Torrens is reading Thinking, Fast and Slow – it’s a behavioural economics book by Nobel Prize winning psychologist Daniel Kahneman who won for his work showing that people don’t always think as rationally economists assume them to. Must say, this is a good book: its easy to read and just plain interesting. That siad, Torrens finds behavioural economics only somewhat interesting – it doesn’t really turn his crank. Well it didn’t until a friend emailed him and got him wondering if policy makers might not behave in predictably irrational ways. After all, they are human too. See the review of the book by William Easterly here.
Before you go on, if you have never done it before, then you need to watch this video in which six people — three in white shirts and three in black shirts — pass basketballs around. While you watch, you must keep a silent count of the number of passes made by the people in white shirts. Do it now before reading on.
Now scroll down.
OK did you see it – the gorilla? Don’t worry if you didn’t, about half the people who watch it don’t notice that a gorilla – actually someone dressed as a gorilla — comes in and thumps his chest and wanders out of the picture.
The point here is well known to psychologists – people don’t always see the obvious even when it is staring them in the face. There are other “mistakes” that people make too – they often have time inconsistent preferences, which may entice them to worry excessively about the present at the expense of tomorrow. So after reading this blog on The Drum and Easterly’s review, TH can’t help wonder whether irrationality amongst Europe’s policy makers has led to an unjustified hardening of previous conclusions about the currency union and how it should function. Perhaps that aren’t seeing the gorilla. TH reckons that the monkey in the room is the need to slim down the euro zone, and even if Europe’s policy makers recognise that a euro exit is inevitable, perhaps they are waiting too long to deal with that.
But who knows — TH is just as hardened and irrational — he didn’t spot the gorilla the first time either!