Marginal Revolution has four posts on this year's Nobel Prize winners

Michael Woodford Wins Nobel by Alex Tabarrok

Robert E. Hall, Nobel Laureate by Tyler Cowen

Michael Woodford, Nobel Laureate by Tyler Cowen

The Nobel Prize Goes to Robert Hall and Michael Woodford by Alex Tabarrok

Here is an excerpt from this last post that has some material students might know:

"Hall has an unusual number of unexpectedly creative papers. His best known is on consumption.

Start with the textbook Keynesian model: Y = C + I + G + NX. Consumption is the biggest piece of Y and it also depends on Y, so C and Y have to be solved together. The consumption function was the engine of the Keynesian multiplier. The simplest version was C = a + bYd, where Yd is disposable income. Economists estimated b, forecast Y and used the forecast to predict C. Get b, the marginal propensity to consume (MPC), wrong and you get fiscal policy wrong; so a lot of work went into estimating the MPC.

Hall began instead with Milton Friedman’s permanent income hypothesis. Consumption today should depend not just on today’s income but on a consumer’s expected lifetime or permanent income. Hall added rational expectations, so people estimate their permanent income using everything they know. Many economists already accepted both ideas but Hall showed that together they imply something surprising. Consumption should follow a random walk!

Suppose you learn today that you will get a large, permanent raise starting next January. If you can save and borrow, you should start spending more today. When January’s bigger paycheck arrives, it isn’t news. You already knew it was coming.

So information that predicts your income should not predict changes in your consumption. Expected changes in income are already built into your spending plans, and only surprises cause revisions. In the simplest case (quadratic utility, free borrowing and saving, and an interest rate that just offsets impatience) the theory gives

E_t(C_t+1 − C_t) = 0

Given what you know today, your best guess for the change in consumption is zero. Consumption moves only on news. Past income or any other variable shouldn’t help predict tomorrow’s consumption once you know today’s consumption.

The key point is that Hall’s test didn’t need a model of how people forecast income. The old consumption functions used things like a distributed lag on past income as a stand-in for expected future income. Hall asked a different question: does anything known today predict the change in consumption tomorrow? He found that the theory was surprisingly correct! Consumption looks like a random walk. Changes in consumption are unpredictable. Later work found consumption somewhat more predictable than Hall’s strict version allows, but the random walk became the benchmark everyone measures deviations from.

Related posts:

What do Nobel Prize Winners Muhammad Yunus and Edmund Phelps Have in Common?  (2006)

What The 2010 Nobel Prize Winners Studied (2010) ( Peter Diamond, Dale Mortensen, and Christopher Pissarides)

Some Information On This Year's Winners Of The Nobel Prize In Economics (2011) (Thomas Sargent and Christopher Sims)

Angus Deaton Wins The 2015 Nobel Prize In Economics  (2015)

Some Information About This Year's Winners Of The Nobel Prize In Economics (2016) (They are Oliver Hart and Bengt Holmström.)

Nobel for Economics Awarded to Authors of ‘Why Nations Fail’ and an Ex-IMF Figure: Daron Acemoglu, Simon Johnson and James Robinson are honored for their work on how institutions form and affect differences in prosperity (2024) 

Marginal Revolution has great posts on this year's winners of the Nobel Prize in economics (Philippe Aghion, Peter Howitt and Joel Mokyr): This is a prize for economic growth & creative destruction (2025) 

Great advice from Adam Smith

 From Goodreads. It is from his book The Theory of Moral Sentiments.

“The prudent man always studies seriously and earnestly to understand whatever he professes to understand, and not merely to persuade other people that he understands it; and though his talents may not always be very brilliant, they are always perfectly genuine. He neither endeavours to impose upon you by the cunning devices of an artful impostor, nor by the arrogant airs of an assuming pedant, nor by the confident assertions of a superficial and imprudent pretender. He is not ostentatious even of the abilities which he really possesses. His conversation is simple and modest, and he is averse to all the quackish arts by which other people so frequently thrust themselves into public notice and reputation.”

