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Psychologists tell us that in order to learn from experience, two ingredients are necessary: frequent practice and immediate feedback.
Smith. He notes that by pursuing personal profits, the typical businessman is “led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it.”
the reluctance to experiment, test, evaluate, and learn that I experienced at General Motors is all too common.
any large first mover who takes an action that violates the norms of fairness runs considerable risks if competitors do not follow suit.
temporary spikes in demand, from blizzards to rock star deaths, are an especially bad time for any business to appear greedy. (There are no good times to appear greedy.)
“It is incredibly important for any business, no matter how great the demand, not to charge a customer more than the good or service is worth—even if the customer is willing to pay more.”
People start out these games willing to give their fellow players the benefit of the doubt, but if cooperation rates are low, these conditional cooperators turn into free riders. However, cooperation can be maintained even in repeated games if players are given the opportunity to punish those who do not cooperate.
people have a natural tendency to search for confirming rather than disconfirming evidence,
Journal of Economic Perspectives is available free online to anyone at www.aeaweb.org/jep, including all the back issues. It is a great place to learn about economics.
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The law of large numbers says that if you repeat some gamble enough times, the outcome will be quite close to the expected value.
There’s no better way to build confidence in a theory than to believe it is not testable.
“no free lunch” principle—the idea that there is no way to beat the market. More specifically it says that, because all publicly available information is reflected in current stock prices, it is impossible to reliably predict future prices and make a profit.
In some ways, Michael Jensen’s PhD thesis provided the most convincing analysis. In it he showed that professional money managers perform no better than simple market averages, a fact that remains true today. If the pros can’t beat the market, who can?
Similarly, if everyone believed that every stock was correctly priced already—and always would be correctly priced—there would not be very much point in trading, at least not with the intent of beating the market.
overconfidence explanation of why we observe such high trading volume highly plausible, but it is also impossible to prove that it is right.
One of the simple measures that Graham advocated in order to decide whether a stock was cheap or expensive was the price/earnings ratio (P/E), the price per share divided by annual earnings per share. If the P/E ratio is high, investors are paying a lot per dollar of earnings, and implicitly, a high P/E ratio is a forecast that earnings will grow quickly to justify the current high price.
If policy-makers simply take it as a matter of faith that prices are always right, they will never see any need to take preventive action. But once we grant that bubbles are possible, and the private sector appears to be feeding the frenzy, it can make sense for policy-makers to lean against the wind in some way.
part of the received wisdom in law and economics is that people have correct beliefs, including about the probability of getting caught committing some crime, and base their decisions about whether to commit a crime, from illegal parking to robbing a bank, by calculating the expected gains and losses.
The article that includes this result, entitled “The Problem of Social Cost,” is one of the most cited economics articles of all time.
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If there is a number, people will use it.
Humans. They tend to do things the way they have always been done, because those decisions will not be second-guessed by the boss.
As Keynes noted, following the conventional wisdom keeps you from getting fired. A smart owner (who reads economics journals or hires someone to do that) would urge his staff to follow the strategy that maximizes the chance of winning, and tell them that it is going against the odds that will get you fired. But there are not very many of those owners.
This is the famous Peter Principle: people keep getting promoted until they reach their level of incompetence.
we have no interest in telling people what to do. We want to help them achieve their own goals.
Nudge find that we define our objective as trying to “influence choices in a way that will make choosers better off, as judged by themselves.”
When dealing with Humans, words matter.
Robert Cialdini, author of the classic book Influence.
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If you want to encourage someone to do something, make it easy.
Kurt Lewin, a prominent psychologist of the first half of the twentieth century. Lewin described the first step in getting people to change their behavior as “unfreezing.” One way to unfreeze people is to remove barriers that are preventing them from changing, however subtle those barriers might be.
“A billion here, a billion there, pretty soon you’re talking about real money.”
The ideal organizational environment encourages everyone to observe, collect data, and speak up.
