PRACTICUM ABOUT
ECONOMISTS
DANIEL KAHNEMAN (2002), VERNON LOMAX SMITH (2002) LARSPETER
HANSEN (2013) ,ROBERT J SHILLER (2013)AND
EUGENE F FAMA(2013)
DANIEL KAHNEMAN (2002),
VERNON LOMAX SMITH (2002)
DANIEL KAHNEMAN
Professor Kahneman was born in Tel Aviv
but spent his childhood years in Paris, France, before returning to Palestine
in 1946. He received his bachelor’s degree in psychology (with a minor in
mathematics) from Hebrew University in Jerusalem, and in 1954 he was drafted
into the Israeli Defense Forces, serving principally in its psychology branch.
In 1958 he came to the United States and earned his Ph.D. in Psychology from
the University of California, Berkeley, in 1961.He is a Senior Scholar at the
Woodrow Wilson School of Public and International Affairs. He is also Professor
of Psychology and Public Affairs Emeritus at the Woodrow Wilson School, the
Eugene Higgins Professor of Psychology Emeritus at Princeton University, and a
fellow of the Center for Rationality at the Hebrew University in Jerusalem. He
was awarded the Nobel Prize in Economic Sciences in 2002 for his pioneering
work integrating insights from psychological research into economic science,
especially concerning human judgment and decision-making under uncertainty.
Much of this work was carried out collaboratively with Amos Tversky. In
addition to the Nobel prize, Kahneman has been the recipient of many other
awards, among them the Distinguished Scientific Contribution Award of the
American Psychological Association (1982) and the Grawemeyer Prize (2002), both
jointly with Amos Tversky, the Warren Medal of the Society of Experimental
Psychologists (1995), the Hilgard Award for Career Contributions to General
Psychology (1995), and the Lifetime Contribution Award of the American Psychological
Association (2007).During the past several years, the primary focus of
Professor Kahneman's research has been the study of various aspects of
experienced utility (that is, the utility of outcomes as people actually live
them).
The starting
point of his analysis was the observation that complex judgments and
preferences are called ‘intuitive’ in everyday language if they come to mind
quickly and effortlessly, like percepts. Another basic observation was that
judgments and intentions are normally intuitive in this sense, but can be
modified or overridden in a more deliberate mode of operation. The labels ‘System 1’ and ‘System 2’
were associated with these two modes of cognitive functioning. The preceding
sections elaborated a single generic proposition: “Highly accessible
Impressions produced by System 1 control judgments and
preferences, unless modified or overridden by the deliberate operations of
System 2.” This template sets an agenda for research: to understand judgment
and Choice one must study the determinants of high accessibility, the
conditions under which System 2 will override or correct System 1, and the
rules of these Corrective operations.
The core idea of prospect theory,
that the normal carriers of utility are gains and losses, invoked a general
principle that changes are relatively more accessible than absolute values.
Judgment heuristics were explained as the substitution of a highly accessible
heuristic attribute for a less accessible target attribute. Finally, the
proposition that averages are more accessible than sums unified the analysis of
prototype heuristics. A recurrent theme was that different aspects of problems
are made accessible in between-subjects and in within-subject experiments, and
more specifically in separate and joint evaluations of stimuli. In all these
cases, the discussion appealed to rules of accessibility that are independently
plausible and sometimes quite obvious.
Vernon Lomax Smith
Vernon Lomax Smith was born on January 1, 1927 in Wichita and is professor of economics at Chapman University's Argyrols School of Business and Economics and School of Law in Orange, California, a research scholar at George Mason University Interdisciplinary Center for Economic Science, and a
Fellow of the Mercator Center, all in Arlington, Virginia. Smith shared the 2002 Nobel Memorial Prize
in Economic Sciences with Daniel Kahneman. He is the
founder and president of the International Foundation for Research in
Experimental Economics, a Member of the Board of Advisors for The Independent Institute, and a Senior Fellow at the Cato Institute in Washington D.C. In 2004 Smith
was honored with an honorary doctoral degree at Universidad
Francisco Marroquín, the institution
that named the Vernon Smith Center for Experimental Economics Research after
him.
His contribution
Cartesian constructivism applies reason to the design of
rules for individual action, to the design of institutions that yield socially
optimal outcomes, and constitutes the standard socioeconomic science model. But
most of the operating knowledge and ability to decide and perform is
non-deliberative. Human brains conserve attentional, conceptual and symbolic
thought resources because they are scarce, and proceed to delegate most
decision-making to autonomic processes (including the emotions) that do not
require conscious attention. Emergent arrangements, even if initially
constructivist must have survival properties that incorporate opportunity costs
and environmental challenges invisible to constructivist modeling. This leads
to an alternative, ecological concept, of rationality: an emergent order based
on trial-and-error cultural and biological evolutionary processes. It yields
home- and socially grown rules of action, traditions and moral principles that
underlie property rights in impersonal exchange, and social cohesion in
personal exchange. To study ecological rationality rational reconstruction–for
example, reciprocity or other regarding preferences–to examine individual
behavior, emergent order in human culture and institutions, and their
persistence, diversity and development over time. Experiments enable to test
propositions derived from these rational reconstructions. The study of both
kinds of rationality has been prominent in the work of experimental economists.
This is made plain in the many direct tests of the observable implications of
propositions derived from economic and game theory. It is also evident in the
great variety of experiments that have reached far beyond the theory to ask why
the tests have succeeded, failed, or performed better (under weaker conditions)
than was expected. His findings are
1. Markets constitute an engine of productivity by supporting
resource specialization through
trade and creating a diverse wealth of goods and services.
2. Markets are rule-governed institutions providing
algorithms that select,
Process and order the exploratory messages of agents who
are better informed
As to their
personal circumstances than that of others.
