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News on the effects of bounded rationality in economics and business, relationships and politics
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Anxious people more apt to make bad decisions amid uncertainty

Anxious people more apt to make bad decisions amid uncertainty | Bounded Rationality and Beyond | Scoop.it

Highly anxious people have more trouble deciding how best to handle life’s uncertainties. They may even catastrophize, interpreting, say, a lovers’ tiff as a doomed relationship or a workplace change as a career threat.

In gauging people’s response to unpredictability, scientists at the University of California, Berkeley, and the University of Oxford found that people prone to high anxiety have a tougher time reading the environmental cues that could help them avoid a bad outcome.

Their findings, reported today (March 2) in the journalNature Neuroscience, hint at a glitch in the brain’s higher-order decision-making circuitry that could eventually be targeted in the treatment of anxiety disorders, which affect some 40 million American adults.

“Our results show that anxiety may be linked to difficulty in using information about whether the situations we face daily, including relationship dynamics, are stable or not, and deciding how to react,” said study senior author Sonia Bishop, an assistant professor of psychology at UC Berkeley and principal investigator of the study.

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Rob Duke's curator insight, March 23, 2015 8:32 PM

Some of what we see in socially disorganized neighborhoods....

Brandal Nicole Crenshaw's comment, March 26, 2015 4:33 PM
This is not surprising to me. When you are dealing with anxiety, or more specifically the factors causing the anxiety, you go through most of your day distracted. You do not have the ability to clearly reason out your choice or ways to find healthy and positive routes for dealing with stress. This can really result in people turning to unhealthy (and in some cases illegal) coping strategies like drug and alcohol abuse.
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Cognitive (Ir)reflection: New Experimental Evidence

Abstract: We study whether cognitive ability explains choices in a wide variety of behavioral tasks, including riskand social preferences, by collecting evidence from almost 1,200 subjects across eight experimentalprojects. Since Frederick (2005)'s Cognitive Reflection Test (CRT) has been administered to allsubjects, our dataset is one of the largest in the literature. We divide the subjects pool into three groupsdepending on their CRT performance. Reflective subjects are those answering at least two of the threeCRT questions correctly. Impulsive ones are those who are unable to suppress the instinctive impulseto follow the intuitive although incorrect answer in at least two 2 questions, and the remaining subjectsform a residual group. We find that females score significantly worse than males in the CRT, and intheir wrong answers impulsive ones are observed more frequently. The 2D-4D ratio, which is higherfor females, is correlated negatively with subject's CRT score. In addition, we find that differencesbetween CRT groups in risk aversion depend on the elicitation method used. Finally, impulsive subjectshave higher social preferences, while reflective subjects are more likely to satisfy basic consistencyconditions in lottery choices. 
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Subjective Well-Being: When, and Why, it Matters

Abstract: The purpose of this paper is to give a principled answer to the question of under what conditions measures of happiness or life satisfaction, understood as subjectively experienced mental states, can serve as proxies for well-being. According to a widely held view, measures of happiness and life satisfaction represent well-being because happiness andlife satisfaction are constitutive of well-being. This position, however, is untenable. Efforts to address this question interms of Amartya Sen’s capability approach have been similarly unsuccessful. Instead, I argue, happiness and lifesatisfaction matter because, and insofar as, people want to be happy and/or satisfied; consequently, measures ofhappiness and life satisfaction can serve as measures of well-being whenever happiness is sufficiently correlated with orcausally efficacious in bringing about greater preference satisfaction. While this position entails a less expansive view ofthe uses of happiness and life satisfaction measures, I maintain that if their proponents were to take this line, many ofthe objections to their enterprise can be met

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White House Social and Behavioral Sciences Team seeking Fellows and Associates - Decision Science News

White House Social and Behavioral Sciences Team seeking Fellows and Associates - Decision Science News | Bounded Rationality and Beyond | Scoop.it
The White House Social and Behavioral Sciences Team (SBST) is currently seeking exceptionally qualified individuals to serve as Fellows and Associates.
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Neuroeconomics—From neural systems to economic behaviour

Abstract

Neuroeconomics is a new and highly interdisciplinary field. Drawing from theories and methodologies employed in both economics and neuroscience, it aims at understanding the neural systems supporting and affecting economically relevant behaviour in real-life situations. Although incomplete, the evidence is beginning to clarify with the possibility that neuroeconomic methodology might eventually trace whole processes of economically relevant behaviour. This paper accompanies the author's ConNEcs 2004 keynote speech on applications of neuroeconomic research.

