Sunday, January 28, 2007

The rise and rise of the quants

It was in James Boyle's keynote at Beyond Broadcast 2006 that I guess the term behavioural economics was first raised for me. Apologies for y'all for which it is old hat. Then Christopher Lyden's Open Source podcast on Economics Reimagined helped the penny to drop, if indeed it has. Lyden's chat with a number of behavioural economists opened my eyes widely. David Leonhart's piece in the NY Times refers to them as intellectual imperialists. It is apt. What is behavioural economics? Quoting Lyden: Economics used to be about markets and predictions: tax rates, interest rates, fiscal policy, monetary policy. In short, about money. But with the advent of behavioral economics, economists began to realize that markets are simply aggregations of human choices, and that to understand these choices — imperfect, often irrational or counterintuitive — is to act as a psychologist. For this insight the economist Amost Tversky and the psychologist Daniel Kahneman won the Nobel Prize together in 2002. If economics is not necessarily just about money, then, but about human behavior, it can be applied to any number of other fields. In the Times article, brand-new economist Emily Oster applied her talent to the field of AIDS research to solve a problem that epidemiologists couldn’t. Oster is one of many, a generation of economists looking for new fields to conquer. Put very bluntly, given buckets of data, not collected for a specific research purpose, i.e. an experiment, and given ever growing computer power, the opportunity to fashion interesting questions of social importance and to use existing data to examine them gives you, very crudely, behavioural economics. One of the folk in the Lyden conversation was interested in the question, why poor kids do poorly at schools. Now folk with interests in this area will be aware of the little war that has been raging in Australia about this. Very simply, them who say it is all about school effects and them who say that socioeconomic background is very important. Enter player three from left field with none of the history but access to a lot of data and the economic routines to explore/examine and tease out patterns. To me, this is an interesting shift for those folk who dabble in the broad church we call research in education. Anyone for economics 101?

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