Nobel Laureates In Economics

"The user of a theory has a simpler task: his not to reason why, his but to sigh and try. If the right element in the diverse situations has been isolated, the theory will work: it will yield predictions better than those which can be reached with any alternative theory."

"And anyway, although a fancy theory is not so good as a simple one (more things can go wrong with the fancy one), a fancy theory is better than none. Let the reader try to contrive an alternative explanation of the fact that prices of washing machines vary relatively more than prices of automobiles. He may come up with a rule such as the more expensive the commodity, the less its price varies, which seems to fit our facts-in fact, it makes the same prediction. But quite aside from the fact that it has no logical basis, this alternative explanation will often be wrong: the price of sugar varies much less than that of tea, although sugar costs less per pound. This is not a contradiction of our theory, which in a fuller version says that the aggregate amount spent on a commodity governs the amount of search."

"Footnotes are not an occasional token of respect for an obsolete and purposeless tradition. It will come as a shock to many, I am sure, even to realize that references can be checked."

"Economists are neither distinctively good nor bad, no more or less virtuous or brave or generous or faithful than the sum of mankind, and certainly no more modest."

"Whether one is a conservative or a radical, a protectionist or a free trader, a cosmopolitan or a nationalist, a churchman or a heathen, it is useful to know the causes and consequences of economic phenomena."

"He weights losses about twice as much as gains, which is normal."

"I've called Daniel Kahneman the world's most influential living psychologist and I believe that is true. He pretty much created the field of behavioural economics and has revolutionised large parts of cognitive psychology and social psychology. His central message could not be more important, namely, that human reason left to its own devices is apt to engage in a number of fallacies and systematic errors, so if we want to make better decisions in our personal lives and as a society, we ought to be aware of these biases and seek workarounds. That's a powerful and important discovery."

"A huge part of Danny's work is on how we think – and how profoundly irrational we can be. That, too, is transforming business, however slowly, and explains the million copies he has sold of his new book. But, in the great sweep of history, I suspect he will be most remembered as the man who made happiness respectable."

"An experiment about your next vacation will allow you to observe your attitude to your experiencing self: At the end of the vacation, all pictures and videos will be destroyed. Furthermore, you will swallow a potion that will wipe out all your memories of the vacation. How would this affect your vacation plans? How much would you be willing to pay for it, relative to a normally memorable vacation? My impression is that the elimination of memories greatly reduces the value of the experience.Imagine a painful operation during which you will scream in pain and beg the surgeon to stop. However, you are promised an amnesia-inducing drug that will wipe out any memory of the episode. Here again, my observation is that most people are remarkably indifferent to the pains of their experiencing self. Some say they don’t care at all. Others share my feeling, which is that I feel pity for my suffering self but not more than I would feel for a stranger in pain.I am my remembering self, and the experiencing self, who does my living, is like a stranger to me."

"Caring for people often takes the form of concern for the quality of their stories, not for their feelings. Indeed, we can be deeply moved even by events that change the stories of people already dead. We feel pity for a man who died believing in his wife’s love for him when we hear that she had a lover for many years and stayed with her husband only for his money. We pity the husband although he had lived a happy life. We feel the humiliation of a scientist who made a discovery that was proved false after she died, although she did not feel the humiliation. Most important, we all care intensely for the narrative of our own life and very much want it to be a good story, with a decent hero."

"The mystery is how a conception that is vulnerable to such obvious counterexamples survived for so long. I can explain it only by a weakness of the scholarly mind that I have often observed in myself. I call it theory-induced blindness: Once you have accepted a theory, it is extraordinarily difficult to notice its flaws. As the psychologist Daniel Gilbert has observed, disbelieving is hard work."

"Optimism is normal, but some fortunate people are more optimistic than the rest of us. If you are genetically endowed with an optimistic bias, you hardly need to be told that you are a lucky person -- you already feel fortunate. Optimistic people play a disproportionate role in shaping our lives. Their decisions make a difference; they are inventors, entrepreneurs, political and military leaders -- not average people. They got to where they are by seeking challenges and taking risks. They are talented and they have been lucky, almost certainly luckier than they acknowledge."

"Most of us view the world as more benign than it really is, our own attributes as more favorable than they truly are, and the goals we adopt as more achievable than they are likely to be. We also tend to exaggerate our ability to forecast the future, which fosters overconfidence. In terms of its consequences for decisions, the optimistic bias may well be the most significant cognitive bias. Because optimistic bias is both a blessing and a risk, you should be both happy and wary if you are temperamentally optimistic."

"We often interact with professionals who exercise their judgment with evident confidence, sometimes priding themselves on the power of their intuition. In a world rife with illusions of validity and skill, can we trust them? How do we distinguish the justified confidence of experts from the sincere overconfidence of professionals who do not know they are out of their depth? We can believe an expert who admits uncertainty but cannot take expressions of high confidence at face value. As I first learned on the obstacle field, people come up with coherent stories and confident predictions even when they know little or nothing. Overconfidence arises because people are often blind to their own blindness."