  
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Redefining neuromarketing as an integrated science of influence

Multiple transformative forces target marketing, many of which derive from new technologies that allow us to sample thinking in real time (i.e., brain imaging), or to look at large aggregations of decisions (i.e., big data). There has been an inclination to refer to the intersection of these technologies with the general topic of marketing as “neuromarketing”. There has not been a serious effort to frame neuromarketing, which is the goal of this paper. Neuromarketing can be compared to neuroeconomics, wherein neuroeconomics is generally focused on how individuals make “choices”, and represent distributions of choices. Neuromarketing, in contrast, focuses on how a distribution of choices can be shifted or “influenced”, which can occur at multiple “scales” of behavior (e.g., individual, group, or market/society). Given influence can affect choice through many cognitive modalities, and not just that of valuation of choice options, a science of influence also implies a need to develop a model of cognitive function integrating attention, memory, and reward/aversion function. The paper concludes with a brief description of three domains of neuromarketing application for studying influence, and their caveats.

 
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Well-Being and Economics

Well-Being and Economics

Since its early days as a science, economics has aimed not only to better understand the world, but also to improve it. The urge to change the world is perhaps most famously seen in the workof Karl Marx, who remarked: “The philosophers have only

interpreted  the world in variousways; the point is tochange it” (Marx [1845] 1998: 571). But economists from the left to theright have shared the sentiment. In the words of Paul Samuelson: “Beginning as it did in thewritings of philosophers, theologians, pamphleteers, special pleaders, and reformers, economicshas always been concerned with problems of public policy and welfare” (Samuelson 1947: 203).Friedrich A. Hayek agreed:It is probably true that economic analysis has never been the product of detached intellectual curiosity about thewhy of social phenomena, but of an intense urge to reconstruct a world which gives rise to profound
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jon inge's curator insight, March 21, 2015 5:16 PM

insightful and very detailed discussion on non economic indicators 

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Why Spock is Not Rational | Facing the Intelligence Explosion

Why Spock is Not Rational | Facing the Intelligence Explosion | Bounded Rationality and Beyond | Scoop.it

Hollywood rationality: Gerd Gigerenzer and Mr. Spock.

Star Trek’s Mr. Spock is not the exemplar of logic and rationality you might think him to be. Instead, he is a “straw man” of rationality used to show (incorrectly) that human emotion and irrationality are better than logic.

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ToKTutor's curator insight, April 2, 2015 7:02 AM

Title 5: Straw Vulcans & Hollywood rationality: what happens to knowledge when you divorce emotion from reason.

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Gigerenzer versus nudge

Gigerenzer versus nudge | Bounded Rationality and Beyond | Scoop.it

Since I first came across it, I have been a fan of Gerd Gigerenzer’s work. But I have always been slightly perplexed by the effort he expends framing his work in opposition to behavioural science and “nudges”. Most behavioural science aficionados who are aware of Gigerenzer’s work are fans of it, and you can appreciate behavioural science and Gigerenzer without suffering from two conflicting ideas in your mind. In a recent LSE lecture about his new book Risk Savvy: How to Make Good Decisions(which sits unread in my reading pile), Gigerenzer again has a few swipes at Daniel Kahneman and friends. The blurb for the podcast gives a taste. A set of coercive government interventions are listed, none of which are nudges, and it is suggested that we need risk savvy citizens who won’t be scared into surrendering their freedom. Slotted between these is the suggestion that some people see a need for “nudging”.Gigerenzer does provide a different angle to the behavioural science agenda. His work has provided strong evidence for the accuracy of heuristics and shown that many of our so-called irrational decisions make sense from the perspective of the environment where they were designed (evolved). But his work doesn’t undermine the fact that many decisions are made outside of the environment where they originated – those fast, frugal and well-shaped heuristics have not stopped us getting fat, spending huge amounts on unused gym memberships and failing to save for retirement. Gigerenzer’s work provides depth to the behavioural analysis, rather than undermining it, and points to a richer set of potential solutions.

