I. Personal Empowerment & Human Capital Development

The heart of any nation is its people. Recognizing this, Uzbekistan envisions a society where individuals can unleash their potential. With a targeted life expectancy of 78 years, the country emphasizes healthcare advancements. Education isn’t left behind, as the plan promises pre-school education for all children. International collaboration takes center stage with over 50 joint “double degree” programs in partnership with global universities. Further, tackling socio-economic disparities, the nation aims to reduce its poverty rate by half by 2026 from its 2022 figures.

II. Economic Prosperity & Infrastructure

Economic development forms the backbone of the 2030 strategy. Ambitions run high with a goal to elevate the GDP to 160 billion dollars, translating to a per capita GDP of 4,000 dollars. Industrial innovation is on the horizon, as the production of technological products is expected to rise from 25% to 32%. Infrastructure, too, receives a significant boost with plans for 1 million housing units. The strategy also promotes private enterprise, expecting it to contribute 85% to the economy. Additionally, a focus on the processing industry and exports aims to double labor productivity and export volumes respectively.

III. Environmental Sustainability & Resource Management

Uzbekistan recognizes the importance of preserving its natural resources and environment. The strategy highlights a 25% improvement in water usage efficiency, underscoring its importance in a region with water scarcity. A greener Uzbekistan is in view, with a 30% increase in green cover and a significant 10.5% reduction in pollutant emissions. Waste management isn’t overlooked, with goals set for 100% solid waste collection and disposal.

IV. Governance & Digital Transformation.

Moving into the digital age, the strategy embraces technology in governance. With plans to offer 100% online public services, the state gears towards a more accessible and efficient administration. Simplifying processes, a “one step” service model is set for “Mahalla” communities. Moreover, in line with global standards, Uzbekistan aims to climb at least 50 points on the “Transparency International” Index.

V. National Security & International Relations

Peace and security are paramount for development. The strategy outlines strengthening ties in Central Asia and building enduring relations with Uzbeks abroad. On the home front, ensuring a top-notch defense capability remains a priority. On the global stage, Uzbekistan is keen to integrate further into the world economy, as evidenced by its aspiration to join the WTO.

Credits to Foreign Investors Council under the President of the Republic of Uzbekistan for delivering such important information.

The gambler’s fallacy, also known as the Monte Carlo fallacy, occurs when an individual erroneously believes that a certain random event is less likely or more likely to happen based on the outcome of a previous event or series of events.

Let’s assume a coin landed on “heads” every time it flipped five times. Will it fall on tails on the sixth occasion? If your answer is “yes” you may be a prey to the gambler’s fallacy bias.

The term “Gambler’s Fallacy” was first coined by famous researchers Amos Tversky and Daniel Kahneman — the fathers of behavioural economics — in 1971. It is a representativeness heuristic, referring to an error in judgement.

The gambler’s fallacy in finance and economics represents an inaccurate understanding of probability. It’s based on the mistaken belief that if a certain outcome has not occurred for some time, it is more likely to happen soon.

A series of past events do not affect the probability of a particular event happening in the future.

Famous Example

The most famous example of the gambler’s fallacy occurred at the Casino de Monte-Carlo in Monaco in 1913. The roulette wheel’s ball had fallen on black several times in a row. This led people to believe that it would fall on red soon and they started pushing their chips, betting that the ball would fall in a red square on the next roulette wheel turn. The ball did fall on the red square, but only after a total of 26 turns. Accounts state that millions of dollars had been lost by then.

How Do You Avoid the Gambler’s Fallacy?

In the area of trading and investing, individuals can avoid the gambler’s fallacy by letting go of the belief that previous occurrences are representative of future occurrences. To do this, traders and investors need to use independent research, be up to date on all facts, figures, and strategies, track trades and outcomes, and ask for feedback.

according to the book by Thaler and Sunstein, any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates. Putting the fruit at eye level counts as a nudge. Banning junk food does not.

The theory based on encouraging people to make better decisions by making small changes to existing processes, services, and environments based on insights from psychology and social sciences. Policymakers use this technique to nudge people to make choices in their interest without forcing them to.

