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Watch Tim Harford recording a new radio show about economics for the BBC

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Fans of Tim Harford and his work on BBC Radio 4′s More or Less will be excited to learn he’s doing a new radio show about economics. In this post on his blog, he explains the show will be called ‘Pop Up Economics’, and consist of short stories about important people and ideas in economics.

The show is being recorded in the evening this coming Tuesday 4th December, in London, and if you’d like to go along, you can email popupeconomics@bbc.co.uk for tickets and details.

Via @TimHarford on Twitter.

Nobel prize for economics awarded to a mathematician

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There may be no Nobel in mathematics, but that needn’t stop mathematicians winning one: Lloyd Shapley has just won the Nobel prize for economics, for the theory of stable allocations and the practice of market design.1

Lloyd Shapley described himself in an Associated Press interview:

“I consider myself a mathematician and the award is for economics. I never, never in my life took a course in economics.”

But if you don’t take his word for it, look on over at his entry on the Mathematics Genealogy Project, and you’ll find his thesis is on “Additive and Non-Additive Set Functions”.

The Nobel prize website has some details on the theory of stable allocations and market design, but an old AMS feature column gives a gentler mathematical introduction, via the elegant graph theory of Hall’s Marriage theorem.

  1. Though technically it’s not a Nobel prize, and actually the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. Perhaps Alfred Nobel’s made-up wife also had an affair with a fantastical economist. [↩]

New UK economic and social data service to launch in October

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The UK Data Service, due to launch on 1 October 2012, is funded for five years by the Economic and Social Research Council (ESRC) and aims to “support researchers in academia, business, third sector and all levels of government” by providing “a unified point of access to the extensive range of high quality economic and social data, including valuable census data”.

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Out-of-work economists will probably not turn to bank robbery

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Three economists decided to examine bank robbery as an economic activity. They were given access to data from the British Bankers’ Association on the amounts stolen during robberies, pretended to be statisticians for a bit, and came up with some interesting results. They’ve written up their findings in a feature article in the June edition of Significance.

Photo courtesy Orange County Archives.

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A Dismal Performance from the Dismal Science

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Paul J. Ferraro and Laura O. Taylor ask, “Do Economists Recognize an Opportunity Cost When They See One? A Dismal Performance from the Dismal Science”

One expects people with graduate training in economics to have a deeper understanding of economic processes and reasoning than people without such training. However, as others have noted over the past 25 years, modern graduate education may emphasize mathematics and technique to the detriment of economic reasoning. One of the most important contributions economics has to offer as a discipline is the understanding of opportunity cost and how to apply this concept to all forms of decision making. We examine how PhD economists answer an introductory economics textbook question that requires identifying the relevant opportunity cost of an action. The results are not consistent with our expectation that graduate training leads to a deeper understanding of the concept. We explore the implications of our results for the relevance of economists in policy, research, and teaching.

Importantly, given four options, only 21.6% of respondents chose the correct one. They performed worse than chance. Some feeble statistical analysis is performed by the authors.

This challenges none of my views about economists: none of them can do maths; none of them can do statistics; what they do has very little rational basis; they are terrible at designing questions for undergrads that don’t require you to make assumptions, often drawing heavily on cultural knowledge.

Found via MetaFilter, which compares the problem to the Monty Hall problem in probability. Nowhere near, in my opinion.

Ian Stewart on Black-Scholes

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Ian Stewart gives us a taste of his new book Seventeen Equations That Changed the World in a Guardian article about the Black-Scholes equation. This, he says:

provided a rational way to price a financial contract when it still had time to run… It opened up a new world of ever more complex investments, blossoming into a gigantic global industry. But when the sub-prime mortgage market turned sour, the darling of the financial markets became the Black Hole equation, sucking money out of the universe in an unending stream.

So what went wrong? Stewart explains that “the equation itself wasn’t the real problem”, going into some detail about how the equation was derived, how it works and what assumptions are included. He concludes:

Was an equation to blame for the financial crash, then? Yes and no. Black-Scholes may have contributed to the crash, but only because it was abused. In any case, the equation was just one ingredient in a rich stew of financial irresponsibility, political ineptitude, perverse incentives and lax regulation.

Ultimately, Stewart argues, “the financial sector performs no better than random guesswork”, with the system “too complex to be run on error-strewn hunches and gut feelings, but current mathematical models don’t represent reality adequately”, a situation that requires “requires more mathematics, not less”.

Guardian: The mathematical equation that caused the banks to crash.