Wednesday, November 27, 2013

Andra - les Tuileries - Paris

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      Andra - les Tuileries - Paris

     Photos by Fred - Easy Fashion Paris
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Bottes et Cuissardes (1) - Paris Fashion Week

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     Ce n'est plus un secret, la Mode signe le grand retour des bottes, mais aussi des 
     cuissardes montantes. Dommage qu'il n'y ait pas le cheval qui va avec ... Ça aurait
     de la gueule pendant la Fashion Week ! Un cheval Chanel ! Vous imaginez !

     Photos by Farid - Easy Fashion Paris
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Tuesday, November 26, 2013

Google making inroads with Enterprise GIS

It looks that Google is finally making some progress in Australia with selling its GIS enterprise solutions to government clients. The first, and for quite some time the only public sector user of Google technology was NT government but just in the last few months three other State governments succumbed to Google’s charms. In particular, Western Australian Land Information System (WALIS) is upgrading its GIS capabilities with Google Maps Engine platform and has already started serving some data in OGC compliant web service standards.

Earlier this month the NSW Land & Property Information (LPI) released NSW Globe, which allows displaying a range of State data in Google Earth, and in the last few days Queensland’s Department of Natural Resources and Mines released its version as Queensland Globe - with almost identical list of datasets.

It is good that more and more data is made accessible for preview in a public domain. Let’s hope that these initiatives are only a beginning and will lead to more investment into a proper infrastructure to serve the data to third party applications.

Displaying data on a map is so passé. It was a thrilling functionality a decade ago but these days, in order to make a real impact, the data has to be put in context of tasks that community and business undertake on regular basis. Which is anything from looking up bus timetable to researching optimal delivery routes, from searching properties for purchase to collecting business intelligence for marketing purposes, etc. 

Google has already recognised that tools it offers cannot deliver all those solutions so the company is focusing its efforts on enabling linking of data served from Google infrastructure to open source tools like QGIS - to enable users performing more specialised spatial tasks.

Government agencies should ideally follow a similar strategy. The best return on all that data in State and federal vaults will be if application developers are allowed unencumbered access to it. Whether it is Google or ESRI or other technology facilitating the access is not that critical as long as there is a long term commitment to maintain it.

Related Posts:
South Australia opens its data
East coast unanimously frees data
Free data a GFC casualty
Governments intensify free data efforts
Data overload makes SDI obsolete
What’s the benefit of gov data warehouses?

Monday, November 25, 2013

New approach to satellite imagery analysis

Geoscience Australia has just released a short 3 min. video presenting a concept of “data cube” for storing and analysing Earth observation imagery acquired by satellites. This proof of concept application has been built to work with Landsat data and was already used in an operational capacity on several data analysis projects. This is the future of analysis of big volumes of temporal, remotely sensed data.

The concept can be extended to work with any data that can be referenced to a grid structure (in fact, to any spatial data that comprise of a collection of points in space). This is not the first attempt to work with cubed spatial data but certainly the first that I know of that is capable of processing terabytes of spatial imagery into a variety of derived information for immediate, practical use.

Related Posts:
Point cloud 3D map technology
Photosynth - big promise or just a fancy photo viewer?

Saturday, November 23, 2013

Beans, Lentils, and the Paleo Diet

As we continue to explore the foods our ancestors relied on during our evolutionary history, and what foods work best for us today, we come to legumes such as beans and lentils.  These are controversial foods within the Paleolithic diet community, while the broader nutrition community tends to view legumes as healthy.

Beans and lentils have a lot going for them.  They're one of the few foods that are simultaneously rich in protein and fiber, making them highly satiating and potentially good for the critters in our colon.  They're also relatively nutritious, delivering a hefty dose of vitamins and minerals.  The minerals are partially bound by the anti-nutrient phytic acid, but simply soaking and cooking beans and lentils typically degrades 30-70 percent of it, making the minerals more available for absorption (Food Phytates. Reddy and Sathe. 2002).  Omitting the soaking step greatly reduces the degradation of phytic acid (Food Phytates. Reddy and Sathe. 2002).

The only tangible downside to beans I can think of, from a nutritional standpoint, is that some people have a hard time with the large quantity of fermentable fiber they provide, particularly people who are sensitive to FODMAPs.  Thorough soaking prior to cooking can greatly increase the digestibility of the "musical fruit" by activating the sprouting program and leaching out tannins and indigestible saccharides.  I soak all beans and lentils for 12-24 hours.

