'Our Economic Delusions on Predictions, Money': Mervyn King former head of the Bank of England

 

How to Never Fight with a Woman

 

What the “superforecasters” predict for major events in 2024

 The experts at Good Judgment weigh in on the coming year thanks to The Economist

Nov 13th 2023

Journalists and commentators often make predictions about the future using ambiguous, carefully chosen words. Other forecasters prefer the more precise language of numbers. Good Judgment, a forecasting firm, has recruited many such people to its team of superforecasters, who work together to provide detailed, specific forecasts. Here are their predictions for events in 2024.

image: the economist

image: the economist

image: the economist

Forecasting winner

Congratulations to Zane Stucker, a legal professional based in the New York metro area, who has won The World Ahead 2023 forecasting challenge organised in collaboration with Good Judgment. Like previous winners, he has been invited to join Good Judgment’s professional superforecasting team.

Could you be a superforecaster, too? Test your own prediction skills in our 2024 forecasting challenge, which runs until October 2024 at gjopen.com/economist

The Abilene Paradox

by ChatGPT

Picture this: you and your friends are deciding where to go for dinner. You all end up at a restaurant that none of you really wanted to go to. How did that happen? Welcome to the Abilene Paradox!

The Abilene Paradox is like a quirky groupthink situation. It occurs when a group of people collectively decides on a course of action that none of them individually prefers because they mistakenly believe that others want it. Named after a story involving a family trip to Abilene, Texas, it illustrates how groups can end up doing things that no one really wants to do.

Contemporary Example: Imagine you and your colleagues at work are planning a team-building event. Nobody really wants to go paintballing, but everyone thinks that's what others want. So, you all reluctantly agree to it, and the day turns into a paint-splattered mess of unenthusiastic participants.

Consequences of the Abilene Paradox:

Inefficient Decision-Making: When people don't voice their true preferences, decisions are often inefficient, and resources are wasted on options that aren't ideal.

Frustration and Resentment: People end up doing something they didn't want to do, leading to frustration and resentment within the group.

Lack of Innovation: In an environment where people conform to what they perceive as the group's preference, innovative ideas and alternative solutions often get stifled.

Wasted Time and Resources: Pursuing decisions that no one really supports can result in wasted time, money, and effort.

Repetition of the Paradox: If the Abilene Paradox isn't recognized and addressed, it can become a recurring problem in group decision-making.

So, what's the takeaway here? Encourage open and honest communication within groups. Make it a safe space for people to express their true opinions without fear of judgment. This way, you can avoid falling into the Abilene Paradox trap and make decisions that truly align with everyone's preferences.

Historical Examples

1. The Space Shuttle Challenger Disaster (1986):

In one of the most tragic instances of the Abilene Paradox, NASA engineers had concerns about launching the Challenger space shuttle in cold weather. However, they believed that their superiors wanted to proceed. The result? A devastating disaster when the shuttle disintegrated shortly after liftoff, costing the lives of seven astronauts. The engineers had kept their concerns to themselves, assuming everyone else was on board with the launch, and this tragic event showcased the dire consequences of failing to speak up.

2. The Bay of Pigs Invasion (1961):

During the Cold War, the U.S. government approved a covert operation to overthrow Fidel Castro's regime in Cuba. Many experts within the government had reservations about the plan, but they remained silent, thinking that their colleagues supported it. The invasion was a fiasco, leading to embarrassment for the U.S. and the failure of the mission. The Abilene Paradox in action on a geopolitical scale.

3. The "New Coke" Debacle (1985):

Coca-Cola's decision to change its beloved formula and introduce "New Coke" is a classic business example of the Abilene Paradox. Company executives believed consumers wanted a new taste, even though there was no evidence to support this. They ended up with a public outcry and quickly had to bring back the original Coca-Cola. The lesson here: assuming what customers want without proper research can lead to costly blunders.

A Level Economics: How to construct an Economics Essay

 ChatGPT

1. Evaluative Essays

Essay answers in A-level economics involve breaking down a question, identifying key concepts, applying relevant economic theories, and providing well-structured arguments with supporting evidence. Here's a stepwise method to construct an analytical economics answer:

Step 1: Understand the Question Read the question carefully to identify the main topic, key terms, and any specific aspects you need to address. This will help you focus your analysis.