Related posts:

 

Two economists offer different advice for making life's tough decisions (2026) 

Science Proves That Adam Smith Was Right Over 200 Years Ago (sort of) (2009) 

Adam Smith Meets Joseph Campbell (2017) 

Adam Smith And Joseph Campbell On The Dangers Of "The Man Of System" (2017) 

Adam Smith Meets Jonathan Haidt (on political polarization and the animosity of hostile factions) (2021)

The price of light has fallen dramatically since 1800

See Why the rich burn money by Matt Ridley. Excerpt:

"In the trailer I just watched for the new film of Sense and Sensibility, there is a brief glimpse of a ballroom lit by at least 50 candles in shot, probably more out of shot. This implies that the Dashwood family was a lot wealthier than Jane Austen’s plot says. Tallow candles were almost absurdly expensive in those days—way beyond the reach of the poor; an extravagance even for those of middle income.

Roger Fouquet and Peter Pearson calculated in 2006 that the price of all artificial light was once exorbitant. Today roughly a fifth of a second of work on the average wage will buy you an hour of light from a normal LED bulb in a bedside lamp.

In 1800, on the then-average wage, you would have to work six hours to get the same quantity of light from a bunch of tallow candles—let alone a whole ballroom’s worth of light. The deflation in the price of light has been epic.

In short, light was once a luxury, and is now a quotidian necessity.

If, in the future, the world becomes a more prosperous place for everybody, that will happen to many more things. Will nothing then be a luxury good?

Think of the things that were out of reach for all but the wealthiest when I was a child but are now commonplace necessities: air travel, private cars, avocados. Or the things that were once the unimaginable preserve of only the richest people in past centuries: music on demand, cotton underwear, ice cream, chicken."

Also see The cost of lighting has decreased by over 1000x.

 

Related posts:

If 2025 was not the best year in human history it was still very good (2025) 

Even This Year (2024) Is the Best Time Ever to Be Alive (2025)

We are privileged to live in an age of medical miracles that increase human welfare (as the share of the world’s people living in extreme poverty has fallen) (2023)

Why 536 was ‘the worst year to be alive’ (2020)

The World Is Getting Quietly, Relentlessly Better (2019)

This Has Been the Best Year Ever (2019)  

Why 2017 Was the Best Year in Human History (2018)

The short history of global living conditions and why it matters that we know it (2018)

How Much Has Life Expectancy Improved?  (2018)

Some Good Economic News (2013)

Hunter‑gatherer societies are often put on a pedestal as paragons of equality – but the reality is more complicated

By Duncan Stibbard Hawkes and Christopher von Rueden. Hawkes is a Professor of Anthropology at Baylor University and von Rueden is a Professor of Leadership Studies at University of Richmond. Excerpts: 

"our experience as anthropologists working with the Hadza people of Tanzania and with the Tsimane people of Bolivia’s Amazon rainforest is that inequalities are part of even the most equal of societies. Furthermore, the equalities that do exist often emerge from selfish motives."

"Hunter-gatherers are often at the center of heated academic battles about what it means to be human, including debates over gender, war and peace and whether humans are, by nature, egalitarian or hierarchical.

Sometimes these debates oversimplify. So we pulled together hundreds of different sources covering more than a century of ethnography to find out just how egalitarian hunter-gatherer and other subsistence societies really are."

"A quick trip to your local bookshop will reveal grand claims, including that past hunter-gatherer societies had no permanent leadership and no hierarchy, inequality only spread with the development of agriculture, and humans are noble by nature.

Some scientists are pushing back against these utopian portrayals. The popular bestseller, “The Dawn of Everything,” calls egalitarianism a “Garden of Eden narrative” that lacks substance. Other scholars have called egalitarian societies a scientific origin myth."

"In our recent wide-ranging review of the evidence from the early 20th century onward, we found that no society lacked inequality.