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Big Data Economics

Big Data Economics | Bounded Rationality and Beyond | Scoop.it
This description of a data "input" value chain assumes that data is owned by someone or by an organisation. The ISO-IEC JTC1 Study Group on Big Data has been very clear that there should be a universal attribute to data specifying its owner(s). The data owner could be an individual: for instance, consider the case of personal data owned by a person. More broadly the data generated by objects owned by a person are likely to be owned by this person: for instance the current geographic position of my car. This means that there are expanding circles around people, with data in such circles. This creates a natural link across the areas of the Internet of People, where people communicate and interact with each other or with "the Internet", and the Internet of Things (IoT) with sensors and actuators, and machine intelligence all connected to serve (hopefully) the needs of humans. 
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How Do Consumers Choose Health Insurance? – An Experiment on Heterogeneity in Attribute Tastes and Risk Preferences

Abstract: Recent health policy reforms try to increase consumer choice. We use a laboratory experiment to analyze consumers’ tastes in typical contract attributes of health insurances and to investigate their relationship with individual risk preferences. First, subjects make consecutive insurance choices varying in the number and types of contracts offered. Then, we elicit individual risk preferences according to Cumulative Prospect Theory. Applying a latent class model to the choice data, reveals five classes of consumers with considerable heterogeneity in tastes for contract attributes. From this, we infer distinct behavioral strategies for each class. The majority of subjects use minimax strategies focusing on contract attributes rather than evaluating probabilities in order to maximize expected payoffs. Moreover, we show that using these strategies helps consumers to choose contracts, which are in line with their individual risk preferences. Our results reveal valuable insights for policy makers of how to achieve efficient consumer choice.
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DeloitteVoice: The Last-Mile Problem: How Data Science And Behavioral Science Can Work Together

DeloitteVoice: The Last-Mile Problem: How Data Science And Behavioral Science Can Work Together | Bounded Rationality and Beyond | Scoop.it

What do “Moneyball”—applying data analytics to make more economically efficient decisions—and “nudge”— using principles from psychology and behavioral economics to promote decisions that are consistent with people’s long-term goals—have in common? Quite a bit, as it turns out.

Business analytics and the science of behavioral nudges are different types of responses to the observation that people are predictably irrational. Predictive analytics aims to guide people toward “rational” behavior by using data to correct for mental biases. Behavioral techniques aim to nudge people toward certain actions by designing choice environments in ways that go with, rather than against, the grain of human psychology.

The science of behavioral nudges should find a place in the toolkit of mainstream predictive analytics. Predictive models, however strongly backed by analytics, can only point the end user in the right direction—and no model can deliver the benefits it is designed to deliver unless appropriately acted upon. It is at this “last mile” stage that most programs meet with the greatest resistance, and behavioral nudges can play a part in solving this problem.

