Monday, March 23, 2009

Paradox of Choices and Mistaken Expectations

While surfing through my favorite bicycle blogs, I came across this fascinating post by Kent Peterson, who runs Bike Works, a favorite charity in Seattle. More on their great work in another post, probably over on my bike blog.

Kent helps a cyclist choose among many options for pedals, and notes that the variety of choices makes the decision more difficult. He recommends the cheapest pedals!

Kent also links to a great TED video, the Paradox of Choice, with Barry Schwartz describing how the variety of choices available in a post-modern, industrial, consumer society makes us less satisfied with our lives, not more so. And, in turn, that led me to a couple of TED talks by Dan Gilbert, Harvard psychologist. The first I came across was about How We Are Deceived by Our Miscalculations of the Future, where he discusses the origins of how to use Expected Values to make decisions, and why humans don't operate that way. The other talk centered around the idea of what Gilbert describes as our psychological immune system lets us feel happy with our lot in life, even when events don't go according to our expectations.

I plan to use all three of these videos next quarter in both Microeconomics and Managerial Accounting, where we discuss traditional economic decision models that emphasize rational decision-making. That may not be exactly how we humans operate!

Saturday, March 14, 2009

Critical Thinking

As one who supposedly teaches critical thinking and advocates that students learn to calibrate their BS detectors, I recommend Jon Stewart's interviews with stock market charlatan Jim Cramer as required viewing.

It is very difficult to not be cynical about efficient market theories, quantitative financial analysis and market economics in general when we all suffer from the gigantic check-kiting scheme that was substituted for sound financial practice over the past ten years.