A Level Economics Essay 14: Scale Economies Evaluation

Using diagrams, discuss whether an increase in scale for firms in oligopolistic markets is more likely to increase or to reduce their profitability levels.

Definition: Oligopoly is a market structure characterized by a small number of large firms that dominate the industry. These firms have substantial market power, allowing them to influence market conditions and strategic decisions.

Kinked Demand Curve and Price Rigidity: In oligopolistic markets, firms face a unique demand curve known as the kinked demand curve. The kinked demand curve reflects the behavior of rival firms and customer responsiveness to price changes. It is characterized by two segments:

1. Upper segment: In this segment, the demand curve is relatively elastic. If one firm increases its price, customers are likely to switch to rival firms, resulting in a significant loss of market share. As a result, the firm's demand curve is relatively flat in this range.

2. Lower segment: In this segment, the demand curve is relatively inelastic. If one firm lowers its price, rivals are expected to match the price reduction to prevent losing market share. As a result, the firm's demand curve becomes steeper in this range.

The kinked demand curve implies that firms in oligopolistic markets face a situation of price rigidity. It suggests that prices tend to be sticky or resistant to change, even in the face of cost fluctuations. This is because firms are cautious about changing prices, as they fear retaliation from rivals and the potential loss of market share.

Answer: Given the understanding of oligopoly, the kinked demand curve, and price rigidity, we can evaluate the impact of an increase in scale on the profitability of firms in oligopolistic markets.

An increase in scale for firms in oligopoly can lead to several outcomes:

1. Cost efficiencies: As a firm increases its scale, it can benefit from economies of scale, resulting in lower average costs of production. This can enhance the firm's cost competitiveness.

2. Price reductions: With lower costs, the firm may choose to reduce prices to gain a larger market share. This could lead to an increase in output and potential revenue growth.

However, the kinked demand curve and price rigidity dynamics suggest that rival firms are likely to match price reductions to maintain their market share. As a result, the overall demand curve may not significantly shift, and the existing price and profit levels may remain relatively unchanged.

Therefore, the increase in scale for firms in oligopolistic markets is more likely to have limited effects on profitability levels. While cost efficiencies may be achieved, the price rigidity and the strategic behavior of rival firms tend to mitigate the impact on overall profitability.

It's important to note that the specific outcomes in oligopolistic markets can vary based on factors such as the number of firms, market concentration, product differentiation, and the intensity of competition. The kinked demand curve model provides a simplified representation of the dynamics, and the actual profitability outcomes may depend on the specific characteristics of the oligopolistic market in question.

Diagram: Kinked Demand Curve

The Confidence Game .....3

 The confidence game has existed long before the term itself was first used, likely in 1849, during the trial of William Thompson. The elegant Thompson, according to the New York Herald, would approach passersby on the streets of Manhattan, start up a conversation, and then come forward with a unique request. “Have you confidence in me to truste me with your watch until tomorrow?” Faced with such a quixotic question, and one that hinged directly on respectability, many a stranger proceeded to part with his timepiece. And so the confidence man was born: The person who uses others’ trust in him for his own private purposes.

Have you confidence in me? What will you give me to prove it?

Cons come in all guises. Long cons that take time and ingenuity to build up: From impostor schemes to Ponzis to the building of outright new realities - a new country, a new technology, a new cure - that have found a comfortable home in the world of the Internet, and remain as well, safely ensconced in their old offline guises.

The con is the oldest game there is. But it’s also one that is remarkably well suited to the modern age. If anything, the whirlwind advance of technology heralds a new golden age of the grift. Cons thrive in times of transition and fast change, when new things are happening and old ways of looking at the world no longer suffice. That’s why they flourish during revolutions, wars and political upheavals. Transition is the confidence game’s greatest ally, because transition breeds uncertainty. There’s nothing a con artist likes better than exploiting the sense of unease we feel when it appears that the world as we know it is about to change. We may cling cautiously to the past, but we also find ourselves open to things that are new and not quite expected. Who’s to say this new way of doing business isn’t the wave of the future?

Unreliable Macroeconomic Forecasts and Corporate Business Plans

Anne-Sylvaine Chassany in The FT

Top Ikea executive Jesper Brodin says he is not usually one to indulge in nostalgia. But at a pre-Christmas gathering for senior managers that used to work at the Swedish furniture group, he could not help but join with the chorus of those who said they missed the old times — when the world seemed relatively stable, trends were predictable and this could be translated into a more or less credible multiyear business plan. 

“We always debate whether it was better before. I used to always argue it is better now. This time we tended to agree it was better before,” he said. “The risks, the uncertainty, everything that used to be in a ‘risk matrix file’ is more or less happening . . . We laugh about the time when we were doing one-year budgets, and how we would be right or wrong by 0.3 per cent.” 

Brodin’s reflections resonate across the corporate world. CEOs are struggling to make sense of confusing macroeconomic signals. In Europe and the US, an economic downturn is combined with record low unemployment and labour shortages. Consumer behaviour is a mystery: up until recently people have kept spending even though the price of almost everything has gone up. 

The worst predictions of economic crisis and energy shortages from last year have not materialised. But it feels uniquely hard to predict the path ahead at the moment. On both sides of the Atlantic, little consensus is heard about where the economy is going, and for listed businesses, delivering guidance to the market is more difficult than ever. In the UK, auditing firms worry that the forecasts their corporate clients submit to them for sign-off are impossible to assess. 

In the game of adjusting to these new forms of chaos, some are better placed than others. Generally pressure is less on privately owned companies that do not have to publish profit targets. 

Ikea, for instance, has changed tack. Instead of setting out specific goals for the year, it has a set of “scenarios” to give the business wiggle room as the outlook changes. It means acknowledging that widely different outcomes are possible. “It’s teaching us agility in how we operate,” said Brodin. 

A year ago, the 54-year-old firm expected customers to cut spending because of high energy bills and mortgage rates. That did not happen. Meanwhile, supply chain disruptions improved more quickly than anticipated, leaving the group with more inventory and, in turn, the need to lower the prices of some of its products. 