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Evidence for and against a simple interpretation of the less-is-mor effect

Abstract The less-is-more effect predicts that people can be more accurate making paired-comparison decisions when they have less knowledge, in the sense that they do not recognize all of the items in the decision domain. The traditional theoretical explanation is that decisions based on recognizing one alternative but not the other can be more accurate than decisions based on partial knowledge of both alternatives. I present new data that directly test for the less-is-more effect, coming from a task in which participants judge which of two cities is larger and indicate whether they recognize each city. A group-level analysis of these data provides evidence in favor of the less-is-more effect: there is strong evidence people make decisions consistent with recognition, and that these decisions are more accurate than those based on knowledge. An individual-level analysis of the same data, however, provides evidence inconsistent with a simple interpretation of the less-is-more effect: there is no evidence for an inverse-U-shaped relationship between accuracy and recognition, and especially no evidence that individuals who recognize a moderate number of cities outperform individuals who recognize many cities. I suggest a reconciliation of these contrasting findings, based on the systematic change of the accuracy of recognition-based decisions with the underlying recognition rate. In particular, the data show that people who recognize almost none or almost all cities make more accurate decisions by applying the recognition heuristic, when compared to the accuracy achieved by people with intermediate recognition rates. The implications of these findings for precisely defining and understanding the less-is-more effect are discussed, as are the constraints our data potentially place on models of the learning and decision-making processes involved

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Common and private signals in public goods games with a point of no return

Abstract: We provide experimental evidence on behavior in a public goods game featuring a so-called point of no return, meaning that if the group’s total contribution falls below this point all payoffs are reduced. Participants receive either common or private signals about the point of no return, and experience either high or low reductions in payoffs if insufficient contributions are made. Our data reveal that, as expected, contributions are higher if the cost of not reaching the threshold is high than if it is low. High signal values discourage contributions and endanger the likelihood of success when signals are common, but not when signals are private. In addition, successful coordination of contributions is less frequent in a control treatment featuring a standard provision point mechanism than in the experimental treatment where the payoff reduction factor is high, although the theoretical predictions of the two games are similar.
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Handshakes Will Never Be The Same Once You Know This - PsyBlog

Handshakes Will Never Be The Same Once You Know This - PsyBlog | Bounded Rationality and Beyond | Scoop.it

Could this study provide the real reason that we tend to shake hands when greeting another person? People shake hands partly to smell each other’s odour, a new study suggests. 

Handshakes are actually socially acceptable ways for people to communicate using smells.

The new study found that people spend more than twice as long sniffing their hands after a handshake.

Hand-sniffing is covered by bringing the hand up to touch the face — for example, by pretending to scratch.

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Books on behavioral and experimental economics | pro libertate net

Published by dd on 31. March 2010 - 22:36

At Geary Behavioural Economics Blog @LiamDelaneyUCD is looking for books on behavioral economics. Given my interest in the field,I would like to add a few books. I add a few on experimental economics, too, as both fields are close relatives.


First, let’s see what he already has on his list:

“Judgement Under Uncertainty: Heurisics and Biases” edited by Kahnemann, Slovic, and Tverky“Choices, Values, and Frames” edited by Daniel Kahneman and Amos Tversky“Heuristics and Biases: The Psychology of Intuitive Judgement.” edited by Thomas Gilovich, Dale Griffin, and Daniel Kahneman
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neuroecon_present_future.pdf

What is neuroeconomics doing? This issue of Games and Economic Behavior collects a set of papers that apply the concepts, methods, and technical tools of neuroscience to economic analysis. This is what has by now come to be called neuroeconomics (NE). If one wants to understand what NE is, then the most useful way is probably to look at what NE does in concrete research, so we invite the curious reader to choose one of the articles and begin to read. But if one is questioning the method or even the usefulness of this line of research, then an introduction may be the right place for a discussion. In particular this is true if one is trying to understand what this developing field of research is trying to accomplish in the future. The main content of this introduction will be an attempt to provide a possible answer to this question. In a different paper (Glimcher and Rustichini, 2004) Paul Glimcher and I have tried to provide our view on what neuroeconomics is technically, what methods it uses, and how researchers in the area are in general planning to deal with the classical themes of economics, decision theory and game theory in the first place. A different view is presented in Camerer et al. (2005). In summary, I think the following is the main point. At the very least, neuroeconomics provides new data in addition to those we have available from theoretical, empirical, and experimental research on human behavior. 

