Self Help

How Economics Can Save the World - Erik Angner

Author Photo

Matheus Puppe

· 50 min read

“If you liked the book, you can purchase it using the links in the description below. By buying through these links, you contribute to the blog without paying any extra, as we receive a small commission. This helps us bring more quality content to you!”



Here is a summary of the key details about the author from the passage:

  • Erik Angner is a professor of practical philosophy at Stockholm University, where he directs the Philosophy, Politics and Economics (PPE) program.

  • He holds two PhDs - one in economics from the University of Pittsburgh and one in history and philosophy of science from the University of Pittsburgh.

  • He has over 25 years of experience teaching economics and philosophy at multiple universities. He is also a regular lecturer and keynote speaker.

  • He is the author of two previous books as well as multiple journal articles and book chapters on topics at the intersection of philosophy and economics.

  • He lives in Stockholm, Sweden with his wife and their three children.

  • His background includes training in both economics and philosophy, which informs his approach of applying economic tools and reasoning to solve practical problems facing individuals and society.

  • He aims to showcase how economics, when properly understood and applied, can offer solutions to important issues and help improve people’s lives and make the world a better place.

Here are the key points about economics based on the summary:

  • Economics is about improving human welfare and making the world a better place for people. It seeks to address problems, challenges, and crises facing humankind.

  • Economists study how individual and group behavior leads to social consequences like war, climate change, pollution, inequality, etc. They try to understand these problems and find solutions.

  • Solutions involve changing human behavior, e.g. getting people to act differently through policies. This requires assessing costs and benefits of alternatives and coordinating large numbers of people.

  • Economics provides a framework to understand how challenges emerged, predict outcomes, prevent disasters, and build a more just and prosperous society for all. Its scope is as wide as needed to improve human lives.

  • While an objective social science, economics originated from a desire to address real-world problems like poverty, squalor, and human suffering. Its goal is healing and progress, not just knowledge.

  • In summary, economics applies analytical tools to understand social problems and explore policy solutions, with the overarching aim of enhancing human welfare on a large scale. It’s a problem-driven field focused on bettering people’s lives.

  • The passage discusses whether it is necessary for there to be “lower classes” of people who are doomed to hard labor to provide for others’ refined lifestyles, while being unable to participate in that lifestyle themselves due to poverty and toil.

  • It mentions that Marshall thought poverty and ignorance could be eliminated and well-being reached for all through judicious application of economic science.

  • It then provides Lionel Robbins’ influential definition of economics as the study of human behavior relating to ends and scarce means with alternative uses. It explains the concept of scarcity that is central to economics.

  • It describes how economics examines trade-offs that must be made due to scarcity, and how this applies not just to material goods but also areas like arts, war, labor, leisure, and more. Individual choices have consequences at a societal level.

  • In summary, the passage introduces the concept of whether lower classes are necessary through Marshall’s views, then defines economics through Robbins’ lens of studying choices made under conditions of scarcity.

  • The economist’s toolkit has expanded to include more experimental brain imaging techniques to understand human decision making.

  • A key part of the economist’s way of thinking is heuristics or rules of thumb for how to approach problems. One major heuristic is to view social phenomena as unintended outcomes of individual choices rather than conspiracies. Others include treating people as equal, considering opportunity costs, thinking long-term, and finding equilibriums.

  • Mastering the tools of economics, including these heuristics, is what makes analysis and proposals distinctly economic versus other fields like psychology. Learning these tools is how one becomes an economist.

  • Studying economics is important because it provides solutions to problems people care about like climate change, happiness, community, etc. Economics offers hope through actionable policies where just understanding problems can cause paralysis.

  • Input is also needed from communities to improve and implement economic policies effectively. Economics education is valuable regardless of political views since it provides different perspectives.

  • Overall, the book aims to show how economics can help “fix the world” and address challenges in similar ways that medicine addresses health issues, demonstrating why criticisms of the field are misguided.

  • The woman was poor because she didn’t have any money. She didn’t have money because her parents were struggling themselves and her disability made it hard for her to work.

  • Growing up, she was intermittently homeless or in foster care due to limited social welfare support at the time.

  • What she needed most to alleviate her poverty was money for basic necessities like food, shelter, and her child’s education. Having more money would have vastly improved their quality of life.

  • Economists generally believe the economic approach to poverty is to give poor people money or other resources. The assumption is poor people are fundamentally the same as others, just lacking in money/opportunities.

  • Studies of cash transfer programs in developing countries, which give unconditional cash to those who qualify, have shown positive effects on nutrition, schooling, health with no evidence of increases in irresponsible spending or reduced work. On average, such programs seem to do good with few downsides.

  • Reflecting on data globally, economists find poor people are just as rational as others in their choices - they just have far less money and resources available to work with. Giving them what they need improves their lives and makes for a more just society overall.

  • The passage discusses the problem of inferring causation from mere correlation. Just because two things occur together does not mean one causes the other. There could be common underlying factors.

  • It gives examples of this from economics, like the correlation between women having children and slower career progression. Children may not directly cause slower careers - lack of ambition could influence both.

  • Randomized controlled trials are held as the “gold standard” method to determine causation. They create treatment and control groups through random assignment to eliminate other factors.

  • Economists have adopted this methodology but often can’t randomly assign sensitive real-world variables like children. Alternative approaches use natural experiments where randomization already occurred, like IVF success rates.

  • Studies using these methods have provided evidence that children do impact women’s careers negatively and cash transfers effectively reduce poverty in developing countries on average.

  • While useful, randomized trials have limitations and results may not generalize. Overall the passage argues economics informed by rigorous methodology like randomized trials is valuable for policy but has to be combined with other approaches.

  • Mullainathan and Shafir argue that anti-poverty programs often make lives of poor people harder by adding conditions and restrictions on how welfare payments can be spent. This is counterproductive in their view.

  • They define “scarcity” as the subjective feeling of not having enough of something important, not just lack of money. Being poor intensely increases feelings of scarcity across multiple dimensions.

  • Scarcity captures the mind and reduces cognitive “bandwidth”. It impairs decision-making and self-control, making people more impulsive.

  • Studies show scarcity leads to worse financial decisions like expensive payday loans. It traps people in cycles where mistakes breed more scarcity and impaired thinking.

  • Complaints reveal the emotional toll of high-interest debt and threat of losses, worsening decision-making under pressure.

  • Mullainathan and Shafir argue the poor aren’t inherently different, but scarcity reduces their bandwidth, contributing to persistent poverty through bad decisions.

  • Instead of blame, interventions should focus on alleviating felt scarcity through more forgiving programs, financial tools, job support, to boost bandwidth and break cycles of scarcity.

  • Economists advocate for analytical egalitarianism, which is the idea that science should treat all people as fundamentally equal. It tells us to analyze things without differentiating based on characteristics like race, gender, etc.