“We are celebrating that things are going in the right direction,” said Brodin, “but we have no concept of predicting with precision what’s going to happen in 6 to 12 months.” 

For Ikea, input costs are the trickiest to forecast. Transport prices have fallen. But Brodin did not expect that greater demand for wood to burn as fuel would make some of the company’s materials more expensive. 

It is not just the traditional variables of financial modelling such as inflation and consumer spending that have become harder to predict. The past few years have also provided some unexpected lessons on how business and society cope with shocks and uncertainty. 

“Look at what people have gone through: the pandemic, the economic damage, the tragedy of war, energy prices,” Brodin said. “What people might have underestimated is human resilience.”

Scientific Facts have a Half-Life - Life is Poker not Chess 4

Abridged and adapted from Thinking in Bets by Annie Duke

The Half-Life of Facts, by Samuel Arbesman, is a great read about how practically every fact we’ve ever known has been subject to revision or reversal. The book talks about the extinction of the coelacanth, a fish from the Late Cretaceous period. This was the period that also saw the extinction of dinosaurs and other species. In the late 1930s and independently in the mid 1950s, coelacanths were found alive and well. Arbesman quoted a list of 187 species of mammals declared extinct, more than a third of which have subsequently been discovered as un-extinct.

Given that even scientific facts have an expiration date, we would all be well advised to take a good hard look at our beliefs, which are formed and updated in a much more haphazard way than in science.

We would be better served as communicators and decision makers if we thought less about whether we are confident in our beliefs and more about how confident we are about each of our beliefs. What if, in addition to expressing what we believe, we also rated our level of confidence about the accuracy of our belief on a scale of zero to ten? Zero would mean we are certain a belief is not true. Ten would mean we are certain that our belief is true. Forcing ourselves to express how sure we are of our beliefs brings to plain sight the probabilistic nature of those beliefs, that we believe is almost never 100% or 0% accurate but, rather, somewhere in between.

Incorporating uncertainty in the way we think about what we believe creates open-mindedness, moving us closer to a more objective stance towards information that disagrees with us. We are less likely to succumb to motivated reasoning since it feels better to make small adjustments in degrees of certainty instead of having to grossly downgrade from ‘right’ to ‘’wrong’. This shifts us away from treating information that disagrees with us as a threat, as something we have to defend against, making us better able to truthseek.

There is no sin in finding out there is evidence that contradicts what we believe. The only sin is in not using that evidence as objectively as possible to refine that belief going forward. By saying, ‘I’m 80%’ and thereby communicating we aren’t sure, we open the door for others to tell us what they know. They realise they can contribute without having to confront us by saying or implying, ‘You’re wrong’. Admitting we are not sure is an invitation for help in refining our beliefs and that will make our beliefs more accurate over time as we are more likely to gather relevant information.

Acknowledging that decisions are bets based on our beliefs, getting comfortable with uncertainty and redefining right and wrong are integral to a good overall approach to decision making.

The Toxic Culture of the Economics Profession

 

Information can make you sick

Trader turned neuroscientist John Coates in The FT on why economic crises are also medical ones.

As coronavirus infection rates peak in many countries, the markets rally. There is a nagging worry that a second wave of infections might occur once lockdowns are lifted or summer passes. But for anyone immersed in the financial markets there should be a further concern. Volatility created by the pandemic could itself cause a second wave of health problems. Volatility can make you sick, just as a virus can. 

To get an inkling of what this other second wave might look like, it helps to recall what happened after the credit crisis. That event was both a financial and medical disaster. Various epidemiological studies suggest it may be responsible for 260,000 cancer deaths in OECD countries; a 17.8 per cent increase in the Greek mortality rate between 2010-16; and a spike in cardiovascular disease in London for the years 2008-09, with an additional 2,000 deaths due to heart attacks. The current economic crisis may be far worse than 2008-09, so the medical fallout could be as well. 

Why do financial and medical crises go hand in hand? Many of the above studies focused on unemployment and reduced access to healthcare as causes of the adverse health outcomes. But research my colleagues and I have conducted on trading floors for the past 12 years suggest to me that uncertainty itself, regardless of outcome, can have independent and profound effects on physiology and health. 

Our studies were designed initially to test a hunch I had while running a trading desk for Deutsche Bank, that the rollercoaster of physical sensations a person experiences while immersed in the markets alters their risk-taking. After retraining in neuroscience and physiology at Cambridge University, I set up shop on various hedge fund and asset manager trading floors, along with colleagues, mostly medical researchers. Using wearable tech and sampling biochemistry, we tracked the traders’ cardiovascular, endocrine and immune systems.

My goal was to demonstrate how these physiological changes altered trader performance. Increasingly, though, I came to see that a trading floor provides an elegant model for studying occupational health. 

One remarkable thing we found was that traders’ bodies calibrated sensitively to market volatility. For humans, apparently, information is physical. You do not process information dispassionately, as a computer does; rather your brain quietly figures out what movement might ensue from the information, and prepares your body, altering heart rate, adrenaline levels, immune activation and so on. 

Your brain did not evolve to support Platonic thought; it evolved to process movement. Our larger brain controls a more sophisticated set of muscles, giving us an ability to learn new movements unmatched by any other animal — or robot — on the planet. If you want to understand yourself, fellow humans, even the markets, put movement at the very core of what we are. 

Essential to our exquisite motor control is an equally advanced system of fuel injection, one that has been misleadingly termed “the stress response”. Stress connotes something nasty but the stress response is nothing more sinister than a metabolic preparation for movement. Cortisol, the main stress molecule, inhibits bodily systems not needed during movement, such as digestion and reproduction, and marshals glucose and free fatty acids as fuel for our cells. 

The stress response evolved to be short lived, acutely activated for only a few hours or days. Yet during a crisis such as the current one, you can activate the stress response for weeks and months at a time. Then an acute stress response morphs into a chronic one. Your digestive system is inhibited so you become susceptible to gastrointestinal disorders; blood pressure increases so you are prone to hypertension; fatty acids and glucose circulate in your blood but are not used, because you are stuck at home, so your risks increase for cardiovascular disease. Finally, by inhibiting parts of the immune system, stress impairs your ability to recover from diseases such as cancer, and Covid-19. 

