Human nature remains to be the Achilles heel of Economics

Annette Willemse -- Fri, 06/26/2015 - 13:46

Human nature remains to be the Achilles heel of Economics

“Times have sure changed. Today we find ourselves studying methodologies of economic change with popcorn in the cinema foyer.” This was just one of the varied responses from academic scholars, experts within the banking and risk management sector, and economists who attended the first-ever screening of the Economics documentary: Boom! Bust! Boom! in South Africa on 25 June 2015.

     

The film is the result of a collaboration between writer, director, historian and the founding member of the Monty Python comedy team – Terry Jones, and economics professor, entrepreneur -Theo Kocken. The film features the likes of Hollywood actor Johan Cusack, Nobel Prize winners: Daniel Khneman, Robert J Shiller and Paul Krugman and represents a global movement to change the economic system through education. In short: a unique look at why economic crashes happen. Boom! Bust! Boom! is a multimedia documentary combining live action with animation and puppetry to explain economics to everyone.

Professor Kocken - an Extraordinary Professor for the Centre of Applied Risk Management (UARM) on the Vaal Triangle Campus of the North-West University (NWU Vaal) is of the opinion that the film targets the global financial system in a provocative and confrontational way to warn against more economic meltdowns. “As students of economics we are taught to predict outcomes based on rational models all whilst economics are all about people and people are irrational and unpredictable,” explains Prof Kockhen and adds that the study of Economics should place greater emphasis on the study of human nature. “The world seems to suffer from financial amnesia since we continue to use (rational) mathematical modules to try to predict the outcome of social concepts and therefore we are not prepared – as academic scholars, to react effectively to crisis scenarios,” Prof Kocken further explained.   

The way economics are taught should be overhauled

According to Prof Kocken he is “frustrated” by the way that university students are not being educated about past financial crises. “It bugs me that teachers and professors blindly teach economics without recognizing the crashes and hence, the real world,” Prof Kocken says and adds that economic crashes were constantly going on throughout history.  Professor Kocken explains that the economic theories that are most taught to students and most followed in the political and financial realms do not take into account the inevitability of crashes. This is in spite of the fact that the most cursory look at economic history shows a regular cycle of booms followed by busts. “Economics is literally, in many instances, a fantasy in that it refuses to acknowledge real-world behaviour of both people and markets,” says Prof Kocken.

The film provides a clear, blow-by-blow explanation of the 2008 financial crisis: how excessive lending to the non-creditworthy caused a giant bubble that eventually burst. In addition to this, the film then goes into great detail about past bubbles, from 17th century Dutch tulip mania to the 1929 Wall Street crash.

More about the Centre for Applied Risk Management (UARM)

The UARM Centre for Applied Risk Management focuses on research in behavioural risk management. Behavioural risks looks at the impact of people in the work environment. Behavioural risk management is a hot topic worldwide with little academic research or analysis published in this field.  According to Prof Hermien Zaaiman – Manager of UARM, behavioural risk management is an interdisciplinary field that combines fields such as organisational psychology and immersive training to solve risk-related issues. “We investigate cross sector issues and develop real-world risk management solutions.”

Prof Hermien Zaaiman (middle) with two of the producers of the film present at the premiere - Marja Koolschijn and Theo Kocken