Like the Hadza, the Ju/’Hoansi of the Kalahari desert in southern Africa had little property and widespread food-sharing, yet certain families controlled valuable hunting territory surrounding waterholes. The Bayaka of the central African rainforest had little material inequality, yet they bought, sold and hoarded ritual knowledge. The Philippine Agta controlled and arranged their children’s marriages, hugely discriminating against orphans.

Gender inequalities were commonplace. The Tanzanian Hadza keep certain cuts of meat exclusively for older men, and give more respect to better hunters. Across societies, women have universally done more direct parenting, and men have participated more frequently in community-level decision-making.

No society lacks informal leadership. Age was another source of inequality. In many Australian societies, older men controlled ritual secrets and had power over the marriage choices of younger relatives.

Our study also found that although hunter-gatherers are frequently generous, the processes limiting inequality often do not require any generosity. Instead, equality often results from people’s self-interested motives to acquire resources, status and autonomy.

A great example of this is food-sharing. Although each Hadza family gets a cut of kudu meat, it often happens not because the hunter’s family prioritizes total equality, but because other families request it vociferously. It can involve more taking than giving, often through strongly stated demands or complaints.

Another example is ridicule and mockery of stingy or braggadocious individuals, which keeps greed and bravado in check. Paradoxically, status-seeking can also promote equality, when cooperating to gain status diffuses status throughout the community."

"Our ancient hunter-gatherer ancestors didn’t reach the giddy heights of inequality seen in other societies over the last 6,000 years, but putting hunter-gatherers on a pedestal as paragons of equality is a mistake."

Related post:

Primitive communism: Marx’s idea that societies were naturally egalitarian and communal before farming is widely influential and quite wrong (plus Ruth Benedict on property rights) 

The vanishing advantage of specialization

AI, knowledge utilization, and the boundary of the firm

From The Brookings Institution.

"The vanishing advantage of specialization: AI, knowledge utilization, and the boundary of the firm predicts that AI will encourage companies to rely much less on outside experts. For instance, a company that now would hire a law firm to advise it on a pending merger or a marketing firm to help it launch a new product might in the future do the work in-house, assisted by AI. That’s because AI tools make the hard-won knowledge of experts more readily accessible to non-experts.

“Specialists … can spread the fixed cost of acquiring knowledge across many clients,” writes the author, Luis Garicano of the London School of Economics. “Artificial intelligence reduces the fixed cost and hence benefits those who use this knowledge less often.”

His paper lists six occupations, employing 5.9 million people, that could be more or less affected, depending on whether they work in specialized outside firms: lawyers, accountants, software developers, market researchers, management analysts, and graphic designers.

In four of the occupations—lawyers, accountants, software developers, and management analysts, the share of workers employed by specialized firms fell faster between 2022 and 2025 than before the advent of AI.

Preliminary evidence is consistent with the trend: 43.5% of a sample of work-related ChatGPT messages concerned tasks associated with another occupation. (A lawyer might ask a marketing question or a marketer a legal question, for example). Corporate legal departments report large increases in AI use and say they expect to rely less on outside advisers. And, after ChatGPT’s release, freelance writers and editors experienced fewer jobs and lower earnings.

AI will reduce but not eliminate outsourced work, Garicano notes. Specialized outside firms will concentrate on harder, rarer problems.

In an interview with the Brookings Institution, he warned this development could create a “broken ladder” by eliminating less-complex jobs in outside firms that have traditionally been training grounds for recent graduates. He said educational institutions should adapt by providing more comprehensive training.

He also said decreased outsourcing raises the question of whether liability and licensing regulations that require, for instance, a lawyer to sign a legal opinion or an accountant to sign an audit, should be relaxed or toughened."