So why the connection with uncertainty? The stress response is largely predictive rather than reactive. Just as we try to predict the future location of a tennis ball, so too we predict our metabolic needs. When we encounter situations of novelty and uncertainty, we do not know what to expect, so we marshal a preparatory stress response. The stress response is comparable to revving your engine at a yellow light. Situations of novelty can be described, following Claude Shannon, inventor of information theory, as “information rich”. Conveniently, informational load in the financial markets can be measured by the level of volatility: the more Shannon information flowing into the markets, the higher the volatility. 

In two of our studies we found that traders’ cortisol levels did in fact track bond volatility almost tick for tick. It did not even matter if the traders were making or losing money; just put a human in the presence of information and their metabolism calibrates to it. Take a moment to contemplate that curious result — there are molecules in your blood that track the amount of information you process. 

Today, with historically elevated volatility, there is a good chance cortisol levels are trending higher. Immune systems could also be affected. When your body is attacked by a pathogen, your immune system coordinates a suite of changes known as “sickness behaviour”. You develop a fever, lose your appetite and withdraw socially. You also experience increased risk aversion. 

Central to the immune response is inflammation, the process of eliminating pathogens and initiating tissue repair. However, inflammation can also occur in stressful situations, because cytokines, the molecules triggering inflammation, assist in the recruitment of metabolic reserves. If inflammation becomes systemic and chronic, it contributes to a wide range of health problems. We found that interleukin-1-beta, the first responder of inflammation, tracked volatility as closely as cortisol. 

Recently we have focused on the cardiovascular system. Working with a large and sophisticated fund manager, we have used cutting-edge wearable tech that permits portfolio managers to track their cardiovascular data, physical activity and sleep. The cardiovascular system similarly tracks volatility and risk appetite.

In short, here we may have a mechanism connecting financial and health crises. On the one hand, fluctuating levels of stress and inflammation affect risk-taking. In a lab-based study, we found that chronically elevated cortisol caused a large decrease in risk appetite. Shifting risk presents tricky problems for risk management — and for central banks. Physiology-induced risk aversion can feed a bear market, morphing it into a crash so dangerous that the state has to step in with asset purchases. On the other hand, chronically elevated stress and inflammation are known to contribute to a wide range of health problems. 

We are not accustomed to combining financial and medical data in this way. But corporate and state health programs should start. 

The markets today are living through a period of volatility the likes of which I have never encountered. March was, to put it mildly, information rich. As a result, there is now the very real possibility of a second wave of disease. Viruses can make you sick, but so too can information.

The best form of self-help is … a healthy dose of unhappiness

We’re seeking solace in greater numbers than ever. But we’re more likely to find it in reality than in positive thinking writes Tim Lott in The Guardian


  

‘Self-help is almost as broad a genre as fiction.’ Photograph: Christopher Thomond/The Guardian


Booksellers have announced that sales of self-help books are at record levels. The cynics out there will sigh deeply in resignation, even though I suspect they don’t really have a clear idea of what a self-help book is (or could be). Then again, no one has much of an idea what a self-help book is. Is it popular psychology (such as Blink, or Daring Greatly)? Is it spirituality (The Power of Now, or A Course in Miracles)? Or a combination of both (The Road Less Travelled)?

Is it about “success” (The Seven Secrets of Successful People) or accumulating money (Mindful Money, or Think and Grow Rich)? Is Caitlin Moran’s How to Be a Woman self-help? Or the Essays of Montaigne?

Self-help – although I would prefer the term “self-curiosity” – is almost as broad a genre as fiction. Just as there are a lot of turkeys in literature, there are plenty in the self-help section, some of them remarkably successful despite – or because of – their idiocy. My personal nominations for the closest tosh-to-success correlation would include The Secret, You Can Heal Your Life and The Life-Changing Magic of Tidying Up – but that is narrowing down a very wide field.

In the minority are the intelligent and worthwhile books – but they can be found. I have enjoyed so-called pop psychology and spirituality books ever since I discovered Families and How to Survive Them by John Cleese and Robin Skynner in the 1980s, and Depression: The Way out of Your Prison by Dorothy Rowe at around the same time.

The Cleese book is a bit dated now, but Rowe’s set me off on a road that I am still following. She is what you might call a non-conforming Buddhist who introduced me to the writing of Alan Watts ( another non-conformer) whose The Meaning of Happiness and The Book have informed my life and worldview ever since.

The irony is that books of this particular stripe point you in a direction almost the opposite of most self-help books. Because, from How to Win Friends and Influence People through to The Power of Positive Thinking and Who Moved My Cheese?, “positive thinking” seems to be the unifying principle (although now partially supplanted by “mindfulness”).

The books I draw sustenance from contain the opposite wisdom. This isn’t negativity. It’s acceptance. Such thinking does not at first glance point you towards the destination of a happier life, which is probably why such tomes are far less popular than their bestselling peers. Yet these counter self-help books have a remarkable amount in common.

Most of them have Buddhism or Stoicism underpinning their thoughts. And they offer a different, and perhaps harder, road to happiness: not through effort, or willpower, or struggle with yourself, but through the forthright facing of facts that most of us prefer not to accept or think about.

Whether Seneca, or Nietzsche, Viktor Frankl or Rowe, Watts or Oliver Burkeman (The Antidote), or most recently Jordan B Peterson (12 Rules for Life), these thinkers all say much the same thing. Stop pretending. Get real.

It is not easy advice. Reality – now as ever – is unpopular, and for good reason. But the great thing about these self-help books is that, while giving sound advice, they are clear-eyed in acknowledging the truth: that happiness is not a given for anyone, there is no magic way of getting “it” – and that, crucially, pursuing it (or even believing in it), is one of the biggest obstacles to actually receiving it.