The canonical Paleolithic diet approach excludes legumes because they were supposedly not part of our ancestral dietary pattern.  I'm going to argue here that there is good evidence of widespread legume consumption by hunter-gatherers and archaic humans, and that beans and lentils are therefore an "ancestral" food that falls within the Paleo diet rubric.  Many species of edible legumes are common around the globe, including in Africa, and the high calorie and protein content of legume seeds would have made them prime targets for exploitation by ancestral humans after the development of cooking.  Below, I've compiled a few examples of legume consumption by hunter-gatherers and extinct archaic humans.  I didn't have to look very hard to find these, and there are probably many other examples available.  If you know of any, please share them in the comments.

To be clear, I would eat beans and lentils even if they weren't part of ancestral hunter-gatherer diets, because they're inexpensive, nutritious, I like the taste, and they were safely consumed by many traditional agricultural populations probably including my own ancestors.

Extensive "bean" consumption by the !Kung San of the Kalahari desert

Read more »

Thursday, November 21, 2013

No data Girl Serie - les Tuileries - Paris

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      Photo by Fred - Easy Fashion Paris

Fashion Week - Paris

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      Une veste orange pour toi mon ange ...

       Photo by Fred - Easy Fashion Paris

Wednesday, November 20, 2013

Classic Car and Motorcycle Show, Birmingham NEC 2013

Having missed this show in previous years this was my first time at the Lancaster Insurance Classic Motor Show . The NEC shows are always packed with machines to see and this is no exception with all the halls full with Cars and Motorcycles alongside an auto jumble and various presentations throughout the weekend. As usual I spent my time sketching and chatting with people about their machines….

1933 Bugatti Type 51A Roadster

(ink sketch)

I couldn't miss the opportunity to sketch this rare Bugatti, it was shown at Goodwood earlier this year but who knows when it will be shown in this country again. The bodywork on this Roadster has proved to be a mystery, no one knows who built it, it is believed to have been fitted in Paris before WW2, but that's as far as that side of the story goes. The other side to this cars story is even more exciting. The original chassis this bodywork was built on was from a Grand Prix car fitted with a supercharged type 38 engine, and campaigned by Madame AnnCécile Itier. She competed for 5 seasons in more than 30 events with the car, one of the events being a race against a plane at the banked circuit at Monthlery, France. The original chassis and engine have now been removed from the roadster and rebuilt into the car as supplied to Madame Anne Cécile Itier.

1958 Fairthorpe Electron Minor MkI

(ink sketch)

This car caught my eye, not only with its interesting mouth shape but the small compact almost microcar look is always something that appeals to me. In the 50s a lot of small operations were building their own cars or providing kits for people to build their own in order to avoid purchase tax. Fairthorpe started out building microcars with motorcycle engines in the back, none of these survive today, or at least no one has found one yet. Fairthorpe then progressed to larger cars still using motorcycle engines and then onto cars like this Electron Minor. This particular car was built from by Frank Collins in kit form in late 1958 and was part of the Fairthorpe works team. The car runs a Standard 10 engine with twin SU Carbs. The car not only competed but took Frank and his wife to be all the way to Italy for their honeymoon. The car was sold on in '64 due to Franks expanding family and was not seen again for another 25 years. Franks son Martin had a chance encounter with the owner of the car at a kit car show in the late 80's. Martin bought the car back and completed the restoration in 2009. Frank passed away in September 2012 having taken his last ride in the car on a sunny afternoon 2 weeks earlier.
I'm always happy to see these small production cars and am grateful to the owners for keeping them going as without them the unusual history of these machines would be lost. 

For more information on these great little cars 

GPO BSA Bantam

(ink sketch)

Having a love of Bantams myself I stopped at the BSA Bantam Club stand for a chat. I was more than happy when I was asked to sketch this GPO Bantam that belongs to Dennis. He learned to ride on a GPO Bantam and is now on an eternal quest to find his trusty GPO Bantam ALC 167B. If you know the whereabouts of this machine please get in contact.

