Episode 217: Paul Ormerod
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Anticipating Shifting Environments in Economics
Economists have been harshly criticized for their response to the recent financial crisis and the pandemic. Yet, they are willing to adapt to changing environments and take on new ideas but sometimes don't do it rapidly enough.
Paul Andrew Ormerod is a British economist, best-selling author, a partner at Volterra Partners consultancy, and a founder and director of Algorithmic Economics. Additionally, he is a visiting professor at UCL’s Department of Computer Science.
Paul writes a weekly opinion column on economics and related topics for City AM, a newspaper aimed at workers in Central London.
Since May 2020 Paul Ormerod has been Chairman of the Rochdale Development Agency (RDA), responsible for economic development in the Metropolitan Borough of Rochdale, which is in Greater Manchester.
Greg and Paul discuss why misguided incentives can lead economists to turn a blind eye to shifting environments and fail to anticipate the chance of rare events which can be actually much bigger than predicted in economic risk models.
Episode Quotes:
Economics is not an empty box
10:02: Mainstream economics is not an empty box. It does contain powerful insights. And so, the idea that agents or decision people respond to incentives is very powerful. And in particular, I think it's often caricatured that people think incentives must mean price, but in fact it could be a whole range of factors that people respond to. And if the incentive set changes, then behavior changes.
06:44: Economics portrays a richer and more realistic portrait of how people behave –more grounded empirically, but at the macro level, it's really gone backwards.
What’s wrong with big data?
42:36: Big data, one of the problems is the way it's often used. It might be very good at fitting particular circumstances, but it may not generalize very well. That's always a problem with any form of statistical analysis.
As the pandemic unfolds, economists step out
14:23: Economists do dominate public policy discourse. Whether it's at the national, state government, or international bodies, everything is filtered through the lens of economics. And on this one, they said, "Oh well, you know we pass; we'll step out."I think initially, because most of them didn't know anything about the models the epidemiologists were using, and now that they have done it, it's starting to appear.
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Recommended Resources:
Armen Alchian
Herbert Simon
Leonid Kantorovic
Guest Profile:
Professional Profile at Volterra Partners LLP
Professional Profile at Rochdale Development Agency
Speaker’s Profile on Chartwell Speakers
Paul Ormerod on TEDxLSE 2013