Behavioural economics

http://peterlevine.ws/?p=11041

Asymmetric bayesiansim or why people are so tribal. 

Rationality in Economics

At an Economics conference last week, Alan Kirman made the point that when economists say "rational", they don't mean rational as most people think i.e. fully optimising, relentlessly all-knowing calculating.  They mean "consistent".

Lots of psychology looks at individual motivations, what should economics do with all these studies?  Here is Peter Abel in a paper I have not seen before.

Psychologists and, indeed, many sociologists often allege that economists adopt

an over-simple model of the individual (i.e. usually rational, calculating and self-

interested). Maybe they do, but the important point is, nevertheless, that the social

sciences should only adopt the simplest model of the individual consistent with

validated psychology theory, which can in turn contribute to an account of the sys-

tem state. This being the case, the social sciences will not always, or even usually,

shift with changing fashions in our understanding of individual psychology. Unfor-

tunately many sociologists have not taken this lesson to heart, with the result that

a type of literature has evolved which tries to locate ever more refined ways of

understanding individuals and their interactions. Social scientists have very little to

learn from this literature.

Various teaching links

http://goo.gl/ZhL0Pu what do investment banks do exactly? 

Krugman on is-Lm and no need for microfoundations http://nyti.ms/1wInSeV

http://priceonomics.com/how-much-did-the-musicians-of-woodstock-get-paid/.  From Tyler Cowan 

How many firms are innovating without doing R&D?

Innovation findings from the 2013 Survey.
a. From table 1 we find that in 2013, 45% of firms are innovation active, that is, they product or process innovate, or introduce new processes etc. 
b. From figure 1, we find that 15% of firms are doing R&D.
c. That means, that assuming those 15% of firms report they are innovation active, 66% or 2/3rds of firms are innovating without any R&D. 

The Rate of Return to R&D: teaching notes

Frontier Economics have a nice report on this. Figure 4 in particular is a nice summary of the range of findings on rates of return, see below, and Appendix, P.149 is a good summary of the methodologies to estimate a rate of return.