Nobel Prizes 2017

[sukumvit boy]

http://www.nobelprize.org/nobel_prizes/lists/year/?year=2017

Any thoughts , comments ?

[sukumvit boy]

I find the work of Richard Thaler the 2017 winner in Economics particularly interesting . It shows how human behavior departs from the rational in predictable ways in dealing with financial choices.
http://www.nytimes.com/2017/10/09/business/nobel-economics-richard-thaler.html

[filghy2]

I studied economics and I think Thaler was a good choice. I don't know much about the other fields: although I read novels I haven't ready any by Ishiguro yet.

Thaler's award is the third prize for behavioural economics/finance, after Daniel Kahneman in 2002 and Robert Schiller in 2013. There also been a few others awarded over the past two decades for work on market failures and imperfections. https://en.wikipedia.org/wiki/List_of_Nobel_Memorial_Prize_laureates_in_Economic s

I think this is a good sign that the economics profession is making progress, though the neo-classical model still has too much influence. The big problem is that the results of this model are too often used by non-economists to support their own agendas, without an understanding of the assumptions and conditions on which these results depend.

[trish]

I’ve been an admirer of Kip Thorne since I was a kid. Read his Black Holes and Time Warps way back when, and later learned general relativity from the big black book of Gravitation that he coauthored with Misner and Wheeler. Met him at a conference a few years ago. He’s very engaging and amicable. LIGO is an immense interferometer for the detection of gravitational waves. After a decade of tweaks and enhencements, LIGO is now bringing us news of gigantic collisions and mergers of neutron stars and black holes.

Don’t much about Richard Thaler beyond what I’ve heard in a recent interview. Sounds very interesting and I’m inclined to think he’s right about market players not being rational. When I was a student I picked up a copy of Von Neumann and Morgenstern’s Theory of Games and Economic Behavior which assumes players do play rationally. They demonstrate (under that assumption) that in a free market, the player tend to form coalitions and the coalitions form coalitions. Ultimately the field is reduced to just a handful of players who dominate the market. I’m inclined (but again, I’m no expert here) to think this sort of reduction still predominates even when players are not entirely rational. Why we need regulations to break up monopolies and discourage insider trading etc. to keep markets as free and fair as they can be.

I read Ishiguro’s Buried Giant. I’m told it’s not typical of his output, however I found it enjoyable and intriguing. It’s a fantasy that takes place just after the fall of King Arthur, about justice, revenge and the cycles of violence we sometimes get ourselves caught up in.

[broncofan]

I read a little bit of Thaler, but it was in a textbook and I wasn't sure what work was his and what was attributed to Kahneman and Tversky as it seemed in a similar spirit. This was in a field called Law and Economics, one which attempts to determine which legal rules are most efficient. This field typically uses neoclassical assumptions and is of course different from other areas of law because it doesn't deal with justice considerations...the most sensible work presented was in the realm of behavioral economics, and it was presented almost as an afterthought.

Anyhow when someone presents you a model of how people in a market system behave and the model makes assumptions that are not true it's useful to correct it. Some of the ideas from behavioral economics like bounded rationality and bounded willpower were presented in the context of people making decisions to delay gratification and are convincing, intuitive and useful. The idea that people make decisions based on heuristics or simple rules of thumb will also explain why people cannot evaluate all pieces of information in order of their relevance.

We should be grateful that there is a field of study that offers a rebuttal to the dogmas of neoclassical study. Neoclassical economics attempts to present a proof that markets are efficient and government regulation is not necessary because markets are self-regulating. If Thaler's work not only presents evidence that this is not true, but also that the ways people deviate from rationality are systematic, he has done a great service.

[trish]

Neoclassical economics attempts to present a proof that markets are efficient and government regulation is not necessary because markets are self-regulating.
Some neoclassical theories may attempt to prove that free markets achieve stable equilibria that optimize everyone’s utility, but I think they largely fail even if one grants their assumptions. The Von Neumann/Morganstern result (to which I alluded above) is a mathematical analysis along the classical vein that makes very few assumptions and demonstrates that unregulated markets always tend in time to be dominated by a handful of monopolies.

To keep markets relatively free they need to be regulated. It may sound paradoxical to some, but it’s a concept that’s obvious to any engineer. Systems, to run efficiently, need governors, regulators, and other servomechanisms to manage runaway feedback.

Thaler’s work adds a new wrinkle that wrestles the field from the hands of mathematicians. Probably a good thing.

[sukumvit boy]

Very interesting and articulate posts all , thanks.
Regarding Kip Thorne I agree that this is a well deserved recognition . For those of us who follow the science journals and news it is clear from the success of LIGO and other Gravitational Wave projects now coming online that this has opened up a whole new window to the universe.

http://en.wikipedia.org/wiki/Kip_Thorne

[broncofan]

The Von Neumann/Morganstern result (to which I alluded above) is a mathematical analysis along the classical vein that makes very few assumptions and demonstrates that unregulated markets always tend in time to be dominated by a handful of monopolies.

That's interesting Trish. I knew the efficiency of markets wasn't an assumption of neoclassical economics but for some reason I always thought it followed almost axiomatically from its assumptions. I suppose that's good news since one doesn't even have to negate the assumptions of neoclassical economics to support regulation.

[Aticus100]

I think Comrade Trump should win one for Services to Fuckwitery.

[filghy2]

That's interesting Trish. I knew the efficiency of markets wasn't an assumption of neoclassical economics but for some reason I always thought it followed almost axiomatically from its assumptions. I suppose that's good news since one doesn't even have to negate the assumptions of neoclassical economics to support regulation.

You may be thinking of the first theorem of welfare economics, which shows that if there are perfectly competitive and complete markets (with perfect information and no transaction costs) the outcome will be 'Pareto optimal', ie it is not possible to make anyone better off without making someone else worse off. https://en.wikipedia.org/wiki/Fundamental_theorems_of_welfare_economics

Whether an unregulated economy would produce such an outcome is a separate question. I know of no theorem that would show this.

The people who developed these theorems were very smart and certainly did no think that this was a description of the real world. It was meant to be part of a rigorous approach to building understanding by starting with the ideal and then considering the implications of different departures from the assumptions.