John Kay: Polishing the Head of the Same Pin (2/5)

The video discusses the speaker's experience with the DSG rational expectations framework at Princeton, highlighting its insights into economic shocks. It critiques the over-reliance on economic models, emphasizing the need for diverse approaches. The limitations of these models during the financial crisis are examined, with a focus on assumptions that excluded key crisis elements. Robert Lucas's perspective on the predictability of economic crises is also discussed, questioning the exclusivity of certain economic theories.

What did the speaker learn about during their graduate studies at Princeton?

• The Austrian school of economics

• The Keynesian economic model

• Behavioral economics

• The DSG rational expectations framework

What is the speaker's main critique of economic models?

• They are completely useless

• They should be the only method used

• They leave many questions unexamined

• They are too complex to understand

According to the speaker, why did economic models fail to predict the recent financial crisis?

• They were not used by enough economists

• They were based on outdated data

• They assumed away the elements that caused the crisis

• They were too focused on short-term gains

What was Robert Lucas's response to the Queen's question about the financial crisis?

• Economic theory can predict all types of crises

• Crises of that kind cannot be predicted by economic theory

• The crisis was a result of poor policy decisions

• The crisis was an anomaly and not worth studying

What does the speaker suggest might be needed to better understand financial crises?

• Different theories

• A return to classical economics

• Increased government intervention

• More complex models