Tuesday, August 26, 2008


Chicago Economist Richard Thaler and his colleague Cass Sunstein of Law School have written a new book, "Nudge: Improving Decisions About Health, Wealth, and Happiness". (also see here.)

Using vivid examples from the most ordinary but important aspects of life (like the way to layout different kinds of food in cafeteria, the way to avoid car accident at a sharp turn, etc.), Thaler and Sunstein show that by knowing how people think, we can actually design choice environments that make it easier for people to choose what is best for themselves, their families, and their society. They demonstrate how thoughtful "choice architecture" can be established to nudge us in beneficial directions without restricting freedom of choice.

Here is a video lecture from Richard Thaler, talking about the whole idea inside this book. You can also read this review from Harvard Economist Benjamin Friedman.

Tuesday, August 19, 2008

Top 11 Unsolved questions in Economics???

Like there are lists of unsolved problems in Mathematics, Physics, and Chemistry, Wikipedia also has a list of the 11 unsolved questions in economics. Sounds interesting? Take a look.

1. What caused the Industrial Revolution?
2. What is the proper size and scope of government?
3. How can heterogeneous production goods be included in a mathematically trackable intertemporal equilibrium constrution?
4. What truly caused the Great Depression?
5. Can we explain the Equity Premium Puzzle?
6. How is it possible to provide causal explanations using the purely logical constructions of mathematical economics?
7. Can we create an equivalent of Black-Scholes for futures contract pricing?
8. What is the microeconomic foundation of inflation?
9. Is the money supply endogenous?
10. How does price formation occur? Why do some markets achieve Pareto efficiency?
11. What causes the variation of income among ethnic groups?

I think some problems are quite solid (like the one on the size and scope of government, maybe more generally, organizations and institutions, also the other on EPP) therefore need careful investigation, but some of them, particularly those problems on causalities (one of them should be listed on unsolved problems in philosophy), are really too broad and too hard to tackle.

Hat tip to Mike Moffatt.

How to raise a PhD?

OrgTheory has the answer...

Derman...the Quant

I suggested everyone who is interested in modern finance theory read two books (now three), one is Capital Ideas (and now Capital Ideas Evolving) by Peter L. Bernstein, who is the former editor of the Journal of Portfolio Management and the founder and president of Peter L. Bernstein, Inc; the other is My Life as A Quant, by Emanuel Derman, now the director of Columbia University's program in financial engineering.

Recently, Prof. Derman spoke with Science & the City on how a theoretical physicist can find his own way and made a mark on Wall Street.

Wednesday, August 13, 2008

Poterba and Feldstein

Two recent interviews from Bloomberg.

The NBER new head, James Poterba of MIT talks about the micro perspective on asset and credit markets, possible retrenching of U.S. consumers, and also on the characteristics of Harvard and MIT's economics departments.

His predecessor, Martin Feldstein of Harvard talks about the current macroeconomic condition. He says that Fed is slow to recognize the credit crisis.