Tim Harford The Undercover Economist

Articles published in April, 2013

An evidence revolution

Teachers are better placed than anybody to generate new research questions, based on years of observation of subtleties that would escape any educational statistician

A while ago, my daughter’s school explained to parents that they were reorganising literacy classes, moving to mixed-ability groups. My wife asked a simple question: “What is the evidence behind the decision to change?” The result was blank incomprehension. Evidence?

Only a couple of generations ago, most doctors had a similar attitude to evidence-based practice. Fancy statistical procedures were thought to be no match for experience, especially since every case was unique. Randomised trials were all very well in theory, but unethical in practice. That scepticism has now been completely transformed in medicine: evidence trumps seniority, while individual judgment is bolstered by online libraries full of careful analysis.

Teachers have allowed themselves to be left behind in the evidence revolution. I sympathise with the profession which is constantly second-guessed by parents and school inspectors. Teachers have grown used to fad after fad being hurled at them from the Department for Education.

But I agree with Ben Goldacre – epidemiologist and author of an excellent polemic on evidence-based education commissioned by the DfE itself – when he argues that if the teaching profession embraced the evidence-based approach, it would enhance rather than diminish its independence from government. The facts, after all, rarely slot neatly into political ideologies. At a recent dinner organised by the Wellcome Trust, the British educational establishment – with, alas, only one teacher present – discussed the issue. The longstanding tension between teachers and governments was clearly recognised as an obstacle – but it’s one that can be sidestepped if teachers themselves seize the evidence agenda.

This is about much more than simply running randomised trials comparing different approaches to teaching. Consider the situation in clinical practice, as outlined by Professor Jonathan Shepherd, who argues that the secret is a tight plait of research, practice and continuing education. Trainee doctors are taught by practising clinicians. Those clinicians are also researchers, whose research agenda is closely influenced by their clinical experience. Research networks link together qualified researchers with GPs who have patients and research ideas. And once qualified, doctors continue to have the latest evidence pushed under their noses in the likes of the British Medical Journal.

In short, evidence-based practice in medicine isn’t a case of doctors, brainwashed into believing whatever clinical trials tell them, passively awaiting instructions. It’s a two-way street, where some of the best ideas for research are suggested by practitioners, and best practice spreads sideways from clinician to clinician rather than being handed down by diktat. There is nothing fundamental about education that makes this impossible – witness the “journal clubs” in Singapore and Shanghai, where teachers discuss and evaluate the latest research.

One can see why Dr Goldacre calls this a “prize”. Teachers are better placed than anybody to generate new research questions, based on years of observation of subtleties that would escape any educational statistician. There is, at last, some institutional support: the Institute for Effective Education at the University of York, for instance; or the Education Endowment Foundation, two years old this month, which is already running 50 randomised trials in schools, with a grant of £125m from the DfE.

“Trust me, I’m a doctor” was never an excuse for not collecting evidence. And “trust me, I’m a teacher” is not an excuse today. But being a teacher is a superb vantage point for building an evidence-based education system. It is an opportunity that teachers need to seize.

Also published at ft.com.

The culture secretary has strange designs on an engine of growth

The UK minister responsible for the arts hopes cake can rescue a crumbling economy, writes Tim Harford

‘Maria Miller will tell arts leaders on Wednesday to stop moaning about government cuts and start making the case for how their organisations can boost economic growth.’
FT.com, April 24

Interesting. Any idea what the culture secretary means?

You mean, do I have any idea what she means, or does she have any idea what she means? The answer’s no, either way. Although she did say that “culture is able to deliver things which few other sectors can”, which suggests that she thinks it’s a bit like Federal Express.

She must have given some examples.

That’s the problem. Every example tells a different story. For instance, she was keen to talk about the £5m a year that the Yorkshire Sculpture Park contributes to the local economy, according to a report commissioned by the Yorkshire Sculpture Park.

The basic benefits measured here were that visitors to the sculpture park might spend money locally, and the park itself also spent money locally, perhaps by buying chocolate cake from Wakefield and selling it to visitors. There is no cost-benefit analysis, so no way of asking whether the Wakefield cake-baking industry might have been stimulated more effectively in another way. Nor is it clear how many of these cakes might have been bought anyway – or in some different part of Yorkshire or indeed the UK.

Still, it is undeniable: people visiting cultural attractions don’t just spend money in the gift shop, but in nearby hotels, restaurants and shops. There’s money to be made.