3. All this information is captured in the static or time
variable supply and
Demand environment and must be aggregated to yield
efficient clearing Prices.
4. The resulting order is invisible to the participants,
unlike the visible gains they reap. Agents discover what they need to know to
achieve outcomes Optimal against the constraining limits imposed by others.
5. Rules emerge as a spontaneous order
6. This process accommodates trade offs between the cost
of transacting, attending
And monitoring, and the efficiency of the allocations so that
the institution
Generates an order of economy that fits the problem it
evolved to
Solve.
7. One understand little about how rule systems for
social interaction and
Markets emerge, but it is possible in the laboratory to
do variations on the
Rules, and thus to study that which is not.
8. Markets require enforcement–voluntary or
involuntary–of the rules of
Exchange.
9. Reciprocity, trust and trustworthiness are important
in personal exchange
10. People are not required to be selfish;
11. Markets in no way need destroy the foundation upon
which they probably
Emerged
12. New brain imaging technologies have motivated
neuroeconomic studies
LARSPETER HANSEN (2013)
,ROBERT J SHILLER (2013)AND EUGENE F
FAMA(2013)
Eugene F Fama
Eugene Francis
was born on February 14, 1939 in Massachusetts. He is an American economist and
a Nobel laureate in Economics, known for his work on portfolio theory and asset pricing, both theoretical
and empirical. He is currently Robert R. McCormick Distinguished Service
Professor of Finance at the University Of
Chicago Booth School Of Business. In
2013 it was announced that he would be awarded the Nobel Memorial Prize
in Economic Sciences jointly with Robert Shiller and Lars Peter Hansen. In 2013, he
won the The Sveriges
Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, colloquially called the Nobel Prize in Economics.
Robert J. Shiller
Robert James "Bob"
Shiller was born on March 29, 1946 in
Detroit, Michigan. He is an American Nobel Laureate,
economist, academic, and best-selling author. He currently serves as a Sterling Professor of Economics at Yale University and is a fellow
at the Yale School of Management's International Center for Finance. Shiller has been
a research associate of the National Bureau of
Economic Research (NBER) since 1980,
was vice president of the American Economic Association in 2005, and president of the Eastern Economic
Association for 2006–2007. He is also the co‑founder and chief economist of the
investment management firm Macro Markets LLC.He is ranked among the 100 most
influential economists of the world. Eugene Fama, Lars Peter Hansen and Shiller
jointly received the 2013 Nobel Memorial Prize
in Economic Sciences, “for their empirical analysis of asset
prices”.
Their contribution
Fama, Hansen, and Shiller have developed new methods for studying asset prices and used them in their investigations of detailed data on the prices of stocks, bonds and other assets. The behavior of asset prices is essential for many important decisions, not only for professional investors but also for most people in their daily life. Asset prices are also of fundamental importance for the macro economy, as they provide crucial information for key economic decisions regarding consumption and investments in physical capital, such as buildings and machinery the predictability of asset prices is closely related to how markets function, and that’s why they were so interested in this question. If markets work well, prices should have very little predictability. There is an unpredictable price pattern, with random movements that reflect the arrival of news. In technical jargon, prices then follow a “random walk.”There are, however, reasons why prices may follow somewhat predictable patterns even in a well-functioning market. A key factor is risk. Risky assets are less attractive to investors, so on average, a risky asset will need to deliver a higher return. A higher return for the risky asset means that its price can be predicted to rise faster than for safe assets. To detect market malfunctioning, then, one would need to have an idea of what a reasonable compensation for risk ought to be. The issue of predictability and the issue of normal returns that compensate for risk are intertwined. The three Laureates have shown how to disentangle these issues and analyze them empirically. There are several ways to approach predictability. One way is to investigate whether asset prices over the past few days or weeks can be used to predict tomorrow’s price. The answer is no. Following a large amount of careful statistical work by Fama in the 1960s, researchers now agree that past prices are of very little use in predicting returns over the immediate future. Another way is to examine how prices react to information. Thus, an asset’s value should be based on the payment stream that it is expected to generate in the future. A reasonable assumption is that these payments are discounted. For Shiller’s original study, he assumed a constant discount factor, and he concluded that reconciling the excess price fluctuations with theory is very difficult. However, discounting could possibly vary over time. If so, even rather stable dividend streams might cause stock prices to vary a lot. Another way to interpret longer-term predictability is to abandon the notion of fully rational investors. Moving beyond this assumption has opened up a new field referred to as “behavioral finance.” A main challenge for the behavioral approach has been how to explain why more rational investors do not eliminate the excessive price swings by betting against less rational investors. The new behavioral approach focuses on institutional constraints and conflicts of interest, while the new rational approach focuses on risk and attitudes to risk. Stocks with high returns when the overall market return is low should yield relatively low returns on average. Such stocks can be used as hedges, and are therefore desirable for the risk-averse investor even if they do not yield a high average return. Fama developed methods for testing whether a stock’s correlation with the market is indeed a key predictor for its future return. He and other researchers found that it was not because other factors were much more important in predicting returns. In particular, a stock’s “size” (total market value of a company), and “book-to-market ratio” (book value as a fraction of the market value) have a large explanatory power: large firms, or firms with low book-to-market values, have low subsequent returns on average. This finding is akin to Shiller’s finding on longer-term predictability. The work of the Laureates has affected not only academic research but also market practice. The fact that stock markets are very hard to predict in the short run, and that stock-picking is very difficult both in the short and the long run, has led to close examination of the performance by mutual funds. Shiller suggested early on that important risks facing investors are sometimes hard to measure and thus are non-insurable by existing market instruments. The behavioral approach also has had direct impacts on practice.
Thus the contributions made by all these economists were highly commendable one.
By
Preethi P. Kurian (social science)
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