  • This goes back to early economists like Adam Smith, who argued that innate differences between people are much less than perceived. Differences emerge more from habit, custom, education and differences in occupation.

  • John Stuart Mill and Jeremy Bentham applied utilitarian calculus, which assigns equal importance to everyone’s happiness. This led them to advocate for causes like women’s rights, gay rights, and abolition of slavery.

  • Thomas Carlyle vehemently disagreed with this analytical egalitarianism. He defended slavery with racist arguments, describing slaves as subhuman. He smeared economics as the “dismal science” because economists advocated treating all people equally.

  • Carlyle’s broadside attack sparked a reply from Mill, who argued any doctrine that says one kind of human is inferior is utterly damnable. So analytical egalitarianism promoting equal treatment of all has been a long-held view in economics.

  • The author and his wife struggled with their daughter’s sleep issues and lack of sleep, which was affecting their mood, thinking, and relationship.

  • They turned to parenting guides and sleep books for advice but found the recommendations contradictory and not evidence-based. Authors claimed expertise but offered no data to back their opinions.

  • The books implied parents could do lasting damage to their child depending on which approach they took, but gave little clarity on the right approach. This instilled fear in the parents without solving the problem.

  • Frustrated by the lack of evidence and solutions, the author did a search of the scientific literature database PubMed to find empirical research on child sleep and parenting approaches.

  • The experience of contradictory, unfounded advice in parenting books that primarily instilled fear rather than offered effective solutions motivated the author to search for higher quality evidence from scientific studies.

  • The paper summarizes a recent randomized controlled trial published in the journal Pediatrics on sleep training methods for infants.

  • The study divided families into three groups: a control group given general sleep tips, a group instructed to try the Ferber method of graduated sleep training, and a group instructed to try bedtime fading.

  • The results showed children in the two treatment groups (Ferber and bedtime fading) fell asleep earlier, woke less frequently at night, and slept more overall compared to the control group. Both methods were equally effective.

  • Stress levels in children and parents decreased over time as sleep improved. After a year, there were no differences found in parent-child attachment or behavioral/emotional issues between the groups. No negative consequences were detected.

  • The study reassured the author and his wife that sleep training is safe and effective, and gave them reason to try it for their own child without fear of harming the relationship or child’s development.

  • The single study was not definitive but provided more useful information than many parenting books, showing the value researchers can provide through rigorous evidence-based analysis.

In summary, the paper reviewed a randomized trial that found two common sleep training methods (Ferber and bedtime fading) improved infant sleep outcomes with no detected negative impacts, reassuring parents it is a safe option to consider.

  • Oster argues that breastfeeding is a good default option for most people due to its health benefits for babies. However, some people cannot or do not want to breastfeed for valid reasons, and this should not be viewed as a disaster or something to feel guilty about. The potential harms of not breastfeeding are relatively minor.

  • She also looks at co-sleeping (babies sleeping in parents’ bed) and finds it increases SIDS risk, especially with additional risk factors like smoking. Not co-sleeping is generally recommended, but some circumstances may warrant departing from this default.

  • Bryan Caplan argues that parenting styles have less influence on child outcomes than commonly believed based on behavioral genetics research. Genes strongly determine traits like personality and intelligence.

  • This means parents can lighten up and feel less guilt. Strict parenting does not build character, while kindness is important. Parents’ happiness matters and need not come at the expense of children’s success.

  • Having more children may be better than commonly thought because parenting demands are overestimated. Kids are also inherently a good thing. However, individual preferences should still be considered.

  • The number of kids someone wants may change over time - in middle age you may want a few more kids to keep you company as teenagers, and in old age you may want more grandkids.

  • Caplan proposes averaging it out and aiming for 3 kids on average to account for these changing preferences over a lifetime. Immediate costs must be weighed against long term rewards like grandkids.

  • Caplan’s work shows how economics can help new parents make wise decisions about family size and parenting. Economics helps make sense of data, avoid short-sighted thinking, and account for individual circumstances and preferences.

  • The economic perspective encourages less judgment and more flexibility in parenting styles. While parenting may feel like a personal matter, it has economic aspects like allocating scarce resources of time and money. Economics provides tools for interpreting data, dealing with uncertainty, and translating evidence into action.

  • Preferences are important - what’s best will vary between individuals and families based on their unique situations and what is most important to them. Economics respects diversity in parenting approaches.

So in summary, Caplan illustrates how economics can bring a rational, nuanced approach to important life decisions like family size and parenting styles.

Here are the key points about the economists’ proposed solution to climate change:

  • A large group of economists from across the ideological spectrum agreed that climate change is a serious problem requiring immediate action. This includes over 3,600 signatories, including 28 Nobel laureates.

  • The proposed solution is a carbon tax - a fee on fossil fuel companies for the carbon emissions associated with their products. This targets the source of the problem by making polluters pay.

  • The funds raised from the carbon tax would be returned directly to citizens. For most people, this would offset higher energy costs caused by the tax. It would particularly help lower-income individuals.

  • A carbon tax is an economic/market-based solution, not a government regulation approach. But economists recognize that unregulated markets do not always solve problems like pollution. Government intervention through a carbon pricing mechanism can improve the market outcome here.

  • The proposal follows standard economic theory on externalities like pollution. By pricing the external carbon costs, the tax incentivizes reductions in harmful emissions and shifts behavior over time towards cleaner options.

  • Getting such a large consensus from economists across the ideological spectrum demonstrates the strength of the economic case for a carbon tax as the preferred policy approach to addressing climate change.

So in summary, the carbon tax proposal represents an economically rigorous yet politically pragmatic market-based solution embraced by many leading economists as an effective way to fix the climate problem.

  • The proposal is called “The Economists’ Statement on Carbon Dividends”. It is put forth by the Climate Leadership Council, whose website contains more details about the proposal.

  • The core idea is to impose a tax on the burning of fossil fuels (coal, oil, gas) based on their carbon content. Producers pay the tax, not consumers. This gives producers an incentive to reduce carbon emissions.

  • Over time, the tax would increase the cost of fossil fuels and carbon-intensive products, encouraging consumers and companies to shift to lower-carbon options. This would spur innovation in clean energy and efficiency.

  • Carbon emissions would decline as the economy transitions away from fossil fuels. The tax would start at $40/ton and likely be increased over time until emissions reduction goals are met.

  • Import fees would apply to goods from countries without a similar carbon tax, to prevent carbon leakage as production moves abroad.

  • Tax revenues would be rebated evenly to U.S. households, providing most families with more money overall and reducing inequality.

  • The proposal aims to streamline redundant regulations as the carbon tax incentivizes the market. But some regulations would still be needed to address issues not covered by the tax.

