In the interview with Professor Laibson, I thought it was interesting to hear the discussion about potentially being able to create equations to model all types of economic activities similar to how we have specific formulas to evaluate nominal values. When talking about the economy, the subject of self-interest comes up a lot since we are trying to make predictions on growth of wealth. This makes creating equations to model behavioral economics very difficult since we have to assign a nominal value to something that is different for each person. For example, when dealing with the economy, it is inevitable that some may be more greedy than others. This behavior is varied among everyone and outliers can cause a model to be skewed heavily.
Hi Daniel,
Thanks for sharing your thoughts. I think if you have many economists, they would tell you that economic forecasting has always been a flawed science. How often have they warned us of recessions? A small change in a variable here and there can make predictions extremely complex and lead to huge problems. I was reading an article talking about how we fail to rate the economists who provide us with the forecasts on world-impacting decisions and how there should be some metrics to rate their reliability.
Neil
Hi Daniel,
Thank you for sharing your thoughts about the interview with Professor Laibson! I enjoyed reading your post. I also found the discussion about using equations to model economic activities intriguing. Since I often think about equations in mathematical situations, I found it surprising that equations can also model qualitative situations. I agree with your point that modeling behavioral economics is challenging because people have different values. To add on to this idea, I think it also relates to Professor Laibson’s discussion of uncertainty and the difficulty of making informed decisions based on limited experience. I wonder if economists can create more accurate equations by creating smaller subgroups. For example, economists might be able to create different equations for different age groups or risk preferences.
Emily