The Bell School of Economics: An Holistic and Interdisciplinary Approach

<h3><a href="http://www.professorhollybell.com/wp-content/uploads/2012/01/55124g2kpw9j7g02.jpg"><img class="alignleft size-medium wp-image-224" alt="Bell School of Economics" src="http://www.professorhollybell.com/wp-content/uploads/2012/01/55124g2kpw9j7g02-300x237.jpg" width="300" height="237" /></a>"I'll leave labeling the "school" of economics I fall into to others."</h3> <p>By Holly A. Bell</p> <p>When I discuss economic issues people often ask me which “school” of economic thought I subscribe to. This question usually leaves me a bit tongue-tied because my approach to economics doesn’t fit neatly into any specific “school” as they are generally defined. The “Bell School” is firmly grounded in the classic market economics of supply and demand, but tends to be considerably more holistic and interdisciplinary in its approach than many of the schools of economics that are widely discussed.</p> <h3>Holistic</h3> <p>First, the Bell School is less interested in narrow interpretations of theory and more interested in practical application. It seeks to describe how an economy actually works at any point in time and assumes non-market factors are always causing distortions that draw actual market behavior

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Relativity in Behavioral Economics

<h2><strong>Relativity is not just for physics.</strong></h2> Nicolae Naumof posts a very good introduction to the foundational concept of <i>relativity</i> in behavioral economics. <a href="http://www.professorhollybell.com/2013/01/05/relativity-in-behavioral-economics/id-10018640/" rel="attachment wp-att-2320"><img class="alignright size-medium wp-image-2320" alt="relativity" src="http://www.professorhollybell.com/wp-content/uploads/2013/01/ID-10018640-300x168.jpg" width="300" height="168" /></a>Through two examples he describes how we use mental references, environmental factors, and comparisons to make what are sometimes less than purely rational decisions. From Naumof: "<b>The pond effect shows us that people don’t evaluate size of the carp as being 50cm per se, but rather as being a big or a small fish compared with its environment and fellow fish." </b> <a href="http://naumof.blogspot.nl/2013/01/everything-is-relative.html?goback=.gde_2621605_member_201130005"> <h3>Click here to read the entire article on relativity in behavioral economics</h3> </a>                   Image courtesy of Idea go

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You Can’t Keep Your Money Because It Belongs To The Government

<h2><a href="http://www.professorhollybell.com/wp-content/uploads/2012/12/ID-10052370.jpg"><img class="alignleft size-medium wp-image-2159" title="ID-10052370" src="http://www.professorhollybell.com/wp-content/uploads/2012/12/ID-10052370-300x198.jpg" alt="" width="300" height="198" /></a>If you think you earn your money, you are wrong.</h2> As I have been watching the debates over the debt ceiling, the fiscal cliff, and taxation I am reminded of one assumption about <b>money</b> the government makes (often unconsciously) that those of us who think we should be allowed to keep the <i>money</i> we have earned often forget: It’s not your <u>money</u>, it belongs to the government. The government prints it, backs it by their “full faith and credit”, and decides how much will be circulating in the economy at any given time. If all money belongs to the government, then you are not entitled to keep it.  The government gets to decide how much to give you. Those who wish to increase the marginal tax rate to 91% believe you are taking too much of the government’s money. In other words,

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The Quest for Certainty

[repostus hash=2b346fd31b93007a0e56b9f5ca87ae96 title=The+Quest+for+Certainty host=Market+Shadows short=1rjnE snip=The+Quest+for+Certainty+%E2%80%9CAs+far+as+the+laws+of+mathematics+refer+to+reality%2C+they+are+not+certain%3B+and+as+far+as+they+are+certain%2C+they+do+not+refer+to+reality.%E2%80%9D+%E2%80%93+Albert+Einstein+%E2%80%9CTo+trace+something+unknown+back+to+something+known+is+alleviating%2C+soothing%2C+gratifying+and+gives+moreover+a+feeling%26hellip%3B thumb=3138651 jump=5] <h3><a href="http://www.professorhollybell.com">Return to Home Page</a></h3> <h3>Certainty image courtesy of hin255</h3>

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The New Economics: Meso and Meta

<h3><a href="http://www.professorhollybell.com/wp-content/uploads/2012/10/ID-10074402.jpg"><img class="alignleft size-medium wp-image-2017" title="ID-10074402" src="http://www.professorhollybell.com/wp-content/uploads/2012/10/ID-10074402-300x211.jpg" alt="economics"width="300" height="211" /></a>From the article by Andrew Sheng and Xiao Geng:</h3> "Indeed, today’s mainstream micro- and macroeconomic models are insufficient for exploring the dynamic and complex interactions among humans, institutions, and nature in our real economy. They fail to answer what Paul Samuelson identified as the key questions for <b>economics</b> – what, how, and for whom are goods and services produced, delivered and sold – and rarely deal with “where” and “when,” either. The division of <i>economics</i> into macroeconomics (the study of economic performance, structure, behavior, and decision-making at the national, regional, or global level) and microeconomics (the study of resource allocation by households and firms) is fundamentally incomplete and misleading. But there are at least two other divisions in <u>economics</u> that have been neglected: meso-economics and meta-economics." <h3><a rel="nofollow" href="http://forumblog.org/2012/10/the-new-economics-meso-and-meta/">Click here to continue reading</a></h3> <h3><a href="http://www.professorhollybell.com">Return to home page</a></h3>

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Nudging Retirement Savings: A New Approach to Pensions