  • The proposal is grounded in economic principles of addressing negative externalities like carbon emissions through market incentives rather than command-and-control regulation.

The passage discusses neither producing nor consuming the optimal amount of barrels of oil from a social perspective due to externalities. Specifically:

  • Oil production has negative externalities like pollution, not accounted for by producers.

  • Producers will maximize their private profits by producing more barrels until their marginal private costs equal marginal private benefits, not considering social costs to others.

  • This means total social costs from the last barrel exceed total social benefits, as social costs include both private and external costs.

  • The socially optimal amount balances total social marginal costs and benefits, which is less than the unregulated free market amount due to externalities not being priced in.

  • A Pigouvian tax can correct this by internalizing the external costs, causing producers to produce the socially optimal amount that balances total marginal social costs and benefits.

So in summary, due to pollution externalities, free markets will produce and consume more barrels of oil than the socially optimal level that considers all costs and benefits to society.

The passage discusses several practices that are considered harmful but have proven difficult to change, including open defecation, child marriage, and female genital mutilation. It introduces Cristina Bicchieri, a game theorist who has developed a theory of social norms to explain why such practices persist and how social change can occur.

Bicchieri believes previous efforts to eliminate these practices, such as providing resources like latrines or informational campaigns, often fail because they do not address people’s social expectations and norms. Her theory explains what social norms are and why people follow them, as well as why norms can be resistant to change. However, the theory also suggests that lasting change is possible by shaping expectations and facilitating coordinated behavior shifts.

Bicchieri works with various organizations to study norms related to issues like sanitation, child marriage, and corruption. She provides training to help apply her theory of social norms to address major social problems caused by norms. While not a quick fix, her approach aims to give practical advice for promoting behavioral change through influencing norms. The theory could potentially be used to solve a wide range of social issues tied to norms.

  • When people act badly or rudely, they tend to attribute the cause to situational factors like stress or bad day, rather than seeing themselves as a “bad person”. However, they are more likely to attribute others’ bad behavior to them being a rude or obnoxious person.

  • This is due to the fundamental attribution error and folk explanations of behavior. We don’t want to see ourselves as bad, so we give situational excuses for our actions but dispositional explanations for others’.

  • This can lead to blaming “outsiders” like immigrants or other groups for problems, rather than recognizing that all groups are capable of bad behavior under the right circumstances.

  • People’s behavior is largely driven by social norms - the informal rules of what is acceptable in a group. We want to follow norms, as violating them makes us uncomfortable.

  • Norms encourage conditional behavior - we act a certain way as long as others do. But personal beliefs are often overridden by norms, as we don’t want to face disapproval or sanctions for violating them.

  • Norms uphold both positive behaviors like not littering, and negative ones like honor killings. So understanding social norms is important for both maintaining good behaviors and changing harmful practices.

  • Social norms can change even if the underlying interaction and people’s preferences don’t change. Groups can follow different norms due to different expectations, not inherent differences.

  • Norms are stable but can change if a critical mass of people switch behaviors, triggering a cascade effect where the new norm becomes established. Around one-quarter of a group may be enough to cause a change.

  • Social change doesn’t always require a change in values - behavior can change first by switching from one equilibrium to another in the same interaction. Values may then change to rationalize the new behavior.

  • The most effective way to change norms is usually by focusing on changing expectations rather than preferences, morality, or direct orders. Simply informing people about others’ actual behaviors and expectations can work if pluralistic ignorance is driving the norm.

  • For more entrenched norms, changing expectations alone may not work and the key is getting a critical mass of people to change behaviors simultaneously, so a new stable equilibrium can form. Common knowledge of the new norm is important for this change.

So in summary, norms are flexible and can rapidly change through shifts in behavior and expectations, even without changes to underlying preferences. Getting a group to collectively switch equilibria is often the key to transforming norms.

  • For a new social norm to take hold, it needs to become common knowledge through public communication. People need to understand how the new norm benefits them personally.

  • Communicating that others won’t socially sanction or punish those who adopt the new norm helps address people’s expectations of what is socially acceptable.

  • Trendsetters who forge their own paths can help model and promote a new norm for others to follow.

  • Successful programs to change norms, like reducing open defecation, work by collectively shifting both personal beliefs and social expectations through facilitated public discussions.

  • Thinking through how people will respond and adapt their behavior as conditions change, known as “solving for the equilibrium”, is important for understanding unintended consequences and whether a new norm can stabilize.

  • Economics analyzes social phenomena like norms from the perspective of methodological individualism while still recognizing that people are social and their decisions interdependent, making economics a social science.

  • The economics of social norms demonstrates that while harmful norms can be deeply entrenched, social change is possible by understanding what drives norm adoption and following principles for effectively communicating and instituting a better alternative norm.

  • The passage discusses the problem of kidney shortages and inefficiencies in the current system for matching kidney donors and recipients. There are not enough kidneys available to meet the high demand.

  • Economist Alvin Roth helped develop a new mechanism for efficiently allocating kidneys that has saved thousands of lives. He approached it as a market design problem - how to build a market/mechanism that achieves the desired outcome of matching more donors and recipients.

  • Roth’s system resulted in something called a domino effect - one donor like Deb or her daughter Wendy could indirectly help multiple recipients receive kidneys through a series of paired donations and transplants. This was made possible through Roth’s efficient matching mechanism.

  • Market design more broadly works to solve “matching problems” - situations where you need another party’s agreement or participation to obtain something you need, like a job, education, marriage partner, etc. It aims to create mechanisms that facilitate good matches between willing parties.

  • Mechanism design has been applied to many domains beyond healthcare to improve the allocation of scarce resources and give more people access to opportunities through well-designed matching markets. It has led to major advances and life-saving applications.

  • Game theorist Alvin Roth was interested in a model developed by Shapley and Scarf that explored indivisible goods exchanges, where goods cannot be divided. The model was theoretical with no real-world application.

  • Roth realized the model perfectly captured the situation of kidney exchange - each donor-recipient pair has one kidney to spare and needs one. Kidneys are indivisible and cannot be bought/sold.

  • Shapley/Scarf explored two-way exchanges that make pairs better off. Roth showed this applies to compatible donor-recipient pairs exchanging kidneys.

  • Trading cycles of 3+ pairs were also possible, analogous to situations where no pair prefers its own kidney but preferences lead to a cycle of improvement.

  • Roth explored building a centralized clearinghouse to facilitate exchanges but issues like pair defection and information sharing needed to be addressed.

  • Using results from the formal model, Roth showed how to structure the clearinghouse to always propose stable, defect-proof trading cycles and ensure full information sharing is safe.

  • Chains integrating non-directed donors were also possible, allowing even more kidney transfers. Roth had developed a full architecture for an efficient and practical kidney exchange clearinghouse.

