Inattention, why we’re all doing it, and why that’s rational – according to economics.
In the lead up to CERGE-EI’s unique conference on Rational Inattention, Associate Professor with Tenure and Researcher, Filip Matejka, provided a free crash course for students to get a rundown on the subject.
Fairly new to the scene and quickly evolving, the field of Rational Inattention in economics is, quite ironically, gaining attention. On Wednesday 24th of May, graduate students from around the globe, including Stanford, NYU, Columbia, UCLA and more, gathered in Prague to learn and discuss the core issues of the subject. Continue reading Not listening? Well, it’s only rational.→
On 24th of February CERGE-EI hosted a presentation, Perspectives on the European Economy, provided by the European Economic Advisory Group at CESifo. The conference explored a variety of hot topics that are examined in the EEAG Report on the European Economy 2016, which was released earlier in the week. The session included two co-authors of the report, John Driffill and Jan-Egbert Sturm, plus special guest, Kamil Galuščák of the Czech National Bank, and was chaired by Danial Münich of IDEA think-tank at CERGE-EI. Continue reading Perspectives on the European Economy: An Overview→
As we count down the days till The New Economic Talent 2016 deadline, we did a bit of reflecting on previous NET competitions. Last year, the top three of 138 submissions presented their thesis in Prague and a total of $1500 USD was awarded to winners. But the benefits of the competition go beyond just money and travel; we caught up with past NET finalist, Salim Turdaliev, to gain a fresh insight into the contest and his life in academia today. Continue reading Life after New Economic Talent: Interview with Salim Turdaliev→
Observers of the recent Greek referendum, the vote on Scottish independence or the U.S. presidential campaign know that voters often vote based on their emotions rather than on rational thinking. I suggest that this is in large part because professional economists are failing to serve the public well. And as economists, if we want rational outcomes, then we need to redouble our efforts to build economic literacy.
America’s national cynic, H. L. Mencken once said, “When a candidate for public office faces the voters he does not face men of sense; he faces a mob of men whose chief distinguishing mark is the fact that they are quite incapable of weighing ideas…men whose whole thinking is done in terms of emotion.”
It’s easy to be cynical about democracy, but economists may have a different take on why voters largely vote with their emotions instead of their intellect. It is not that voters can’t or don’t want to make sensible policy choices – rather, it is that they have little incentive to do so. Continue reading Stupid Voters or Stupid Economists?→
It’s not often you get the chance to sit in a room with a collection of today’s most influential minds and hear their thoughts and opinions on current global issues. But that’s what I was able to do this week at a panel discussion in London organized by CERGE-EI Alumni with the Legatum Institute and the European Bank for Reconstruction and Development. “The Shadow Economy – Impact on Innovation, East and West” was moderated by Edward Lucas, senior editor at The Economist, with contributions from Andrei Kirilenko (MIT), Peter Sanfey (EBRD), Tina Fordham (Citibank), Giles Andrews (Zopa) and CERGE-EI’s own Jan Švejnar. Continue reading The light and dark sides of the shadow economy→
Corruption undermines democratic institutions, slows economic development and contributes to governmental instability. An endemic problem across the developed and developing world, corruption poses a major challenge to policy makers and governments worried about maintaining legitimacy.
So how do we fight corruption? The answer is far from clear. As David Ondracka notes, you close one hole only to discover that two new ones have opened.
That’s why on Thursday, November 21st, leaders of government, civil society, and the private sector came together at CERGE-EI to discuss innovative anti-corruption solutions and lessons learned.
See the speakers and watch the full event (including lecture slides) in the link below!:
In his new book, ‘Economic Elites, Crises, and Democracy,’ Andrés Solimano thoughtfully examines the main challenges to global capitalism, including the rise of economic elites, the increased frequency of financial crises, and rising public discontent with the status-quo.
During his CERGE-EI visit on November 19th, Professor Solimano presented data showing the rise of rich economic elites and the fragmentation of the middle class. He warned that these trends, combined with the weakening of the traditional working class and marginalization of labor, are a common feature of capitalist societies all over the world and together constitute a major threat to the stability of the system.
He also noted that financial crises have increased markedly since the 1980s, and have recently reached the ‘core’ economies of the world system. All this has led to fractionalization and public disenchantment with democracy, which manifests in social protests and the rise of extreme politics.