Other recent AI posts:

AI and Employment: So Far, So Good 

AI is moderately heating up today’s economy while we wait for the likely bumpy rollout of productivity gains 

General Purpose Technologies like AI can increase productivity more than expected 

The age of the solopreneur: More solo founders, growing faster, powered by AI 

The AI Backlash Has Tech Executives Fearing for Their Lives (a case of modern day Luddites?): Violent threats against AI companies are rising and spilling over into real-world security incidents 

Economics teacher Elaine Schwartz uses comparative advantage to explain "Why a Monopoly Game Can’t Be “Made in the USA”"

Click here to read her post. It is about a high end company that had to look for American made parts for the Monopoly game it makes after high tariffs were imposed on China. This proved difficult if not impossible because China faced a lower opportunity cost for producing these items. The tariffs made their products more expensive and their sales went down.

Also see my post Comparative Advantage to read about a numerical example of how this works from its creator David Ricardo. 

Here is a cartoon on this from Dilbert:

 

Other related posts:

New book, Monopoly X, about how the board game helped POWs in WW II  

Monopoly (The Board Game) Helped British POWs Escape During World War II

What We See When We Look at Two Centuries of American Board Games (economics was often featured) (discusses who actually invented the Monopoly game) 

The % of 25-54 year-olds employed rose to 80.7% from 80.4% in August; Average hours worked unchanged

One weakness of the unemployment rate is that if people drop out of the labor force they cannot be counted as an unemployed person and the unemployment rate goes down. They are no longer actively seeking work and it might be because they are discouraged workers. The lower unemployment rate can be misleading in this case. People dropping out of the labor force might indicate a weak labor market.

We could look at the employment to population ratio instead, since that includes those not in the labor force. But that includes everyone over 16 and that means that senior citizens are in the group but many of them have retired. The more that retire, the lower this ratio would be and that might be misleading. It would not necessarily mean the labor market is weak.

But we have this ratio for people age 25-54 (which also eliminates many college age people who might not be looking for work).

2022) 79.883% 

2023) 80.683%

2024) 80.717%

2025) 80.600% (just an 11 month average due to no data for October instead of 12)

 

There have been only 5 months since April 2001 when the % of 25-54 year-olds employed was as high as 80.9%. The high so far in 2026 is 80.8%, reached in Jan. & June. But it fell to 80.2% in July. We have now had 46 straight months with at least 80%. The only longer streak was 65 months from 1996-2001.

The unemployment rate was 4.2% in Sept. after being 4.1% August. Click here to go to that data. Here is what it was for each of the last 4 years. 

2022) 3.6%

2023) 3.6%

2024) 4.0%

2025) 4.3%

 

Labor Force participation rose from 61.644% to 61.789%. Here is what it was for each of the last 4 years 

 

2022) 62.2%

2023) 62.6%

2024) 62.6%

2025) 62.4%

 

The % of the adult population employed rose from 59.091% to 59.209% (that is people 16 years old and older). Here is what it was for each of the last 4 years 

 

2022) 60.0%

2023) 60.3%

2024) 60.1%

2025) 59.7%

 

Here is the timeline graph of the percentage of 25-54 year olds employed since 2016.

 

 

 Now since 1948. 

 

 

Now hours worked. This comes from the St. Louis FED. See Average Weekly Hours of All Employees, Total Private. It was 34.4 in both August and Sept. Shaded areas indicate U.S. recessions. 

 

 

 

Related posts: 

This one has to do with the difference between two employment surveys. See The economy added 339,000 jobs in May according to the establishment survey but the household survey showed a loss of 310,000 and a rise in the unemployment rate from 2023. 

"The reason for the discrepancy is that there are two surveys. The establishment survey is used for the Labor Department's monthly jobs report. They contact businesses for this survey. The household survey is used to put together the unemployment rate. The Bureau of Labor Statistics contacts households for this one."

See also Comparing employment from the BLS household and payroll surveys from the BLS.

See Labor market faltered in September as jobs increased by just 29,000, unemployment rate rose to 4.2% by Jeff Cox of CNBC.

