The Econoclast

Are transport forecasting models accurate enough?

While many predictions are made on the future of the economy, finding reliable transport forecasting models can prove a logistical nightmare. No matter how well researched, it is still just that – a prediction

A frequent topic of this column has been the difficulty – or impossibility – of predicting the future state of the economy. This is true for macroeconomic quantities such as inflation or GDP, but it also applies to things like predicting the economic ...

The problem with predictions

Forecasting the economy is not easy, and words such as ‘bubble’ are perhaps bandied around too frequently. Indeed, Canadian housing may be suffering from overvaluation

Perhaps the hardest thing to forecast in the economy is turning points: where boom turns to bust, or vice versa. It is relatively easy to argue, for example, that an asset such as housing is overpriced or in a bubble, but much more challenging to predict ...

Seeing the light

Economists need to realise the importance of incorporating human emotion

In modern physics, one of the biggest conundrums is that most of the matter and energy that make up the universe is apparently undetectable. The amount that we can actually see equates to only four percent of the total. The rest of the cosmos is believed ...

Male crisis

Is the world of finance too male?

The recent subprime, credit-crunching, sovereign-defaulting global crisis obviously had many causes, but one fact seems unavoidable: nearly everyone involved, at least at a senior level, was a guy. In Iceland, for example, many believe that the banking...

Vilfredo Pareto and the Occupy movement

The composition of the elite has changed with time – circulation is a natural feature of the system

One of the founders of neoclassical economics in the late 19th century was the Italian economist and sociologist Vilfredo Pareto. It might seem that the musings of a neoclassical economist over a century ago would have little in common with the concerns o...

Paying for parking

David Orrell considers the current value of future returns of a new and somewhat outlandish exchange weight that some consider a route out of recession

When we deposit money in the bank, we usually expect to receive interest in return. But would it be better for the economy as a whole, if instead we had to pay to have our money looked after? The cost of keeping money, known as demurrage, has been a fe...

Guy Fawkes on the right

Vilfredo Pareto and the Occupy movement

One of the founders of neoclassical economics in the late 19th century was the Italian economist and sociologist Vilfredo Pareto. It might seem that the musings of a neoclassical economist over a century ago would have little in common with the concerns o...

Truth and beauty

Do we need another Newton, or do we just need a different aesthetics?

In a 2009 New York Times article entitled How Did Economists Get It So Wrong? Paul Krugman wrote that “The economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.”   ...

Where’s the puck?

We can blame ‘the butterfly effect,’ writes David Orrell, but the truth is we’re just very bad at predicting the future

The Canadian ice hockey player Wayne Gretzky once said, “A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.” Businesses and societies try to perform a similar trick, through forecasting. We seem...

The economies of fiction

The fables inherent in contemporary economics are various

In early 2010, the world economy may finally be emerging from the deepest recession since the 1930s. The blame for the recession has been put on many things, including the US housing market, complex credit derivatives, risk models, banker bonuses, and so ...

Irrational economic man

He defeated communism, successfully lobbied for deregulation of the financial markets and was instrumental in the formation of capitalism as we know it. But in the wake of the global financial crisis, writes David Orrell, isn’t it time to abandon the idea of rational economic man?

One of the greatest of economic myths is the animal known as rational economic man. This mythological beast is frequently described in introductory economics books, and is defined by certain striking characteristics. He is highly individualistic – he...

Power to the people

Financial disasters follow a power-law, writes David Orrell. And power-law distributions are neither completely ordered, nor completely chaotic, but are on the boundary between the two

As discussed in previous columns, financial crashes have similar statistical properties as earthquakes, craters on the moon, and many other natural phenomena, in that they follow what is known as a scale-free, power-law distribution. This means in effect ...

On fish and finance

It might seem that fisheries management and financial regulation have little in common. Bankers have been accused of many things recently, but only rarely of being slippery underwater creatures with gills

However, the two fields of fisheries and finance do share certain properties. Their overseers are both charged with the management of complex ecosystems, either of different ocean species, or of different investor species. They each have to deal with sudd...

“The Mecca of the economist lies in economic biology…”

…said the neoclassical economist Alfred Marshall in the preface to his Principles of Economics. The mathematician and author David Orrell considers the relationship between science and economics

Since Marshall wrote those words a century ago, however, there has been surprisingly little integration between economics and other life sciences. Instead economics has continued to model itself after physics. The General Equilibrium Models favoured by po...

Fractal finance

Can the infinite complexity of the financial markets be described by the simple rules of mathematicians?

How risky is the stockmarket? How rough is its ride? The traditional way to answer that question is to look at a representative period of history – say the last few years or decades – and use standard statistical methods to compute the average...

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