1960 Austin Healey Frog Eye Sprite

 (ink sketch)

Another sketch request for the weekend was this Frog Eye Sprite. This may look like a straight Frog Eye but it has been modified to be more usable on long journeys, having a 1275 engine instead of the usual 948 and a 5 speed gearbox and many other improvements.  This car was completed in the nick of time for the 4th Austin Healey European Meeting and was  driven over night with the hood down to the meeting. The owners had never entered a concours event before but they were encouraged by friends to enter, and to their surprise they won their class, 2nd in Peoples choice and Overall Winner  this being the first time in the Austin Healey European History that a Frogeye Sprite has won Overall Winner over the Big Healeys but this has been so well done it is well deserved.

1963 Jaguar E-Type 3.8 Series 1

 (ink sketch)

Another request from the weekend is this Series 1 restored by Performance Bodyshop. It's always a challenge to get the lines on this type of car correct, and I always enjoy the challenge.

More Photos….



Monday, November 18, 2013

Cleaning up finance? That WOULD be a surprise

Several things worth reading that give tiny rays of hope that one day we might get some regulations with real teeth to reform the financial system.

First, some remarks by Kenneth C. Griffin, the founder and chief executive of Citadel, giving his views that the big banks should be broken up, or laws changed to encourage the flowering of smaller banks with competitive advantages on the local level (he mentions in particular putting caps on the size of deposits).

Second, an essay by law professor Peter Henning who is a specialist in financial fraud and enforcement. He gives a look at how developments such as derivatives and high frequency trading have created a host of opportunities for sophisticated market manipulation, but also how some recent legal changes have given regulators more power to pursue actions even if they cannot prove "intention to manipulate."

Third, an extended article looking at how things are developing with the so-called Volcker Rule that would, ostensibly, prohibit investment banks from trading on their own proprietary accounts. This gives a mixed message, actually, and it even seems that some of the regulators are part of the problem. Look at the second sentence below:
Gary Gensler, head of the Commodity Futures Trading Commission, also wants to make it harder for banks to disguise speculative wagers as permissible trading done for customers, according to the officials briefed on the discussions. Underscoring the tension, other regulators privately groused that Mr. Gensler’s agency — which spent most of the last few years completing dozens of other new rules under Dodd-Frank — was too slow to raise concerns about the Volcker Rule.
Finally, a great speech by Elizabeth Warren on why Too Big To Fail remains a very serious prpoblem even five years after the worst moments of the crisis. Some excerpts below:
Thank you, Americans for Financial Reform and the Roosevelt Institute for inviting me to speak today. I’ve been working very closely with both AFR and Roosevelt for years now, and I’m really delighted to be here.

It has been five years since the financial crisis, but we all remember its darkest days. Credit dried up. The stock market cratered. Historic institutions like Lehman Brothers and Merrill Lynch were wiped out. There were legitimate fears that our economy was tumbling over a cliff and that we were heading into another Great Depression . We averted that grim outcome , but the damage was staggering. A recent report by the Federal Reserve Bank of Dallas estimated that the financial crisis cost us upward of 14 trillion dollars — trillion, with a t. That’s $120,000 for every American household — more than two years’ worth of income for the average family. Billions of dollars in retirement savings disappeared . Millions of workers lost their jobs and their sense of financial security. Entire communities were devastated. And a Census Bureau study that came out just a couple months ago shows that home ownership rates declined by 15 percent for families with young children. The Crash of 2008 changed lives forever.

In April 2011, after a two - year bipartisan enquiry, the Senate Permanent Subcommittee on Investigations released a 635 - page report that identified the primary factors that led to the crisis. The list included high - risk mortgage lending, inaccurate credit ratings, exotic financial products , and, to top it all off, the repeated failure of regulators to stop the madness. As Senator Tom Coburn, the Subcommittee’s ranking member, said: “Blame for this mess lies everywhere from federal regulators who cast a blind eye, Wall Street bankers who let greed run wild, and members of Congress who failed to provide oversight.” Even Jamie Dimon, the CEO of JPMorgan Chase, has emphasized inadequate regulation as a source of the crisis. He wrote this to his shareholders: “had there been stronger standards in the mortgage markets, one huge cause of the recent crisis might have been avoided. ”

