David Dodge CIFAR Lecture March 10, 2016

 First some photos:
On the left of the picture is Prof.Akerlof preparatory to his talk giving highlights of his new book called "Phising for Phools". I was introduced to him by David Dodge himself so I had a few discussions with both gentlemen.

 

 

At the end Dr.Akerlof signed a few books. I prefer Prof.Akerlof due to his extensive academic and research background. Yes, he was very well receieved.

 

Introducing People

 

David Dodge is the former governor of the Bank of Canada.

Stephen Poloz is the present Bank of Canada and shows support by his attendence.

Alan Bernstein is CIFAR president and hosting the lecture.

ScotiaBank president is in attendence since his bank pays for the lecture series,

Prof. George Akerlof is the Nobel prize (Economics) lecturer

 

Introductory Remarks

 

The master of ceremonies is Alan Bernstein as CIFAR president. He explains to the general audience workings of the Canadian Institute for Advanced Research. The CIFAR members include more than 340 researchers in 16 countries. These researchers include at least 80 very diverse discilplines. The missin statement of the institute might be: What are the big, complex questions facing the world and who are the best experts to investigate them?

 

David Dodge and Stephen Poloz are also given brief opportunities to say a few words. The openness and transparency that is advocated by the latest economists is relected by their words as well as by the words of George Akerlof which is to follow.

 

CIFAR is to challenge themselves to address world and local issues to deal with water security, pollution, climate change, gender equality and many more issues. The support of the economists in the room seem to relect the themes of the introductory speakers.

 

The George Akerlof Lecture: "Phising for Phools"

 

Although he is an academic researcher, George believes that complex issues can often be simplified to a certain extent. He likes to be a plain speaker and he often says that he relates a lot of facts by story telling. In other words, a concrete example that everyone can understand can be the most important tool. He states that we listen to stories, hour by hour and day to day but which of these stories stay with you for a loger time? So he would like to come up with useful metphorical concrete examples.

 

The challenge for Dr. Akerlof and the new economists is to battle the orthodoxy of the old standard economics models. A good example is the Regan-nomics idea of supply side economics. Manufacture more and more products and you will lower the selling price and the cost price and everone is happy? In order to really kick start this supply side the government agrees to less regulation. Forget about government regulatory hindrences and allow manufacturers to produce without regards to polution or consumer concerns?

 

George has to acknowledge the work done by researcher Rober Shiller. The two main difficulties he found in US-style capitalism are:...1) Too great a belief in free markets and...2) The holes or short-comings of standard economics. Akerlof is saying that for many free traders morality is defintely thrown out the window. Their motto, as everyone has heard, is that greed is good. This is the problem behavioural economists are addressing.

 

Standard economics does give us some stories to talk about. Freedom to choose and freedom to phish can lead to an equilibrium. Akerlof says that a market equilibrium is often an attainable and desired condition. In our large supermarkets shoppers go to the perceived shortest lineup and thus usually the lineups are equally long at each check out register. But where can free markets and market equilibrium fail?

 

His first example is a representative one:.....the case of the Cinnabon. This is a large cinnamon roll large beyond proportions. Many of us have seen them in our local mall. So why does one purchase a food item which may not be a logical food choice. Every body in North America seems to know about the obiesity problem and the purchase of a Cinnabon is just one small example where people can have a bad externality? The only idea might be to make sure calorie-content notices are posted? But is this targeting certain vendors or companies?

 

The next discussion is about about a research study done with Capuchin monkeys. These monkeys were set about with purchasing equivalents and asked to make food choices. Were the monkeys free choices about fruit and other good foods? No, they preferred to spend more of their "money" on fruit roll tacos with high marshmallow content. There seems to be a sugar desire in many mammalian species. But are we do be like research Capuchin monkeys or are we to make more logical food choices? Akerlof challenges us to think of having a monkey on our shoulder when we are selecting for food.

 

So what are we as an individual to look out for? George says we must be aware of four fears;

1) Personal financial insecurity

2) Financial Macroeconomic instability

3) Ill Health  (Bad food and bad medicines)

4) Bad governments

 

One of the chapters in "Phising for Phools" deals with causes of the 2008 crisis. In short, the ratings agencies completely misrepresented investments. Secondly, the role of leverage for loans had gone beyond all previous levels. George mentions that a US national study presented their free markets as leading to: dysfuntional morals AND dysfunctional national policies.

 

Conclusions for his talk may include a hope that behavioual economics will become more well known. The marriage of human pyschology and economic decision making should not be undervalued. Also, since we are social animals Akerlof believe Sociology should also be combining with Economics. Social groups are clearly decsion makers as well.

 

Thank you, Prof. George Akerlof.