She must have had some broader vision of the economic value of the arts.

Perhaps. The Arts Council has published a handy guide for arts organisations figuring out their economic benefit and you would be surprised how much of it is about cake-sale uplift, although they do not put things in quite those terms. The guide also mentions that organisations which publish estimates of their value to the local economy do tend to get press coverage, so that’s good, I suppose.

Let’s have some other examples. You’re being mean now.

The culture secretary pointed out that our cultural fame helps foster trade relationships. Perhaps that’s true, but Germany seems to be doing pretty well on the old trade-relationship front despite the fact that its cultural image revolves heavily around Beethoven and Wagner.

Ms Miller was proud of the fact that Norman Foster’s architectural practice is doing well in Hong Kong. She celebrated the fact that the Buxton opera festival had a turnover of £1m, although if economic value is the topic, profit is typically a more interesting number than turnover. And she mentioned that the musical Matilda looks like doing jolly well on Broadway – well done to the Royal Shakespeare Company – while Skyfall, the latest James Bond movie, made an awful lot of money.

If you can see the overarching link between these examples, you’re doing better than I am.

Wasn’t Skyfall produced by Sony anyway?

I think so. Ms Miller also said that “arts and culture are now thought to be as valuable to Merseyside’s economy as The Beatles and football”. Apart from suggesting that The Beatles don’t count as culture, I have absolutely no idea what that means. It may be the cakes again, or something else.

You seem very cynical about funding the arts.

I’m not one who is cynical. The cynic is the person who deploys an economic methodology that cannot distinguish between a museum and a rollercoaster. It is worth asking, though, whether arts funding really constitutes the seed capital that the culture secretary and arts grandees sometimes like to talk about.

I’m looking at a list of the 32 organisations that have received more than £5m from Arts Council England. Opera, ballet, symphony orchestras and theatres all but run the show – mostly venerable institutions. Giving millions of pounds to the RSC, the National Theatre and the English National Opera may be worthwhile; it hardly constitutes “seed funding”.

But the RSC did produce Matilda and the National Theatre produced War Horse.

True. And if you add a few other famous cultural creations – Bond movies, The Lord of the Rings, Harry Potter and a cornucopia of Jane Austen adaptations – it’s hard to avoid the conclusion that the real source of ideas is the British novel, which seems to me to be resolutely unsubsidised.

Also published at ft.com.

A spreadsheet error, a homework assignment, and a dose of reality for empirical economics

This subject has been covered ad nauseam in the econoblogosphere, but I’m still proud of our short More or Less documentary on how a student undercut the economics paper that austerity-minded politicians love to cite.

For more free More or Less podcasts, click here.

A brief lesson in letter-writing

New research by the Financial Conduct Authority shows how simple, low-cost research can yield substantial gains

This column will tell you:

• How to write an email that will produce the results you want;

• Why the scientific method can produce practical insights, quickly.

How can I promise this? I’ve just been reading up on the latest research from Paul Adams and Stefan Hunt of the Financial Conduct Authority – the UK’s shiny new financial industry regulator.

I am delighted to report that they’ve been trying to figure out how to write more effective letters. Better yet, to this end they have conducted a large randomised trial. The wonderful conclusion: science can help us write more clearly.

The letters in question were being written by a company to 200,000 former customers. The letters raised the prospect of a mis-sold product and offered the possibility of a refund. The question was: which wording would prod customers into claiming their money? The FCA researchers, in co-operation with the company in question, designed variants of the letter, mailed each variant to 1,000 customers, and compared the response rates.

The original letter looks brief and to the point, but on closer inspection it buries the key detail: the customer may be entitled to a refund. Response rates to this letter were dismally low, less than 2 per cent. Perhaps that is no surprise – the recipients were ex-customers with every reason to throw the letter in the bin, unopened.

The experiment did the sort of thing that profit-seeking companies have been doing for many years: it tested seven different tweaks to the way the letter was written or presented. There are 128 different ways to combine these seven tweaks, and with each of 128 variants sent to 1,000 customers the experiment had a lot of power to pinpoint even quite small effects.

Here are three tweaks that made little difference: printing “important: please read and act quickly” on the envelope induced a minuscule propeciafinasteridestore.com extra response; adding the regulator’s logo achieved nothing; using the company CEO’s name and signature instead of “customer services team” actually dissuaded people from responding.