The crash happened quickly and dramatically, and it caught our nation and apparently even our regulators by surprise. But don’t let that fool you. The causes of the crisis were years in the making, and the warning signs were everywhere. As many of you know, I spent most of my career studying the growing economic pressures on middle class families — families that worked hard and played by the rules but still can’t get ahead. And I’ve also studied the financial services industry and how it has developed over time. A generation ago, the price of financial services — credit cards, checking accounts, mortgages, and signature loans — was pretty easy to see. Both borrowers and lenders understood the basic terms of the deal. But by the time the financial crisis hit, a different form of pricing had emerged. Lenders began to use a low advertised price on the front end to entice customers, and then made their real money with fees and charges and penalties and re - pricing in the fine print. Buyers became less and less able to evaluate the risks of a financial product, comparison shopping became almost impossible , and the market became less efficient. Credit card companies took the lead, with their contracts ballooning from a page and a half back in 1980 to more than 30 pages by the beginning of the 2000’s. And teaser - rate credit cards — which advertised deceptively low interest rates — paved the way for teaser - rate mortgages. When I worked to set up the Consumer Financial Protection Bureau, I pushed hard for steps that would increase transparency in the marketplace. The crisis began one lousy mortgage at a time, and there is a lot we must do to make sure there are never again so many lousy mortgages. CFPB made some important steps in the right direction, and I think we’re a lot safer than we were.

But what about the other causes of the crisis ? … Where are we now, five years after the crisis hit and three years after Dodd - Frank? I know there has been much discussion today about a variety of issues, but I’d like to focus on one in particular. Where are we now on the “Too Big to Fail” problem? Where are we on making sure that the behemoth institutions on Wall Street can’t bring down the economy with a wild gamble ? Where are we in ending a system that lets investors and CEOs scoop up all the profits in good times, but forces taxpayers to cover the losses in bad times? After the crisis, there was a lot of discussion about how Too Big to Fail distorted the marketplace, creating lower borrowing costs for the largest institutions and competitive disadvantages for smaller ones. There was talk about moral hazard and the dangers of big banks getting a free, unwritten, government - guaranteed insurance policy. Sure, there was talk, but look at what happened: Today , the four biggest banks are 30% larger than they were five years ago . And the five largest banks now hold more than half of the total banking assets in the country. One study earlier this year showed that the Too Big to Fail status is giving t he 10 biggest US banks an annual taxpayer subsidy of $83 billion. Wow . Who would have thought five years ago , after we witnessed firsthand the dangers of an overly concentrated financial system, that the Too Big to Fail problem would only have gotten worse?

We should not accept a financial system that allows the biggest banks to emerge from a crisis in record - setting shape while working Americans continue to struggle. And we should not accept a regulatory system that is so besieged by lobbyists for the big banks that it takes years to deliver rules and then the rules that are delivered are often watered - down and ineffective . What we need is a system that puts an end to the boom and bust cycle. A system that recognizes we don’t grow this country from the financial sector; we grow this country from the middle class. Powerful interests will fight to hang on to every benefit and subsidy they now enjoy . Even after exploiting consumers, larding their books with excessive risk, and making bad bets that brought down the economy and forced taxpayer bailouts, the big Wall Street banks are not chastened . They have fought to delay and hamstring the implementation of financial reform, and they will continue to fight every inch of the way. That’s the battlefield. That’s what we’re up against. But David beat Goliath with the establishment of CFPB and, just a few months ago, with the confirmation of Rich Cordray. David beat Goliath with the passage of Dodd - Frank. We did that together – Americans for Financial Reform, the Roosevelt Institute, and so many of you in this room. I am confident David can beat Goliath on Too Big to Fail . We just have to pick up the slingshot again.


Speech by Elizabeth Warren

Friday, November 15, 2013

Anna dello Russo - Odéon - Paris

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      Anna dello Russo - Odéon - Paris

      La flamboyante Anna dello Russo lors de la dernière Fashion Week de Paris.
      Les chiens aboient et la caravane de la Mode passe !

      Photos by Fred - Easy Fashion Paris

Dressed in Black - FW - Paris

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      Dressed in Black - FW - Paris

       Photos by Fred - Easy Fashion Paris

Stylish Lens Serie - Couvent des Cordeliers - Paris

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      Svea - Couvent des Cordeliers - Paris

      I met the beautiful Svea during Fashion Week. She is a model turned to be a 
      photographer. Models have often the opportunity to go through the mirror to the
      other side of the lens with talent, as they know already a lot about it.