Such writers suggest the radical path to happiness comes from recognising the inevitability of unhappiness that comes as a result of the human birthright, that is, randomness, mortality, transitoriness, uncertainty and injustice. In other words, all the things we naturally shy away from and spend a huge amount of time and painful mental effort denying or trying not to think about.

Peterson perhaps puts it too strongly to say “life is catastrophe”, and the Buddha is out of date with “life is suffering”. Such strong medicine is understandably hard to take for many people in the comfortable and pleasure-seeking west. And despite what both Peterson and the Buddha say, not everyone suffers all that much.

Some people are just born happy or are lucky, or both, and are either incapable of feeling, or fortunate enough to never to have felt, a great deal in the way of pain or trauma. They are the people who never buy self-help books. But such individuals, I would suggest (although I can’t prove it), are the exception rather than the rule. The rest of us are simply pretending, to ourselves and to others, in order not to feel like failures.

But unhappiness is not failure. It is not pessimistic or morbid to say, for most of us, that life can be hard and that conflict is intrinsic to being and that mortality shadows our waking hours.

In fact it is life-affirming – because once you stop displacing these fears into everyday neuroses, life becomes tranquil, even when it is painful. And during those difficult times of loss and pain, to assert “this is the mixed package called life, and I embrace it in all its positive and negative aspects” shows real courage, rather than hiding in flickering, insubstantial fantasies of control, mysticism, virtue or wishful thinking.

That, as Dorothy Rowe says, is the real secret – that there is no secret.

Decoding The Bhagwad Gita

Roopa Pai

Theresa May is dragging the UK under. This time Scotland must cut the rope

George Monbiot in The Guardian

Here is the question the people of Scotland will face in the next independence referendum: when England falls out of the boat like a block of concrete, do you want your foot tied to it?

It would be foolish to deny that there are risks in leaving the United Kingdom. Scotland’s economy is weak, not least because it has failed to wean itself off North Sea oil. There are major questions, not yet resolved, about the currency it would use; its trading relationship with the rump of the UK; and its association with the European Union, which it’s likely to try to rejoin.

But the risks of staying are as great or greater. Ministers are already trying to reconcile us to the possibility of falling out of the EU without a deal. If this happens, Britain would be the only one of the G20 nations without special access to EU trade – “a very destructive outcome leading to mutually assured damage for the EU and the UK”, according to the Commons foreign affairs committee. As the government has a weak hand, an obsession with past glories and an apparent yearning for a heroic gesture of self-destruction, this is not an unlikely result.

On the eve of the first independence referendum, in September 2014, David Cameron exhorted the people of Scotland to ask themselves: “Will my family and I truly be better off by going it alone? Will we really be more safe and secure?” Thanks to his machinations, the probable answer is now: yes.

In admonishing Scotland for seeking to protect itself from this chaos, the government applies a simple rule: whatever you say about Britain’s relationship with Europe, say the opposite about Scotland’s relationship with Britain.

In her speech to the Scottish Conservatives’ spring conference, Theresa May observed that “one of the driving forces behind the union’s creation was the remorseless logic that greater economic strength and security come from being united”. She was talking about the UK, but the same remorseless logic applies to the EU. In this case, however, she believes that our strength and security will be enhanced by leaving. “Politics is not a game, and government is not a platform from which to pursue constitutional obsessions,” she stormed – to which you can only assent.

A Conservative member of the Scottish parliament, Jamie Greene, complains that a new referendum “would force people to vote blind on the biggest political decision a country could face. That is utterly irresponsible.” This reminds me of something, but I can’t quite put my finger on it.

Before the last Scottish referendum, when the polls suggested that Scotland might choose independence, Boris Johnson, then London mayor, warned that “we are on the verge of an utter catastrophe for this country … No one has thought any of this through.” Now, as foreign secretary, he assures us that “we would be perfectly OK” if Britain leaves the EU without a deal.

  Independence supporters gather in Glasgow’s George Square after Nicola Sturgeon’s call for a second referendum.

The frantic attempts by government and press to delegitimise the decision by the Scottish first minister, Nicola Sturgeon, to call for a second independence vote fall flat. Her party’s manifesto for the last Scottish election gives her an evident mandate: it would hold another referendum “if there is a significant and material change in the circumstances that prevailed in 2014, such as Scotland being taken out of the EU against our will”.

Contrast this with May’s position. She has no mandate, from either the general election or the referendum, for leaving the single market and the European customs union. Her intransigence over these issues bends the Conservative manifesto’s pledge to “strengthen and improve devolution for each part of our United Kingdom”.

Her failure to consult the governments of Scotland, Wales or Northern Ireland before unilaterally deciding that the UK would leave the single market, and her refusal to respond to the paper the Scottish government produced exploring possible options for a continued engagement with the EU after Brexit testify to a relationship characterised by paternalism and contempt.

You can see the same attitude in the London-based newspapers. As the last referendum approached, they treated Scotland like an ungrateful servant. “What spoilt, selfish, childlike fools those Scots are … They simply don’t have a clue how lucky they are,” Melanie Reid sniffed in the Times. Now the charge is scheming opportunism. “We hope the Scottish people call Sturgeon out for her cynical, self-interested game-playing,” rages the Sun’s English edition. If you want to know what cynical, self-interested game-playing looks like, read the Sun’s Scottish edition. It says the opposite, contrasting the risks of independence with “the stick-on certainty of decades of Tory rule with nothing to soften it”, if Scotland remains within the UK.

Whenever I visit Scotland, I’m reminded that Britain is politically dead from the neck down. South of the border, we tolerate repeated assaults on the commonweal. As the self-hating state destroys its own power to distribute wealth, support public services and protect the NHS from ruin; as it rips up the rules protecting workers, the living world, our food, water and the very air we breathe; as disabled people are pushed off a cliff and poor people are evicted from their homes, we stand and stare. As the trade minister colludes with the dark money network on both sides of the Atlantic, threatening much that remains, we shake our heads then turn away.

Sure, there are some protests. There is plenty of dissent on social media; but our response is pathetic in comparison with the scale of what we face. The Labour opposition is divided, directionless and currently completely useless. But north of the border politics is everywhere, charged with hope, anger and a fierce desire for change. Again and again, this change is thwarted by the dead weight of Westminster. Who would remain tethered to this block, especially as the boat begins to list?

