Cees Armstrong and I had the pleasure of interviewing Professor Sunstein, the Robert Walmsley Professor at Harvard Law School. Professor Sunstein is the best-selling author of many books, including the critically acclaimed Nudge, as well as the most cited law scholar of all time. He now works with the US government. Continue reading An interview with Professor Cass Sunstein: Nudges, economic systems, and freedom
Reinhard Selten, 1994 Nobel prize and founding father of experimental economics, predicted that individuals wouldn’t play the conventional Nash Equilibrium in the Ultimatum Game, better known as a take-it-or-leave-it offer. This was proven to be accurate when his student Werner Güth showed this supposedly irrational behaviour in his 1982 experiments. In game theory a Nash Equilibrium is a scenario where neither player would benefit from … Continue reading The Rationality of Irrationality
The human mind is not built for financial business. Our archicortex (the oldest region of the brain’s cerebral cortex) can’t distinguish between life-threatening and non life-threatening situations. This has effects throughout the financial sector, especially trading. Unfortunately, the perfect rationality of the “homo economicus” is a lie: humans have always been known to be affected by emotions and biases. Richard Thaler, a Nobel laureate in … Continue reading Psychological Trading
As has been well-documented in academic research, people are by no means rational. In their book ‘Nudges’, Thaler and Sunstein famously describe two types of thinking: system 1 and system 2. The former is a more automatic method involving quick judgement calls which are more prone to irrationality, while the latter is much more deliberate, and less prone to external influences. From the moment we … Continue reading Nudges: Will they work forever?
Money is often the driving factor in our decision making. That comes with its dangers. Continue reading Monetary incentives
From Greek mythological characters to Fortune 500 executives, it seems as though no human is immune to complacency. Why? Continue reading The Icarus Paradox: Success will burn you
In 1974, Daniel Kahneman and Amos Tversky exposed a blatant fault in our judgement under uncertainty Continue reading Feminism, gambling and the fat-free
What can twenty toddlers teach us about economic recessions? A lot more than you may think Continue reading Babies = Depression
The Nobel Prize-winning economist, Maurice Allais, posed this famous paradox in a 1953 Econometrica article. It led to the discovery of one of the most significant notions in behavioural economics today: loss aversion. Continue reading The Allais Paradox: Explained
Rationality in economics is described to be a decision-making process of an economic agent that seeks to maximise utility. To best understand the notion of rationality in economics, it is best to compare it to rationality in a more psychological sense: the quality of being able to think sensibly or logically. This comparison highlights that rationality in economics is more concerned with the outcome of … Continue reading What is Rationality in Economics?
