By John Considine
Lara Gillespie is Ireland’s latest world champion. Her gold came in the World Track Championship in cycling. The specific event being the elimination race. The race is also labelled “Devil Take the Hindmost”. Economists might think of it as a game of musical chairs because it can be linked to an analogy from The General Theory of Employment, Interest, and Money.
The most famous analogy in that book is between the stock market and newspaper beauty contests. Nobel laureate, Richard Thaler, empirically examined a variation of the beauty contest with a "guess the number" competition run in the Financial Times. Contestants were asked to guess a number between 0 and 100. The winner would be the person who was closest to 2/3 of the average of all the guesses. Backward induction might suggest the best guess would be zero. That was not the winning guess. Thaler used the finding to suggest that humans don't think like Homo Economicus.
Cycling’s elimination event provides data on how people play a version of musical chairs. It can be used to examine the “greater fool” theory of investment. Here are Keynes’s words on the issue taken in from the paragraph that immediately precedes his beauty contest analogy.
The most famous analogy in that book is between the stock market and newspaper beauty contests. Nobel laureate, Richard Thaler, empirically examined a variation of the beauty contest with a "guess the number" competition run in the Financial Times. Contestants were asked to guess a number between 0 and 100. The winner would be the person who was closest to 2/3 of the average of all the guesses. Backward induction might suggest the best guess would be zero. That was not the winning guess. Thaler used the finding to suggest that humans don't think like Homo Economicus.
Cycling’s elimination event provides data on how people play a version of musical chairs. It can be used to examine the “greater fool” theory of investment. Here are Keynes’s words on the issue taken in from the paragraph that immediately precedes his beauty contest analogy.
“This battle of wits to anticipate the basis of conventional valuation a few month hence, rather than the prospective yield of an investment over a long term of years, does not even require gulls amongst the public to feed the maws of the professional; - it can be played by the professionals themselves. For it is, so to speak, a game of Snap, of Old Maid, of Musical Chairs … when the music stops some of the players will find themselves unseated.” Lara Gillespie successfully played a version of musical chairs at high speed.
One of my favourite books written in the immediate aftermath of the Great Recession is John Cassidy’s How Markets Fail: The Logic of Economic Calamities. Cassidy says “Like John von Neumann, Keynes believed that simple parlor games have much to teach economists: they feature the sort of strategic interactions that are largely absent from orthodox economics”. The greater use of data from sporting contests might be addressing that issue.
One of my favourite books written in the immediate aftermath of the Great Recession is John Cassidy’s How Markets Fail: The Logic of Economic Calamities. Cassidy says “Like John von Neumann, Keynes believed that simple parlor games have much to teach economists: they feature the sort of strategic interactions that are largely absent from orthodox economics”. The greater use of data from sporting contests might be addressing that issue.
RSS Feed
