• The economics profession has an unfortunate tendency to view recent experience in the narrow window provided by standard datasets. With a few notable exceptions, cross-country empirical studies on financial crises typically begin in 1980 and are limited in other important respects. Yet an event that is rare in a three decade span may not be all that rare when placed in a broader context. In my paper with Kenneth Rogoff we introduce a comprehensive new historical database for studying debt and banking crises, inflation, currency crashes and debasements. The data covers sixty-six countries in across all regions. The range of variables encompasses external and domestic debt, trade, GNP, inflation, exchange rates, interest rates, and commodity prices. The coverage spans eight centuries, going back to the date of independence or well into the colonial period for some countries.
  • "This paper offers a “panoramic” analysis of the history of financial crises dating from England’s fourteenth-century default to the current United States sub-prime financial crisis. Our study is based on a new dataset that spans all regions. It incorporates a number of important credit episodes seldom covered in the literature, including for example, defaults and restructurings in India and China….. [O]ur aim is to illustrate some of the broad insights that can be gleaned from such a sweeping historical database. We find that serial default is a nearly universal phenomenon as countries struggle to transform themselves from emerging markets to advanced economies. Major default episodes are typically spaced some years (or decades) apart, creating an illusion that “this time is different” among policymakers and investors. A recent example of the “this time is different” syndrome is the false belief that domestic debt is a novel feature of the modern financial landscape."
  • "Intuition, it seems, is not some sort of mystical chemical reaction but a neurologically based behavior that evolved to ensure that we humans respond quickly when faced with a dilemma (e.g., fight or flight). Too much data, however, throws a monkey wrench into the process. The more variables we consider, the harder it is to make the "right" decision–as anyone who has faced an aisle full of shampoos knows.

    Our brains have evolved to take the quickest and most efficient route to a decision, based on experience and a set of innate and unconscious rules developed since birth to negotiate our physical and social environment. Start considering lots of other information and variables, and the brain slows down or falters. Simplicity, writes Gigerenzer, is an evolutionary adaptation to uncertainty: "A complex problem demands a complex solution, so we are told. In fact, in unpredictable environments, the opposite is true.""

  • Gerd Gigerenzer on gut feelings. "It comes quickly into a person’s consciousness. The person doesn’t know why they have this feeling. Yet, this is strong enough to make an individual act on it. What a gut instinct is not is a calculation. You do not fully know where it comes from. My research indicates that gut feelings are based on simple rules of thumb, what we psychologists term “heuristics.” These take advantage of certain capacities of the brain that have come down to us through time, experience and evolution. Gut instincts often rely on simple cues in the environment. In most situations, when people use their instincts, they are heeding these cues and ignoring other unnecessary information."

  • "Why do we make errors? are they blunders caused by the limitations of our cognitive system? Or are errors indispensable parts of every intelligent system? From the first perspective, all errors are at best unnecessary and at worst harmful…. From the second perspective, there are errors that need to be made—that is, errors that are indispensable and functional…. The characteristic of a good error is that a person is better off making the error than not making it—for reaching a goal more quickly, or attaining it at all. In this view, every intelligent system has to make errors. Making no errors would destroy the intelligence of the system."