"The confidence we experience as we make a judgment is not a reasoned evaluation of the probability that it is right. Confidence is a feeling, one determined mostly by the coherence of the story and by the ease with which it comes to mind, even when the evidence for the story is sparse and unreliable. The bias toward coherence favors overconfidence. An individual who expresses high confidence probably has a good story, which may or may not be true."

"Although humans are not irrational, they often need help to make more accurate judgements and better decisions. [...] [They] also need protection from others who deliberately exploit their weaknesses [...]."

"Nothing in life is as important as you think it is when you are thinking about it."

"Experienced well-being is on average unaffected by marriage, not because marriage makes no difference to happiness, but because it changes some aspects of life for the better and others for the worse."

"A plausible interpretation is that higher income is associated with a reduced ability to enjoy the small pleasures of life. [...] There is a clear contrast between the effects of income on experienced well-being and in life satisfaction. Higher income brings with it higher satisfaction, well beyond the point at which it ceases to have any positive effect on experience. [...] Life satisfaction is not a flawed measure of their experienced well-being, as I thought some years ago. It is something else entirely."

"Unless there is an obvious reason to do otherwise, most of us passively accept decision problems as they are framed and therefore rarely have an opportunity to discover the extent to which our preferences are frame-bound rather than reality-bound."

"A rare event will be overweighted if it specifically attracts attention. [...] And when there is no overweighting, there will be neglect."

"Many unfortunate human situations unfold [...] where people who face very bad options take desperate gambles, accepting a high probability of making things worse in exchange for a small hope of avoiding a large loss. Risk taking of this kind often turns manageable failures into disasters."

"There is no evidence that risk takers in the economic domain have an unusual appetite for gambles on high stakes; they are merely less aware of risks than more timid people are."

"He's taking an inside view. He should forget about his own case and look for what happened in other cases."

"Subjective confidence in a judgement is not a reasoned evaluation of the probability that this judgement is correct. Confidence is a feeling, which reflects the coherence of the information and the cognitive ease of processing it. It is wise to take admissions of uncertainty seriously, but declarations of high confidence mainly tell you that an individual has constructed a coherent story in his mind, not necessarily that the story is true."

"Our comforting conviction that the world makes sense rests on a secure foundation: our almost unlimited ability to ignore our ignorance."

"It took Francis Galton several years to figure out that and regression are not two concepts – they are different perspectives on the same concept. The general rule is straightforward but has surprising consequences: whenever the correlation between two scores is imperfect, there will be regression to the mean."

"There is a deep gap between our thinking about statistics and our thinking about individual cases."

"The lesson is clear: estimates of causes of death are warped by media coverage. [...] The world in our heads is not a precise replica of reality; our expectations about the frequency of events are distorted by the prevalence and emotional intensity of the messages to which we are exposed."

"It is the of the information that matters for a good story, not its completeness. Indeed, you will often find that knowing little makes it easier to fit everything you know into a coherent pattern."

"A reliable way to make people believe in falsehoods is frequent repetition, because familiarity is not easily distinguished from truth."

"disbelief is not an option. The results are not made up, nor are they statistical flukes. You have no choice but to accept that the major conclusions of these studies are true."

"Intelligence is not only the ability to reason; it is also the ability to find relevant material in memory and to deploy attention when needed."

"A recurrent theme of this book is that luck plays a large role in every story of success; it is almost always easy to identify a small change in the story that would have turned a remarkable achievement into a mediocre outcome."

"The first advice is to slow down, and not follow your first impulses."

"You should inform your gut and then trust it."

"And there is something else, which is very important, I think. Which is that almost all psychological hypotheses are true, that is, in the sense that, you know, directionally, if you have a hypothesis that A really causes B, that it's not true that A causes the opposite [of] B. Maybe A just has very little effect, but hypotheses are true mostly, except mostly they're very weak, they're much weaker than you think..."

"I placed too much faith in underpowered studies. As pointed out in the blog, and earlier by Andrew Gelman, there is a special irony in my mistake because the first paper that Amos Tversky and I published was about the belief in the “law of small numbers,” which allows researchers to trust the results of underpowered studies with unreasonably small samples. We also cited Overall (1969) for showing “that the prevalence of studies deficient in statistical power is not only wasteful but actually pernicious: it results in a large proportion of invalid rejections of the null hypothesis among published results.” Our article was written in 1969 and published in 1971, but I failed to internalize its message. My position when I wrote “Thinking, Fast and Slow” was that if a large body of evidence published in reputable journals supports an initially implausible conclusion, then scientific norms require us to believe that conclusion. Implausibility is not sufficient to justify disbelief, and belief in well-supported scientific conclusions is not optional. This position still seems reasonable to me – it is why I think people should believe in climate change. But the argument only holds when all relevant results are published. I knew, of course, that the results of priming studies were based on small samples, that the effect sizes were perhaps implausibly large, and that no single study was conclusive on its own. What impressed me was the unanimity and coherence of the results reported by many laboratories. I concluded that priming effects are easy for skilled experimenters to induce, and that they are robust. However, I now understand that my reasoning was flawed and that I should have known better. Unanimity of underpowered studies provides compelling evidence for the existence of a severe file-drawer problem (and/or p-hacking). The argument is inescapable: Studies that are underpowered for the detection of plausible effects must occasionally return non-significant results even when the research hypothesis is true – the absence of these results is evidence that something is amiss in the published record..."