But four other tweaks had substantial effects: first, cutting a paragraph of waffle that had helped to bury the message about the refund; second, pointing out that a five-minute phone call would suffice to make a claim; third, sending a follow-up letter. And twice as large as any of these effects was adding a couple of bullet points in bold at the top with the key message: you may deserve a refund; if so, call us.

This research has been marketed by the FCA as “behavioural economics exploring how people make financial decisions”, but like similar work on collecting fines and taxes conducted by the Cabinet Office’s Behavioural Insight Team, it is simpler and more pragmatic than that. There is no behavioural theory at play here, and nor do we really gain any insight into why consumers are reacting the way they do. But that’s fine. Simple, pragmatic research is a sensible thing for a regulator to be doing – and the cost of this kind of experiment is tiny relative to the potential gains.

True, the results are unsurprising: say what you mean; be brief; ask for action; follow up if you hear nothing. But this is important. It’s important because it shows a regulator with an interest in learning and improving, and it’s important because while the advice is commonsense, it’s advice that many people – and even more bureaucracies – fail to heed.

And even if the findings seem obvious, the effect is huge. The best letter received seven times as many responses as the original one. The three best tweaks each made more of an impact than the decision to send a letter at all rather than nothing. Brevity and clarity matter: advice worth taking next time you write an email.

Also published at ft.com.

Fine for my backyard, not my neighbour’s

Perhaps we should simply scrap planning permission altogether, writes Tim Harford

‘Eric Pickles has promised a hasty rethink of proposals to let homeowners bulldoze their back gardens without planning consent in another setback for government efforts to streamline the planning process.’
FT.com, April 16

I am never entirely reassured by the words “hasty” and “rethink” in proximity.

Proximity is what this is about – Mr Pickles, the local government secretary, was trying to pass a law that would enable people to build substantial home extensions without planning permission.

How substantial?

Eight metres, which would consume my entire back garden and half of the garden beyond that. But the idea looks like it will be modified, because many Conservative MPs, local councillors and others don’t like it. Zac Goldsmith, who has led the rebellion, said it was a “recipe for community disharmony” and suggested instead that developments should go ahead by default if neighbours did not oppose them.

Sounds reasonable.

Sounds nonsensical. Moving from a scheme where you decide what you build in your garden to a scheme where your neighbours decide what you build in your garden may change what gets built, but does nothing to reduce community disharmony. The same people will argue about the same things. Close neighbours often have conflicting interests about development – which is one reason why we have planning rules in the first place.

So what is Mr Pickles trying to achieve?

He wants more building. British homes are prohibitively expensive because we haven’t built enough of them – new homes are being built at about half the rate that new households are forming. What’s more, it’s a good time to make up some of the shortfall. The economy is depressed and construction activity would be a good stimulus. Unfortunately the government’s attempts to kick-start construction have not yet borne fruit.

Don’t lose hope. Perhaps George Osborne can delay the recovery so that Mr Pickles can make a difference.

Ha! Perhaps. I wonder, though, whether Mr Pickles shouldn’t think differently about planning reform. His current proposals will benefit homeowners with plans to expand, rather than large developers – whom journalistic ethics require me to describe as “canny”.

What would you suggest?

The basic problem is simple enough. The market tells us there is a huge pent-up demand for building new homes – converting some shops and offices, but in particular building on green space. However, we are wary of letting the market allow any building without planning permission, because of the possible spillovers – new developments can clog roads, raise the risk of floods or simply look ugly. Building new luxury homes all over Hyde Park would be profitable in its own right but awful for London; a similar, if gentler, consideration applies to building in any field or garden. And so we have rules aimed at figuring out what should be allowed.

And do they work?

Not really. Casual observation suggests that planners allow all sorts of monstrosities while imposing a huge cost on homeowners – although probably not on “canny developers”, whose knowledge of the intricacies of the planning system is a barrier to pesky competitors.

So what is to be done?

We could scrap planning permission, of course – the system was introduced in 1947 and it’s far from clear that the UK’s cityscapes have improved since then. But I suspect most people believe the island is too crowded to return to pure libertarianism. A more practical approach could retain the existing system, which gives planners widespread authority to determine what is best for a local area, but use market signals to persuade planners to approve more.

How might that work?

