/ TAKE UP ONE IDEA
You’ve got to love behavioural economists. No, really. They liberate us from the high-minded waffle that, as the saying goes, allows the economist to be “an expert who will know tomorrow why the things he predicted yesterday didn’t happen today”.
It’s been four years since Richard Thaler, who’s considered one of the founding fathers of behavioural economics, was awarded the Nobel Prize for Economic Sciences. That finally bestowed legitimacy on Professor Thaler’s attempt to incorporate psychological, cognitive, emotional, cultural and social factors into analyses of economic decision-making.
Behavioural economists generally offer penetrating insights. Consider Peter Atwater’s recent commentary on the unprecedented use of the word “unprecedented”.
Mr Atwater’s contribution to the Financial Times (paywall) noted the alarming “frequency of unprecedented events” less than two months into the new year.
Already, he says, “we have seen an ‘unprecedented’ attack on the US Capitol, an ‘unprecedented’ frenzy of retail investors buying call options in companies such as GameStop, an ‘unprecedented’ second impeachment of a US president, and now this week, an ‘unprecedented’ cold snap across the middle of the US resulting in ‘unprecedented’ power outages and surges in natural gas and electricity prices. Meanwhile, the new Biden administration is hoping to gain approval on an ‘unprecedented’ $1.9tn stimulus package because of an ‘unprecedented’ pandemic with an ‘unprecedented’ K-shaped recovery? From the looks of things, unprecedented is quickly becoming our new ‘new normal’.”
This sense that everything is new, unfamiliar and therefore, not possible to budget for, has a terrible consequence, he said. It lessens confidence and the chance to plan, affecting everything – how and when to invest, start a family, move house, whatever.
This is true and it’s totally in character that it should take a behavioural economist to diagnose “the linkages between confidence and decision-making”.
That said, I also wonder if some of the “unprecedented” events on Mr Atwater’s list are not really that unprecedented but merely described as such by an occasionally lazy media. The January 6 siege of the US Capitol was unprecedented but are investor sentiments and power outages that unusual even if of unusual scale or volume? In fact, some might say the Capitol attack and Texas power outage were entirely predictable given the circumstances. Indeed, some have said so. Historian Timothy Snyder predicted Donald Trump’s actions. And years of deliberate under-investment in Texas energy suppliers (as well as the refusal to winterise or accept the climate change-induced freakiness of weather events) meant everyone knew that Texas would be hard hit.