Misbehaving: The Making of Behavioral Economics

by Richard H. Thaler

Overview

Winner of the Nobel Prize in Economics

Get ready to change the way you think about economics.

Nobel laureate Richard H. Thaler has spent his career studying the radical notion that the central agents in the economy are humans—predictable, error-prone individuals. Misbehaving is his arresting, frequently hilarious account of the struggle to bring an academic discipline back down to earth—and change the way we think about economics, ourselves, and our world.

Traditional economics assumes rational actors. Early in his research, Thaler realized these Spock-like automatons were nothing like real people. Whether buying a clock radio, selling basketball tickets, or applying for a mortgage, we all succumb to biases and make decisions that deviate from the standards of rationality assumed by economists. In other words, we misbehave. More importantly, our misbehavior has serious consequences. Dismissed at first by economists as an amusing sideshow, the study of human miscalculations and their effects on markets now drives efforts to make better decisions in our lives, our businesses, and our governments.

Coupling recent discoveries in human psychology with a practical understanding of incentives and market behavior, Thaler enlightens readers about how to make smarter decisions in an increasingly mystifying world. He reveals how behavioral economic analysis opens up new ways to look at everything from household finance to assigning faculty offices in a new building, to TV game shows, the NFL draft, and businesses like Uber.

Laced with antic stories of Thaler’s spirited battles with the bastions of traditional economic thinking, Misbehaving is a singular look into profound human foibles. When economics meets psychology, the implications for individuals, managers, and policy makers are both profound and entertaining.

Shortlisted for the Financial Times & McKinsey Business Book of the Year Award

Product Details

ISBN-13:	9780393352795
Publisher:	Norton, W. W. & Company, Inc.
Publication date:	06/14/2016
Edition description:	Reprint
Pages:	432
Sales rank:	62,946
Product dimensions:	5.40(w) x 8.30(h) x 1.20(d)

About the Author

Richard H. Thaler is the coauthor of the best-selling book Nudge with Cass R. Sunstein, and the author of Quasi Rational Economics and The Winner’s Curse. He is a professor of behavioral science and economics at the University of Chicago Booth School of Business and, in 2015, the president of the American Economic Association.

Table of Contents

Preface xiii

I Beginnings: 1970-78 1

1 Supposedly Irrelevant Factors 3

2 The Endowment Effect 12

3 The List 20

4 Value Theory 25

5 California Dreamin' 35

6 The Gauntlet 43

II Mental Accounting: 1979-85 55

7 Bargains and Rip-Offs 57

8 Sunk Costs 64

9 Buckets and Budgets 74

10 At the Poker Table 80

III Self-Control: 1975-88 85

11 Willpower? No Problem 87

12 The Planner and the Doer 99

Interlude 113

13 Misbehaving in the Real World 115

IV Working with Danny: 1984-85 125

14 What Seems Fair? 127

15 Fairness Games 140

16 Mugs 148

V Engaging with the Economics Profession: 1986-94 157

17 The Debate Begins 159

18 Anomalies 169

19 Forming a Team 176

20 Narrow Framing on the Upper East Side 185

VI Finance: 1983-2003 203

21 The Beauty Contest 205

22 Does the Stock Market Overreact? 216

23 The Reaction to Overreaction 225

24 The Price Is Not Right 230

25 The Battle of Closed-End Funds 237

26 Fruit Flies, Icebergs, and Negative Stock Prices 244

VII Welcome to Chicago: 1995-Present 255

27 Law Schooling 257

28 The Offices 270

29 Football 277

30 Game Shows 295

VIII Helping Out: 2004-Present 307

31 Save More Tomorrow 309

32 Going Public 323

33 Nudging in the U.K. 330

Conclusion: What Is Next? 347

Notes 359

Bibliography 373

List of Figures 393

Acknowledgments 395

Index 399

Editorial Reviews

"Richard Thaler has been at the center of the most important revolution to happen in economics in the last thirty years. In this captivating book, he lays out the evidence for behavioral economics and explains why there was so much resistance to it. Read Misbehaving. There is no better guide to this new and exciting economics."

Robert J. Shiller

"Entertaining…. An excellent read on the shortcomings of classical economic and finance theory."

Ronald L. Moy

"A dryly humorous history of the revolution [Thaler] helped ignite, as well as a useful (if sometimes challenging) primer on its key concepts."

Chicago Tribune - Julia M. Klein

"Highly enjoyable . . . dense with fascinating examples. . . . It is long past time to replace Econs with Humans, both in theory and in the practice of prediction."

Wall Street Journal - Carol Tavris

"A sly and somewhat subversive history of [the economics] profession . . . engrossing and highly relevant."

New York Times - Jonathan A. Knee

"The story behind some of the most important insights in modern economics. If I had to be trapped in an elevator with any contemporary intellectual, I’d pick Richard Thaler."

Malcolm Gladwell

"[A] masterful, readable account of behavioral economics. Very well done."

David Wessel

"Misbehaving gives us the story behind some of the most important insights in modern economics. If I had to be trapped in an elevator with any contemporary intellectual, I’d pick Richard Thaler."

Malcolm Gladwell

"[Misbehaving] is bound to become a classic. Now established as one of the great figures in the history of economic thought, Thaler has no predecessors. A rebel with a cause…[w]here he wins Olympic gold is in keen observation; his greatest insights come from actually looking."

New Rambler - Cass Sunstein

"The creative genius who invented the field of behavioral economics is also a master storyteller and a very funny man. All these talents are on display in this wonderful book."

Daniel Kahneman

2015-03-16
The dean of behavioral economics—the study of how people behave in practice rather than in theory when it comes to dollars and cents—gives a spry account of his field. "The real point of behavioral economics is to highlight behaviors that are in conflict with the standard rational model," writes Thaler (Behavioral Science and Economics/Univ. of Chicago Graduate School of Business; co-author: Nudge: Improving Decisions About Health, Wealth, and Happiness, 2008, etc.), who carved out his own field at the University of Chicago in the 1970s and, with a few other renegades, brought it to academic respectability in the '80s. Now the branch is pretty well orthodox, and its heavy hitters command all kinds of respect, even if the young wild-eyed acolytes of the Freakonomics set steal the thunder these days. Without the oldsters there would be no such acolytes, just as without Thaler's explorations of how people tick, irrationally and against expectation, there wouldn't be any Levitts and Dubners. Thaler's accounts of what he spends his days thinking about are illuminating: if controlling your impulses involves a metaphorical angel on one shoulder and a devil on the other, why did this not have an appropriately twofold theory behind it? "Self-control," writes the author with customary clarity, "is, centrally, about conflict. And, like tango, it takes (at least) two to have a conflict. Maybe I needed a model with two selves." People are risk-averse by nature; does that have any sort of evolutionary component? And why, conversely, are people so bad at making the right choices? In part, it's because we're not very bright, but it's also because there's a rub in that "right choices" business—assuming that we're capable of rationality when, as Thaler writes, "the premises on which economic theory rests are flawed." Readers with even the remotest interest in how the world really works will enjoy this work of the dismal science pleasingly, and even exuberantly, done.

Kirkus Reviews