How to Save Ourselves From the Irrational Economy

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7 points·nreece··5 comments

Behavioral economics play a much larger role in macro economics than most people believe, explaining such things as sudden drops and surges in share prices that classical economics have serious problems with. Unfortunately, as the article argues, much economic commentary by massmedia is stuck in the era of classical economics.

If you want to learn more, and gain some insight into how these mechanisms work I recommend watching Daniel Kahneman's 45 minute Nobel prize lecture from 2002: http://nobelprize.org/nobel_prizes/economics/laureates/2002/...

I think there's a more fundamental problem with any commentary (economic or otherwise) by mass media. It hardly seems objective these days.

There's also a self-fulfilling prophecy problem with media coverage of economic information. If you tell everyone things are getting bad, it would seem rational that they would sell their assets (making things worse). If you say there's no bottom in sight, not many people would feel like re-entering the market.

Yes. This is a double-edged sword, though. The similar bubble happens if you constantly read that some assets are going to rise infinitely (eg, real estate).

See Soros' reflexivity.

The title was misleading. It's quite unfortunate that irrational choices can seem appealing when the market is manipulated, and it is even more tragic when it is done in the name of the American Dream and ends up wrecking families' finances permanently.

Yeah, I've been getting a hunch that there's some significant market manipulation going on over the past year. Particularly the strength in the dollar and the weakness of gold.

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