One proposal, floated by the think-tank CentreForum, would allow councils to reap the financial benefits of granting planning permission – which in some parts of the country can increase the value of agricultural land to a few million pounds per hectare. The landowner enjoys all that windfall – why should that be so? The duly motivated council would still be democratically accountable; considerations of safety, environmental hazard, congestion and aesthetics would remain on the table; and local taxpayers would benefit from local development. And yet we’d see more houses. All without fighting with the neighbours.

Also published at ft.com.

The ins and outs of organ donation

If we automatically put people on the donor register we’d presumably see more transplants

‘NHS achieves ground-breaking 50% increase in deceased organ donors’
National Health Service press release, April 11

That’s good news.

Absolutely – although about 1,000 people a year die waiting for an organ. Half of those who receive kidneys wait more than three years, and being on dialysis is not fun. So we need to do more. And it turns out that economists are experts on allocating scarce resources.

You are about to propose a market for human organs?

No, I think we can agree that the idea of a market for live kidney donations is a non-starter. Except in Iran.


Yes, buying kidneys is legal in Iran. Can we move on? Proposal number two is to establish a different way to exchange kidneys. The idea is simple: many patients have friends, spouses or siblings who are willing to donate a kidney but cannot because of incompatible tissue or blood types. In 1986 Felix Rapaport, a leading transplant surgeon, floated the idea of putting together patients and donors to allow each donor to give a compatible kidney to the other donor’s loved one. Even now the idea is called “paired donation” because “exchange” might sound too much like a market.

But surely nobody could object to such a thing.

It has caught on and been made more effective by the efforts of economists such as Al Roth, a recent Nobel laureate based at Stanford University. They have designed algorithms to maximise the number of successful transplants. Another idea, the brainchild of a surgeon, Michael Rees of the University of Toledo, is to set up long chains of donations, beginning with a single altruist who is willing to donate a kidney to a stranger without needing to enter some sort of paired donation arrangement.

Are such schemes making their way over to the UK?

They are indeed; we have several kidney sharing schemes here. But they are small compared with the number of people waiting for kidneys. And it is not so easy for a living donor to offer a heart or a lung.

Any other brilliant economic ideas?

Here’s a curious observation, from a 2003 paper written by the behavioural scientists Eric Johnson and Daniel Goldstein: in countries where people must opt out if they don’t want to donate their organs, “consent” rates are typically close to 100 per cent. In countries such as the UK, where people must opt in to become donors, consent rates are much lower. This leads to the natural observation that if we just automatically put people on the donor register unless told otherwise, we’d see more organ transplants and more lives transformed. Wales looks likely to adopt this position.

And rightly so, I’d say. Thank goodness for behavioural economics.

Not so hasty. It’s not at all clear that presumed consent would help. Many deceased donors were never on the register and many people on the register end up not being donors. One of the reasons why more transplants are taking place is because the NHS is getting more competent – and has clearer legal authority – at making sure they happen. This means identifying donors, persuading families to give consent and even performing procedures on patients who are not yet dead.

So a lot of this is actually about medical practice and bureaucratic efficiency?

Of course it is. And what families feel about it is also important. If we fill our donor registry with auto-enrolled donors, will that really persuade distraught families to support transplants? In any case, behavioural economics suggests a more elegant alternative.

Do tell.

Prof Johnson and Dr Goldstein are often cited in favour of presumed consent. But they also discovered that if you demand a yes or no answer, most people willingly join the register. You don’t need to sneak them on to it by default: you can just request that they express a preference. Since July 2011, people applying for driving licences in the UK have been faced with just this choice. The majority of new donors now arrive on the register in this way, although disappointingly the “not now” answers outnumber the “yes” or “already registered” answers by more than two to one. But, encouragingly, a new trial will be experimenting with different prompts, words and images with the aim of discovering what approach works best. That’s good. When doctors and nurses are trying to win approval from grieving families, it will be far more helpful if people are registered donors by choice, not by default.

Also published at ft.com.

Microjobs have a massive potential

A new company aims to pair the least-skilled and most excluded workers with jobs that need doing on a more industrial scale

The internet has a wonderful habit of creating new markets. eBay is the most famous and enduring example of bringing together people with something unusual to sell and other people who want to buy it. (In 1995, its creator, Pierre Omidyar, listed a broken laser pointer for sale; when he received an offer, he repeated his warning that the thing was broken. The response: the buyer collected broken laser pointers. Bingo.)

More recently, sites like Airbnb and TaskRabbit allow people to rent small spaces, or work at small tasks. While they are commercial, they retain an emphasis on personal connection and community. Rising to prominence in 2012 was Kickstarter, which helps people with projects raise money in small chunks from enthusiastic backers.