  • Roth figured out that kidney exchanges did not need to be done simultaneously in order to work successfully and avoid leaving donor-recipient pairs worse off if a chain broke.

  • His insight was that by scheduling donations so that each pair receives a kidney before donating one, the risk of being left without a kidney if a chain broke is eliminated.

  • This allowed for more complex nonsimultaneous chains of transplants to take place, dramatically increasing the number of available kidneys.

  • Implementing this revised clearinghouse model was difficult due to lack of trust in economists from medical professionals and concern over legal risks if a chain broke.

  • However, an initial chain started by an altruistic donor in Ohio proved successful, gaining positive press and convincing more programs to adopt the new clearinghouse and nonsimultaneous chain approach.

  • This revolutionized kidney exchanges, with thousands more transplants now possible through long chains that weren’t feasible before.

  • More broadly, Roth’s work in mechanism design and market engineering has helped solve many allocation problems, such as matching new doctors to residencies and allocating scarce resources like wireless spectrum, through innovative clearinghouse models.

So in summary, the key outputs were generating safe and efficient nonsimultaneous kidney exchange cycles and chains at scale, by designing the clearinghouse mechanism to sequence donations in a way that avoids leaving any pair worse off if a chain breaks. Needs and preferences of donors and recipients were the inputs that the new matching system aimed to optimize.

Here are the key points from the passage:

  • The author, his family and twins faced a dilemma - whether to stay in the US with a good job but no parental leave, or move to Sweden which offered much more parental leave but lower salary.

  • Moving countries with a young family is a major life decision with many unpredictable long-term consequences. This caused the author decision paralysis.

  • The author studied happiness science for his PhD, so decided to use this research to help make the choice.

  • Happiness research suggests additional income above a comfortable level yields little happiness gain. Their US salary was already high.

  • Long US commutes would reduce free time, a strong predictor of happiness. More free time in Sweden would support parenting.

  • Social support is very important for happiness. Sweden offered stronger social support through its policies and culture. Family was also nearby.

  • Overall, the author’s happiness science analysis pointed toward Sweden offering a better lifestyle and mental well-being, despite the salary cut. This helped him make the difficult decision to prioritize family over work at that life stage.

So in summary, the passage discusses how the author leveraged his academic research on happiness to make a major personal life decision considering both tangible and intangible quality of life factors for his young family. Happiness science provided a framework to thoughtfully weigh all dimensions.

  • The authors decided to move their family from the US to Sweden based on an analysis of which location would maximize their happiness and work-life balance.

  • They used a method proposed by Benjamin Franklin of making a pros and cons list to weigh the advantages and disadvantages of each location. However, they weighted the factors based on modern behavioral economics research on what actually contributes to human happiness.

  • After reviewing the options, they decided Sweden offered fewer commutes by car, more opportunities for biking/exercise, more leisure time through parental leave policies, closer proximity to grandparents, and an overall better work-life balance - all of which science suggests contributes to happiness.

  • They acknowledged there was risk in the decision but that it ultimately worked out well with no regrets. Their method of decision-making based on happiness research could be applied broadly by others facing similar choices.

In summary, the authors discussed how they applied behavioral economics research on happiness factors to systematically evaluate relocating their family from the US to Sweden, ultimately deciding it was the best choice for maximizing their long-term well-being and work-life satisfaction.

  • Happiness from income/money goes down as you become richer. The more money you have, the less each additional dollar contributes to your happiness. This can be shown graphically with a curve that bends over to the right.

  • There is a debate about whether the happiness curve plateaus or continues increasing, just at a flatter rate, as income rises very high. Some economists like Kahneman argue it plateaus, while others like Stevenson disagree.

  • If the goal is to maximize total happiness in society, redistributing resources from the rich to the poor through things like taxes and transfers makes sense. Giving $1 to a poor person increases their happiness more than taking $1 from a rich person decreases theirs.

  • However, simply making more money does not necessarily lead to greater happiness at the individual level. One needs to consider the opportunity cost - what else must be sacrificed like family time or leisure to obtain that higher income. The happiness gains may be outweighed by losses elsewhere.

  • Studies show that working overtime or excessively long hours often decreases happiness on average once all factors are accounted for. Non-work aspects of life like relationships and leisure activities also influence happiness.

  • When considering working more, one should do a pros and cons list that factors in the declining marginal happiness of money as well as opportunity costs to determine the overall impact on well-being.

  • Happiness levels don’t increase as much as expected when people or countries get richer over time. One explanation is adaptation - people get used to their improved circumstances and their happiness returns to baseline levels.

  • Economists have proposed several additional explanations for this phenomenon, including adaptation and aspirations. These explanations are not mutually exclusive and could all contribute to the effect.

  • Adaptation refers to people getting used to new things over time, whether good or bad. It explains why happiness boosts from increased income or wealth are often temporary as people adapt.

  • Aspirations also influence happiness. Happiness depends not just on outcomes but on expectations. Meeting or exceeding expectations leads to happiness, while falling short lowers happiness. Rising aspirations as wealth increases can offset the happiness boost from more money.

  • Spending on experiences rather than material goods may lead to greater enduring happiness as experiences are less prone to adaptation. Pursuing pleasure over comfort also sustains happiness better since pleasures are shared more easily.

  • In general, keeping aspirations and expectations in check can help maximize long-term happiness from wealth and accomplishments rather than fleeting mood changes. Adaptation and aspirations both play a role in why money does not linearly translate to more happiness.

  • True humility involves avoiding overconfidence, as the astronaut Buzz Aldrin acknowledged after landing on the moon. When things are going well, it’s easy to become overconfident and ignore warning signs of potential problems.

  • Overconfidence can blind you to risks and issues that, in hindsight, were obvious. You dismiss signs something may be wrong because you feel in control and things are going according to plan.

  • The author has experienced this through sailing accidents that were unexpected at the time but, upon reflection, there were always clues or red flags signaling potential trouble. Overconfidence led them to ignore these warning signs.

  • Maintaining humility even when succeeding involves paying attention to signs of risk, avoiding dismissing concerns just because things are going well so far, and not assuming you have full control or understanding of the situation based on initial success. Overconfidence can “bite you” when you least expect it.

The key message is that true humility involves avoiding falling prey to overconfidence even during success, as that leaves you vulnerable to missing warning signs and risking unexpected problems down the road. Maintaining some caution and skepticism helps counteract this tendency.

  • Overconfidence refers to situations where people’s subjective beliefs about the likelihood of an event occurring exceed the actual or objective probability of that event occurring.

  • Behavioral economists have studied overconfidence extensively and found it to be widespread, persistent, and costly. It has been implicated in many disasters and failures.

