Conventional economics supposes that agents value the present vs. the future using an exponential discounting function. In contrast, experiments with animals and humans suggest that agents are better described as hyperbolic discounters, whose discount function decays much more slowly at large...

We analyse the economics and epidemiology of different scenarios for a phased restart of the UK economy. Our economic model is designed to address the unique features of the COVID-19 pandemic.Social distancing measures affect both supply and demand, and input-output constraints play a key role...

For many products, increases in cumulative production are associated with de- creasing unit costs. However, a serious problem of reverse causality (lower prices leading to increasing demand) makes it difficult to use this relationship for pol- icy. We study World War II, during which the demand...

In this article we revisit the classic problem of tatonnement in price formation from a microstructure point of view, reviewing a recent body of theoretical and empirical work explaining how fluctuations in supply and demand are slowly incorporated into prices. Because revealed market liquidity...

We investigate the random walk of prices by developing a simple model relating the properties of the signs and absolute values of individual price changes to the diffusion rate (volatility) of prices at longer time scales. We show that this benchmark model is unable to reproduce the diffusion...

It is widely believed that fluctuations in transaction volume, as reflected in the number of transactions and to a lesser extent their size, are the main cause of clustered volatility. Under this view bursts of rapid or slow price diffusion reflect bursts of frequent or less frequent trading,...

Recent empirical studies have demonstrated long-memory in the signs of orders to buy or sell in financial markets. We show how this can be caused by delays in market clearing. Under the common practice of order splitting, large orders are broken up into pieces and executed incrementally. If the...

Standard models in economics stress the role of intelligent agents who maximize utility. However, there may be situations where, for some purposes, constraints imposed by market institutions dominate intelligent agent behavior. We use data from the London Stock Exchange to test a simple model in...

The use of equilibrium models in economics springs from the desire for parsimonious models of economic phenomena that take human reasoning into account. This approach has been the cornerstone of modern economic theory. We explain why this is so, extolling the virtues of equilibrium theory; then...

We develop a behavioral model for liquidity and volatility based on empirical regularities in trading order flow in the London Stock Exchange. This can be viewed as a very simple agent based model in which all components of the model are validated against real data. Our empirical studies of...