Click here to see a good Twitter thread on the jobs report (including wages) from Harvard economist Jason Furman 

Was 1800 (approximately) A Pivotal Year In Human History? Robert Fogel, Francis Fukuyama, And Deirdre McCloskey All Seem To Think So

Robert Fogel is a Nobel Prize Winning Economist. Here is something he said recently:

"Technology rescued humankind from centuries of physical maladies and malnutrition, Mr. Fogel argues. Before the 19th century (1800), most people were caught in an endless cycle of subsistence farming."

See Technology Advances; Humans Supersize.

Francis Fukuyama, author of the famous book The End of History and the Last Man, has a new book out. wrote another book in 2014 called Political Order and Political Decay. Here is an excerpt from a review of that book:

"Most of the world is still bent on “getting to Denmark” — Fukuyama’s shorthand phrase for an effective, accountable, tolerant and law-bound society.

Getting even close to Denmark took a long time. In his 2011 book The Origins of Political Order, Fukuyama surveyed the development from prehistoric times to the year 1800 of the three institutions he argues are indispensable for a decent polity: an effective state, the rule of law and democratic accountability."

"Democratic accountability grew from England’s Magna Carta in 1215 but had made only limited progress in Europe by Origins’ 1800 cutoff date.

The going has remained hard because, in Fukuyama’s words, “All good things do not necessarily go together.” His three goals are often in tension with one another."

See Does the End of History Result in Political Decay? by Michael Barone.

Deirdre McCloskey is a highly respected economic historian who wrote the book Bourgeois Dignity: Why Economics Can't Explain the Modern World. Here are some quotes from her: 

See "Joyful Innovators," a review of Bourgeois Dignity. Here are some quotes from her: 

"Modern economic growth—that stunning increase from $3 a day in 1800 worldwide to now upwards of $130 a day in the richest countries, and anyway $30 as a worldwide average—can’t be accounted for in the usual and materialist ways. It wasn’t trade, investment, exploitation, imperialism, education, legal changes, genes, science. It was innovation, such as cheap steel and the modern university, supported by an entirely new attitude towards the middle class, emerging from Holland around 1600. (It has parallels in classical music and mathematics and politics, in all of which the Europeans burst out, 1600-1800.)"

See From Aid Watch: "Don't be snobbish towards merchants and entrepreneurs, and you'll develop". 

"Economics of the usual sort, whether Samuelsonian or Marxist, can’t get at why Europeans and then the rest of us started around 1800 to become insanely innovative. A new dignity for innovation and its market applications can: that’s a sociological change, supporting sensible economic policies."

What you can learn from the history is that stasis reigned until we discovered dignity and liberty for ordinary people, and in particular for the disturbing, irritating class of entrepreneurs."

People shift political expression to fit the room in small online group chats: Evidence from AI-simulated chat experiments

By Cleone Mitsui and Yuta Kawamura.

"Abstract

When political talk surfaces in everyday chats, it puts people in a bind. Do they speak their mind, or adjust their political opinion to fit the room they are in? This research examines whether, in such moments, individuals modify their expressed stance to align with the dominant tone of the group. Across two pre-registered studies (N = 360) using AI-simulated chat experiments, modelled after familiar messaging apps, participants interacted with AI agents presented as colleagues who consistently expressed either liberal or conservative positions. In Study 1, participants randomly assigned to liberal- or conservative-leaning chat groups shifted their expressed stance in the direction of the group, demonstrating that social context alone was sufficient to alter political expression. Study 2 replicated this effect while controlling for baseline ideology. After accounting for participants' self-reported political orientation, chat environment remained a significant predictor of how they expressed themselves. Together, the results reveal that in socially bounded digital settings, political expression may not simply be a window into personal belief, but function as a socially calibrated act. While expressions on large-scale social media platforms are often scrutinised by observers, in close-knit digital spaces, perceived consensus can emerge from within. These findings suggest that political talk in everyday settings may distort one's impression of surrounding opinions, not because disagreement is absent, but because it may remain unspoken." 