  • Some key features of overconfidence are that most people believe they have above-average skills or abilities compared to others, and that being both wrong and overly confident is much worse than just being wrong. Overconfidence amplifies other cognitive biases.

  • Strategies to reduce overconfidence include getting regular and unambiguous feedback about how often one’s beliefs turn out to be incorrect, reflecting on potential reasons one could be wrong, and structuring decision-making environments less conducive to overconfidence.

  • Epistemic humility, or recognizing the limits of one’s knowledge, is an intellectual virtue that avoids both overconfidence and underconfidence. Achieving the right calibrated level of confidence takes focused effort.

  • Economists argue the goal should be having confidence levels that appropriately match one’s actual abilities, not necessarily boosting confidence without limits. Overconfidence often leads to poor outcomes while appropriate confidence when skilled can be beneficial.

  • Researchers have studied people’s subjective probabilities (confidence levels) and compared them to objective outcomes. A calibrated person would have their confidence levels match the actual probabilities, falling on the diagonal line.

  • In reality, most people are overconfident. Those who are 50% confident end up being right slightly more than half the time (underconfidence). Confidence increases overconfidence - those 100% confident end up being right 70-80% of the time.

  • Confidence and difficulty are risk factors for overconfidence. The more confident and the more difficult the task, the greater the overconfidence tends to be.

  • Overconfidence is pervasive, resilient, and costly. It persists even when people are informed, gain expertise, are motivated financially, or face incentives.

  • Overconfidence leads to bad decisions in areas like investing, trading, and judgments. It accounts for substantial costs in terms of lost money and potentially lives through events like financial crises, accidents, bankruptcies, and wars.

To summarize the key results, research shows that overconfidence is widespread, persists even when trying to correct it, and leads to costly consequences through bad decisions across many domains.

  • Complacency and overconfidence can lead to poorer outcomes compared to those who are well-prepared and avoid excessive confidence. Politicians, lawyers and athletes are less likely to succeed without proper preparation and training.

  • Excessive confidence can set you up for disappointment if you fail, and make failure harder to accept. It’s better to anticipate possible failure so you aren’t disillusioned if it occurs.

  • For teenagers, overconfidence can encourage risky behaviors. Developmental psychologists worry promoting indiscriminate confidence in teens could harm their development.

  • Overconfidence can also lead to unproductive conflict by making people dismissive of others’ views rather than open to genuine discussion and learning from differences of opinion.

  • Popular self-help literature often promises unrealistic benefits from confidence, but economists argue a calibrated avoidance of under- and overconfidence is wiser. Sources of bias that contribute to widespread overconfidence include selection processes, lack of useful feedback, difficulties in learning from experience, and intertwined cognitive and metacognitive abilities.

  • Overconfidence is very common due to cognitive biases like selection effects, lack of feedback, hindsight bias, and Dunning-Kruger effect. These biases tend to reinforce each other and cause people to lack epistemic humility.

  • However, there are strategies to promote humility and reduce overconfidence. These include getting frequent, prompt and unambiguous feedback on predictions, and considering reasons you may be wrong rather than just reasons you may be right.

  • Meteorologists and bridge players tend to be well-calibrated because their judgments are highly repetitive, allowing for learning from feedback, and the feedback is clear, fast and direct.

  • To improve, one should make falsifiable predictions specifying what, when, and failure conditions, then get feedback. One should also consider alternative perspectives and reasons they may be wrong, not just right. Getting other viewpoints challenges assumptions and forces consideration of being mistaken.

  • Overall, the key is to confront predictions with objective feedback and anticipate reasons for error, rather than just seeking confirmation of being correct. This type of epistemic humility can help reduce overconfidence biases.

  • Others’ disagreement can be of great value, as it provides an opportunity to gain a new perspective, even if it is not always easy to appreciate different viewpoints.

  • To build overconfidence-proof teams, it is important to be aware of one’s “circle of competence” - the areas where you have expertise and knowledge. Staying within your circle of competence helps limit overconfidence.

  • Teams should avoid selecting people for leadership based solely on confidence, as this risks promoting the overconfident.

  • A culture should be fostered where people feel comfortable admitting what they don’t know, expressing uncertainty, and acknowledging mistakes. This helps curb overconfidence.

  • Asking critical questions, even of superiors, and learning from failures helps build calibration and reduce overconfidence in teams. Overall, the goal is to build an environment where expressing reasonable doubt and admitting errors is appreciated, rather than scorned.

  • The author’s father passed away unexpectedly, leaving the author in charge of managing his estate. The father had invested a large portion of his savings in only three individual stocks, which the author sees as a poor investment strategy.

  • The chapter argues that economists have valuable advice and insights about financial behavior and getting rich that often gets overlooked. It focuses on four main pieces of advice:

  1. Save when you can. Many people could save more but don’t. Even small regular savings can grow significantly over time.

  2. Invest in index funds rather than individual stocks. Index funds provide diversification at low cost.

  3. Borrow judiciously. Be careful about taking on debt and interest payments.

  4. Improve your skills. Continuous learning can lead to career progression and higher incomes over time.

  • The advice is grounded in theories of rational choice under risk and efficient markets from economics. Research also shows many lack financial literacy to make wise money choices. Behavioral economics helps explain why people don’t always follow the optimal advice.

  • The goal is to provide generally applicable guidelines, not guaranteed get-rich-quick schemes. Following this advice can improve one’s chances of building wealth over the long run.

  • The passage provides examples of how investing a small annual amount (e.g. $5) and earning interest can lead to significant savings over long periods of time, such as after 20 or 40 years.

  • It emphasizes the major difference saving for 20 years vs 40 years can make, since retirement usually occurs around age 65. Starting earlier nearly doubles the end savings.

  • The passage recommends investing savings in index funds rather than individual assets. Index funds track major market indices and provide diversification at low cost.

  • Three key reasons economists recommend index funds are that they are cheaper than actively managed funds due to lower fees, allow diversification across many stocks, and are likely to perform as well as other investments on average over the long-run according to theories of efficient markets.

  • In summary, the passage argues that consistently saving small amounts over decades and investing in low-cost index funds is an effective strategy for retirement savings according to economic principles and data, although future returns cannot be guaranteed.

  • The passage describes a scenario where a man claims to know where there is a pile of $500 bills that he can fetch for you, if you give him your money first. However, this is clearly a lie - if such free money existed, someone would have claimed it already.

  • Similar schemes approach people with offers to invest money and get high returns. But if the opportunities truly existed, the institutions could invest their own money rather than asking for yours.

  • In general, no fund or vehicle can reliably outperform the market long-term. Individual outliers can be identified after the fact but not predicted beforehand. Markets are efficient - opportunities would be seized if truly “free money” existed.

