Important interview with Robert Shiller on behavioral economics. Must-read. He cover the high points and shows how the way economics is pursued today is doomed to failure, especially at turning points. Models based on "rationality" and "utility are elegantly simple but too simplistic to model human events. Keynes had already observed the intractability of uncertainty and fallacies of composition. George Soros points to reflexivity. Behavioral economics adds the dimension of findings in the life and social sciences.
Why neo-classical economics, which is based on assuming a rational representative agent maximizing utility over a lifetime, is bonkers. The problem? According to Shiller it seems to be physics-envy.
Read or download transcript, or listen to podcast at Social Science Bites
Robert Shiller on Behavioral Economics
Interview by Nigel Warburton
(h/t Cullen Roche at Pragmatic Capitalism)
My comment at Pragmatic Capitalism:
The interview is a must-read in its entirety. Shiller sums up neatly what wrong with mainstream economics. His summary analysis also implies why the conclusions most economists draw are pretty useless for trading, and why listening to them can be dangerous to your portfolio. But most traders have likely figured this out already.