      Photo by Fred - Easy Fashion Paris

This guy has some issues with Rational Expectations

I just happened across this interesting panel discussion from a couple years ago featuring a number of economists involved with the Rational Expectations movement, either as key proponents (Robert Lucas) or critics (Bob Shiller). A fascinating exchange comes late on when they discuss Jack Muth -- ostensibly the inventor of the idea, although others trace it back to an early paper of Herb Simon -- and Muth's later attitude on this assumption. It seems that Muth came to doubt the usefulness of the idea after he looked at the behaviour of some business firms and found that they didn't seem to follow the Rational Expectations paradigm at all. He thought, therefore, that it would make sense to employ some more plausible and realistic ideas about how people form expectations, and he pointed, even in the early 1980s, to the work of Kahneman and Tversky.

I'm just going to quote the extended exchange below, including a comment from Shiller who makes the fairly obvious point that if economics is about human behavior and how it influences economic outcomes, then there clearly ought to be a progressive interchange between psychology and economics, and from Lucas who, amazingly enough, seems to find this idea utterly abhorrent, apparently because it may spoil economics as a pure mathematical playground. That's my reading at least:
I wish Jack Muth could be here to answer that question, but obviously he can’t because he died just as Hurricane Wilma was zeroing in on his home on the Florida Keys. But he did send me a letter in 1984. This was a letter in response to an earlier draft of that paper you are referring to. I sent Jack my paper with some trepidation because it was not encouraging to his theory. And much to my surprise, he wrote back. This was in October 1984. And he said, I came up with some conclusions similar to some of yours on the basis of forecasts of business activity compiled by the Bureau of Business Research at Pitt. [Letter Muth to Lovell (2 October 1984)] He had got hold of the data from five business firms, including expectations data, analyzed it, and found that the rational expectations model did not pass the empirical test.

He went on to say, “It is a little surprising that serious alternatives to rational expectations have never really been proposed. My original paper was largely a reaction against very näıve expectations hypotheses juxtaposed with highly rational decision-making behavior and seems to have been rather widely misinterpreted. Two directions seem to be worth exploring: (1) explaining why smoothing rules work and their limitations and (2) incorporating well known cognitive biases into expectations theory (Kahneman and Tversky). It was really incredible that so little has been done along these lines.”

Muth also said that his results showed that expectations were not in accordance with the facts about forecasts of demand and production. He then advanced an alternative to rational expectations. That alternative he called an “errors-in-the-variables” model. That is to say, it allowed the expectation error to be correlated with both the realization and the prediction. Muth found that his errors-in-variables model worked better than rational expectations or Mills’ implicit expectations, but it did not entirely pass the tests. In a shortened version of his paper published in the Eastern Economic Journal he reported,

“The results of the analysis do not support the hypotheses of the naive, exponential, extrapolative, regressive, or rational models. Only the expectations revision model used by Meiselman is consistently supported by the statistical results. . . . These conclusions should be regarded as highly tentative and only suggestive, however, because of the small number of firms studied. [Muth (1985, p. 200)]

Muth thought that we should not only have rational expectations, but if we’re going to have rational behavioral equations, then consistency requires that our model include rational expectations. But he was also interested in the results of people who do behavioral economics, which at that time was a very undeveloped area.

Does anyone else want to comment on issue of testing rational expectations against alternatives and if it matters whether rational expectations stands up to empirical tests or whether it is not the sort of thing for which testing would be relevant?

What comes to my mind is that rational expectations models have to assume away the problem of regime change, and that makes them hard to apply. It’s the same criticism they make of Kahnemann and Tversky, that the model isn’t clear and crisp about exactly how you should apply it. Well, the same is true for rational expectations models. And there’s a new strand of thought that’s getting impetus lately, that the failure to predict this crisis was a failure to understand regime changes. The title of a recent book by Carmen Reinhart and Ken Rogoff—the title of the book is This Time Is Different—to me invokes this problem of regime change, that people don’t know when there’s a regime change, and they may assume regime changes too often—that’s a behavioral bias [Carmen Reinhart and Kenneth Rogoff (2009)]. I don’t know how we’re going to model that. Reinhart and Rogoff haven’t come forth with any new answers, but that’s what comes to my mind now, at this point in history. And I don’t know whether you can comment on it: how do we handle the regime change problem? If you don’t have data on subprime mortgages then you build a model that doesn’t have subprime mortgages in it. Also, it doesn’t have the shadow banking sector in it either. Omitting key variables because we don’t have the data history on them creates a fundamental problem That’s why many nice concepts don’t find their way into empirical models and are not used more. They remain just a conceptual model.