  • Fund managers are guaranteed to profit from fees, so the real “suckers” are the investors. Economists also can’t truly predict markets or wouldn’t be rich if they could.

  • Passive index funds are the best choice for most investors, as outperformance can’t be reliably predicted. Timing markets often backfires due to overconfidence.

  • Borrowing can be reasonable if done judiciously, e.g. for education, tools, or bridging short-term cash flow gaps. But excessive debt leaves many Americans vulnerable and can lead to problems if income is lost.

  • In summary, get-rich-quick schemes are unreliable and markets can’t be gamed. Passive investing in index funds and avoiding too much debt are generally the best approaches for building wealth over the long run.

  • Consumption smoothing refers to maintaining a stable standard of living over one’s lifetime, even as income levels fluctuate at different life stages. This involves redistributing resources from periods of higher income to periods of lower income.

  • Borrowing can make sense if the interest rate on the debt is lower than potential returns elsewhere, such as in investments. Taking on more affordable debt can provide liquidity for unexpected expenses.

  • The interest rate is important - rates vary significantly depending on the type of borrowing (mortgage, line of credit, credit card, payday loan). It’s best to pay the lowest rates possible.

  • Delaying consumption by saving first can yield benefits - it avoids interest payments on debt, and allows for anticipation/savouring of the purchase according to behavioral economic theory.

  • Many people lack financial literacy skills needed to make optimal financial decisions, as shown by a failed marketing campaign where customers thought 1/3 was less than 1/4 of a pound.

  • Financial literacy is important but can be improved through education. Economists study how to assess and boost financial literacy in the population.

Here are the key points regarding ‘refuse to answer’ options mentioned in the passage:

  • Women are much more likely than men to answer ‘don’t know’ to questions about financial literacy. In the US, 50% of women said ‘don’t know’ in response to at least one question, compared to 34.3% of men.

  • The pattern of women being more likely to answer ‘don’t know’ holds across different countries. This suggests women may be less overconfident than men about their financial knowledge.

  • Overconfidence in one’s financial literacy appears to increase with age. As people’s actual financial literacy declines in older adulthood, their confidence in their abilities paradoxically increases.

So in summary, the passage discusses that women tend to be more willing than men to acknowledge gaps in their financial knowledge by choosing the ‘don’t know’ or ‘refuse to answer’ option. Overconfidence also tends to rise with age according to the analysis.

  • The financial environment has changed dramatically from when the baby boomer generation entered the workforce. Things like stock markets, new financial products, and online scams have made managing money more complex.

  • Financial literacy is important but not the whole picture. Financial institutions actively market and advertise to get people to part with their money through both legal and questionable tactics. They may highlight the rare cases of success while downplaying common failures.

  • Behavioral economics shows how human psychology can work against financial well-being. People tend to be impatient, impulsive, and swayed by compelling narratives. This makes them susceptible to things like get-rich-quick schemes or chasing outlier success stories.

  • The human brain evolved long before today’s financial system, so it is not well adapted to navigate modern complexities. Managing money requires overcoming innate cognitive biases and actively developing financial skills and awareness of risk.

  • Overall, people face challenges from low financial literacy, predatory behaviors, and an il-suited psychological makeup. Improving financial decision-making requires acknowledging these hurdles and taking control rather than relying on intuition.

The Stora Rör Swimming Association in Sweden has provided many benefits to the local community beyond its primary purpose of teaching children to swim. While it may have saved some lives by reducing drowning risks, its positive impacts go much further.

It has offered outdoor summer activities for kids for generations, promoting healthy development. Swimming lessons are useful even if not life-saving. The association remains open and affordable to all in the community.

It provides jobs for local young adults as swimming teachers and brings families from diverse backgrounds together. Lifelong social connections are formed. The association also acts as an intermediary with local government and boosts property values.

Financially, it is self-funded through nominal membership fees and an annual charity auction that raises substantial funds in a fun, competitive way. This keeps the association accessible while supporting its operations.

The association exemplifies the type of local “institution” that economist Elinor Ostrom studied. It emerged organically to solve a community problem, operates at an appropriate small scale, is run consistently with community values, and enjoys widespread voluntary participation and support. Institutions like it exist worldwide to address diverse challenges facing communities. They are an underappreciated yet critical part of making society work well at a local level.

The passage describes how even when members of a community know that depleting a common resource is unsustainable, they may still destroy it due to individual incentives. It uses the example of Vikings in Iceland who cut down nearly all the island’s forests for resources like firewood and land, even though they must have known this was bad. Now Iceland struggles with problems like erosion due to the lack of trees.

It notes that depletion of common resources has happened throughout history wherever humans live together. Game theory, as described through the prisoner’s dilemma, helps explain the problem. In the dilemma, two thieves (Bill and Bull) could cooperate and both receive a light sentence, but individually they are incentivized to defect and testify against the other for a better personal outcome, even though this leads to a worse result for both.

The only way to avoid this outcome is to change the game itself, for example by having the thieves promise a gangster to punish any defection. This changes the incentives such that cooperation becomes the dominant strategy for both. Similarly with common resources, individual incentives need to be aligned with sustainable use through institutions that change the “game.” Otherwise rational actors will continue depleting resources even when it harms the long-term interests of the community.

The passage discusses Elinor Ostrom’s work on common-pool resource problems and game theory. Specifically, it outlines the tragedy of the commons scenario where individuals acting rationally in their self-interest can deplete a shared resource.

However, the passage argues people are not doomed to failure in such situations. Drawing on the example of Turkish fishermen, it explains how communities can develop institutions to coordinate behavior and avoid bad outcomes. The fishermen established a system of allocated fishing spots that gave each fisherman a clearly defined rights and incentives to follow the rules.

This shows how game theory not only explains bad outcomes, but also affirms the possibility of communities finding cooperative solutions. Ostrom believed many environmental and social problems result from misaligned incentives like the commons dilemma. But institutions can transform the “game” by constraining individual actions in a way that benefits all.

The passage concludes by introducing Ostrom’s eight design principles for successful community-developed institutions governing common-pool resources. It emphasizes economists should be humble and let solutions emerge from within communities based on local knowledge rather than impose fixes from outside.

Elinor Ostrom developed a set of design principles for long-lasting institutions governing common-pool resources based on extensive empirical research. She conducted fieldwork, experiments, case studies, and built a large database of examples. The design principles that emerged from this data were factors that tended to be present where institutions succeeded and absent where they failed.

The principles include clearly defined boundaries, rules that match local conditions, allowing those affected to help make rules, monitoring of the resource and behaviors, graduated sanctions for rule-breakers, mechanisms to resolve conflicts, and governmental recognition of the community’s right to manage the resource.

Ostrom looked for common traits in successful institutions by systematically analyzing real-world examples from many fields. Her goal was to understand what enables people to self-organize solutions to collective action and natural resource problems. The design principles provide guidance but also allow for local adaptation based on community knowledge and preferences.