<h2>Redefining Defined Benefit Pensions<a href="http://www.professorhollybell.com/wp-content/uploads/2012/09/ID-10049304.jpg"><img class="alignright size-medium wp-image-1891" title="ID-10049304" src="http://www.professorhollybell.com/wp-content/uploads/2012/09/ID-10049304-300x243.jpg" alt="pensions"width="300" height="243" /></a></h2> By Holly A. Bell For most people in the private sector,  defined benefit <b>pensions</b> have become a distant memory. Something their grandfather talks about over Thanksgiving dinner while reminiscing about his days at "the plant". These plans, which guaranteed a certain percentage of a worker’s wages or salary in retirement, have been replaced with defined contribution plans like 401(k)s. However, is it possible that a defined benefit hybrid model based on employee contributions might be a better, yet equally sustainable model? There were several reasons traditional defined <i>pensions</i> proved to be unsustainable: Built in cost-of-living increases, benefit rates up to 90 or even 100% of annual earnings, earnings calculations based on the highest five years of earnings, the inclusion of generous health insurance benefits, early retirement ages (and longer life expectancy), inadequate funding or companies raiding pension funds, high return

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Do High Salaries & Bonuses Make CEOs Poor Decision-Makers?

<a href="http://www.professorhollybell.com/wp-content/uploads/2012/07/1136584_61497057.jpg"><img class="alignleft size-medium wp-image-1761" title="1136584_61497057" src="http://www.professorhollybell.com/wp-content/uploads/2012/07/1136584_61497057-300x225.jpg" alt="decision-makers"width="300" height="225" /></a> <h2>Decision-makers perform worse as financial incentives increase</h2> Research by behavioral economist Dan Ariely (see video below) found that high financial incentives actually make individuals perform worse than when given low to moderate financial incentives. These results were most dramatic when the tasks involve cognitive elements as opposed to mechanical elements. The reason is that loss aversion (people's tendency to strongly prefer avoiding losses to acquiring gains) causes stress that negatively impacts performance. So if highly compensated individuals are counting on their salaries and bonuses they are afraid of losing them, and are more likely to feel stress and make poor decisions. So what does this tell us about highly compensated CEOs, other executives, and highly incentivised Wall Street traders? Might their high compensation cause loss aversion resulting in stress and worse decision-making than average employees?  Is it possible their fears about losing their

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Why Self-Interest In Markets Can Benefit Everyone

<h2>What Penguins Know About Business: The Value of Sharing in Markets</h2> <a href="http://www.professorhollybell.com/wp-content/uploads/2012/06/penguin.jpg"><img class="alignleft size-medium wp-image-1705" title="penguin" src="http://www.professorhollybell.com/wp-content/uploads/2012/06/penguin-200x300.jpg" alt="" width="200" height="300" /></a>From Paul J. Zak at Claremont Graduate University: <div></div> "There’s nothing new about being shameless, or ruthless and cynical, when it comes to making a buck. Plenty of people in business seem to think that fakery and exploitation is the name of the game. Which is one reason that trade and commerce have always had something of an image problem. “Behind every fortune is a great crime” is one way of looking at it. “Never give a sucker an even break” is another. Contrary to those sentiments, research in my lab and in numerous field experiments has shown that the marketplace actually makes people more <a title="Psychology Today looks at Morality" href="http://www.psychologytoday.com/basics/morality">moral</a>, not less. Trade not only depends on moral behaviors like trustworthiness; it extends it beyond the small circumference of kinship or

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Faculty: Anarchists Sharing A Parking Lot

<h2><a href="http://www.professorhollybell.com/wp-content/uploads/2012/05/ID-10045929.jpg"><img class="alignright size-medium wp-image-1551" title="ID-10045929" src="http://www.professorhollybell.com/wp-content/uploads/2012/05/ID-10045929-300x199.jpg" alt="" width="300" height="199" /></a>Faculty are great at educating students--just keep them out of meetings.</h2> I still view higher education with a bit of an outsider’s lens as I spent the first 20+ years of my career in the “real world” of business. I’ve found higher ed. requires a sense of humor. Moving from a corporation to a university goes beyond a simple transition from the private sector to the public sector; it’s more like leaving the planet. As an outsider I suppose I was rather idealistic about working in higher education. I had visions of a highly collaborative environment where everyone had deep thoughts, shared ideas, and the women were liberated and smoked pipes. I’ve found it to be more like a cross between an Attention Deficit Disorder support group, British Parliament, and an independence movement—all with the goal of educating students. And I love

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3 Reasons I’ll Never Have Fame

<h2 align="center"><strong>The Economics of Fame</strong><strong> </strong></h2> <a href="http://www.professorhollybell.com/wp-content/uploads/2012/05/ID-10045857.jpg"><img class="aligncenter size-full wp-image-1520" title="ID-10045857" src="http://www.professorhollybell.com/wp-content/uploads/2012/05/ID-10045857.jpg" alt="fame"width="400" height="282" /></a>I have a good friend who loves to tell me I’m going to be famous someday. He seems to think the tipping point is just around the corner. I simply smile and say, “You’re too kind” because I know better. While <i>fame</i> is not something I’ve studied formally, I do have a few opinions on why most of us are not likely to become famous, at least from an economic perspective. <strong>Supply and Demand</strong> There are a lot more people willing to be famous than there is demand for famous people. In any market when there is a surplus prices are driven down. The bubble for <u>fame</u> <em>AND</em> fortune burst a long time ago. Now people are willing to accept fame without fortune. I’ll never be famous in part because when I do a cost/benefit analysis I find the

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