Step 2: Identify Relevant Concepts and Theories Determine which economic concepts, theories, or models are applicable to the question. Consider microeconomic and macroeconomic theories, market structures, demand and supply factors, externalities, elasticity, government interventions, etc.

Step 3: Define Key Concepts Begin your answer by clearly defining any relevant economic concepts mentioned in the question. This shows your understanding and sets the foundation for your analysis.

Step 4: Provide a Theoretical Framework Explain the economic theory that is relevant to the question. This could involve using graphs, equations, or verbal explanations to illustrate how the theory applies to the situation. For example, if the question is about price elasticity of demand, you might explain the formula for calculating elasticity and how it affects consumer behavior.

Step 5: Apply the Theory to the Scenario Connect the theory to the scenario presented in the question. Describe how the theory's concepts play out in the given situation. Use real-world examples, statistics, or hypothetical scenarios to support your analysis. For instance, if the question asks about the impact of an increase in minimum wage, discuss how it affects employment levels and provide data on industries that were affected.

Step 6: Consider Assumptions and Limitations Acknowledge any assumptions made in your analysis and discuss their potential impact on the results. Additionally, highlight any limitations of the theory in explaining the real-world situation.

Step 7: Discuss Cause-and-Effect Relationships Explore the cause-and-effect relationships between different economic variables. If changes in one variable influence another, explain this relationship and use evidence to back up your claims.

Step 8: Evaluate Alternative Perspectives Address alternative viewpoints or counterarguments that might exist. Analyze why some economists might disagree with your analysis or propose different solutions. This demonstrates critical thinking and a comprehensive understanding of the topic.

Step 9: Draw Conclusions and Recommendations Summarize your analysis and draw conclusions based on the evidence you've presented. If appropriate, provide recommendations or potential policy implications. Explain why your conclusions are valid based on the analysis you've conducted.

Step 10: Structure and Clarity Ensure your answer is well-structured with clear paragraphs and logical flow. Use headings or bullet points if allowed. Write in clear, concise language, avoiding unnecessary jargon. Proofread your answer to eliminate grammatical errors and ensure readability.

Remember, each step should build on the previous one, creating a coherent and insightful analysis. Practice is key to mastering this approach, as it helps you develop the skill of applying economic theories to various scenarios effectively.

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Let's apply the stepwise method to the microeconomic question: "Government failure is preferable to market failure."

Step 1: Understand the Question The question presents a comparative statement between government failure and market failure. You need to analyze whether one is more preferable than the other and provide a well-structured argument.

Step 2: Identify Relevant Concepts and Theories This question relates to the concepts of market failure, government intervention, and the pros and cons of both. Relevant theories might include public goods, externalities, information asymmetry, and the roles of government in correcting market failures.

Step 3: Define Key Concepts Define market failure as the situation where the market fails to allocate resources efficiently, leading to underallocation or overallocation of resources. Define government failure as the situation where government intervention leads to inefficiencies, possibly due to bureaucracy, unintended consequences, or lack of information.

Step 4: Provide a Theoretical Framework Explain the concept of market failure using examples like negative externalities (e.g., pollution) and public goods (e.g., national defense). Illustrate how government intervention can correct these failures using regulatory policies, taxes, subsidies, or provision of public goods.

Step 5: Apply the Theory to the Scenario Discuss instances where government intervention might lead to inefficiencies or unintended outcomes. For example, consider a case where a government subsidy distorts the market, leading to overproduction and wastage. Contrast this with cases where market failures, like natural monopolies, might lead to higher prices and limited access.

Step 6: Consider Assumptions and Limitations Acknowledge that both market and government interventions have assumptions and limitations. For example, government intervention assumes that policymakers have perfect information and act in the public interest, which might not always be the case. Similarly, markets assume perfect competition and rational behavior, which can also be unrealistic.

Step 7: Discuss Cause-and-Effect Relationships Explore how government intervention can sometimes exacerbate problems or create new ones. For instance, unintended consequences like black markets can arise due to price controls. On the other hand, effective government regulations can mitigate externalities and ensure fair competition.