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What is ‘neuromarketing’? A discussion and agenda for future research

Abstract

Recent years have seen advances in neuroimaging to such an extent that neuroscientists are able to directly study the frequency, location, and timing of neuronal activity to an unprecedented degree. However, marketing science has remained largely unaware of such advances and their huge potential. In fact, the application of neuroimaging to market research – what has come to be called ‘neuromarketing’ – has caused considerable controversy within neuroscience circles in recent times. This paper is an attempt to widen the scope of neuromarketing beyond commercial brand and consumer behaviour applications, to include a wider conceptualisation of marketing science. Drawing from general neuroscience and neuroeconomics, neuromarketing as a field of study is defined, and some future research directions are suggested.

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Behavioral Welfare Economics, Libertarian Paternalism, and the Nudge Agenda

Although behavioral economics was already firmly established as a subdisciplineof economics by the first decade of the twenty-first century, the enterprise ap-pears to have received a boost from the economic crisis that struck around then.As David Brooks put it in the New York Times: “My sense is that this financialcrisis is going to amount to a coming-out party for behavioral economists andothers who are bringing sophisticated psychology to the realm of public pol-icy.” Brooks is frequently described as a conservative, but commentators acrossthe political spectrum have blamed the crisis in part on inadequate economicmodels. The former chairman of the Federal Reserve Alan Greenspan is knownas a follower of Ayn Rand’s objectivism, which celebrates the value of rationalself-interest. Yet, in 2008 Congressional testimony, Greenspan said: “I made amistake in presuming that the self-interests of organizations, specifically banksand others, were such as that they were best capable of protecting their ownshareholders and their equity in the firms.” Similarly, the Nobel laureate andliberal economic commentator Paul Krugman argues:[Economists] need to abandon the neat but wrong solution of assum-ing that everyone is rational and markets work perfectly. The visionthat emerges as the profession rethinks its foundations may not beall that clear; it certainly won’t be neat; but we can hope that itwill have the virtue of being at least partly right.
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An interview with Carol Tavris » American Scientist

An interview with Carol Tavris » American Scientist | Bounded Rationality and Beyond | Scoop.it

Why do people persist in believing things that have been proved to be untrue? Social psychologist Carol Tavris, author of Anger and The Mismeasure of Woman, joins fellow social psychologist Elliot Aronson to answer this question inMistakes Were Made (But Not by Me): How We Justify Foolish Beliefs, Bad Decisions, and Hurtful Acts (Harcourt, 2007). The authors use cognitive dissonance theory to analyze issues and disputes in the worlds of politics, medical science, psychiatry, the criminal justice system and personal relationships. The theory can't explain everything, Tavris says, but it can shed light on a surprising number of issues. American Scientist assistant book review editor Anna Lena Phillips interviewed Tavris by telephone and e-mail in August and September 2007. 

How did you become interested in the subject of cognitive dissonance, and how did you and Elliot Aronson determine the course you would take in writing the book?

Well, we have been friends and colleagues for many years. We were sitting around one afternoon talking about George W. Bush and the fact that commentators from right, left and center were all shouting at him to admit that he was wrong about weapons of mass destruction and wrong about everybody dancing in the streets to greet us, and how come he didn't just say so. Andy Rooney, in a commentary for 60 Minutes, actually wrote him a mock-speech and begged him to deliver it to the country: "I told you Saddam Hussein tried to buy the makings of nuclear bombs from Africa. That was a mistake and I wish I hadn't said that. I get bad information sometimes just like you do."

