Strategic decision is the object of study for Game Theory, a discipline that started officially with the book The Theory of Games and Economic Behavior, by John von Neumann and Oskar Morgenstern . For non-cooperative games, i.e., games in which individuals make decisions individually and with no strings attached, the book was restricted to zero-sum […]
Here, I summarize the discussion on the normative differences between nudges and boosts presented in Sims and Müller, 2019 . Behavioral Economics studies the systematic biases in economic decisions that occur because our cognitive processes are constrained and, thus, context-neutral optimization is impracticable. This area of research started with Tversky and Kahneman (1974) , and […]
Given the choice between €500 and a chance to win either €0 or €1000 with equal probabilities, most people opt for the sure prize of €500, even if the expected amount of money is the same in both cases. In both Economics and Decision Theory, this risk-aversion is usually modeled by considering, not the amount […]
I n a recent article in the Journal of Economic Perspectives, three economists from the British Macroprudential Strategy and Support Division and one member of the Financial Policy committee of the Bank of England analyze whether macroprudential regulation could prevent a rerun of the last crisis (Aikman et al ., 2019 ). To address this […]
During the second half of the 80s, when no one knew those years would become the Soviet Union’s last, Mikhail Gorbachev attempted some economic reforms without much success. Less than one decade earlier, in 1978, Deng Xiaoping started a series of reforms that secured not only economic growth, but also the rule of Chinese communist […]
It is generally considered that equality of opportunities means equal access to education and health. When the society considers that some goods like school and vaccines must be consumed by everyone, economists define them as “merit goods”, which deserve a special treatment, as in the case of public goods or goods that cause consumption externalities […]
T here are two major impossibility theorems in social choice: Arrow’s theorem (1951) : the only system to aggregate individual preferences into social preferences (e.g., a voting mechanism) that satisfies the properties of transitivity, monotonicity and independence of irrelevant alternatives for all possible individual preferences is the dictatorial system. Gibbard–Satterthwaite’ theorem (1973) : any voting […]
The share of the world’s population living below the global extreme poverty line has dropped from 42% in 1981 to 11% in 2013. This dramatic change has encouraged the UN to set the goal of ending it by 2030. Can it happen? In a recent article published in the Journal of Economic Perspectives, Page and […]
A tax on carbon emissions is an efficient way to make firms and consumers internalize the environmental costs due to climate change. However, there are many other aspects to consider in a transition from a fossil-fueled economy to a cleaner one. In a past article we presented the case for subsidies on research to develop […]
Very frequently, economic analysis must compare future and present magnitudes. Say that under policy A, the stream of payoffs for today and next year is (10, 10), while under policy B it is (13, 6). The total of payoff is higher under A, but policy B results in higher payoffs sooner. If later payoffs are […]