  • Ostrom’s eighth design principle for managing common resources successfully is that governance should be organized in multiple, nested layers of institutions, rather than one massive overarching institution.

  • Successful communities build stable, long-lasting institutions of varying sizes and scopes, each matched to the problems they are designed to address. This results in overlapping, nested institutional layers.

  • For example, the small village of Stora Rör has several associations and institutions managing different resources and providing different services, rather than one large organization handling everything.

  • Nested, polycentric systems allow for experimentation, localized knowledge, adaptation, redundancy, and thus greater resilience against failure compared to monocentric systems with a single centralized authority.

  • Ostrom argued against relying solely on privatization or centralization as solutions to common resource problems, instead advocating for local communities’ self-governance based on her principles gleaned from empirical studies of successful examples.

  • Ostrom’s work shows how economics can be used to study real-world institutions and communities through a framework of game theory, empirical analysis, and articulating design principles.

  • She focused on understanding social interactions and how incentives can either align or misalign individual and collective interests. Economics provided tools to classify empirical data and develop solutions.

  • Ostrom’s individual-level analysis explains institutions as arising from individual goals and interests, but sees individuals as embedded in complex social networks, not asocial atoms.

  • She had clear values like effectiveness, equity and sustainability, but emphasized letting communities identify their own problems and values-aligned solutions, respecting local priorities over imposing personal values.

  • In general, the author argues that economics aims to improve human welfare and flourishing through evidence-based, actionable solutions informed by empirical analysis and economic theory. While not perfect, it provides a useful toolkit rather than guarantees. It should be used alongside and complemented by other disciplines.

  • The economics “way of thinking” trains analysts to consider issues from a marginal, equilibrium-focused perspective that can surface non-obvious yet practical solutions to challenges large and small.

-Discussions about climate science and economics as a science can’t avoid acknowledging sceptics/critics of those fields. Economics in particular has long faced critics who argue it should be “blasted into the sun”.

-While there may be valid criticisms of individual theories, models, etc., critiques generally overgeneralize and do not accurately depict the fields.

-Getting rid of economics entirely just because existing work isn’t perfect is misguided - the tools can still be useful despite flaws. Discarding the toolkit doesn’t make sense just because it could be improved.

-Reasons for scepticism include economics not being perfectly implemented in policy. However, obstacles to implementation include discrimination and communication issues within the field, as well as insufficient engagement with other disciplines like philosophy.

-Economists’ inaccessibility, confused identity due to non-experts posing as economists, and failure to clearly separate scientific and ideological modes of discussion all contribute to public misunderstanding and scepticism of economics. Improving these issues could increase acceptance of the field.

  • Joan Robinson emphasized the importance of distinguishing between the scientific and propaganda elements in economic theories in order to properly understand and apply them.

  • Economics textbooks often provide an oversimplified and inaccurate view of the field. More advanced models are only taught at upper levels, giving many students the wrong impression.

  • Economics has changed significantly in recent decades with greater emphasis on empirical evidence from experiments and field studies. New fields like behavioral economics are now mainstream.

  • There remains confusion and misinformation about economics that undermines its potential to improve society. Better understanding of economics could help address challenges.

  • Further reading recommendations include accessible economics textbooks from CORE, Acemoglu/Laibson/List, Stevenson/Wolfers as well as works reflecting on the field from Coyle, Otteson, and textbooks on the history, philosophy and applications of economics.

  • The aim is to use economics knowledge to build a better world while also continuing to improve economics and align it with considerations of ethical values and human well-being. Overcoming obstacles like ignorance requires ongoing efforts.

The key points focus on Robinson’s perspective on separating propaganda from science in economic theories, issues with typical economics education, changes that have made the field more empirical and relevant, ongoing challenges of confusion about economics, and recommendations for further learning to enhance understanding and appropriate application of the discipline.

Here are the key points from the provided summary:

  • Abhijit Banerjee and Esther Duflo argue for “micro-level” anti-poverty programs that target small, specific problems rather than sweeping macro-level solutions. Their work on randomized controlled trials (RCTs) has informed many real-world anti-poverty programs.

  • RCTs randomly assign some people to a “treatment group” that receives an intervention (e.g. cash transfers) while others are assigned to a “control group” that does not, to isolate the impact of the intervention. RCT evidence shows cash transfers can significantly improve welfare.

  • Targeting specific constraints like lack of access to healthcare, education or capital has been shown to effectively reduce poverty rather than broad macroeconomic policies. Addressing small, precise problems is more likely to make progress against poverty than grand theoretical plans.

  • Banerjee and Duflo argue economists should study “small, careful steps” rather than claiming to have total theoretical solutions to poverty. Their evidence-driven, experimental approach focuses on finding and testing practical interventions to address poverty’s complexities.

Here is a summary of the key points from the articles:

  1. Summarizing a Scholarly Article
  • The article discusses the relationship between income and subjective well-being. It notes that while economic growth improves living standards, it may not necessarily improve people’s emotional well-being or life satisfaction once basic needs are met.

  • Absolute income seems to be positively correlated with well-being up to a certain threshold, after which relative income and social comparisons become more important.

  • Well-being is influenced by non-income factors like employment, health, personal relationships, freedom, and having a sense of purpose. Absolute income is less important than these other dimensions of quality of life.

  1. How to Raise Happy Children and Remain Sane
  • Existing parenting books on topics like sleep training provide conflicting advice and can add stress for new parents.

  • Data shows many commonly held beliefs around restricting sleep or strict schedules may not be necessary and could be relaxed. Emotional well-being of parents and children should also be considered.

  • Factors like parental mental health, relationship quality, breastfeeding and quality time together may be more important influences on child development than minor variations in sleep routines.

  1. How to Fix Climate Change
  • Economists widely agree that climate change is a serious problem and market failures need to be addressed. Carbon pricing like taxes are seen as efficient solutions but must be designed and implemented prudently to gain public support.

  • Case studies from countries like Sweden show carbon taxes can be effective at reducing emissions when coupled with revenue recycling policies to offset costs for lower-income groups. However, taxes alone will not suffice and must be paired with other policies.

  1. How to Change Bad Behavior
  • Social norms are powerful influences on human behavior. Changing existing norms or establishing new ones through public commitment and peer influence can help reduce problems like open defecation, child marriage, FGM.

  • Strategies from social psychology research on tipping points, coordinated defection, and incentivizing social proof among peers offer ways to diagnose and transform norms in communities. These were successfully applied in sanitation programs in some areas.

  1. How to Give People What They Need
  • Markets can fail to allocate scarce donated goods like organs efficiently to those who need them most. Matching algorithms and priority queues have helped address these failures and save more lives.

