What is depression, and why does it exist?
In spite of its prevalence, depression and the factors causing it are still not well understood. A 🧵on how an adaptive approach to cognition can help us gain a better understanding of depression.
optimallyirrational.com/p/depression
Happy and unhappy feelings can be seen as meant to help us make good decisions.👇
However, depression is characterised by a lack of motivation to engage with the outside world and a reluctance to take action. How can this be helpful in making decisions?
optimallyirrational.com/p/the-truth-ab…

Kahneman said: “The concept of loss aversion is certainly the most significant contribution of psychology to behavioral economics.”
In a new paper @kubitzg1 and I propose an explanation for it, as a feature of our cognition that helps us make good decisions. Loss aversion is the fact that, subjectively, losing feels worse than winning feels good. The idea has been expressed throughout human history. It can be found, for instance, in Adam Smith’s Theory of Moral Sentiments:

Because talking to each other seems easy to us, we typically underappreciate the amazing cognitive feats we achieve in our everyday conversations. A 🧵 While computers are extremely good at tasks humans find hard, like making complex calculations, they have struggled with tasks that humans find almost trivially easy, like language. It is part of the "Moravec paradox".

We frequently lament the lack of quality information in the media. Yet, as consumers, we often seek not what's most accurate, but what aligns with our views. This shifts the information marketplace into a "marketplace of rationalisations". A🧵 Concerns about the media aren't new. In the 20th century, intellectuals voiced worries about corporate mass media indoctrinating and dumbing down the public in ways that favoured the status quo of the political and economic order.

Why hasn't the Internet worked as a great public space where the best ideas win? Perhaps because it isn't how debates operate. Behind intellectual arguments, people aren't impartial thinkers; they advocate for their team.
A🧵on how coalitional thinking shapes our discussions. Introductory example. When a Hayek citation criticising men's overconfidence was shared on a libertarian website, it was very poorly received. Ironically, the quote was from Hayek, the free-market economist. Who "said" it greatly influenced how the quote was perceived.

Why reason fails: Our modern lives are teeming with technology, informed by scientific understanding. But at the same time, irrational beliefs, from superstition to vaccine hesitancy, are still widespread. How is it possible?
👉Reason is likely not the tool we think it is. A 🧵 It is common to think of reason—the ability to form judgments logically—as what sets humans apart from other animals. It’s the way it's presented in the iconic sequence 2001: A Space Odyssey, where a black monolith endows apes with the capacity to build tools... and spaceships.

A few years ago you joined this new organisation full of motivation and drive.
If today you are disenchanted and wonder why your workplace is frustratingly far from achieving its stated goals, this post is for you! A🧵 Corporate communication is filled these days with over-the-top positivity. Everything is awesome; everybody is great. But it often feels like an artificial veneer to those seasoned employees who have been there for a while.

In many countries, petrol prices do something strange: they follow regular cycles unrelated to changes in international oil prices. Economists have recently elucidated how these cycles work, revealing how firms don’t merely compete but also coordinate when setting prices. A🧵 These petrol price cycles have a name: Edgeworth cycles. They have a “sawtooth pattern”: a rapid hike followed by a slow decline. They have been observed in Australia, Austria, Canada, Germany, Norway, and the US.

You have heard of Adam Smith describing the "invisible hand" of the markets successfully coordinating human activities.
There is however much more to his intellectual contribution. He demonstrated a candid & insightful understanding of social relations & human psychology. A 🧵 Smith's insights on markets
We are so used to markets, that it's easy not to appreciate the novelty of Smith’s takes at a time when economic trade was seen as a kind of zero-sum game with the Mercantilist school of thought: exporters win, importers lose.

It is hard to overstate the importance of social norms. They dictate how we should behave with others in our countless daily social interactions. But what are they? A 🧵on how game theory helps unveil what social norms are and how they work. What are social norms? In an influential 2001 article, Christine Horne emphasised that the jury was still somewhat out in sociology about the nature of norms, how they work and how they emerge.