A new company, Upstart, offers fundraising for people who don’t even have projects. The typical Upstart is a precocious Ivy League graduate, all set to walk into a job at Google, Goldman Sachs or Exxon, but instead seeking backers to provide them with the financial security to be an entrepreneur.

All this is exciting. But oddly, despite the prodigious ability of modern computers to process data, each of these new sites works on a very human level. Every TaskRabbit task, every Kickstarter project is unique; the website merely facilitates personal connections.

“It’s all a bit 1995,” says Wingham Rowan, a technology journalist turned entrepreneur. And while the slick, user-friendly new sites are a world away from the text-based blue hyperlinks of the early web, Rowan has a point. Underneath the glitz, TaskRabbit operates much like an efficient small-ad board at your corner shop.

Rowan is now strategic director of a company called Slivers-of-Time, and he sees a missing opportunity: to bring the sophisticated market-making technology to the least glamorous end of the British labour market – to the poorest, least-skilled and most excluded workers.

A typical Slivers-of-Time worker is looking for a couple of hours’ work here, a couple of hours of volunteering there, either because personal circumstances make it hard to commit to regular hours, or because a full-time job isn’t available. A Slivers employer could be anything from a supermarket to a local council, a call-centre to a café, looking for a little assistance with the lunchtime rush, a product launch, or staff holidays. Slivers creates a searchable database, almost in real time, to allow an employer to find suitable workers at short notice, for a reasonable rate and with the right qualifications – anything from a food safety certificate to a driving licence.

This approach is finding some takers – Tesco and several local councils use the technology. But it is slow going. Slivers-of-Time is less cute than the “hire someone with a nice photo to pick up some dog food” approach of TaskRabbit. It aims to pair unused labour with jobs that need doing on a more industrial scale. And as Rowan argues, it cannot reach its potential without a lot of government work to sort out the regulatory environment.

Benefits need to be reformed so that doing a few hours’ work a week is encouraged rather than penalised. (In principle, the new universal credit should allow this. In practice, it’s not easy.) Governments also need to reform their information infrastructure: providing secure and selective access to databases so that driving licences, criminal records or professional qualifications can be checked instantly.

Yet such markets are potentially very important. Development gurus have long emphasised unlocking the potential of the poor by cutting red tape, establishing property rights and providing access to affordable credit. But jobs are typically what lift people out of poverty. And if it’s possible to develop microcredit in Bangladesh, it should be possible to develop microjobs in Birmingham.

Also published at ft.com.

Nudge nudge

A behavioural economics guru gets the chance to put his ideas into practice

Simpler: The Future of Government, by Cass Sunstein, Simon & Schuster, RRP$26, 272 pages

There’s a point early on in this book where Cass Sunstein describes the distressing process of being confirmed as administrator at the Office of Information and Regulatory Affairs in Barack Obama’s White House. Everything Sunstein has said needs to be vetted and, “unfortunately for my vetters, I have written countless speeches, well over 400 articles, and a lot of books. The vetters had to sift through thousands of pages.”

We can consider ourselves fairly warned. Ideas pour out of Sunstein and on to the page – but this is not a man who has the time to step back and produce a little structure or storycraft. Simpler contains some important thoughts, written by an intelligent and experienced observer, apparently in haste. The reader is going to have to do a bit of work. This is ironic, because the book’s key message is about presenting information to ordinary people in the simplest and most useful way.

Sunstein was co-author, with Richard Thaler, of Nudge (2008), a book that aimed to show the relevance of behavioural economics to government policy. In particular, Nudge argued that the way forms are designed and default options selected, even the way cafeterias are laid out, will influence our behaviour, and that policy makers should exploit this fact to do good without spending money or infringing personal liberty. People could, by default, be enrolled in their company pension plan; efficiency labels on cars could list “gallons per 100 miles”, which by a mathematical quirk turns out to be far more informative than “miles per gallon”.

Nudge didn’t have the catchy anecdotes of Dan Ariely’s Predictably Irrational (2008), nor was it as comprehensive as Daniel Kahneman’s Thinking, Fast and Slow (2011), but because of its inventiveness and practical policy bent, it is perhaps the most influential of the recent crop of behavioural economics books.