Scotland could wait to find out what happens after Brexit, though it is hard to see any likely outcome other than more of this and worse. Or it could cut the rope, pull itself back into the boat, and sail towards a hopeful if uncertain future. I know which option I would take.

How do batsmen cope with the intensity of their lonely skill?

Digging the pitch, repetitive body movements, talking to themselves, superstitious behaviour, visualisation - different ways that batsmen deal with the pressure of their profession


Michael Bond in Cricinfo


All sportspeople like to imagine that their discipline is the most mentally challenging, that winning or losing comes from within. But batsmen have a stronger claim than most. What other sport demands such intense concentration, affords participants so little control over their situation and penalises mistakes so cruelly and with such dramatic ritual?

Batting is a game of life and death like no other. Success - a century, a match-saving last stand - can live with you forever. But getting out feels like the end of everything: you are dismissed not just from the field of play, but from your own dreams of hopefulness and redemption.

---Also read

THE MASKS WE WEAR

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Dismissed batsmen are like mourners at their own funerals. The dressing room falls silent as they return, "in respect for the dead", as Mike Brearley puts it in The Art of Captaincy (1985).

"There aren't many situations in sport where you have this challenge of one tiny mistake and that's it, finished, the rest of the day you're watching from the sidelines," says sports psychologist Steve Bull, who worked with the England cricket team for 17 years. "It creates a particular type of pressure which I don't think other athletes experience."

Given the intensity of the mental drama, it is little wonder that a batsman's struggles are with himself as much as with the bowler he faces, and that a lack of confidence can invite negative thinking and a fear of failure. For top-level batsmen with near-perfect technical skills, protecting themselves from such tendencies is critical. The methods they use to reduce anxiety, stay positive and maintain focus are idiosyncratic, often eccentric and tell us as much about the quirks of the human mind as the nuances of cricket.

If you watched England's three-match Test series against Sri Lanka this summer, you will have spotted a graphic example of one of these methods. Before each ball, the Sri Lankan opener Kaushal Silva performs what psychologists call a "pre-performance routine". He adjusts the velcro on his gloves, moves his bat from his left to his right hand and holds it up in front of him, moves his left elbow back and forth eight times (fewer if he's facing a spinner) as if pulling on an imaginary rope, then, gripping his bat with both hands, arches his back before settling into his crease.

The repetition looks neurotic, but Silva has developed it to help him feel settled. "I don't really count the exact number of times I do it, it just comes from my body," he says. "I do it until I have calmed my nerves and I feel OK and I'm really focused. These small things help me to be myself and to just concentrate on the next ball."

It seems to be working. Sri Lanka lost 0-2, but Silva won his team's Player-of-the-Series award for his 193 runs.

Most batsmen have pre-performance routines, though few as elaborate as Silva's. They might wander a few steps towards square leg, tap the bat on the ground a particular way or pull at their shirt. What psychological purpose does this serve? Brearley thinks it's "a way of clearing the mind of the last ball, getting on with the next one, making clear to oneself that a line needs to be drawn under the last one".

In Jonathan Trott's case this is literally true. He marks his guard with a shallow trench, which he reinforces before each delivery, as if to bury everything that's gone before, a habit he repeats whether he's batting in the nets or in a county or international game.

Such repetition is critical to why routines work, says Bull. "It has to be 100% consistent, every ball always the same. You need to get your routines habitualised to the point where you don't think about them, to practise them so that when you're in the middle you go into automatic pilot."

In other words, batsmen should tune their mental routines alongside their physical ones so that the two coalesce. Consider Kevin Pietersen's advice to a 12-year-old budding cricketer who asked him on Twitter how to stop "second-guessing" himself when playing a shot, a common mental error among cricketers still developing their technique. "Practise, practise, practise, and trust your practise," Pietersen replied. "Hardest thing to do but when you do it changes your game."

Perhaps the most tangible function of routines is that they give the batsman a sense of control over a situation which, for the most part, is out of their hands. The state of the wicket, the weather, the path of the ball through the air and off the pitch are beyond his reckoning; his pre-ball ritual is all his own. This need for control amid so much uncertainty may explain why batsmen are particularly prone to superstitions. Unlike a pre-performance routine, a superstition - essentially an irrational belief in implausible causality - is unlikely to improve performance. Yet cricket is full of them.

The Glamorgan opener Steve James avoided eating duck meat until he retired, and he wouldn't allow his daughter to have plastic ducks in her bath. Mike Atherton had to be first on to the field at the start of an innings, even if it meant barging past his opening partner on the way down the pavilion steps. The South African batsman Neil McKenzie used to tape his bat to the dressing-room ceiling because his team-mates had once done this as a practical joke prior to him scoring a century. Steve Waugh batted with a red rag in his pocket for similar reasons.

Derek Randall, like many batsmen, hated being on 13. "I couldn't wait to get off it," he says. "Sometimes I'd get out because I was trying too hard to get off the blooming thing."

Ed Smith, one of the most notoriously superstitious cricketers, had a habit of asking the umpire, mid-over, how many balls were left. For the first part of his career he did this always after the fourth ball, then switched to asking after the third ball. Since he batted for around 15,000 overs in his career, he must have asked this question of the umpire around 15,000 times.

"It was silly and I knew it," he writes in Luck: A Fresh Look at Fortune (2012). "It was unintelligent and I knew it. It was a source of mirth and I knew it. But I did it anyway. Superstition was a dependency I found hard to give up."

Many batsmens' superstitions revolve around an obsession with their kit. Trott is scrupulous about how he arranges his bats. Atherton always followed the same padding-up routine: box, chest guard, inside thigh-pad, outside thigh-pad, left pad, right pad, arm guard, gloves, helmet. This kind of fastidiousness is not too surprising since batting is much about organisation, repetition and structure.

