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PBS Nova - can behavioral economics explain the 2008 crash?

This is a fascinating examination of how people (and major corporations) can make irrational decisions about investments.

Mind Over Money

Using analysis and experiment, this film explores why economists failed to predict the 2008 crash and why we so often make irrational financial decisions.


It is worth a watch if you haven't seen it already. Some of the insights also reinforced my own personal belief that the idea of Trickle Down Economics is a fallacy, because such theory depends on rational behavior from people when such behavior is often the least influential factor in an investor's decision making process.

The part of the story about "Quants" is especially interesting in light of the rest of the show.

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Comments
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Drat!

I forgot which day of the week it was, so missed the premiere. I really enjoy Nova!

I will read what is available on the PBS site.

Thanks!

Angeline

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REsponse
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Did you

...... give the video time to load? it took a quite while for me, and I am in the US. Happy

Seriously, you don't have access to Nova via PBS?


Angeline

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Yes we receive PBS from Medway Maine

When I tried to load it said it was not available in my area.

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Can you read any text that is available, or is it

....... just the video?

I know I often check out the stories in text. They are not complete, but give an excellent summary.


Angeline

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RE: just the video?

Yes..no problem with the transcript.

Lots of American TV is blocked from Canadian access on the web...

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Not here either.

When i tried JP's link got;

"We're sorry but this video is not available in your region due to rights restrictions".

Perhaps the same for Canada.

Mark

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And so the opposite of supply side economics

(for which you've used the street term) would be demand side, I suppose. I'm not sure who supplies the money for this however, unless it's the government. In any event, you said the "theory" depends on rational behavior but that such is often the least influential factor in decision making. My dispute with that logic is that "often" isn't the same as "nearly always" or even "mostly". I'm often not all that rational but I hope that's not the general rule. It's like saying that many people were upset about an issue but not also saying that most were not.

I'd have to consider that overall economic stability depends on a little turmoil from time to time. Thus, there is no one way that always works. Perhaps supply side economics will work better than demand side for a period but that shifting weather might require a different approach. I'd certainly not condemn any method just because that irrational behavior might occasionally take a bite out of complete success. Hey, we're humans and that's part of our nature. Wink

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It is funny you explored semantics of "mostly" and "often"

The show I linked to discussed those same qualifiers when it was discussing the differences between "behaviorist" economists versus "rational" economists.

In the show... The rationalist economists believed that it all comes down to predictable math formulae, yet they could not use math to explain the 2008 bubble and collapse. The behaviorists could predict the bubble and collapse behavior, and could even recreate it over and over in small population experiments but they had no math to explain the mechanics of the phenomenon.

Did you watch the show? It covered some really interesting issues without proselytizing.

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Did I watch...part of it

The beginning, skipped to the middle and then the wrap up so I know my picture isn't complete. I sometimes find myself getting turned off by the way some programs are almost dramatized and I lose interest. I'll look at it when I have more time but just didn't see anything relating to your assertion as I don't see the mania on wall street as having much to do with what goes on in board rooms. I consider investment decisions and business decisions to be separate entities. Perhaps I misunderstood your point but the use of the term "trickle down theory" does have it's own connotation in regards to "supply side economics" even though some...or maybe many...or maybe most... think they are interchangeable. Happy

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I'm not sure I understand how you differentiate...

... investment decisions and business decisions as separate entities? A business is run to produce a profit... but that profit is not left fallow. Most if not all large companies invest their earnings after their business costs are covered. Most if not all extra money goes into the investment stew pot. Investment in stocks, in insurance, in banks, investment in anything that they think will earn money. A bad investment decision can bankrupt a company, or force it to sell itself off to a competitor, even if the original purpose of the company is still profitable.

Happy

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I'm thinking of companies that produce some sort of product

granted few seem to be left in the US but they have "investors" both internal and external and the vested interest of each is quite different. Those who just buy a company's stock, won't have much real attachment to it or desire to help drive it to success. On a whim, they can jump off and move their money elsewhere. Those execs and upper managers within the company will make re-investment decisions within the company as well as outside of it but those decisions affect the company's survival. The guy who buys in from Wall Street and has a diverse portfolio to manage isn't going to be worry over any company that's in trouble any longer than it takes for him to bail out. The decision processes are quite different between the internal and external investments.

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quite so... and as you also observe...

... manufacturing has taken a lessor role in the US economy. Mores the shame. The dependence on speculation, and the stock market for quick profit followed by even speedier slaughter of the cash cow is become a too common acceptable practice. Such practice makes for an easily tipped... cash cow.

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PBS Frontline accessed from Toronto
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Poo-poo that thought

It boils down to greed and job security. Because, you know if you don't go along you don't get along. No money made, no money passed out. Why, whitewash this in some fancy idea its some economic mystery/boondoggle. -----Willy Happy

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