"No one ever made a decision because of a number. They need a story."

"There's literally no difference between a physician recognizing a disease from a "facial expression", and a little child pointing to something and saying "doggie"."

"People who make a difference do not die alone. Something dies in everyone who was affected by them. Amos made a great deal of difference, and when he died, life was dimmed and diminished for many of us. There is less intelligence in the world. There is less wit. There are many questions that will never be answered with the same inimitable combination of depth and clarity. There are standards that will not be defended with the same mix of principle and good sense. Life has become poorer. There is a large Amos-shaped gap in the mosaic, and it will not be filled. It cannot be filled because Amos shaped his own place in the world, he shaped his life, and even his dying. And in shaping his life and his world, he changed the world and the life of many around him."

"In one experience I remember vividly, there was a rich range of shades. It must have been late 1941 or early 1942. Jews were required to wear the Star of David and to obey a 6 p.m. curfew. I had gone to play with a Christian friend and had stayed too late. I turned my brown sweater inside out to walk the few blocks home. As I was walking down an empty street, I saw a German soldier approaching. He was wearing the black uniform that I had been told to fear more than others - the one worn by specially recruited SS soldiers. As I came closer to him, trying to walk fast, I noticed that he was looking at me intently. Then he beckoned me over, picked me up, and hugged me. I was terrified that he would notice the star inside my sweater. He was speaking to me with great emotion, in German. When he put me down, he opened his wallet, showed me a picture of a boy, and gave me some money. I went home more certain than ever that my mother was right: people were endlessly complicated and interesting."

"You can see the computer age everywhere but in the productivity statistics."

"Everything reminds Milton of the money supply. Well, everything reminds me of sex, but I keep it out of the paper."

"I don't think that Solow, in particular, has ever tried to come to grips with any of these issues except by making jokes."

"It is possible to see Keynesian and Schumpeterian ideas as complementary. Keynes is about short-run economic fluctuations brought about by erratic variations in the willingness of investors and governments to spend; Schumpeter is about the long-run trajectory driven by the erratic march of technological progress. This complementarity only became clear later, after both men had died, when economic growth became an explicit objective of public policy and topic of systematic analysis. Schumpeter was left frustrated by the younger generation’s affinity for his rival. In any case, the “preliminary volume” never materialized. The world turns. Today, some sixty years after their deaths, Schumpeter’s star probably outshines Keynes’s. The business cycle has receded in importance, partly because the large industrial economies have sprouted a more stable structure, and partly because the lessons that Keynes taught have been learned by central banks and finance ministries. Instead, long-term economic growth has moved to the top of the political and intellectual agenda, and that was Schumpeter’s topic. As Robert Lucas memorably put it, once you have begun to think about economic growth, it is hard to think about anything else. It is a pity that troubled old Schumpeter did not live to see the triumph of his obsession."

"I think that this is Schumpeter’s main legacy to economics: the role of technological and organizational innovation in driving and shaping the growth trajectory of capitalist economies."

"In my view—and that of most contemporary economists, I believe—Schumpeter’s most original and most lastingly significant book was Theory of Economic Development, which appeared in 1911 (and was translated into English in 1934). It was at the University of Czernowitz, not far from the beginning of his career as an economist, that he worked out his conception of the entrepreneur, the maker of “new combinations,” as the driving force and characteristic figure of the fits-and-starts evolution of the capitalist economy. He was explicit that, while technological innovation was in the long run the most important function of the entrepreneur, organizational innovation in governance, finance, and management was comparable in significance."

"In recollecting Schumpeter, it is hard to tear oneself away from the exotic manner, the dubious politics, the carefully crafted image, the hidden self-doubts, the convoluted life story, the complicated relations to three wives and several non-wives."

"More generally, Schumpeter seemed to be playing the role of grand seigneur, and he tended to flatter where flattery was not due, no doubt satirically. All this went along with his reputation as a casual and easy grader. We used to say that he threw the exam books up a staircase: the ones that stuck at the top got an A, the ones that fell to the bottom an A minus. I was surprised to learn that in Austrian universities he had the reputation of a stern taskmaster."