Proponents of nudge theory suggest that well-placed ‘nudges’ can reduce market failure, save the government money, encourage desirable actions and help increase the efficiency of resource use. Critics argue nudges can be misused and become a form of social engineering or way to encourage consumers to buy goods they don’t really need.

Basic example:

At a grocery store, a person might choose healthier food items if they are placed at eye-level, or near the cash register. Conversly, they might choose unhealthy or more expensive items with the same placement.

A few nudge strategies

• Up-sell. If you go to a fast-food restaurant, servers are trained to ‘up-sell’ — this means they offer extra options to go with the meal. Often it is ‘drinks, extras and deserts’ which are the most profitable part of the meal. When you buy a coffee, and a barista offers a pastry as well — we are more likely to buy the pastry when it is offered as a suggestion.
• Product placement. To encourage healthy eating, healthy options could be made more easily available, e.g school lunches could be carefully monitored — reducing the number of unhealthy options. This is related to the concept of ‘choice architecture’ — the idea that if goods are presented in a different way, it can help ‘nudge’ people’s consumption to the desired option.
• Default options. A powerful way to encourage take-up rates of ‘desirable options’ is to set the desired outcome as the default option. For example, at the moment, people have to ‘opt-in’ to be an organ donor. This leads to low rates of organ donation as people don’t want to carry a card. But, the other way would be to change rules so you have to ‘opt-out’ of organ donation. This would cause donation rates to retire.

There is a difference between nudging a certain behaviour and compelling a certain choice. A good nudge may be considered to be one which encourages a certain choice, but is still:

• Transparent — Make the nudge clear and obvious, not hiding costs / other options.
• Choice is retained — with consumer able to make the final choice.
• Good reason to believe that the nudge is warranted, e.g. strong health costs of smoking/eating too much sugar.
• Nudges may not be enough. To reduce smoking rates, we need policies which really tackle core problems. This may require — higher taxes, restrictions on places where you can smoke.

Individuals are always risk averse over gains, but risk seeking over losses. This is another example of how “irrational” our behavior and pychology is that contradicts the predictions made by economists.

The Disposition Effect is an anomaly discovered in behavioral finance. It relates to the tendency of investors to sell assets that have increased in value, while keeping assets that have dropped in value.

From a psychological perspective, the disposition bias could be explained by looking at two key factors:

• Loss aversion. This refers to the tendency for individuals to feel the pain of losses more than the pleasure of gains, it leads to traders being reluctant to sell losing positions because they fear regret and negative emotions associated with realising a loss.
• Cognitive dissonance. This occurs when individuals hold conflicting beliefs of attitudes. A trader may believe a particular stock will perform well but experience a loss instead. This creates a discomfort and the trader may hold on to the losing position in order to reduce this cognitive dissonance.

This behaviour is said to be driven by the desire to avoid regret and preserve self-esteem.

• In the context of investing, this means we are inclined to sell our winning investments, but hold onto investments that are falling in value.
• When investing in the financial markets, we should try to reverse both of these tendencies

For example, even though the net result of receiving $50 would be the same as the net result of gaining $100 and then losing $50, people would tend to take a more favorable view of the former than of the latter scenario.

Case Study

Game 1: you are given $30,000. It’s yours to keep. Then you are asked to choose between the following two possibilities:

• (A) Receive an additional $10,000 for sure
• (B) Toss a coin: if it comes up Heads, you get an additional $20,000; if tails, you get nothing.

Game 2: you are given $50,000. Then you are asked to choose between the following two possibilities:

• © A guaranteed loss of $10,000
• (D) Toss a coin: if it comes up heads, you lose $20,000; if tails, you lose nothing.

If you picked (A) in the first game, and (D) in the second, you are in very good company: this pair is the most commonly selected combination

Note, however, that the outcomes in the combination (A) and © are identical: in both cases, you walk away $40,000 richer.

Similarly, (B) and (D) are identical: together, they generate a 50% chance of either $30,000 or $50,000.

This preference “switch” is known as the Disposition Effect. Why do so many people “flip” their preferences? If they selected (A) in Game 1, why not stick with © (which has identical outcomes in all scenarios) in Game 2?