Related posts:

People gave up a chance to win money in order to avoid hearing from those with opposing political views (2017) 

People say the president can control gas prices if the president belongs to the other party (2017)

Are some blue jeans really Democratic and others Republican? (2019)

Why Are Americans So Distrustful of Each Other? (2021)

"In 2017, around 70% of Democrats said that Donald Trump voters couldn't be trusted, and around 70% of Republicans said the same of Hillary Clinton voters" 

More and more, executives at major corporations belong to the same politcal party and tend to leave their companies if they are in the minority party there (2022) 

Adam Smith Meets Jonathan Haidt (on political polarization and the animosity of hostile factions)  (2023)

Why Tribalism Took Over Our Politics: Social science gives an uncomfortable explanation: Our brains were made for conflict (2023) 

Democrats and Republicans say economy is improving, but mostly only when someone from their party is president (2024) 

Did Fracking in Pennsylvania Turn Democrats Into Republicans and Republicans Into Democrats? (2024)

Are fewer Democrats buying Teslas because of Elon Musk's political views? (2024)

Partisanship deeply colors how Americans think about trade policy, especially tariffs (2024) 

Would you give up some income in order to get a job at a firm whose workers share your political opinions? (2024)

Republicans Are Feeling Good Again, Driving Up Consumer Sentiment: Democrats’ sentiment slips, but overall index ticks higher (2024)

Causes and Extent of Increasing Partisan Segregation in the U.S. – Evidence from Migration Patterns of 212 Million Voters (2025)

Red vs. Blue Is Dividing Stock Portfolios Like Never Before: A political gap in optimism about markets is translating into trading decisions (2025)

Can testosterone shift political preferences? (2025)

What does conservatism mean? Fewer taxes & regulations or preserving traditional values and communities? A Republican county in Tennessee faces this question when farmers go against land developers (2025)

Poor whites used to vote for Democratic presidential candidates while rich whites voted Repulican. This has now reversed (2026)

Elites moved toward democrats more than nonelites moved away: Income, education, and occupational class in US presidential elections, 1980–2020 (2026)

Politics and Your Portfolio Shouldn’t Mix (2026)

Republicans give up on free market policies while Democrats seek money from wall street donors (2026) 

See also Americans start caring more about deficits and the national debt when the party they oppose runs them up by John V. Kane of New York University and Ian G. Anson of The University of Maryland. Excerpt:

"In the past two decades, US budget deficits have skyrocketed, and the national debt is now over $22 trillion. But do Americans care about the size of deficits and the national debt? In new research, John V. Kane and Ian G. Anson find that people tend to care more about the deficits and debts when they are increased by presidents from the party that they oppose. Both Republicans and Democrats, they write, become less concerned about governments running deficits when their President is in charge."

Ridley: The forecaster’s paradox

Why does nobody see new technology coming?

By Matt Ridley. He is a British writer who has a Ph. D. in zoology.

My last post was an AI generated discussion between Jules Verne and Mary Shelley on the future of technology and how it would affect people.

Ridley explains how hard it is to predict the future. Many technologies that have a big impact were not forseen, sometimes not even right before they became widespread. And some very smart people made some predictions that were way off.

"There is a paradox at the heart of innovation that I have yet to resolve. Looking backwards, innovation looks inevitable and therefore predictable: once you invent the drone, warfare changes; once you invent the internet, social media arrives; once you invent electricity, the light bulb is unavoidable. Looking forwards, however, nobody sees these things coming.

Search the writings of defence experts from even 10 years ago, and you will find few people realising just how much drones were going to change the nature of war. Comb through the work of internet pioneers in the late 1980s, and you will encounter almost nobody foreseeing the profitability of search engines, let alone social media. Read the musings of DNA experts in the 1970s, and none of them expected forensic applications of DNA fingerprinting to transform criminal justice.

