by Simon Rudkin, a Senior Lecturer in Economics
We live in a data rich society and yet so much of what defines our policies and practices is drawn from a limited set of information. Further, in our quests for trends and soundbytes we discard yet more of that accumulated knowledge. In the emergence from the present recession it will be necessary to think not only of the target Economy we seek, but also of the lessons we can learn from experience.
As economists we believe that individuals make choice according to some utility function; their actions reveal the result of decisions over many possible alternatives. Of course we can never have everything we want, so there is much too that can be learned from the constraints that individuals face when they make their choices. Businesses likewise will look at their market, their competition and their capabilities to make choices about how they will interact with their consumers. We get drawn into talking of low costs, low prices and set this against what would be best for society.
However, we know too that people do care about their environment. Businesses increasingly show they have a social side too. Is this rational? Perhaps not if you concentrate on cost and price, but if a responsible firm targets customers who want responsible products then this starts to match up. If we do indeed reward those who show commitment to societal issues then the circle may become highly virtuous. Here is where economists draw on the distinction between utility and money.
On the surface there is an appetite for a new economy, a world in which responsibility takes centre stage and the money driven ways of the past take a back seat. Commentators will lament the impossibility of such worlds because the past data does not neatly fit the story. It would be right to say that historically individualistic motives dominated.
Data and digitalization mean that we no longer need to think about the simple metrics from past accounts. From consumer reviews, sentiment indexes, business leader panels, and internet search behaviours we can actually find ample evidence that supports a new economy. Such data is highly noisy and there will be more opinions out there than we would normally handle.
Likewise existing data contains more information than an average analysis would present. When we take averages we miss out on so much of what the diversity of the data could have told us. Looking deeper here away from the average can locate important lessons to inform the future.
Letting data help us evidence the direction the economy should move requires an openness to new techniques, but critically requires that we demand scrutiny and transparency in the message that comes out. Simply asking what fit past recoveries best cannot be assumed to be a guide to recovery, the world has evolved.
Guided by these principles, and a desire to uncover the real messages in data, my research is showing how there are important messages behind the average. For example lowering the cost and increasing the availability of fruit improves average diet, but if it is achieved through supermarkets then it will equally serve to reinforce bad diet because of the cheap unhealthy alternatives. Directing attention on businesses that have shown themselves successful will miss those innovative firms off the normal path whose success is coming and can really shape the future. Building up from a dataset without imposing relationships, or leaving out factors because they weren’t seen as important before, will focus the new normal.
We must let the right data speak. The solutions my work develops have the robustness to the noise of modern sources, are model free and transparent ensuring that the right does shine.
Blog written by: Simon Rudkin, a Senior Lecturer in Economics
Date published: 09/07/2020