Yet rigorously adhering to a ritual is unlikely to put you in the runs and could make things worse. "If the superstition is something you might not have control over, like wearing your lucky socks, what happens when you lose your lucky socks or they fall apart," says sports psychologist Stewart Cotterill. "It will have the opposite effect: you'll feel you're not ready."

Once all the fussing and the rituals and the routines are done and the batsman is settled at the crease, he can then focus on the bowling. This is where the real test begins. Unless you are an expert meditator, paying close sustained attention to something for long periods can be mentally draining. To deal with this, coaches encourage batsmen to "dial up" their focus when the bowler is running in and "dial down" between balls.

Atherton says switching on and off like this is "absolutely vital" and came easily to him, a naturally relaxed character. "All studies show you can't concentrate for lengthy periods without a break. The ball is 'live' for maybe six to ten seconds, so that is all you have to concentrate for."

Silva pares down the window of concentration even further, to three or four seconds, switching on only when the bowler is halfway through his run-up. He calculates that this way, if he sets out to score a century in, say, 180 to 200 balls, he will have to concentrate deeply for just ten to 15 minutes. "So it's 15 minutes to get 100 runs. If you cut it down like this then it will be easier. You don't worry about the long term, you just focus on the particular ball."

"Mental skills are like physical skills. You have to work at them relentlessly. You have to challenge your brain to get better at blocking out the negatives and replacing them with positives"

STEVE BULL, SPORTS PSYCHOLOGIST

The thought of surviving hours at the crease can seem overwhelming if you don't break it down.

Tammy Beaumont, who this summer became the first woman to hit back-to-back ODI centuriesfor England, during the series against Pakistan, worries only about the next five runs. "I'll tell myself: get to five, once I get to five get to ten, keep it like that, keep it all about the next ball."

Another approach is to segment time. Brearley and Randall did this during the Centenary Testbetween England and Australia in Melbourne in 1977. Needing 463 to win with a wicket down, they decided to take it in 15-minute sections. "Stick at it, Skip. In ten minutes there'll only be 15 minutes to tea," Brearley recalls Randall saying, in The Art of Captaincy. They lost by 45 runs; Randall scored 174.

You don't have to be an international or even a professional cricketer to benefit from these mental heuristics. Bull says the key difference between elite and "Sunday afternoon batsmen" is that "Sunday afternoon batsmen tend to overcomplicate things. They're standing there tapping the ground as the bowler runs in, thinking about where the fields are, thinking about their left-hand grip, where their shoulders are. The best players in the world are just standing there saying: watch the ball."

Mental routines are a way to simplify things, to shut out technical thoughts, memories of mistimed shots and other internal distractions, and to help the batsman settle into a state of readiness that Bull calls "relaxed alertness". But routines alone may not be enough, especially in international games where the pressures can be immense. To settle nerves and maintain confidence through an innings, many batsmen engage in what used to be considered a symptom of mental illness but is now recognised as fully functional: talking to yourself.

In a 2013 study at an English first-class cricket club, psychologists at Cardiff Metropolitan University found that batsmen used self-talk regularly, either to motivate themselves in challenging situations - when walking out to bat, for example, or after a poor shot - or to deliver instructional cues that focus attention, such as "Watch the ball!"

In fact, "Watch the ball" seems to be the default cue for most batsmen. Ricky Ponting used it. You can sometimes see Eoin Morgan mouthing it before a ball. Beaumont, after watching one of Ponting's masterclasses, adopted it then adapted it - her current cue is "Time the ball, play straight". Easy if you know how.

One of the most notorious self-talkers in cricket history is Randall. He did it constantly and out loud. "It was spontaneous, it was a natural thing to do. When I'm nervous I start talking. It would help me concentrate. It annoyed everybody, including the people who played with me."

During the fourth Test of the 1978-79 Ashes, when Randall scored 150 during the second innings and turned the series in England's favour, his monologue continued throughout the nine hours and 42 minutes he spent at the crease. Here's a snatch of it, as related to Sunday Times journalist Dudley Doust by his opponents and team-mates: "Come on, Rags," he says. "Get stuck in. Don't take any chances. Get forward, get forward. Get behind the ball. Take your time, slow and easy. You idiot, Rags. Come on, come. Come on, England."

Younis Khan, who averages 53.72 in Test cricket and is Pakistan's highest-ever run scorer, also talks to himself all the time when he's at the wicket. But he has a slightly different approach to most, conducting his conversations with an alter ego that he conjures up as he goes out to bat.

"I imagine there is a guy standing in front of me and he is Younis Khan, and just talk with him. It's like there are two Younis Khans standing face to face like a boxer, and they are talking and looking each other in the eyes. Come on, Younis Khan, you can do this, you can do that."

Self-talk can keep you focused, and it can also help maintain confidence, without which batting can feel like Russian roulette. Mark Ramprakash, the England men's batting coach, says confidence and self-belief are "absolutely paramount. They can work wonders: they can make up for a less-than-perfect technique. The thing with cricket is that you have a lot of bad days. You make one wrong decision, or someone takes a great catch. The best players, like Alastair Cook, are incredibly resilient to those bad days. They maintain a belief in their own ability."

Ramprakash himself suffered a crisis of belief early on in his England career when he failed to make a big score and began to question whether he belonged at Test level. Then in 1998 he started working with Bull, brought in by England as team psychologist.

"He gave me a very simple framework of coping with all the scrambled thoughts that were going on in my head," says Ramprakash.

Silva pares down the window of concentration to three or four seconds, switching on only when the bowler is halfway through his run-up. "So it's 15 minutes to get 100 runs. If you cut it down like this then it will be easier"

It proved pivotal. Soon after meeting Bull he scored 154 against West Indies in Barbados - his first Test century - and then topped the averages the following winter in Australia. His team-mate Atherton, writing in his autobiography, said he sensed at the time that Ramprakash was "a totally different person, and consequently, player".

Today the mental side of batting and the pressures that come with playing at international level are taken very seriously by England's management, due in no small part to Ramprakash's influence. Yet confidence is a fickle trait. Sometimes it's necessary to fake it to make it, so to speak. Psychologists have known for decades that feelings and emotions stem from changes in the body, rather than the other way round - a phenomenon known as embodied cognition - which means it's possible to generate confidence simply by acting it out.