Bob, do you want to . . . or Dale. . . .

More as a theorist, I am sensitive to that problem. That is the issue. If the world were stable, then rational expectations means simply agents learning about their environment and applying what they learned to their decisions. If the environment’s simple, then how else would you structure the model? It’s precisely—if you like, call it “regime change”—what do you do with unanticipated events? More generally—regime changes is only one of them—you were talking about institutional change that was or wasn’t anticipated. As a theorist, I don’t know how to handle that.

Bob, did you want to comment on that? You’re looking unhappy, I thought.

No. I mean, you can’t read Muth’s paper as some recipe for cranking out true theories about everything under the sun—we don’t have a recipe like that. My paper on expectations and the neutrality of money was an attempt to get a positive theory about what observations we call a Phillips curve. Basically it didn’t work. After several years, trying to push that model in a direction of being more operational, it didn’t seem to explain it. So we had what we call price stickiness, which seems to be central to the way the system works. I thought my model was going to explain price stickiness, and it didn’t. So we’re still working on it; somebody’s working on it. I don’t think we have a satisfactory solution to that problem, but I don’t think that’s a cloud over Muth’s work. If Jack thinks it is, I don’t agree with him. Mike cites some data that Jack couldn’t make sense out of using rational expectations. . . . There’re a lot of bad models out there. I authored my share, and I don’t see how that affects a lot of things we’ve been talking about earlier on about the value of Muth’s contribution.

Just to wrap up the issue of possible alternatives to rational expectations or complements to rational expectations. Does behavioral economics or psychology in general provide a useful and viable alternative to rational expectations, with the emphasis on “useful”?

Well, that’s the criticism of behavioral economics, that it doesn’t provide elegant models. If you read Kahnemann and Tversky, they say that preferences have a kink in them, and that kink moves around depending on framing. But framing is hard to pin down. So we don’t have any elegant behavioral economics models. The job isn’t done, and economists have to read widely and think about these issues. I am sorry, I don’t have a good answer. My opinion is that behavioral economics has to be on the reading list. Ultimately, the whole rationality assumption is another thing; it’s interesting to look back on the history of it. Back at the turn of the century—around 1900—when utility-maximizing economic theory was being discovered, it was described as a psychological theory—did you know that, that utility maximization was a psychological theory? There was a philosopher in 1916—I remember reading, in the Quarterly Journal of Economics —who said that the economics profession is getting steadily more psychological. {laughter} And what did he mean? He said that economists are putting people at the center of the economy, and they’re realizing that people have purposes and they have objectives and they have trade-offs. It is not just that I want something, I’ll consider different combinations and I’ll tell you what I like about that. And he’s saying that before this happened, economists weren’t psychological; they believed in such things as gold or venerable institutions, and they didn’t talk about people. Now the whole economics profession is focused on people. And he said that this is a long-term trend in economics. And it is a long-term trend, so the expected utility theory is a psychological theory, and it reflects some important insights about people. In a sense, that’s all we have, behavioral economics; and it’s just that we are continuing to develop and to pursue it. The idea about rational expectations, again, reflects insights about people—that if you show people recurring patterns in the data, they can actually process it—a little bit like an ARIMA model—and they can start using some kind of brain faculties that we do not fully comprehend. They can forecast—it’s an intuitive thing that evolved and it’s in our psychology. So, I don’t think that there’s a conflict between behavioral economics and classical economics. It’s all something that will evolve responding to each other—psychology and economics.

I totally disagree.

I think that we’ve come back around the circle—back to Carnegie again. I was a student of Simon and [Richard] March and [James] Cyert—in fact, I was even a research assistant on A Behavioral Theory of the Firm [Cyert and March (1963)]. So we talked about that in those days too. I am much less up on modern behavioral economics. However, I think what you are referring to are those aspects of psychology that illustrate the limits, if you like, of perception and, say, cognitive ability. Well, Simon did talk about that too—he didn’t use those precise words. What I do see on the question of expectations—right down the hall from me—is my colleague Chuck Manksi [Charles Manksi] and a group of people that he’s associated with. They’re trying to deal with expectations of ordinary people. For a lot of what we are talking about in macroeconomics, we’re thinking of decision-makers sure that they have all the appropriate data and have a sophisticated view about that data. You can’t carry that model of the decision-maker over to many household decisions. And what’s coming out of this new empirical research on expectations is precisely that: how do people think about the uncertainties that go into deciding about what their pension plan is going to look like. I think that those are real issues, where behavioral economics, in that sense, can make a very big contribution to what the rest of us do.

