Featured Research

from universities, journals, and other organizations

It pays to be vague in the world of banking, economics expert says

Date:
October 10, 2011
Source:
University of Leicester
Summary:
Central bankers are right to avoid being completely clear about the state of the economy, according to a game theory expert in the UK.

Central bankers are right to avoid being completely clear about the state of the economy, according to a game theory expert who has been appointed Professor of Economics at the University of Leicester.

Related Articles


Extolling the benefits of being vague, Chris Wallace, who joins Leicester from Oxford University where he was Professor of Economic Theory, says bank chiefs who provide "something in between full information and no information" on current economic conditions are employing the best tactics to help financial stability.

Professor Wallace explains that if a central banker's views on the economy are too revealing, traders will make the error of blindly following this advice, because they know that it will strongly influence stock markets. As a result, they may neglect very good sources of more private information, such as high-quality reports produced by their own companies.

The end result is that people misprice stocks, because they rely only on one source of information to the exclusion of others. Professor Wallace says the solution is for the central banker to say something about the economy, but not enough to dominate markets. Central bankers are generally wise enough to follow this rule, he adds.

"There's something in between full information and no information -- and there's a benefit to that between-ness. Vagueness has a value," he said.

Chris Wallace's unusual view on the nature of information comes from his study of game theory -- a discipline which started in economics but has since proved useful in explaining why things happen the way they do in fields as diverse as biology and computer science.

Game theory is the science of working out how people act and react to each other in complex situations where there are at least two people involved -- each with their own different motivations and interests.

Prof Wallace says vagueness can be an effective tool in any area of public life where the person giving the information knows that the person receiving it is likely to over-respond to precise information -- as in central banking. But it can also make sense if the person receiving the information is prone to under-respond to precise information -- as politicians sometimes do when they receive figures on pollution from environmental scientists, for example.

Prof Wallace, who was Professor of Economic Theory at Oxford and Fellow in Economics at Trinity College, Oxford before joining Leicester this month (October), says: "What I like about game theory is that it's not straight economics, it's applicable to many other disciplines. It's a tool that an economist might use -- but equally, biologists use game theory. It is applied in a wide variety of places, and I find that breadth exciting."


Story Source:

The above story is based on materials provided by University of Leicester. Note: Materials may be edited for content and length.


Cite This Page:

University of Leicester. "It pays to be vague in the world of banking, economics expert says." ScienceDaily. ScienceDaily, 10 October 2011. <www.sciencedaily.com/releases/2011/10/111010074840.htm>.
University of Leicester. (2011, October 10). It pays to be vague in the world of banking, economics expert says. ScienceDaily. Retrieved November 25, 2014 from www.sciencedaily.com/releases/2011/10/111010074840.htm
University of Leicester. "It pays to be vague in the world of banking, economics expert says." ScienceDaily. www.sciencedaily.com/releases/2011/10/111010074840.htm (accessed November 25, 2014).

Share This


More From ScienceDaily



More Science & Society News

Tuesday, November 25, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Who Will Failed Nuclear Talks Hurt Most?

Who Will Failed Nuclear Talks Hurt Most?

Reuters - Business Video Online (Nov. 25, 2014) With no immediate prospect of sanctions relief for Iran, and no solid progress in negotiations with the West over the country's nuclear programme, Ciara Lee asks why talks have still not produced results and what a resolution would mean for both parties. Video provided by Reuters
Powered by NewsLook.com
FCC Forces T-Mobile To Alert Customers Of Data Throttling

FCC Forces T-Mobile To Alert Customers Of Data Throttling

Newsy (Nov. 25, 2014) T-Mobile and the FCC have reached an agreement requiring the company to alert customers when it throttles their data speeds. Video provided by Newsy
Powered by NewsLook.com
From Popcorn To Vending Snacks: FDA Ups Calorie Count Rules

From Popcorn To Vending Snacks: FDA Ups Calorie Count Rules

Newsy (Nov. 25, 2014) The US FDA is announcing new calorie rules on Tuesday that will require everywhere from theaters to vending machines to include calorie counts. Video provided by Newsy
Powered by NewsLook.com
Symantec Uncovers Sophisticated Spying Malware Regin

Symantec Uncovers Sophisticated Spying Malware Regin

Newsy (Nov. 24, 2014) A Symantec white paper reveals details about Regin, a spying malware of unusual complexity which is believed to be state-sponsored. Video provided by Newsy
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:

Breaking News:

Strange & Offbeat Stories


Science & Society

Business & Industry

Education & Learning

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile: iPhone Android Web
Follow: Facebook Twitter Google+
Subscribe: RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins