Sunday, May 27, 2012

Der Spiegel Interview with Daniel Kahneman




Read it at Der Spiegel
SPIEGEL Interview with Daniel Kahneman
(h/t Kevin Fathi via email)











Leverage said...

Why now is if the work on this field has been going for decades. Indeed the state of economics is sorry.

However, be careful with this subject as there is a lot of misunderstanding and lack of clarity or consensus in some concepts.

For example the rapid divide between 'rational' and 'unrational' and the use of heuristics or emotional feedback loops into the decision making process.

More times than not is correct and 'rational' even if it does not follow straight logic and is more likely of fuzzy logic or decisions under extreme uncertainty (where you can't basically assign probabilities to events). Is perplexing how complex our internal machines are, when dealing with this circumstances, if we just keep looking the cases that decisions go wrong we will extract wrong conclusions. But the fact is that these mechanisms we use on daily basis unconsciously work just fine and in fact we can't operate without them in a normal way (demonstrated by clinical cases).

Watch this lecture for some examples of what I'm talking about¨: Antonio Damasio: INET Keynote Address entitled Human Decisions

Tom Hickey said...

The problem is that the assumptions of neoliberalism don't allow for anything less than perfect rationality in its account of free markets as perfectly efficient mechanisms for price discovery. i.e., that markets can be trusted to always price goods and assets at their real value so that price is value.

Of course, changes in price with no apparent corresponding changes in underlying value question these assumptions. Neoliberalism denies that this divergence is possible, holding that genuinely free markets are never wrong and cannot fail by themselves, explaining bubbles and crashes in terms of external shocks or government meddling. the answer is then that mispricing either cannot be avoided due to "acts of God" or can be avoided by completely excluding government intrusion.

Neoliberals also hold that free markets require the rule of law and rigid enforcement protecting private property. So "free market" is an oxymoron by definition, since government is a requirement in the concept, and where there is government there is the possibility of influence and capture.

Cognitive bias arising from heuristics, bounded rationality, social influences and "noise" explains the discrepancy between nominal price and real value. Of course, traders have recognized this for years in trying to assess the balance between bulls (greed) and bears (fear), or as Buddhists might say, between desire and aversion.

Geoff said...

This is an excellent post. Having dabbled a bit in Eastern religions myself, I am familiar with the separation of the "experiencing" from the "remembering" self. Some might call it the separation of the ego. However, I had not previously considered how this relates to economics, and the "rational" school of thought. Very interesting stuff.

Anonymous said...

yes, i agree--excellent post!

but the problem with research in this area (cognition, consciousness) is it's tough to be "objective" when you're the "observer" and the "observed."

everybody wants to be just an observer and not the observed...