"Shadow batting" - practising sublime strokes between balls - or walking out to bat with head held high, can have a positive effect on the way you play. The sports psychologist Jamie Barker, who works with Nottinghamshire Cricket Club and the ECB's performance programme, makes a point of getting players to focus on their body language as they leave the pavilion, to appear confident even if they don't feel it: "If you're assertive, your brain will pick up on that."

Another way of "faking" confidence is to visualise the way you want to play in your mind's eye before the game begins. In 1974, early in his career, Randall suffered four first-class innings in a row without scoring a run. "It was a nightmare," he says. "The pressure just builds on you." So on the morning of his fifth innings he got up early and arrived at the ground while it was still deserted, strapped on his pads, walked out to the middle, played a cover drive and took a run, "just to remember what it was like". He scored 93 that day.

Ramprakash encourages England's batsmen to use this kind of visualisation, which serves as a cognitive rehearsal for the main event. There is much evidence that it works. One problem with all these approaches is that worrying too much about your own performance can easily make things worse. Steven Sylvester, Middlesex's psychologist and author of the recent book Detox Your Ego(2016), thinks that for players at the top of their game what really matters is "where your heart is, why am I here?"

The important thing, he says, is to believe at an emotional level that you are playing not for yourself but for your team or your country, or some other ideal that transcends you. "When players start to think about their performance as serving the group it increases their self-esteem, their belief goes up and they become a bit freer in their skills. It gives them a little bit extra."

In 2013, Sylvester helped Australia and Middlesex batsman Chris Rogers after he was called up to the Ashes squad more than five years after his previous Test. "It became blindingly obvious that his fear of representing his country in the Ashes as an opening batsman was stopping him from moving forward," he says. "Through a deep discussion of how to serve his country he came up with a more compelling reason to doing well than if it was just about him."

Sylvester coached Moeen Ali through a similar process, helping him put his cricket in the context of his faith and his desire to be a role model. The Pakistan batsman Asad Shafiq, who has scored eight Test centuries at No. 6 - a world record - gives an equally compelling reason for his own success: "To bat at No. 6 you have to be patient, as most of the time the tailenders are with you. You have to give them confidence and support."

Shafiq is batting not just for himself, but for Nos. 7, 8, 9, 10 and 11 as well. He epitomises CLR James' portrait in his classic Beyond a Boundary (1963) of the batsman as the ultimate team player. When facing the ball, writes James, he "does not merely represent his side. For that moment, to all intents and purposes, he is his side."

Without doubt, all batsmen can improve their confidence, resilience and other mental attributes if they're willing to practise. "Mental skills are like physical skills," says Bull. "You have to work at them relentlessly. You have to challenge your brain to get better at blocking out the negatives and replacing them with positives."

Yet it also seems clear that some people are inherently better at this than others. In 2005, Bull carried out a psychological analysis of 12 English cricketers from the previous two decades whom county coaches had identified as the toughest mentally in the country. Among them were Atherton, Graham Gooch and Alec Stewart. Bull found them all to be highly competitive and motivated, full of self-confidence and with a never-say-die attitude, some of which derived from their upbringing, some from the teams they had played with and some from their personality.

For the rest of us, it is comforting to know that we can learn such skills - and that even the greats can struggle at times. Even Don Bradman called batting "a nerve-racking business". In The Art of Cricket (1958), he implores us to give a thought to the batsman's travails as he wends his way to the wicket: "He is human like you, and desperately anxious to do well."

The things economists know. . . and don’t know about Brexit

Roger Bootle in The Telegraph

Last week we were treated to a fine exhibition of the economist’s art. I refer to the Treasury study of the economic impact of Brexit, which told us that in 15 years’ time, on a central view, the average British household would be worse off by £4,300 a year. This episode has prompted me to think about what it is that economists know – and what they don’t.

It is clear that economists’ prognostications have, at best, a mixed record. Not only can economists not reliably tell you what GDP is going to be in two or three years’ time but, as a group, they seem pretty bad at anticipating major developments.

Although some economists did foresee the financial crisis, as a whole they did not. Nor did most foresee the emergence of a zero inflation/deflation world.

Let me say, though, that of its type, last week’s Treasury document was a fine specimen. A large team of economists has been working on it for the best part of a year, and these are good, professional people who have not simply been doing what they were told by their political bosses. Nevertheless, that doesn’t mean that what they have produced is of serious value. 

The problem with much of economics is that what we can readily measure, even when it is tendentious, is often the minor part of the question. Yet there is a natural tendency to measure what is measurable and to leave to one side, or to downplay, the things that are not.
The Treasury study concentrated on the effects of a Brexit on UK trade and the consequences for GDP and investment on a static “other things equal” basis. It assumed that we would be unable to secure any more favourable trade agreements with non-EU countries.

Interestingly, it did not begin to quantify the possible economic gains from a policy of radical deregulation. The reason is apparently that it is not clear that we would repeal and rescind EU legislation and directives and, in any case, the UK is a relatively lightly-regulated economy. The implication is that there is next to nothing to be gained from deregulation.

This is, to put it mildly, a rather odd stance to take – certainly if you were trying to be fair across all sides of the debate. After all, those economists who think that there is much to be gained economically from leaving the EU tend to rest their case mainly on large potential gains from EU deregulation.

Moreover, umpteen businesses across the country bemoan the costs of regulation on their operations. It is not that their case has been disproved by last week’s study; it has simply been ignored. 

The study, in accordance with convention, took a static approach to how the EU might evolve. True, this excluded some of the potential benefits of remaining in the EU from the extension of the single market. But it also excluded some of the most important negative possibilities.

Once the UK referendum is out of the way, if we vote to stay in, it is likely that the EU will turn quite nasty towards us. This will not only be because the EU’s leaders will be cheesed off with us, although they most certainly will be.

More importantly, they will think that we have shot our bolt. In particular, we would probably find that, far from rejoicing in the City’s role as Europe’s financial centre, the EU would renew its attempts to undermine it.

