Tag Archives: economics

The median influencer is an older citizen of some affluence

On why depressions are a ‘choice’ (emphasis mine):

The ailing developed economies are plutocratic democracies. “The people” do have power, but influence is weighted in a manner correlated with wealth. The median influencer in these economies is not a billionaire, but an older citizen of some affluence who has mostly endowed her own future consumption. She would like to be richer, of course. But she is content with her present wealth, and is panicked by the prospect of becoming poorer. For such a person, the depression status quo is unfortunate but tolerable. The risks associated with expansionary policy, on the other hand, are absolutely terrifying.


Decision making under Uncertainty using Heuristics

I friend from Uni sent me this interesting talk about decision making given by Gerd Gigerenzer (wiki) discussing how heuristics can be very successful at decision making under uncertainty:

One example he gives is of allocating the assets in your portfolio. If you actually knew the true risks, you could use what appears to be a mathematically optimal procedure (mean-variance optimisation) to pick the best portfolio – that is, it would be mathematically optimal if you could quantify the true risks.

But, as it turns out, the heuristic of simply dividing your money equally between your 1/N asset choices – stocks, for example – usually gives a better result, because the variance in the parameter estimation needed for the mathematically optimal procedure means it’s actually a worse method under uncertainty! At least, that’s how I understood it.