Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
Geoff Riley FRSA, Eton College and Tutor2u
Fly Beyond the AS Economics Syllabus
It is not only
Economists who can
be bad for you!
“EVERYTHING
THAT CAN BE
INVENTED HAS
BEEN
INVENTED”
Spokesman for the
US Patent office,
1899
“I THINK THERE IS A WORLD MARKET
FOR MAYBE FIVE COMPUTERS”
Thomas Watson, IBM Chairman 1943
“THEY COULDN’T HIT AN
ELEPHANT AT THIS DIST.......”
Last words of General Sedgwick,
Battle of Spotsylvania 1864
“The master-economist must possess
a rare combination of gifts ... He must
be a mathematician, historian,
statesman, philo...
Challenges to Economic Orthodoxy
At a November
2008 visit to the
LSE the Queen
asked Luis
Garicano, an LSE
expert on
econo...
• Dogmatic belief in the efficiency of markets
• Perpetuating the myth of the rational maximizing
agent with perfect infor...
“In the economist's
mind, people are
calculating rationalists,
merely seeking to
maximize their own
utility in a world of
...
The human is far
less a rational
calculating
machine than a
kind of anxious,
moralizing, herd-
like, reciprocating,
image-...
• Humans are very
different from
Econs!
• Social
• Emotional
• Habitual
• Satisficers
• Lack self-control
• Many cognitive...
At least nine major
schools of economics
1. Classical
2. Neoclassical
3. Marxist
4. Keynesian
5. Schumpeterian
6. Austrian...
Relying on neo-
classical economics
is the equivalent of
using a very large
hammer!
Economic and Social
Problems are Compl...
Economic and Social
Problems are Complex
Relying on neo-
classical economics
is the equivalent of
using a very large
hamme...
Heuristics
Network
Behaviour
Signalling
and Trust in
Markets
Heuristics
Heuristics
Rules of thumb
designed to get us
through life …………...
Heuristics
Rules of thumb
designed to get us
through life …………...
We often rely on our
gut instinct rather
than precise
me...
Heuristics are used when catching a ball
1/ Fix eye on ball
2/ Start running
3/ Adjust your running until
the angle of gaze remains
constant………………………
The Gaze Heur...
Andy Haldane
Heuristics and financial
markets
“The Dog and the Frisbee” (Bank of England)
Which has more?
– 1) Words that
begin with the
letter “K"
Which has more?
– 1) Words that
begin with the
letter “K"
– 2) Words that
have the letter
“K“ in the 3rd
position
Which has more?
– 1) Words that
begin with the
letter “K"
Kinesthetic
Which has more?
– 1) Words that
begin with the
letter “K"
– 2) Words that
have the letter
“K“ in the 3rd
position Kinesthe...
• Which has more?
– 1) Words that
begin with the
letter “R"
– 2) Words that
have the letter
“R“ in the 3rd
position
• Which has more?
– 1) Words that
begin with the
letter “R"
Radio
• Which has more?
– 1) Words that
begin with the
letter “R"
– 2) Words that
have the letter
“R“ in the 3rd
position Radio
...
• Answer
– Words with the
letter "R" or "K" in
the third position
are more common.
• Answer
– Words with the
letter "R" or "K" in
the third position
are more common.
–There are three
times as many
words th...
• Answer
– Words with the
letter "R" or "K" in
the third position
are more common.
–There are three
times as many
words th...
Which of these towns has the bigger population?
Slough
Plymouth
Which of these towns has the bigger population?
Slough
Plymouth
250,000
Which of these towns has the bigger population?
Slough
Plymouth
250,000
140,000
How to spot the terrorist at an airport
No heuristic pretends to
apply to everything, but
some heuristics work well
some of the time
I normally find what I need without scrolling down…
“If nothing bad happened last time, do what I did last time.”
I don’t want the best burger in the world; I want a burger