One thing economics tries to do is to make predictions about the way large groups of people, say, 280 million people are going to respond if you change something in the tax structure, something in the inflation rate, or whatever. Now, human beings are hugely interesting creatures; so neurophysiology is exciting, cognitive psychology is interesting—I’m still into Freudian psychology—there are lots of different ways to look at individual people and lots of aspects of individual people that are going to be subject to scientific study. Kahnemann and Tversky haven’t even gotten to two people; they can’t even tell us anything interesting about how a couple that’s been married for ten years splits or makes decisions about what city to live in—let alone 250 million. This is like saying that we ought to build it up from knowledge of molecules or—no, that won’t do either, because there are a lot of subatomic particles—we’re not going to build up useful economics in the sense of things that help us think about the policy issues that we should be thinking about starting from individuals and, somehow, building it up from there. Behavioral economics should be on the reading list. I agree with Shiller about that. A well-trained economist or a well-educated person should know something about different ways of looking at human beings. If you are going to go back and look at Herb Simon today, go back and read Models of Man. But to think of it as an alternative to what macroeconomics or public finance people are doing or trying to do . . . there’s a lot of stuff that we’d like to improve—it’s not going to come from behavioral economics. . . at least in my lifetime. {laughter}

We have a couple of questions to wrap up the session. Let me give you the next to last one: The Great Recession and the recent financial crisis have been widely viewed in both popular and professional commentary as a challenge to rational expectations and to efficient markets. I really just want to get your comments on that strain of the popular debate that’s been active over the last couple years.

If you’re asking me did I predict the failure of Lehmann Brothers or any of the other stuff that happened in 2008, the answer is no.

No, I’m not asking you that. I’m asking you whether you accept any of the blame. {laughter} The serious point here is that, if you read the newspapers and political commentary and even if you read commentary among economists, there’s been a lot of talk about whether rational expectations and the efficient-markets hypotheses is where we should locate the analytical problems that made us blind. All I’m asking is what do you think of that?

Is that what you get out of Rogoff and Reinhart? You know, people had no trouble having financial meltdowns in their economies before all this stuff we’ve been talking about came on board. We didn’t help, though; there’s no question about that. We may have focused attention on the wrong things; I don’t know.

Well, I’ve written several books on that. {laughter} My latest, with George Akerlof, is called Animal Spirits [2009]. And we presented an idea that Bob Lucas probably won’t like. It was something about the Keynesian concept. Another name that’s not been mentioned is John Maynard Keynes. I suspect that he’s not popular with everyone on this panel. Animal Spirits is based on Keynes. He said that animal spirits is a major driver of the economy. To understand Keynes, you have to go back to his 1921 book, Treatise on Probability [Keynes (1921)]. He said—he’s really into almost this regime-change thing that we brought up before—that people don’t have probabilities, except in very narrow, special circumstances. You can think of a coin-toss experiment, and then you know what the probabilities are. But in macroeconomics, it’s always fuzzy. What Keynes said in The General Theory [1936] is that, if people are really thoroughly rational, they would be paralyzed into inaction, because they just don’t know. They don’t know the kind of things that you would need to put into a decision-theory framework. But they do act, and so there is something that drives people—it’s animal spirits. You’re lying in bed in the morning and you could be thinking, “I don’t know what’s going to happen to me today; I could get hit by a truck; I just will stay in bed all day.” But you don’t. So animal spirits is the core of—maybe I’m telling this too bluntly—but it fluctuates. Sometimes it is represented as confidence, but it is not necessarily confidence. It is trust in each other, our sense of whether other people think that we’re moving ahead or . . . something like that. I believe that’s part of what drives the economy. It’s in our book, and it’s not very well modeled yet. But Keynes never wrote his theory down as a model either. He couldn’t do it; he wasn’t ready. These are ideas that, even to this day, are fuzzy. But they have a hold on people. I’m sure that Ben Bernanke and Austin Goolsbee are influenced by John Maynard Keynes, who was absolutely not a rational-expectations theorist. And that’s another strand of thought. In my mind, the strands are not resolved, and they are both important ways of looking at the world.

