John Gathergood, David Hirshleifer, David Leake, Hiroaki Sakaguchi, Neil Stewart, 22 June 2019

Investors who choose to build their own portfolios by stock-picking face the choice of how to diversify among stocks. The 1/N heuristic, equalising portfolio shares across stocks held, works well in practice. This column shows that investors who buy stocks often employ a different form of 1/N, dividing purchase value equally rather than maintaining a 1/N allocation. By narrowly framing their buy-day decision, these investors move their portfolios farther away from balance.

Paul De Grauwe, Yuemei Ji, 01 November 2017

Dynamic stochastic general equilibrium models are still dominant in mainstream macroeconomics, but they are only able to explain business cycle fluctuations as the result of exogenous shocks. This column uses concepts from behavioural economics to develop macroeconomic models with endogenous business cycle fluctuations. Application of the models highlights how the trade-off between output and inflation is moderated by the flexibility of the economy. The models further help to explain the international transmission of business cycle fluctuations.

Manfred Gilli, Peter Winker, 11 October 2008

Many optimisation problems in economics cannot be solved with standard methods due to discontinuities and the existence of multiple optima. This column introduces heuristic optimisation, which offers a solution in such cases.

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