Risky Business (behavioral economics)

[depakid]

Meet Homo economicus. He’s rational … acts out of informed self interest … and he underpins the last 100 years of mainstream economic theory. But as a tidal wave of toxic debt swamps our planet, even his most fervent believers are beginning to lose faith.

Alan Greenspan:

Those of us who have looked to the self interest of lending institutions, to safeguard shareholder interests, myself especially, are in a state of shocked disbelief.

Dr Jonica Newby:

So if even the high priest of the market, Alan Greenspan is having a mea culpa moment, is it now time to declare Homo economicus extinct?

NARRATION

In making economics a mathematical science – did we somehow forget biology? Based in the UK, Dr John Coates is one of a newer breed of economist known broadly as behavioural economists. And he’s no ivory tower theorist. His doubts about traditional economic doctrine began back in the 90’s – when he spent a decade as a young master of the universe – a trader - on Wall Street.

Dr. John Coates:

During the dot-com bubble, people started acting in a very odd manner. They were displaying almost classical clinical symptoms of mania. They were delusional, they were over confident, they were euphoric, they had racing thoughts and diminished need for sleep. I mean these were clinical symptoms.
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An excellent and insightful segment from ABC (Australian Broadcasting Company)

http://www.abc.net.au/catalyst/stories/2525497.htm

[Esra Star]

1. I was going to post this, it was only on air last night. You're quick.

It appears that testosterone(?) is the problem again.
It seems to be responsible for great gains made by the race, but then it goes too far
and tends to undo all the good work.
I think it means that our systems to run society will always need some regulation.

[depakid]

2. "It seems to be responsible for great gains made by the race, but then it goes too far"

...it means that our systems to run society will always need some regulation.

You pegged it. Great show, huh?

Nikiforakis' experiements are classic:

Dr Jonica Newby:

Optimism bias is that we all overestimate our own abilities. So if you ask people whether they are an above average driver, 90% will say yes. Which is impossible.

Dr Nikos Nikiforakis:

So they seem to believe that they will be able to buy at a high price and sell at an even higher price. Probably this reflects a belief that they’re smarter than other people, and they’ll get out before the crash. So that’s optimism.

Dr Nikos Nikiforakis:
There we go

Dr Jonica Newby:
huh – crash.

Dr Nikos Nikiforakis:
There we have a crash.

Dr Jonica Newby:
So if they were behaving rationally, you would not see the bubble or the crash.

Dr Nikos Nikiforakis: That’s right.

Dr Jonica Newby:
How often do you see bubbles and crashes when you run this experiment.

Dr Nikos Nikiforakis:
Every single time.
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btw: your sig line?

:rofl:

[Esra Star]

4. EVERY SINGLE TIME!!!!

That's the thing isn't it?
I think even rats will stop going for the food if the electric shock is big enough.
Cheers

[notesdev]

3. The problem is not self-interest

but that fraud was an acceptable, even admired, way to pursue it, and that most who did so have gotten away with their undeserved booty. What we have seen occur here is not economics but out-and-out piracy.

[tama]

5. Old pirates, yes, they rob I

Old pirates, yes, they rob i;
Sold I to the merchant ships,
Minutes after they took i
From the bottomless pit.
But my hand was made strong
By the and of the almighty.
We forward in this generation
Triumphantly.
Wont you help to sing
These songs of freedom? -
cause all I ever have:
Redemption songs;
Redemption songs.

Emancipate yourselves from mental slavery;
None but ourselves can free our minds.
Have no fear for atomic energy,
cause none of them can stop the time.
How long shall they kill our prophets,
While we stand aside and look? ooh!
Some say its just a part of it:
Weve got to fulfil de book.

Wont you help to sing
These songs of freedom? -
cause all I ever have:
Redemption songs;
Redemption songs;
Redemption songs.
---
/guitar break/
---
Emancipate yourselves from mental slavery;
None but ourselves can free our mind.
Wo! have no fear for atomic energy,
cause none of them-a can-a stop-a the time.
How long shall they kill our prophets,
While we stand aside and look?
Yes, some say its just a part of it:
Weve got to fulfil de book.
Wont you help to sing
Dese songs of freedom? -
cause all I ever had:
Redemption songs -
All I ever had:
Redemption songs:
These songs of freedom,
Songs of freedom.