like the one I had last time ……………………………….
Nearly all people and businesses SATISFICE!
In a World of Uncertainty and Complexity, Instinct
Can Beat Analytical Thinking
Expert bias doesn’t always pay dividends!
Using heuristics
often leads to
better decisions
than the models of
“rational” d...
Heuristics for uncertain financial markets
asset allocation
heuristic
= 1/n
i.e. allocate
money equally
to each of n
funds...
Heuristics for uncertain financial markets
Do not be impulsive
in data-rich
situations where
you should be
thoughtful; do ...
Heuristics can work well
some of the time but not
all of the time!
I’ll get good health advice from the Daily Express………….
I’ll get good health advice from the Daily Express………….
I’ll get good health advice from the Daily Express………….
I’ll get good health advice from the Daily Express………….
I’ll get good health advice from the Daily Express………….
I can tell instinctively how high a bridge is…….
I can tell instinctively how high a bridge is…….
If I post a letter by 4pm it tends to get there tomorrow
Life-affirming example of the power of heuristics
Network
Economics
Network dynamics vital in understanding behaviour
Will London Black Cabs still be dominant in 2017?
Will Facebook still be dominant in 2017?
Copying behaviour is intuitive in networks
A person often decides to change his or her
preferences simply on the basis of what others do
“We are going to Nando’s……..are you coming?”
Smart businesses mix economic & social incentives
Smart businesses mix economic & social incentives
Smart businesses mix economic & social incentives
But after my last purchase on Amazon ……….
“Trust is about
more than whether
you can leave your
house unlocked; it
is responsible for
the difference
between the
rich...
Great brands play capitalism’s “long game”
How much trust do you have in public figures?
Politicians Bankers
Technology Companies Doctors
How do you decide whether to trust a taxi driver?
How do you decide whether to trust a taxi driver?
Brand reputation Previous experiences “The Knowledge”
Referral Longevity...
How do you decide whether to trust a taxi driver?
Brand reputation Previous experiences “The Knowledge”
Referral Longevity...
How do you decide whether to trust a taxi driver?
Brand reputation Previous experiences “The Knowledge”
Referral Longevity...
How do you decide whether to trust a taxi driver?
Brand reputation Previous experiences “The Knowledge”
Referral Longevity...
How do you decide whether to trust a taxi driver?
Brand reputation Previous experiences “The Knowledge”
Referral Longevity...
How do you decide whether to trust a taxi driver?
Brand reputation Previous experiences “The Knowledge”
Referral Longevity...
When trust is low we make defensive purchases
Returns from the sharing and trusting economy….
Social dimensions of the sharing economy…….
Social dimensions of the sharing economy…….
Heuristics
Network
Behaviour
Signalling
and Trust in
Markets
Accountants and
Actuaries
Accountants and
Actuaries
Lawyers
Accountants and
Actuaries
Lawyers
Contrarian Economists
Happy to help with UCAS
Advice and Extra Support
in your Economics!
G.riley@etoncollege.org.uk
@tutor2u_econ
Heuristics, Networks and Trust - Moving Away from Standard Economics
Heuristics, Networks and Trust - Moving Away from Standard Economics
Heuristics, Networks and Trust - Moving Away from Standard Economics
Heuristics, Networks and Trust - Moving Away from Standard Economics
Heuristics, Networks and Trust - Moving Away from Standard Economics
Heuristics, Networks and Trust - Moving Away from Standard Economics
Heuristics, Networks and Trust - Moving Away from Standard Economics
Upcoming SlideShare
Loading in …5
×