Instructions

We should Run Gains:

• Over the long run, risky investments go up on average
• Hence we should run gains, not sell them to convert the gains into cash

We should cut losses:

• We are inclined to hold onto losing positions, in the hope that the price will go back to where we purchased it and we can sell without realizing the loss
• But there is nothing special about the price at which you personally purchased the position (stock prices have no “memory”); so clearly it’s irrational to use your (arbitrary) purchase price as a level at which to sell

A foundational concept in microeconomics is the Utility of Money.

The concept of “Utility of money” will open the doors for deep understanding of irrational decision-making.

This idea posits that more money is better than less money. It does, in fact, mean that more money makes us happier.
Traditional economic modul assumes that individuals are rational, and that they make decisions in ways that maximize their expected utility from money made or lost.

But

Why are we inclined to sell the shares in our portfolio that are performing well, and hold onto those that are performing poorly?
Why should you always buy auto insurance and never buy electronics
insurance?
Why do we over-estimate the probability of plane crashes and under-estimate the probability of car crashes?

The root answer for all of these question lies under what we call “utility” or “happiness”

Unlike the predictions made by traditional economic modules, people are irrational in their decision-making, as well as, their feelings tend to contradict those of rational players proposed by modern day economists. Thus, the extent of utility or “happiness” is greatly susceptible to individual’s own circumstance.

These graphs helps us to discern the “happiness” acquired by 2 different Gains depending on our Absolute Wealth.

In this graph, it is evident how much more utility is obtained when we got the first $200, as suggested by an expression of “Yay, I just got $200!”. The reason behind it is simple: we were literally “broke” a moment ago, but we have $200 cash in our pockets now.

However,

Classical economics assumes that people treat increases as an increment to their existing total wealth, and perceive an appropriate utility gain on that basis. So a $200 gain, for someone with a net worth of $50,000, would have negligible impact on their happiness.
A more realistic interpretation would be that someone with a net worth of $50,000 doesn’t think about the $200 as a 0.4% increase, but simply as $200 that they didn’t have 5 minutes ago…

What is Money Illusion?

Money illusion refers to our tendency to misinterpret changes in the nominal value of money without considering inflation. We focus on the amount of money in our hands, rather than it’s purchasing power.

In essence, money illusion is… illusory. This is why many think you can never go wrong with property.

Think about how much businesses paid for instant worldwide communication back in the day, compared to how cheap internet access is today. Money illusion causes us to focus on the amount of money rather than it’s worth.

Money illusion is sometimes also referred to as price illusion

Polarized views of economists

Some Economists disagree on the psychological issue of money illusion. Some contest the hypothesis, claiming that since consumers constantly encounter price fluctuations when shopping, they naturally conceive of their money in real terms and account for inflation.

A lack of financial literacy and the price stickiness of many products and services, according to some economists, are only a couple of the reasons why consumers can fall into the trap of disregarding the growing cost of living.

Applications of money illusion to real-world practices

Money illusion is often cited as a reason why small levels of inflation — 1% to 2% per year — are actually desirable for an economy. Low inflation allows employers, for example, to modestly raise wages in nominal terms without actually paying more in real terms. As a result, many people who get pay raises believe that their wealth is increasing, regardless of the actual rate of inflation.

Notably, people’s perceptions of financial outcomes are colored by money illusion. Experiments have shown, for example, that people generally perceive a 2% pay cut in nominal income with no change in monetary value as unfair. However, they also perceive a 2% rise in nominal income, when inflation is running at 4%, as fair.

Ways to overcome money illusion

Focusing on real value: Always consider the purchasing power of your money rather than just the numbers. Factor in inflation when evaluating financial decisions and financial planning.

Using real rates: When analysing investments or loans, use real interest rates (adjusted for inflation) to assess their true value.

Regularly reviewing finances: Keep track of your financial situation and adjust your strategies as economic conditions and resources change. Regular reviews can help you adapt to inflationary periods.

Quick recap:

• Money illusion posits that people have a tendency to view their wealth and income in nominal dollar terms, rather than recognize their real value, adjusted for inflation.
• Economists cite factors such as a lack of financial education and the price stickiness seen in many goods and services as triggers of money illusion.
• Employers are sometimes said to take advantage of this, modestly lifting wages in nominal terms without actually paying more in real terms.

Remember, it’s not just about the numbers related to your money, it’s about the real value it holds in your life.