Presentation to post AS-level students on developments in economics that lie beyond the standard content of first year courses

1. Geoff Riley FRSA, Eton College and Tutor2u
Fly Beyond the AS Economics Syllabus

2. It is not only
Economists who can
be bad for you!

3. “EVERYTHING
THAT CAN BE
INVENTED HAS
BEEN
INVENTED”
Spokesman for the
US Patent office,
1899

4. “I THINK THERE IS A WORLD MARKET
FOR MAYBE FIVE COMPUTERS”
Thomas Watson, IBM Chairman 1943

5. “THEY COULDN’T HIT AN
ELEPHANT AT THIS DIST.......”
Last words of General Sedgwick,
Battle of Spotsylvania 1864

6. “The master-economist must possess
a rare combination of gifts ... He must
be a mathematician, historian,
statesman, philosopher – in some
degree.
He must understand symbols and
speak in words. He must contemplate
the particular in terms of the general
and touch abstract and concrete in
the same flight of thought.
No part of man’s nature of his
institutions must lie entirely outside
his regard. “
Keynes on the qualities of a master-economist

7. Challenges to Economic Orthodoxy
At a November
2008 visit to the
LSE the Queen
asked Luis
Garicano, an LSE
expert on
economics and
management:
“Why did no one
see it [the crisis]
coming?”

8. • Dogmatic belief in the efficiency of markets
• Perpetuating the myth of the rational maximizing
agent with perfect information
“Living in a neo-liberal world?” (Madonna)

9. “In the economist's
mind, people are
calculating rationalists,
merely seeking to
maximize their own
utility in a world of
perfect information,
and devoid of such
concepts as uncertainty,
mistrust, fear and
regret.”
Rory Sutherland

10. The human is far
less a rational
calculating
machine than a
kind of anxious,
moralizing, herd-
like, reciprocating,
image-conscious,
story-telling game
theorist.
The best quote on economics that I have ever read

11. • Humans are very
different from
Econs!
• Social
• Emotional
• Habitual
• Satisficers
• Lack self-control
• Many cognitive
biases in behaviour

12. At least nine major
schools of economics
1. Classical
2. Neoclassical
3. Marxist
4. Keynesian
5. Schumpeterian
6. Austrian
7. Institutionalist
8. Behaviouralist
9. Developmentalist
There are alternatives to what you have been taught

13. Relying on neo-
classical economics
is the equivalent of
using a very large
hammer!
Economic and Social
Problems are Complex

14. Economic and Social
Problems are Complex
Relying on neo-
classical economics
is the equivalent of
using a very large
hammer!
This is more likely to do
the job!

15. Heuristics
Network
Behaviour
Signalling
and Trust in
Markets

16. Heuristics

17. Heuristics
Rules of thumb
designed to get us
through life …………...

18. Heuristics
Rules of thumb
designed to get us
through life …………...
We often rely on our
gut instinct rather
than precise
measurement of cost
and benefit

19. Heuristics are used when catching a ball

20. 1/ Fix eye on ball
2/ Start running
3/ Adjust your running until
the angle of gaze remains
constant………………………
The Gaze Heuristic

21. Andy Haldane
Heuristics and financial
markets
“The Dog and the Frisbee” (Bank of England)

22. Which has more?
– 1) Words that
begin with the
letter “K"

23. Which has more?
– 1) Words that
begin with the
letter “K"
– 2) Words that
have the letter
“K“ in the 3rd
position

24. Which has more?
– 1) Words that
begin with the
letter “K"
Kinesthetic

25. Which has more?
– 1) Words that
begin with the
letter “K"
– 2) Words that
have the letter
“K“ in the 3rd
position Kinesthetic
Ark

26. • Which has more?
– 1) Words that
begin with the
letter “R"
– 2) Words that
have the letter
“R“ in the 3rd
position

27. • Which has more?
– 1) Words that
begin with the
letter “R"
Radio

28. • Which has more?
– 1) Words that
begin with the
letter “R"
– 2) Words that
have the letter
“R“ in the 3rd
position Radio
Aerial

29. • Answer
– Words with the
letter "R" or "K" in
the third position
are more common.