Step 8: Evaluate Alternative Perspectives Discuss alternative viewpoints. Some might argue that government intervention is more predictable and can be controlled, while others might emphasize the innovation and efficiency that markets can offer. Consider the context and potential consequences of each perspective.

Step 9: Draw Conclusions and Recommendations Summarize your analysis. Conclude by stating that neither government failure nor market failure is inherently preferable; rather, the choice depends on the specific context and the ability to address the underlying issues. Recommend a balanced approach that considers both market mechanisms and government interventions when addressing economic challenges.

Step 10: Structure and Clarity Ensure your response is organized with clear headings, well-constructed paragraphs, and logical transitions. Use real-world examples to support your points and provide data or statistics when possible. Proofread your answer for clarity and coherence.

Remember, this approach helps you analyze the statement from various angles, consider both benefits and drawbacks, and arrive at a nuanced and informed conclusion.

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Let's apply to the macroeconomic statement: "Governments cannot achieve all macroeconomic targets at the same time," using the stepwise method.

Step 1: Understand the Question This statement implies that governments face limitations in simultaneously achieving all macroeconomic targets. The goal is to analyze the feasibility and challenges associated with pursuing multiple macroeconomic objectives concurrently.

Step 2: Identify Relevant Concepts and Theories Key concepts include macroeconomic targets such as economic growth, low inflation, low unemployment, and a stable balance of payments. Relevant theories might involve the Phillips curve, the trade-off between inflation and unemployment, and the concept of the impossible trinity in international economics.

Step 3: Define Key Concepts Define the macroeconomic targets mentioned in the question. Economic growth refers to an increase in the production of goods and services over time. Low inflation implies stable price levels, low unemployment indicates a low jobless rate, and a stable balance of payments involves managing imports, exports, and international trade.

Step 4: Provide a Theoretical Framework Explain the theoretical foundations that underlie the challenges of achieving all macroeconomic targets simultaneously. For instance, discuss the Phillips curve that suggests a trade-off between inflation and unemployment. As unemployment decreases, inflation tends to rise, and vice versa.

Step 5: Apply the Theory to the Scenario Illustrate the challenges governments face when trying to balance these targets. For instance, pursuing aggressive policies to reduce unemployment might lead to higher inflation rates. Attempting to control inflation might involve measures that slow down economic growth. This trade-off highlights the difficulty of simultaneously achieving conflicting objectives.

Step 6: Consider Assumptions and Limitations Acknowledge the assumptions and limitations involved. The trade-offs presented in economic models might not always hold in real-world situations due to factors like structural changes, global economic conditions, and technological advancements.

Step 7: Discuss Cause-and-Effect Relationships Examine the causal relationships between different macroeconomic targets. For example, explain how an increase in government spending to stimulate economic growth might lead to higher budget deficits, potentially impacting the goal of fiscal sustainability.

Step 8: Evaluate Alternative Perspectives Consider different viewpoints on the feasibility of achieving multiple macroeconomic targets. Some might argue that with careful policy coordination and a long-term perspective, governments can strike a balance between these goals. Others might emphasize the necessity of prioritizing targets based on current economic conditions.

Step 9: Draw Conclusions and Recommendations Summarize your analysis by concluding that while governments strive to achieve multiple macroeconomic targets, there are inherent trade-offs that make simultaneous attainment challenging. Recommend a flexible and pragmatic approach that takes into account the specific economic context and adjusts policies based on changing circumstances.

Step 10: Structure and Clarity Ensure your response is well-structured, with clear headings and organized paragraphs. Provide concrete examples and empirical evidence to support your analysis. Proofread for clarity, coherence, and correct grammar usage.

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2- Explain and Analytical Essays

Certainly, here's a stepwise method to approach an A-level question that requires explanation and analysis without evaluation, along with examples:

Step 1: Understand the Question Carefully read the question to grasp what needs to be explained and analyzed. Note whether the question specifies any concepts, theories, or scenarios to focus on.

Step 2: Identify Key Concepts and Theories Identify the core economic concepts or theories relevant to the question. These might include demand and supply, market structures, elasticity, externalities, or economic policies.