Solimano forcefully argued that these trends threaten to undermine the global capitalist system unless new approaches are adopted in order to solve the world’s acute social problems. He briefly discussed potential approaches, including redistributional tax policies, reclaiming and redefining public ownership, and giving labor and the middle class more voice in austerity programs.
Given the brief time available, Professor Salimano could not go into great detail about such an ambitious topic. Lucky for us, the detailed information can be found in his book, which is available for purchase here!
Over the course of his long career, George Psacharopoulos has made a deep impact on the way education is viewed from the perspective of economics. During his CERGE-EI Public Lecture on November 4th, Prof Psacharopoulos gave an interesting overview of the evolution of this research. He walked the audience through years of evolving theories and empirical evidence on the importance of education as both a personal and public investment, sharing a number of revealing facts and thoughtful insights.
See the full lecture with accompanying slides here:
The following article was written in Czech by Kateřina Surmanová for Hospodářské Noviny on September 29th. The original article can be found here.
CERGE-EI maintains that it ranks among the best economic institutes in the world. Recently CERGE-EI cooperated with Oxford University in organizing an academic conference focused on the connection between psychology and economics. The prestigious English university specifically requested CERGE-EI’s cooperation in organizing and participating in the conference, and CERGE-EI researchers were given the job of choosing who to invite.
“It’s quite common for individuals to attend academic conferences abroad. But for one institution to invite an entire other institution is quite an honor,” said Filip Matejka of CERGE-EI, who has been specializing in the special topic of the conference (the theory known as ‘Rational Inattention’) since his time as a PhD student at Princeton University.
CERGE-EI Economist Filip Matejka
CERGE-EI already earned a good name for itself two years ago when it organized the first annual ‘Rational Inattention’ conference in Prague. Twenty top economists took part in that conference, including Christopher Sims, who is the 2011 winner of the Nobel Prize in Economic Sciences and a long-time research collaborator with Matejka. “We have managed to convince our international colleagues that we know how to organize a top-level conference and that we have research expertise in the field,” mentioned Matejka.
Unemployment is a major source of misery in modern society. It is also plainly a waste of resources. So it is perhaps no surprise that macro and labor economists are obsessed with explaining the phenomenon. But are they searching in the wrong place for answers? Professor Andrew Oswald (Warwick University) said at his public lecture at CERGE-EI that he thinks they are, and that he may have found a key.
According to Oswald, economists have typically looked for answers “too close to the source.” Standard explanations have focused on the impact of trade unions, over-generous unemployment benefits, and inflexible labor markets. Yet policies meant to address these issues have made only minor dents on unemployment levels.
Professor Oswald ventured to propose a radically different explanation for the persistent unemployment we observe across developed countries. According to his research, the level of homeownership within an economic area can largely explain the level of unemployment. Few economists have explored this rather unintuitive notion, but as Oswald noted, it is typical for experts to overlook deep structural forces in favor of more immediate explanations.
But how does homeownership negatively impact employment? Oswald considers three possibilities. The first is that higher homeownership lowers geographical mobility. By reducing the flexibility to move between locations, homeownership reduces workers ability to relocate to places where their knowledge and skills may be put to better use. The second possibility is that homeownership contributes to urban sprawl and lower-density housing. Long commuting times and congestion hamper economic activity and efficiency.
Finally, Oswald points out that homeownership directly relates to the ‘Not in My Back Yard’ problem (NIMBY). Homeowners often oppose new productive development projects because they perceive the projects as having negative external effects on their neighborhood. Residents can often team up in homeowners’ unions to block projects from being realized. Even though they often agree that those developments are needed in society, they do not want the development to take place in their ‘back yard.’ As such, NIMBY blocks productive economic activity and development from taking root.
Pondering how a lake becomes filled with water, primitive man would have concluded that it collects the rain falling from the sky. He could not have imagined that hidden streams of water deep underground are the true source. Andrew Oswald’s proposition—that homeownership is the underlying cause of long-term unemployment—is also hidden from sight, but that certainly doesn’t mean it’s not there.
The CERGE-EI Public Speaker Series invites leading international scholars to Prague to present their ideas and engage in public discussion. Learn about upcoming CERGE-EI events here.