Foreseeing the next financial crisis...

My latest column in Bloomberg (out today, 15/11/2013) looks a little at the silly pronouncements of some economists (Nobel Prize winners Robert Lucas and Eugene Fama among them) to the effect that "financial crises are by their very nature unpredictable." These are, in my opinion, essentially meaningless statements if at all examined; they're the equivalent of an excuse: "don't blame us economists for not having a clue the whole system was about to explode!" The column argues -- and this is the important point -- that lots of economists haven't taken this easy and shameful way out, but have taken on the hard work of developing ways to measure systemic risks and, we hope, give us a better chance to detect important instabilities and imbalances in financial markets as they emerge. Many have even begun collaborating in their efforts with physicists, engineers and other such types. If they have a little success, then we might then just possibly do something to head off the worst trouble in potential future crises (IF the regulatory system doesn't suffer massive political interference at just the crucial moment, of course, which I recognize is a big IF).

As part of another project, I've been perusing recent efforts to develop various measures of systemic risk, and thought some readers might be interested. I've only started, so this is a very incomplete list, but there's some interesting stuff here:

First, a few very much from within the mainstream econ literature:

Acemoglu, D., Ozdaglar, A., & Tahbaz-Salehi, A. (2013). Systemic Risk and Stability in Financial Networks.
Adrian, T., Covitz, D., & Liang, J. (2013). Financial stability monitoring.
Billio, M., Getmansky, M., Lo, A. W., & Pelizzon, L. (2012). Econometric measures of connectedness and systemic risk in the finance and insurance sectors. Journal of Financial Economics, 104(3), 535–559.
Bisias, D., Flood, M., Lo, A. W., & Valavanis, S. (2012). A Survey of Systemic Risk Analytics. Annual Review of Financial Economics, 4(1), 255–296. doi:10.1146/annurev-financial-110311-101754
Brunnermeier, M. K., & Oehmke, M. (2012). Bubbles, Financial Crises, and Systemic Risk.

Then, some others by people bringing a wider spectrum of ideas and methods to bear:
Battiston, S., Puliga, M., Kaushik, R., Tasca, P., & Caldarelli, G. (2012). DebtRank: too central to fail? Financial networks, the FED and systemic risk. Scientific reports, 2, 541.
Beale, N., Rand, D. G., Battey, H., Croxson, K., May, R. M., & Nowak, M. A. (2011). Individual versus systemic risk and the Regulator’s Dilemma. Proceedings of the National Academy of Sciences of the United States of America, 108(31), 12647–52. doi:10.1073/pnas.1105882108
Bookstaber, R. (2012). Office of Financial Research Using Agent-Based Models for Analyzing Threats to Financial Stability.
Farmer, J. D., Gallegati, M., Hommes, C., Kirman, a., Ormerod, P., Cincotti, S., … Helbing, D. (2012). A complex systems approach to constructing better models for managing financial markets and the economy. The European Physical Journal Special Topics, 214(1), 295–324. doi:10.1140/epjst/e2012-01696-9
Haldane, A. G., & May, R. M. (2011). Systemic risk in banking ecosystems. Nature, 469(7330), 351–5. doi:10.1038/nature09659
Markose, S. M. (2013). Systemic risk analytics: A data-driven multi-agent financial network (MAFN) approach. Journal of Banking Regulation, 14(3-4), 285–305. doi:10.1057/jbr.2013.10
A. Frank et al., Security in theAge of Systemic Risk: Strategies, Tactics and Options for Dealing with Femtorisks and Beyond. International Institute for Applied Systems Analysis.
Thurner, S., & Poledna, S. (2013). DebtRank-transparency: controlling systemic risk in financial networks. Scientific reports, 3, 1888. doi:10.1038/srep01888

Isn't it curious that all these people are wasting their time and effort, since we know from just a few seconds' thought that crises are impossible to predict? In fact, doesn't the EMH tell us that? And isn't that sacred principle enough for us to stop all further thought? It's all a mystery to me why these people persist in what they're doing. [Sorry for the funny indent... I can't seem to get rid of it...]