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…assuming that decision processes are reducible to one-size-fits-all sets of axioms has not and will not produce a descriptively adequate account of human behaviour under risk and uncertainty.
Researchers find that people’s risk preferences are not stable. How risk averse is an individual? That depends on the situation.
I believe I had a Top 10 up on Rates Blog yesterday, defending economists (because why not). I’ll post on that another day. Here I’ll leave the floor open to criticising economists – although I’m not sure if I agree with the implied assumptions in today’s discussion Tuesday 😉
Economists largely base analysis on tautologies. Given that they deal with synthetic variables (GDP, inflation) this is inappropriate and misleading.
The gulf between theoretical, efficient markets and real markets never ceases to surprise me. This paper from 2005 evaluates the saving consumers were able to make on their power bill by switching plans:
…we find that the subsets of consumers who claimed to be switching exclusively for price reasons appropriated only between 26-39% of the maximum gains available through their choice of new supplier. While such behaviour can be explained by the existence of high search costs, the observation that 27-38% of the consumers actually reduced their surplus as a result of switching cannot.
Yes, among people who switched to save money they only saved a third of what was available to them. A third of the people who switched actually increased their bill. The authors rule out a number of explanations to conclude that these people just got it wrong because figuring out optimal tariffs is quite tricky. And these are the people who are actively switching and evaluating tariffs, so this is what market success looks like! Read more