I was walking along the street today and, as there often are, there were charity collectors with buckets trying to get donations. Yet everyone walked past without a second glance! Why is that: are we just callous and uncaring, or is it something else? Read more
At Stumbling and Mumbling the author is discussing why goalkeepers don’t maximise their chance of making a save from a penalty kick. According to this paper they only stood still during a penalty kick 6.3% of the time, even though 28.7% of kicks were down the middle.
Mr Mumbling puts forward three reasons why the goalkeeper may stand still less than is optimal:
These are all good reasons which probably explain the phenomenon, however I have a couple of other ideas:
As much as I hate link farmers, I can’t help reposting this great paragraph from the Positive Economist. It just ties in so well to the recent discussion on this blog about rationality and behavioural economics!
Behavioral economics is possibly the least revolutionary revolution ever to hit an academic discipline, because, as Scheiber is alluding to, the behavioral school is absolutely not changing or abandoning the methodology of economics. As I’ve noted before, the “perfectly rational” economic man can happily do whatever the behavioralists want him to do to be more “realistic”; it’s therefore not necessary to come up with a whole new way of modeling people.
Instead the behavioral school is writing down models of “perfectly rational, utterly self interested maximizers” who act in accordance with the behavioral evidence. That is, writing rationalization of the “irrationality” we observe. Contrast this with the traditional criticism of economic man, which is to throw up ones hands and loudly reject the whole idea of trying to predict what people will do. I prefer the behavioral way.
Yeah, what he said 🙂
I’ve been bombarded recently with people telling me about economists’ perception of rationality and the wonders of behavioural economics. The term homo economicus gets thrown around with gay abandon as a generic criticism of economics. Oliver Woods claimed that rationality means having perfect information and being entirely self-interested. At the other end of the scale, Will Wilkinson extends rationality to include anything that’s “…the best we can do given our numerous limitations.” Tim Harford goes as far, in his book ‘The Logic of Life’, as suggesting that someone can be termed rational if they respond to incentives. So, if even economists don’t agree on what rationality is, how can we complain that economists are silly to speak of humans as rational? Read more
‘Inflation psychology’ was the topic of a recent inflation update by Stephen Cecchetti (h.t. Freakonomics blog). In it he mentions that people seem to have selective memories regarding price changes – namely people are likely to remember price increases more than price falls.
I once mentioned such a potential bias when I commented on Kiwiblogblog, it is a bias that I definitely hold, and I suspect other people do too. For example, did you know that the nominal New Zealand price of petrol is only starting to reach the level recorded in July 2006 now? People often remember the big increase in petrol prices in mid-2006 and late 2007, but they seem to forget about the significant fall in prices that occurred between these periods.
The question then is, what does this bias imply for inflation?
The Standard links to an interesting LA times article on loss aversion. Now loss aversion in itself is a very interesting issue, something Rauparaha may like to write about ;). However, my focus is going to fall on the same result that The Standard was interested in namely that people would rather earn $50k when everyone else earns $25k than earn $100k when everyone else earns $250k. The article calls people ‘irrational’ for doing this – but is this the case?
Read more