Yet almost every great invention is plagued with disputes between rivals who claim they invented it independently: from the telegraph to CRISPR gene editing. Twenty-one different people have good claims to have invented light bulbs largely independently: Frederick de Moleyns, Heinrich Goebel, Joseph Swan, Alexander Lodygin, Henry Woodward, Matthew Evans, Hiram Maxim, Thomas Edison and more. If any of these had taken a different turn, we would still have light bulbs. If the Wright brothers had died in a glider accident, it would have delayed powered flight only a little. If Larry Page had never met Sergey Brin, we would still have search engines, though not the word “Google.”

Such simultaneous invention implies predictability. Yet where are the predictions? A colleague wrote a lengthy report on the future of telecoms in 1990 for The Economist and left out mobile phones. I was part of the House of Lords Artificial Intelligence committee that wrote what some said was a rather good report on AI in 2018, and yet you will not find the phrase “large language model” in our report at all—just four years before ChatGPT changed the world.

This unpredictability causes some very clever people to say some very stupid things when lured into speaking about the future. Talk of nuclear energy was “moonshine,” said Ernest Rutherford, the man who split the atom, in 1933. “There is no reason for any individual to have a computer in his home,” said Ken Olsen, the founder and chairman of the most successful computer company of the time, Digital Equipment Corporation, in 1977. “By 2005 or so it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s,” wrote the Nobel Prize-winning economist Paul Krugman in 1998. “There’s no chance that the iPhone is going to get any significant market share. No chance,” said Steve Ballmer of Microsoft in 2007.

This is why I insist there is no such thing as an expert on the future and “modellers” who pretend otherwise are often little better than those who practised “haruspicy”—interpreting the entrails of chickens. Complex dynamic systems like the economy, the weather or an epidemic just are not susceptible to anything resembling foresight, however sophisticated the mathematics that go into the models. In his 20-year study of expert predictions in economics, Philip Tetlock showed that the average expert was no better at foretelling what will happen in the future than “a dart-throwing chimpanzee.”

“In one of history’s great ironies,” wrote Tetlock in his book Superforecasting, “scientists today know vastly more than their colleagues a century ago, and possess vastly more data-crunching power, but they are much less confident in the prospects for perfect predictability.”

Sure, there are some who Nostradamus-like make gnomic remarks that strike lucky from time to time. And perhaps we should make an exception for Arthur C. Clarke, who saw communication satellites coming. But Clarke hit the nail on the head when he said, in a television film, “only if what I tell you appears absolutely unbelievable have we any chance of visualising the future as it really will happen.”

Anyway, as I say, I still find it hard to reconcile the unpredictability of the future with the inevitability of innovations that follow certain inventions. One way to resolve this paradox, following Friedrich Hayek, is to remember that knowledge is dispersed throughout society—held as much between and among our heads as inside them. The wisdom of crowds decides when and how to apply a new technology and is far wiser than me, you or Ernest Rutherford.

Another solution is to invoke what I call Amara’s hype cycle. Roy Amara was a computer scientist in Silicon Valley in the 1960s. He was almost certainly not the first person who said this, but he was one of the clearest: we underestimate the impact of a new technology in the long run, but we overestimate it in the short run. That is why we are often disappointed by the early impacts of an invention (Krugman and the internet, for instance) but taken by surprise later. To put it in more technical terms, the adoption and development of an innovation is non-linear. It starts slowly, then takes off suddenly. That is inherently hard to forecast.

More generally, I think chaos theory is helpful here. An innovation that eventually disrupts the world is like the apocryphal butterfly wing flap in the Amazon that starts a hurricane in the Atlantic. This “butterfly effect,” coined by the meteorologist Edward Lorenz in 1961, suggests that small events can trigger huge and unpredictable consequences. Good luck catching a real butterfly in the act of starting a hurricane.

I read every essay on the future impact of artificial intelligence with this unpredictability in mind. Nobody, however clever, can yet foresee what the consequences of generative AI will be. My generally optimistic take could be as wrong as other people’s doom-mongering. It could be huge or a nothingburger. We just do not know, and it’s no good hoping we will know. We will find out as it happens."