In my first short documentary film, The Banking Brain, I tried to communicate two factors that influenced risky decisions by investment bankers during the lead-up to the 2008 financial crisis:
- believing that they make decisions based on rational analysis, they are unaware just how much they are influenced by their emotions,
- needing to feel certainty, traders mistake their financial and economic models for reality.
These are abstract points in a discipline that has become more and more mathematical and I struggled to find images to present them. Economist Diana Coyle has a nice way of bringing the role of economic models to life:
“Economists put models at the heart of their methodology. A model is an attempt to make sense of the world by including only relevant detail. A good model is a powerful tool for analysis and prediction.
One well-known example of a good model is the map of the London underground, originally designed by Harry Beck. It’s sometimes a flawed guide, for example, taking tourists down two deep escalators to wait on a platform and travel 260 metres on a train, and then up a lift, if they want to travel from Leicester Square to Covent Garden....Its combination of reasonably accurate analysis, parsimonious representation, and sheer elegance make it a model for economic models. However, many economic models fall short of the Tube map standard. Most often their failure is one of inaccuracy by oversimplification. Economists value logic, parsimony and elegance - and then believe the model. It’s a kind of cargo cult mentality. ”