What, then, of Simpler? If Nudge had never been written, this would be an important work, but instead Simpler feels like an echo of its predecessor. Sunstein spent time running OIRA and most of the book is Nudge shifted to the past tense: instead of writing “this would be a good idea”, Sunstein writes “we did this, and it was a good idea”.

Policies set out in Simpler include well-designed labels; treating people who take no action as though they had actively chosen some sensible default; using personal information to tailor these defaults to individual circumstances; cost-benefit analysis of new regulations; testing and piloting new policies and practices; continually re-evaluating regulations and forms; and making it easy for citizens to provide feedback on what works and what does not.

These are well worth a try. A particularly promising concept is “smart disclosure”, in which government departments and corporations allow us to download our own data in machine-readable format. I could send my mobile phone or electricity usage data to a third-party comparison website, which could tell me the perfect deal given my personal circumstances.

Yet since there is little here that was not already in Nudge, the added value of Simpler is unclear – although US political junkies may find Sunstein’s war stories engaging. What would be really useful now would be an independent analysis of how well all these “nudges” are working. Since Sunstein dreamt them up, he is not the man to tell us whether they are performing as hoped. Simplicity is a sound ambition but in a complex world we should also check for unintended consequences.

Also published at ft.com.

6th of April, 2013Other WritingComments off

Rich pickings for scientists

Should we feel queasy about the growth of abstract, deeply technical thinking in finance?

Amidst all the glories of belle époque Paris, the troubles of an aspiring physicist can’t have amounted to much. In 1888, Louis Bachelier had graduated from school with excellent grades and high hopes of studying at the elite grandes écoles – until both his parents died suddenly, leaving Louis responsible for his sister and his three-year-old brother. He ran the family wine business for a while, was drafted into the army, and by the time he extricated himself from that and sold up, he was too old to do anything but study at the less-prestigious University of Paris. With his siblings to support, his study of physics had to be nocturnal. By day, he worked at the Paris Bourse.

Bachelier’s enthusiasm for physics quickly spilled over into finance, and he began to ponder the processes that governed the price of government bonds. He developed the idea of the random walk; he wrote up his ideas and defended a dissertation on the physics of financial speculation. He was almost laughed out of academia, and only secured a PhD at all with the help of a powerful mentor, Henri Poincaré.

Bachelier was ahead of his time even as a physicist. His research anticipated by five years a hugely important paper on Brownian motion by a young chap called Albert Einstein. But as a financial thinker, he was more than half a century ahead of the curve. His early research was discovered by the mathematician Leonard Savage and economist Paul Samuelson in 1955, a decade after Bachelier died. The first person to improve upon his ideas was arguably the physicist Maury Osborne, fully 59 years after their publication.

The sad story of Bachelier is told in an excellent new book, The Physics of Wall Street (US) by James Owen Weatherall. The role of physicists in finance is now a commonplace, even if financial physics is, like its founder, not quite academically respectable. But modern financial physicists – the “quants” – differ from Bachelier in one respect: some of them have made an awful lot of money. The most successful is Jim Simons. He was once a serious player in the high physics of string theory. Now, as founder of Renaissance Technologies and its flagship Medallion fund, he is one of the richest men on the planet.

Should we feel queasy about the growth of abstract, deeply technical thinking in finance? Weatherall is a cheerleader. For one thing, he says, Medallion returned more than 70 per cent in 2007 and 80 per cent in 2008. That proves quantitative finance can be privately profitable –but not that it is profitable in general, or socially desirable.

A more convincing defence of financial physics, and the sophisticated statistical analysis it deploys, is that it provides fresh perspective, revealing patterns that had been missed. A famous example is Didier Sornette’s use of stress analysis to predict not only earthquakes and failures of pressurised fuel tanks, but also severe crises in financial markets.

Still, physics alone will not be enough. Understanding the financial crisis, or the economy itself, should be a multidisciplinary effort. Unpicking the flaws behind stinky structured finance products required somebody to take an interest in messy real-world details. No purely academic approach would have delivered that.

Unfortunately multidisciplinary work remains difficult. Even the physicists have trouble being taken seriously by economists, despite the latter’s respect for mathematical sophistication. As for psychologists, sociologists, anthropologists … It’s a tough thing for any self-respecting economist to swallow advice from disciplines that appear to deploy such vague theories.

Still, nothing concentrates the mind like the potential to make money. And nothing fosters interdisciplinary work like a problem that scorns boundaries. Finance offers both the problem and the potential. Watch this space.

Also published at ft.com.


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