Step 3: Define Key Concepts Start your response by defining any critical concepts or terms mentioned in the question. Clear definitions set the foundation for your analysis. For example, if the question involves "price elasticity of demand," explain what elasticity means and how it's calculated.

Step 4: Provide Context or Background If the question presents a scenario, provide context or background information that's relevant to your analysis. This helps the reader understand the context within which you'll explain and analyze the topic.

Step 5: Explain Relevant Concepts Explain the economic concepts or theories you identified in Step 2. Break down complex ideas into simpler terms. Use diagrams, equations, or relevant examples to enhance understanding. If the question is about market structures, explain the characteristics of perfect competition and how it differs from monopoly.

Step 6: Apply the Concepts to the Scenario If there's a scenario provided, apply the concepts you've explained to that scenario. Show how the economic theories are relevant and impact the situation. If the question relates to a change in demand for a product, explain how this change influences price and quantity using the demand curve.

Step 7: Analyze Cause-and-Effect Relationships Dig deeper into the cause-and-effect relationships between different economic variables or factors. Explain how changes in one variable can lead to changes in others. If the question involves discussing how an increase in government spending affects unemployment, analyze the mechanism through which this spending stimulates demand and impacts job creation.

Step 8: Provide Real-world Examples Support your analysis with real-world examples or statistics. These examples make your explanation more concrete and demonstrate your understanding of how economic concepts play out in actual situations. If discussing inflation, provide data on historical inflation rates and factors influencing them.

Step 9: Consider Assumptions and Limitations Acknowledge any assumptions made in your analysis and discuss their potential impact. Also, highlight limitations of the theories or concepts being discussed. If analyzing the effectiveness of a price ceiling, note that assumptions like perfect competition might not hold in reality.

Step 10: Summarize and Conclude Summarize your analysis without introducing evaluation or personal opinions. Briefly recap the main points you've explained and analyzed. Your conclusion should wrap up your analysis logically and concisely.

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3. - Similarities and Differences between the Two Types of Essays

Certainly, let's compare and contrast the two types of questions: those that ask for evaluation and those that ask for explanation and analysis.

Similarities:

1. Critical Thinking: Both types of questions require critical thinking and a deep understanding of the subject matter. In both cases, you need to demonstrate your grasp of economic concepts, theories, and their practical implications.

2. 
   

3. Conceptual Understanding: Both question types necessitate a strong grasp of economic concepts, models, and theories. You need to be able to articulate these ideas clearly and apply them effectively.

4. 
   

5. Structured Responses: Both types of questions call for well-structured responses with clear headings, logical organization, and coherent paragraphs. This ensures your analysis or evaluation is easy to follow.

Differences:

Questions Asking for Evaluation:

1. Incorporating Judgment: These questions require you to provide your judgment or opinion on the topic. You need to weigh the evidence and arguments, consider different viewpoints, and make a reasoned conclusion. Evaluation questions often use terms like "assess," "evaluate," "to what extent," or "do you agree."

2. 
   

3. Balanced Analysis: While answering evaluation questions, you should offer a balanced analysis by considering pros and cons, advantages and disadvantages, strengths and weaknesses. You are expected to critically assess the arguments and evidence.

4. 
   

5. Subjective Element: Evaluation questions inherently involve subjectivity, as your judgment is based on your interpretation and analysis. However, your judgment should be well-informed and supported by evidence.

Questions Asking for Explanation and Analysis:

1. Objective Analysis: These questions are more focused on explaining concepts, theories, and analyzing their application in a given context. Your response should be objective and evidence-based, avoiding personal opinions or judgments.

2. 
   

3. Demonstrating Understanding: Explanation and analysis questions test your ability to break down complex concepts into understandable components. You need to show your understanding of how theories work and how they relate to real-world situations.

4. 
   

5. Use of Examples: Explanation and analysis questions often require you to provide concrete examples, data, or statistics to support your points. These examples help clarify your explanations and make your analysis more robust.

In summary, evaluation questions involve making judgments and weighing various aspects, whereas explanation and analysis questions require you to break down concepts, theories, or scenarios, and demonstrate your understanding through objective analysis and illustrative examples. Both types of questions are crucial for assessing your ability to apply economic knowledge effectively, but they focus on different skills and aspects of critical thinking.