30. • Answer
– Words with the
letter "R" or "K" in
the third position
are more common.
–There are three
times as many
words that have
the letter “R" in the
third position

31. • Answer
– Words with the
letter "R" or "K" in
the third position
are more common.
–There are three
times as many
words that have
the letter “R" in the
third position
Aerial
Bark
Carpet
Dermatologist
Earmarked
Farmer

32. Which of these towns has the bigger population?
Slough
Plymouth

33. Which of these towns has the bigger population?
Slough
Plymouth
250,000

34. Which of these towns has the bigger population?
Slough
Plymouth
250,000
140,000

35. How to spot the terrorist at an airport

36. No heuristic pretends to
apply to everything, but
some heuristics work well
some of the time

37. I normally find what I need without scrolling down…

38. “If nothing bad happened last time, do what I did last time.”

39. I don’t want the best burger in the world; I want a burger
like the one I had last time ……………………………….

40. Nearly all people and businesses SATISFICE!

42. In a World of Uncertainty and Complexity, Instinct
Can Beat Analytical Thinking

43. Expert bias doesn’t always pay dividends!
Using heuristics
often leads to
better decisions
than the models of
“rational” decision-
making developed
by mathematicians
and statisticians.
Gerd Gigerenzer

44. Heuristics for uncertain financial markets
asset allocation
heuristic
= 1/n
i.e. allocate
money equally
to each of n
fundsGerd Gigerenzer

45. Heuristics for uncertain financial markets
Do not be impulsive
in data-rich
situations where
you should be
thoughtful; do not
be thoughtful in
data-poor situations
where you should
be intuitive
Gerd Gigerenzer

46. Heuristics can work well
some of the time but not
all of the time!

48. I’ll get good health advice from the Daily Express………….

49. I’ll get good health advice from the Daily Express………….

50. I’ll get good health advice from the Daily Express………….

51. I’ll get good health advice from the Daily Express………….

52. I’ll get good health advice from the Daily Express………….

53. I can tell instinctively how high a bridge is…….

54. I can tell instinctively how high a bridge is…….

55. If I post a letter by 4pm it tends to get there tomorrow

57. Life-affirming example of the power of heuristics

58. Network
Economics

60. Network dynamics vital in understanding behaviour

61. Will London Black Cabs still be dominant in 2017?

62. Will Facebook still be dominant in 2017?

63. Copying behaviour is intuitive in networks

64. A person often decides to change his or her
preferences simply on the basis of what others do

65. “We are going to Nando’s……..are you coming?”

66. Smart businesses mix economic & social incentives

67. Smart businesses mix economic & social incentives

68. Smart businesses mix economic & social incentives

69. But after my last purchase on Amazon ……….

70. “Trust is about
more than whether
you can leave your
house unlocked; it
is responsible for
the difference
between the
richest countries
and the poorest.”
Tim Harford
The economics of TRUST and SHARING

71. Great brands play capitalism’s “long game”

72. How much trust do you have in public figures?
Politicians Bankers
Technology Companies Doctors

73. How do you decide whether to trust a taxi driver?

74. How do you decide whether to trust a taxi driver?
Brand reputation Previous experiences “The Knowledge”
Referral Longevity Religious icons

75. How do you decide whether to trust a taxi driver?
Brand reputation Previous experiences “The Knowledge”
Referral Longevity Religious icons

76. How do you decide whether to trust a taxi driver?
Brand reputation Previous experiences “The Knowledge”
Referral Longevity Religious icons

77. How do you decide whether to trust a taxi driver?
Brand reputation Previous experiences “The Knowledge”
Referral Longevity Religious icons

78. How do you decide whether to trust a taxi driver?
Brand reputation Previous experiences “The Knowledge”
Referral Longevity Religious icons

79. How do you decide whether to trust a taxi driver?
Brand reputation Previous experiences “The Knowledge”
Referral Longevity Religious icons

80. When trust is low we make defensive purchases

81. Returns from the sharing and trusting economy….

82. Social dimensions of the sharing economy…….

83. Social dimensions of the sharing economy…….

84. Heuristics
Network
Behaviour
Signalling
and Trust in
Markets

87. Accountants and
Actuaries

88. Accountants and
Actuaries
Lawyers

89. Accountants and
Actuaries
Lawyers
Contrarian Economists

91. Happy to help with UCAS
Advice and Extra Support
in your Economics!
G.riley@etoncollege.org.uk
@tutor2u_econ