(b)  Ignorance can be bliss  There is a second, quite different, rationale for simple decision rules. This does not rely on the sub-optimality of satisficing behaviour. Instead it states that heuristics may be the optimising response to a complex environment. Disregarding information can make not only for cheaper but also for better decisions. Ignorance can be bliss (Gigerenzer (2010)). Oscar Wilde said of cynics that they knew the price of everything and the value of nothing. 2 Autistic savants have an acute case of this problem. Often, they combine prodigious memory skills (knowing “the price of everything”) with serious deficiencies in value judgements (understanding “the value of nothing”). They are penny-wise and pound-foolish. These neurological traits are linked. Too great a focus on information gathered from the past may retard effective decision-making about the future. Knowing too much can clog up the cognitive inbox, overload the neurological hard disk. One of the main purposes of sleep – doing less – is to unclog the cognitive inbox (Wang et al (2011)). That is why, when making a big decision, we often “sleep on it”. 2  Wilde (1893). BIS central bankers’ speeches  3  “Sleeping on it” has a direct parallel in statistical theory. In econometrics, a model seeking to infer behaviour from the past, based on too short a sample, may lead to “over-fitting”. Noise is then mistaken as signal, blips parameterised as trends. A model which is “over-fitted” sways with the smallest statistical breeze.
For a period of time – even perhaps a few years – wages can rise somewhat more without jeopardising the inflation target – for example, if the ratio of wages to national income is unusually low following a crisis and businesses are able to absorb some of the increase. This has been the case to an extent in the past few years. Other factors could counteract larger wage increases as well – for instance, declining foreign-currency prices of imports and a stronger króna have contributed to declining inflation even though wages have risen considerably more than the sum of the inflation target and the increase in productivity. But there are a number of indications that we will not be able to rely on these countervailing factors next year. By then, the slack will have disappeared from the economy, the ratio of wages to national income is at or above its historical average, and there are no premises for further appreciation of the króna, as the current account surplus is narrowing and the real exchange rate is no longer below its estimated equilibrium value. Nevertheless, different wage increases could be negotiated for different groups if there are grounds and will to do so. As I draw near the conclusion of my talk today, I would like to shift gears a bit and say a few words about credit ratings.