 
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Taking uncertainty seriously: simplicity versus complexity in financial regulation

The authors would like to thank Mervyn King for instigating this research collaboration. We are grateful to Ryan Banerjee, Bob Chirinko, Renzo Corrias, Jas Ellis, Andy Haldane, Simon Hall, Ramesh Kapadia, Vasileios Madouros, Hitoshi Mio, Marco Raberto, Tarik Roukny, Vicky Saporta, Jean Whitmore and seminar participants at the Bank of England, the London School of Economics, the Deutsche Bundesbank/SAFE conference on ‘Supervising banks in complex financial systems’ (Frankfurt, 21–22 October 2013) and the ESRC conference on ‘Diversity in macroeconomics’ (Colchester, 24–25 February 2014) for helpful conversations and comments. We would also like to thank George Avil, Timothy Richards, Gowsikan Shugumaran, George Slade and Charlie Woolnough for excellent research assistance.

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Co-evolutionary Dynamics of Collectiv Action with Signaling for a Quorum

Abstract Collective signaling for a quorum is found in a wide range of organisms that face collective action problems whose successful solution requires the participation of some quorum of the individuals present. These range from humans, to social insects, to bacteria. The mechanisms involved, the quorum required, and the size of the group may vary. Here we address the general question of the evolution of collective signaling at a high level of abstraction. We investigate the evolutionary dynamics of a population engaging in a signaling N-person game theoretic model. Parameter settings allow for loners and cheaters, and for costly or costless signals. We find a rich dynamics, showing how natural selection, operating on a population of individuals endowed with the simplest strategies, is able to evolve a costly signaling system that allows individuals to respond appropriately to different states of Nature. Signaling robustly promotes cooperative collective action, in particular when coordinated action is most needed and difficult to achieve. Two different signaling systems may emerge depending on Nature’s most prevalent states.

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oTree - An Open-Source Platform for Laboratory, Online, and Field Experiments

Abstract: oTree is an open-source and online software for implementing interactive experiments in the laboratory, online, the field or combinations thereof. oTree does not require installation of software on subjects’ devices; it can run on any device that has a web browser, be that a desktop computer, a tablet or a smartphone. Deployment can be internet-based without a shared local network, or local-network-based even without internet access. For coding, Python is used, a popular, open-source programming language. www.oTree.org provides the source code, a library of standard game templates and demo games which can be played by anyone.
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Co-evolutionary Dynamics of Collective Action with Signaling for a Quorum

Co-evolutionary Dynamics of Collective Action with Signaling for a Quorum | Bounded Rationality and Beyond | Scoop.it
Author Summary From humans to social insects and bacteria, decision-making is often influenced by some form of collective signaling, be it quorum, information exchange, pledges or announcements. Here we investigate how such signaling systems evolve when collective action entails a public good, and how meanings co-evolve with individual choices, given Nature’s most prevalent states. We find a rich scenario, showing how natural selection is able to evolve a costly quorum signaling system that allows individuals to coordinate their action so as to provide the appropriate response to different states of Nature. We show that signaling robustly and selectively promotes cooperative collective action when coordinated action is most needed. In light of our results, and despite the complexity that collective action relying on quorum signaling may entail, it is not so surprising how signaling is a ubiquitous property of the living world.
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Why Economists Cling to Discredited Ideas

Why Economists Cling to Discredited Ideas | Bounded Rationality and Beyond | Scoop.it

Free-market theory may be at odds with reality, but it fits the needs of the rich and the powerful. Despite the practical failures of free-market economics, too many mainstream economists have continued to embrace simplistic ideas about how the economy works. Such ideas are often rooted more in ideology than in evidence. These beliefs and the policies that follow led directly to the 2008 financial crisis and the Great Recession. They also centrally contributed to the nation’s subpar performance beginning in the late 1970s, and to our widening inequality. They continue to endanger America’s economic health.  

The mainstream of the profession claims to qualify oversimplified free-market ideas. But when it comes to key policy choices, the premise that markets are efficient usually trumps a more complex analysis. Thus, most mainstream economists are usually for less regulation even when more is required. They argue for reducing deficits even when expanded public outlay is indicated. They favor letting markets set wages without many safeguards for workers, even when the result proves neither equitable nor efficient. The consensus in the profession is that widening inequality must be the result of deficiencies in the skills of the workforce, rather than the result of structural disadvantages inadequately addressed by government. 

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