Meanwhile, the EU would have to embark on truly momentous changes in order to make the eurozone work. Banking union, fiscal union and political union must be put in place for the euro to survive.

We don’t know what effects this cocktail of changes will have upon European politics and economic performance – and hence on us.

The overwhelming majority of the EU will be inside the euro, and what needs to be done to make the euro work would be the EU’s leading concern.

We do not know what things will be forced upon us by qualified majority voting. Moreover, with the referendum behind us, there is a good chance of a renewed push to get the UK into the euro. What have the calculations that produce the figure £4,300 a year got to say about this? The answer, of course, is precisely nothing.

And all this is before we take account of the dynamic effects and their political consequences. Perhaps after a Brexit our leaders would become enmeshed in rivalrous infighting and it would be impossible to put together an economic programme for national renewal.

But there is surely a good chance, as Michael Gove suggested last week, that by contrast EU departure would be the equivalent of a shot in the arm.

Nor did the study have anything to say about the congestion and social costs implied by uncontrolled immigration, which are at the heart of so many people’s concerns about the EU.

Although the future is beset with uncertainty, about this issue we do know some things. We know that over recent decades the EU has been a comparative economic failure.

We know that unless something really radical happens, it is set to fall sharply in relative economic performance over the decades to come. We know that the EU is set to embark on a course of integration from which we aim to stand aside. We know that inside the EU we do not have full control of our destiny.

We know that inside the EU but outside the eurozone we will be marginalised.

I cannot say what all this means in terms of pounds per annum for the UK average household in 15 years’ time. But I can recognise the difference between a situation of opportunity and a pig in a poke.

Asking economists about staying in the EU is a dismally bad idea

Katie Allen in The Observer

Leaving or remaining in the union is about politics, history and much more. Yet we keep on consulting economists.

 

The government’s £9m publicity drive will no doubt quote economists’ views on what Brexit could mean. But should it? Photograph: Dan Kitwood/PA



Households in England can look forward to a 14-page booklet landing on their doormat this week, making the case for Britain’s remaining in the EU. Responding to criticism of the £9m publicity drive, which will eventually reach the whole of the UK, the government said a survey had shown that 85% of people wanted more facts about the referendum.

If it is facts we get, fair enough. Voters are being asked to decide on something that until recently they knew little about, and probably cared even less. Now, with less than three months to go to the poll, it’s little surprise people want a crash course in the pros and cons of EU membership. Understandably, many simply want to know whether they will be better or worse off if we leave.

And that’s where the “dismal science” steps in. But should it? Economics is seen as a great simplifier, and we all love simplicity when faced with a decision. Wouldn’t it be nice if economists could plug some numbers into a spreadsheet and come out with a cold, hard figure: how much Brexit might cost, or benefit, the UK?

Plenty of economists have tried, and their calculations have been lapped up by the media and campaigners alike.

Analysts at investment bank Credit Suisse say a vote to leave the EU would trigger a snap UK recession, prompt a fall in share prices and house prices and knock as much as 2% off GDP.

BlackRock, the world’s largest fund manager, has warned about potential losses to the exchequer if the financial industry is depleted by Brexit. If 10% of workers in financial services lost their jobs after a vote to leave, it says, the government could lose up to £3bn in annual employment taxes.

The CBI has gone further, seeking to pinpoint what each household would lose. Analysis it commissioned from accountant PricewaterhouseCoopers claimed that Brexit would cause a serious shock to the UK economy that could lead to 950,000 job losses and leave the average household as much as £3,700 worse off by 2020.

PwC examined two exit scenarios: one at the optimistic end of the range, and the other assuming difficult trade negotiations that eventually result in trade deals being concluded. It also said that much more pessimistic scenarios could be envisaged.

And therein lies the problem. No accountant or economist can tell voters what trade deals would be negotiated in the event of a vote to leave. Nor can they tell us what immigration rules will be hammered out, which international firms will leave Britain or how UK government bonds will fare on international markets.

Economists themselves would probably admit as much, given the chance. After all, devotees of this discipline are passionate about probability distribution tables and many-hued fan charts that map out potential outcomes. Robert Chote, chair of the government’s forecaster, the Office for Budget Responsibility, has in the past used a fan chart in tones of red and orange to show likely it thought the government was to meet its fiscal rule: Chote called it “the flamethrower of uncertainty”.

Harry Truman famously summed up his frustrations with wishy-washy advisers when he reportedly exclaimed: “Give me a one-handed economist. All my economists say, ‘on the one hand … on the other’.”

Yet still we turn to economists for answers, making oracles of people who can’t even agree on what the UK’s trend rate of growth is, who can’t predict what inflation will be from one month to the next – and who largely failed to predict the biggest financial crisis in living memory. Much as voters and politicians would like economics to be an objective way of quantifying the effects of staying in or leaving the EU, it is not.

There is a second problem with taking a purely economic approach to the Brexit debate: it tends to focus on the short term. But if people really believe the UK should not, for whatever reason, be part of the EU, they should accept some short-term disruption from a decision to leave.

Similarly, those who want to stay but worry about how much the UK pays to Brussels must accept that being part of the EU comes at a price. The decision cannot be based merely on near-term profit or loss.

Take the example of German reunification in 1990. Marrying two countries with vastly different productivity levels, work cultures and politics made little economic sense. The same went for the one-for-one exchange rate for ostmarks and deutschmarks. But it wasn’t about the economics – reunification was about history and politics. As former chancellor Willy Brandt put it: “What belongs together, will grow together.” More than a quarter of a century down the line, Germany is still growing together, the economies of east and west still struggling to run to the same rhythm. But that does not make reunification a mistake.

One thing that Remain campaigners are right about is that leaving the EU would be a “leap in the dark”. Or as Airbus executives told staff in a letter warning against Brexit: “We simply don’t know what ‘out’ looks like.”

No country has ever left the bloc. That puts the onus on Leave campaigners to come up with more than reassurances that it will all be OK. But those on the other side do themselves and the dismal science few favours by bandying around flaky figures.