Game theory is not just a geeky discipline looking at contrived strategic situations. It is relevant to understand our everyday social interactions.
A🧵with an introduction for everyone to game theory and its history. Let's step back to the 1920s-1930s. Many economists assumed that people can perfectly anticipate the decisions of others in the economy, making it possible for the economy to be in “equilibrium” where supply is equal to demand.

The downfall of famous researchers associated with behavioural economics, Ariely and Gino, is raising new questions about the findings from the field.
Have we gone too far with the idea that humans are riddled with cognitive biases? A 🧵

https://twitter.com/R_Thaler/status/1678993443027312641

Behavioural economics is often characterised as having established a long list of biases. But what do these biases really tell us about human cognition?

https://twitter.com/page_eco/status/1663182981291446272

Prospect Theory's famous “S-shaped” value function is a cornerstone of behavioural economics. Surprisingly, more than 40 years after its inception, there seem to be a lot of remaining puzzles about it.

Or... perhaps not anymore. A 🧵that may change your view on Prospect Theory. Since its publication in 1979, "Prospect Theory" by Kahneman and Tversky has become the most cited article in economics. One of its key ideas is that people value what they have by considering it as a gain or a loss relative to a subjective "reference point".

The confirmation bias is one of the most widely known cognitive biases. It reflects the fact that we favour information that confirms our existing beliefs.
But contrary to this accepted wisdom, looking for confirmatory information is likely not a bias at all. 🧵 The confirmation bias has been described as a candidate for being the “single problematic aspect of human reasoning that deserves attention above all others”. (Nickerson, 8500 Scholar citations)

For 30 years psychologists and behavioural economists dismissed the "hot hand," the idea that basketball players get better at shooting after a streak of success. As it happens, the academics were wrong all along. The hot hand is real. 🧵 In 1985, Gilovich, Vallone and Tversky looked at data on free throws to investigate the hot hand.
You may wonder: Why would three psychologists specialised in judgement and decision-making investigate the performance of basketball players?

Not another bias!
Behavioural economics has excelled in identifying biases. We have now reached the point of diminishing returns in this quest.
What lies ahead in behavioural sciences? Making sense of the reasons we behave the way we do. 🧵 Science is not immune to trends. After a swing of the pendulum against rationality with behavioural economics, the pendulum has started to swing again towards an interest in adaptive explanations of human behaviour.
👇Benabou and Tirole (Mindful Economics, JEP, 2016)

What is Shannon’s “information entropy”?
Here is an intuitive explanation for a concept often seen as mysterious. 🧵 “Entropy” seems at first glance a complex concept from physics. It is often described as measuring “disorder”. What would be the link with “information”?

Our paper on game theory and how professional tennis players serve is now forthcoming at Quantitative Economics!

We find that tennis players are really good at playing mixed Nash equilibrium strategies on their serves, but not perfect. 🧵 We used data on nearly half a million first and second serves in 3,000 matches from top male and female players.

After several years in the making, I am finally holding it in my hand! For all those interested in understanding human behaviour:
amazon.com/Optimally-Irra…

Yesterday, I asked the following question because the answer is not necessarily intuitive, but very interesting. 🧵

https://twitter.com/page_eco/status/1602628387230842880

Let’s start with the answer: your expected payoff with that strategy is *zero*. @momin_rayhan illustrated it nicely with some Monte Carlo simulations.

https://twitter.com/momin_rayhan/status/1602711252614225927

We hear from time to time calls for a quick peace with Putin in Ukraine. These calls typically ignore the “commitment problem”. Putin cannot credibly commit to respect a peace and not to use a ceasefire to build up force and attack again. 🧵
from @cblatts At the moment Ukraine seems to have the military advantage and relinquishing it now for a ceasefire could lead to another war in the future.
@ProfPaulPoast explains the problem very well here, in the case of the recent letter by US Democrat politicians.

https://twitter.com/profpaulpoast/status/1586349543171698688