Heuristics, Networks and Trust - Moving Away from Standard Economics

10,372 views

Published on

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

Published in: Technology, Economy & Finance
  • Be the first to comment

Heuristics, Networks and Trust - Moving Away from Standard Economics

  1. 1. Geoff Riley FRSA, Eton College and Tutor2u Fly Beyond the AS Economics Syllabus
  2. 2. It is not only Economists who can be bad for you!
  3. 3. “EVERYTHING THAT CAN BE INVENTED HAS BEEN INVENTED” Spokesman for the US Patent office, 1899
  4. 4. “I THINK THERE IS A WORLD MARKET FOR MAYBE FIVE COMPUTERS” Thomas Watson, IBM Chairman 1943
  5. 5. “THEY COULDN’T HIT AN ELEPHANT AT THIS DIST.......” Last words of General Sedgwick, Battle of Spotsylvania 1864
  6. 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. 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. 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. 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. 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. 11. • Humans are very different from Econs! • Social • Emotional • Habitual • Satisficers • Lack self-control • Many cognitive biases in behaviour
  12. 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. 13. Relying on neo- classical economics is the equivalent of using a very large hammer! Economic and Social Problems are Complex
  14. 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. 15. Heuristics Network Behaviour Signalling and Trust in Markets
  16. 16. Heuristics
  17. 17. Heuristics Rules of thumb designed to get us through life …………...
  18. 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. 19. Heuristics are used when catching a ball
  20. 20. 1/ Fix eye on ball 2/ Start running 3/ Adjust your running until the angle of gaze remains constant……………………… The Gaze Heuristic
  21. 21. Andy Haldane Heuristics and financial markets “The Dog and the Frisbee” (Bank of England)
  22. 22. Which has more? – 1) Words that begin with the letter “K"
  23. 23. Which has more? – 1) Words that begin with the letter “K" – 2) Words that have the letter “K“ in the 3rd position
  24. 24. Which has more? – 1) Words that begin with the letter “K" Kinesthetic
  25. 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. 26. • Which has more? – 1) Words that begin with the letter “R" – 2) Words that have the letter “R“ in the 3rd position
  27. 27. • Which has more? – 1) Words that begin with the letter “R" Radio
  28. 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. 29. • Answer – Words with the letter "R" or "K" in the third position are more common.
  30. 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. 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. 32. Which of these towns has the bigger population? Slough Plymouth
  33. 33. Which of these towns has the bigger population? Slough Plymouth 250,000
  34. 34. Which of these towns has the bigger population? Slough Plymouth 250,000 140,000
  35. 35. How to spot the terrorist at an airport
  36. 36. No heuristic pretends to apply to everything, but some heuristics work well some of the time
  37. 37. I normally find what I need without scrolling down…
  38. 38. “If nothing bad happened last time, do what I did last time.”
  39. 39. I don’t want the best burger in the world; I want a burger like the one I had last time ……………………………….
  40. 40. Nearly all people and businesses SATISFICE!
  41. 41. In a World of Uncertainty and Complexity, Instinct Can Beat Analytical Thinking
  42. 42. 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
  43. 43. Heuristics for uncertain financial markets asset allocation heuristic = 1/n i.e. allocate money equally to each of n fundsGerd Gigerenzer
  44. 44. 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
  45. 45. Heuristics can work well some of the time but not all of the time!
  46. 46. I’ll get good health advice from the Daily Express………….
  47. 47. I’ll get good health advice from the Daily Express………….
  48. 48. I’ll get good health advice from the Daily Express………….
  49. 49. I’ll get good health advice from the Daily Express………….
  50. 50. I’ll get good health advice from the Daily Express………….
  51. 51. I can tell instinctively how high a bridge is…….
  52. 52. I can tell instinctively how high a bridge is…….
  53. 53. If I post a letter by 4pm it tends to get there tomorrow
  54. 54. Life-affirming example of the power of heuristics
  55. 55. Network Economics
  56. 56. Network dynamics vital in understanding behaviour
  57. 57. Will London Black Cabs still be dominant in 2017?
  58. 58. Will Facebook still be dominant in 2017?
  59. 59. Copying behaviour is intuitive in networks
  60. 60. A person often decides to change his or her preferences simply on the basis of what others do
  61. 61. “We are going to Nando’s……..are you coming?”
  62. 62. Smart businesses mix economic & social incentives
  63. 63. Smart businesses mix economic & social incentives
  64. 64. Smart businesses mix economic & social incentives
  65. 65. But after my last purchase on Amazon ……….
  66. 66. “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
  67. 67. Great brands play capitalism’s “long game”
  68. 68. How much trust do you have in public figures? Politicians Bankers Technology Companies Doctors
  69. 69. How do you decide whether to trust a taxi driver?
  70. 70. How do you decide whether to trust a taxi driver? Brand reputation Previous experiences “The Knowledge” Referral Longevity Religious icons
  71. 71. How do you decide whether to trust a taxi driver? Brand reputation Previous experiences “The Knowledge” Referral Longevity Religious icons
  72. 72. How do you decide whether to trust a taxi driver? Brand reputation Previous experiences “The Knowledge” Referral Longevity Religious icons
  73. 73. How do you decide whether to trust a taxi driver? Brand reputation Previous experiences “The Knowledge” Referral Longevity Religious icons
  74. 74. How do you decide whether to trust a taxi driver? Brand reputation Previous experiences “The Knowledge” Referral Longevity Religious icons
  75. 75. How do you decide whether to trust a taxi driver? Brand reputation Previous experiences “The Knowledge” Referral Longevity Religious icons
  76. 76. When trust is low we make defensive purchases
  77. 77. Returns from the sharing and trusting economy….
  78. 78. Social dimensions of the sharing economy…….
  79. 79. Social dimensions of the sharing economy…….
  80. 80. Heuristics Network Behaviour Signalling and Trust in Markets
  81. 81. Accountants and Actuaries
  82. 82. Accountants and Actuaries Lawyers
  83. 83. Accountants and Actuaries Lawyers Contrarian Economists
  84. 84. Happy to help with UCAS Advice and Extra Support in your Economics! G.riley@etoncollege.org.uk @tutor2u_econ

×