  • The Nobel-winning work of Alvin Roth demonstrated how well-designed mechanisms incorporating choices and incentives for both donors and recipients can create stable matches and satisfy more preferences overall.

  • Similar matching approaches have been applied beyond medical systems to labor markets, student enrollment and more, showing the power of economic thinking and careful institutional design in overcoming allocation challenges.

  1. How to Be Happy
  • Happiness research challenges the belief that higher income always leads to greater subjective well-being. While basic needs are important, factors like relationships, health, and having purpose matter more for life satisfaction.

  • Adaptation and social comparisons mean happiness gains from increased wealth are often small and temporary. Non-economic factors and leisure time may paradoxically contribute more to well-being.

  • Understanding the determinants of happiness can help societies prioritize policies that enhance quality of life rather than excessive focus on economic growth alone. Individuals can also recognize limits to hedonic adaptation and find sources of fulfillment beyond materialism.

Here is a 175-word summary of the source:

In The Theory of Moral Sentiments, Smith discusses the idea of sympathy, which he considers a fundamental aspect of human psychology and social behavior. For Smith, sympathy is the mechanism by which individuals are able to understand the emotions and perspectives of others. By imagining ourselves in another’s situation, we can feel what they feel. This allows us to evaluate actions from an impartial standpoint and promotes social harmony. However, Smith notes that we never truly experience exactly what another person feels; there is always a degree of separation. Our capacity for sympathy also diminishes with social distance—it is easier to sympathize with those we know personally. Still, it plays a crucial role for Smith in enabling humans to make morally and socially intelligent judgments, and in governing behavior within a system of mutual obligation and exchange.

Here is a summary of the paper “Levantine Overkill: 1.5 Million Years of Hunting Down the Body Size Distribution” by Jacob Dembitzer et al.:

  • The paper examines changes in the body size distribution of large mammals in the Levant region over the past 1.5 million years. It uses statistical modeling to analyze fossil records.

  • During this time period, humans transitioned from gatherers/scavengers to active hunters. The authors hypothesize that intense human hunting, or “overkill”, gradually reduced the average body sizes of large mammals.

  • The statistical analyses support this hypothesis. They found a long-term decline in the average and maximum body sizes of large herbivores and carnivores from 1.5 million years ago to the present.

  • Body size declined most sharply during periods when hominin population densities were higher and hunting technology/strategies were more advanced (e.g. Middle Stone Age). This suggests more intense human predation drove the trend.

  • By comparing Levantine trends to those in adjacent regions less impacted by human hunting, they rule out climate/environmental factors as the sole drivers of body size decline. Human hunting appears to have been the primary cause.

  • The study provides some of the clearest evidence to date that early humans substantially shaped ecosystems and large mammal evolution through over-exploitation and selective hunting of larger prey over hundreds of thousands of years.

Here is a summary of the key sources:

  • Kahneman et al. (1982) - A landmark study that helped establish heuristics and biases as a major area of research in judgment and decision-making. Introduced concepts like anchoring, availability heuristic, representative heuristic.

  • Fischhoff et al. (1977) - Examined people’s tendency to have extreme confidence in judgments even when inaccurate. Demonstrated people are overconfident.

  • Lichtenstein et al. (1980, 1982) - Studies on calibration of probabilities and training to improve calibration. Showed people are overconfident and training can help debias judgment.

  • Kruger and Dunning (1999) - Coined term “Dunning-Kruger effect” to describe inability of unskilled people to recognize their own lack of skill.

  • Kahneman and Deaton (2010) - Found that higher income improves life evaluation but not emotional well-being, showing limits to hedonic adaptation.

  • Mullainathan and Shafir (2013) - Introduced concept of “scarcity” and showed it consumes cognitive resources and harms decision-making.

  • Helliwell et al. (2021) - Annual World Happiness Report examining factors linked to well-being and life satisfaction worldwide.

  • Hayek (1933, 1967, 1979) - Influential economist who argued for spontaneous order in markets and limits of top-down social engineering. advocated classical liberalism.

  • Marshall (1920) - Lay foundation for neoclassical economics through key concepts like supply/demand.

  • Friedman (1953) - Advanced view that monetary policy alone influences economy in short run in “A Monetary History of the United States.”

Here is a brief summary without directly copying or reproducing copyrighted content:

The works discussed provide insights into several topics within economics including parenting, common resource management, climate policy, behavioral phenomena, and more. Key authors referenced are Elinor Ostrom, who studied common pool resources and institutions, and Emily Oster, who applied economics to parenting decisions. Ostrom’s principles for sustainable common resource management are outlined. The discussion touches on using economics to address issues like climate change, social norms, and individual decision-making.

Here are the key points from paragraphs 20-22 and 26 in the passage:

  • Economists have a diversity of views, despite a common framework and shared commitments. There are different schools of thought that don’t always agree.

  • Early economists like Alfred Marshall saw economics as a moral science, aiming to better understand how societies can achieve prosperous and stable outcomes with equity and welfare.

  • Modern economics is more empirical and evidence-based compared to earlier speculative theorizing. This makes economics more predictive and useful for designing policies and institutions.

  • Many see the economy as too important to leave solely to economists. Economics can benefit from greater engagement with other disciplines like philosophy to address moral and ethical questions. Interdisciplinary work leads to better analysis and understanding of real-world problems.

  • Some criticize economists for being too focused on measures like GDP that don’t fully capture well-being. Greater attention to subjective well-being research could provide a more comprehensive perspective.

  • Overconfidence is a common bias that economists exhibit. It stems from factors like confidence, competence, feedback mechanisms, and resistance to information that contradicts beliefs.

  • Poverty is a multifaceted issue. Unconditional cash transfers have shown promise in some studies in alleviating poverty. Factors like scarcity, bandwidth, and psychological aspects also influence outcomes for poor individuals.

  • Preferences are complex and influenced by social and behavioral factors. Parenting preferences also affect child outcomes. Randomized trials have provided insights into effective parenting practices.

  • Market design theories aim to structure incentives and allocate resources efficiently. Concepts like Pareto improvements, trading cycles, and mechanism design have practical applications.

  • Social norms strongly guide much human behavior. Norms can be shifted intentionally through gradual principles of change. Pluralistic ignorance also influences behavioral expectations.

  • Managing overconfidence and thinking probabilistically is important for decision-making. Feedback, expertise, accountability, and diverse teams can help address cognitive biases.

  • Wealth creation requires rational savings and investment strategies over the long-term. Financial literacy education and default settings nudge better personal financial management.

  • Sustainable resource governance relies on polycentric authorities, graduated sanctions, and recognition of resources as common goods vulnerable to overuse. Ostrom’s work on governing commons provides insights.

Author Photo

About Matheus Puppe