

of previous participants'

choices

This information was both ranked and unranked

Students also gave the songs a rating

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Social and economic outcomes are typically non-Gaussian

-

downloads on YouTube

- film producers’ earnings

- the number of sexual partners people have

- the size of price changes in financial assets

- crowds at soccer matches

- firm sizes

- the size and length of economic recessions

- unemployment rates by county in America and the UK

- deaths in wars

- the number of churches per county in William the Conqueror’s

Domesday

Book

survey of England in the late 11

th

century

Slide20

Two key empirical features

Non-Gaussian distribution at a point in time

Turnover in rankings within the distribution over time

The core model of behaviour must have these characteristics

As with the core rational agent model of economics, we can modify it as appropriate to the context

Economists need to be taught network theory!

Paul Ormerod

Positive Linking

, Faber and Faber


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