John Kay

After mistaken claims made ahead of the global crisis won much academic support, long-held assumptions were called into question – but the real world often remains overlooked or ignored.

In the dollar bill auction, one party eventually scores a pyrrhic victory and takes possession of the dollar bill. Both parties lose, but the smaller loser is the person who sticks out longest. That is not usually the rational player.

Consistency is the defining principle of rational choice theory. John looks instead to Ralph Waldo Emerson ‘a foolish consistency is the hobgoblin of little minds’.

The share of financial services in national income has increased. Should we be pleased, or concerned, by this development?

We will succeed in managing financial risk better only when we come to recognise the limitations of formal modelling. Control of risk is almost entirely a matter of management competence, well-crafted incentives, robust structures and systems, and simplicity and transparency of design.

Incentives and rewards are not the same thing, and people who complain that the spirit of Christmas is eroded by commercialisation are not simply priggish. The direct juxtaposition of the purely commercial exchange with the exchange based solely on mutual affection is offensive and unstable.

The dynamism of a market economy comes from innovation in products and processes, and radical innovation in products and processes often – in fact usually – comes from outside the existing market structure.

Sophistication of method is used to torture data to reveal conclusions that do not obviously follow from them, but which fit either the researchers’ preconceptions or the sponsor’s policy objectives, or both.

The interpretation of fairness is culturally specific but rarely does it correspond to measures of income inequality. Fairness is a perception, not a Gini coefficient.

The books that Britain exports have long been made from trees grown abroad. Then globalisation meant the paper was also made abroad, and increasingly the printing took place overseas. Soon selling a book will involve no physical objects. The division of labour becomes ever finer and generally increases the wealth of all involved in the production process.