From “Economic Man” to Behavioral Economics

A short history of modern decision-making.

Source: From “Economic Man” to Behavioral Economics

HBR explores three different schools of decision-making thought.

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British Success Stories – ARM Holdings

Over the next few months, I will be publishing brief summaries of successful UK companies. The first one (thanks to Chris Matthews for the details) is ARM Holdings which  is based in the outskirts of Cambridge, employs over 3,000 people,  and designs processors as well as software development tools. Its processors are mainly used in mobile devices, most notably those developed by Apple, Samsung and HTC. ARM sells the patents to these companies, rather than producing  its own chips, and, by 2005, 75% of all 32-bit processors were designed by ARM. Currently its  market share  in the smartphone market is 95%, with   production of  15 billion units of ARM design in 2015, compared to 9 million in 1990.

In 1990  the original company, Acorn, was approached by Apple to develop a joint venture which would design a breakthrough chip for a handheld processor. While Apple’s first handheld device was not a sales success, Nokia approached the company in 1993, and sales of the designs have grown tremendously since. To add to this success, ARM has  acquired a number of companies to develop designs for development tools, software and physical IP’s. As Apple was crucial for the modernisation and development of the mobile phone, ARM simply continued as its supplier, while attracting many other technology giants who were eager to follow Apple. Compared to Intel, which both designs and manufactures the chips in advanced facilities around the world, ARM has focused on selling  licenses for the chips rather than manufacturing and exporting them.

In term of economic theory, this is a good example of a company focussing on its comparative advantage in development, rather than attempting to compete with low-cost producers. It is also an example of inward FDI since  the Japanese IT firm SoftBank Group  recently made an offer for the company which was accepted by shareholders at the end of August.

Globalisation benefits us and the majority of the world – but can it be tamed? | The Independent

They say that when elephants fight the grass gets trampled. And when economists fight over elephants the complex reality can come off worse too. A few years ago the World Bank economist Branko Milanovic produced a profoundly influential chart showing the change across the global income distribution (running from the poorest people on the planet to the very richest) over the past 30 or so years. The pattern was striking.

Source: Globalisation benefits us and the majority of the world – but can it be tamed? | The Independent

The UK Economy – doom and gloom or a new dawn?

Trying to work out what has happened to the UK economy following the Brexit vote  is an economist’s nightmare, with figures constantly  being published, some positive and some negative.For example, the stockmarket is now doing well, having suffered a sharp fall after the vote. Construction was supposed to be affected by the uncertainty following the vote, yet appears stable, and retail sales spending in July rose 4%.

Sterling has slumped by approximately 10% from around its peak of $1.50 before the vote  to a low of $1.29 recently but is this good or bad? For those who went on holiday abroad in the summer but had not taken the precaution of buying their foreign currency in advance, it was bad as it is for importers. However it should eventually be good for exporters although many exports of goods contain imported components.The UK’s trade deficit narrowed in July to £4.5bn as exports rose and imports fell. However although the post-Brexit fall in sterling might have had some impact on these figures, it is not likely to have been large since it takes far longer than a month for exporters to respond to a changing exchange rate since they need to find new markets and invest in machinery to significantly increase output. Similarly importers are locked in to contracts and cannot quickly replace imports with domestically-produced goods..

What is most important in the long term for UK growth and prosperity is what happens to investment and it is still too early to assess what the impact of Brexit will be on both domestic and  foreign investment into the UK.

 

Target 2.0 Competition – Applications Wanted

The Bank of England’s Target 2.0 schools competition has started and Brentwood School has a secured a place for this academic year. We are now looking for 5 individuals (4 + 1 reserve) to represent the school in the regional heats later this term.

Applicants need to write a commentary of no more than 500 words, analysing the Monetary Policy Committee’s decision in August to ‘loosen’ monetary policy. This BBC article is a good starting point, but should, by no means, be your only source of information. All sources should be identified at the end of your commentary and applications need to be submitted through Google Classroom (either AL or IB).

The competition is very highly regarded by leading universities and offers an excellent enrichment opportunity for those considering reading economics at undergraduate level. It does require individuals to commit to a weekly meeting and more in the weeks leading up to competition time.

Details regarding the Target 2.0 competition can be found here.