330 of 360 people found the following review helpful
Made me think through some things I'd overlooked about market behavior,
This review is from: Predictably Irrational: The Hidden Forces That Shape Our Decisions (Hardcover)I have been thinking about economics seriously for nearly 30 years. Classical economics is built to no small degree on the notion that people will generally act in their own best self interest, after rationally and intelligently examining their options. This fit my world view fine in my first career as an engineer (BS and MS in Electrical Engineering).
From my 2nd Career as a Business Development person (MBA), I began to have to deal with people's tendency to not entirely think things through.
Here in this book, we have a professor who runs socioeconomic tests on his MBA students. These students are smart enough, worldly enough, experienced enough, and educated enough to approximate the standard economic assumptions and produce reasonably rational behavior.
Guess what. Even among broad experiments conducted on multiple MBA classes over time, one can predictably pre-bias the outcome of a particular run of a socioeconomic experiment by what seeds you plant in the class members' minds before the experiment. For example, in one experiment in estimating prices, the author requires his students to write the last two digits of their social security numbers on the top of the paper. Simply the act of writing a high number (e.g., 88) versus a low number (e.g., 08) produced statistically significant correlatable influences on the students' later price estimates. Those compelled to write "88" at the top of their papers would reliably estimate higher prices than those compelled to write "08" at the top of their papers, to a statistically significant degree.
Extrapolating to "real life." Watching Fox News will tend to make you more conservative without you knowing it. Watching MSNBC news will tend to make you more liberal without you knowing it.
If you want to understand "real truth," you are just going to have to do a little more than self-select your news feeds. You are going to have to seriously consider a diversity of viewpoints.
Moreover, if you have Social Darwinist beliefs as I once did, you may need to re-think the concept of the Poverty Trap. Early pre-conditioning really does make a difference.
Here is the way I think of it as an Engineer. Classical Economic Theory is analogous to Classical Newtonian Physics. There is nothing badly wrong with it, and it is a good approximation for most real world problems at the middle of the distribution.
However, General Relativity is indeed more correct that Classical Newtonian Physics, and the additional knowledge makes a real difference in certain special cases. And, those special cases are sometimes the really important ones. Likewise, Behavioral Economics is adding something very valuable to our knowledge of Classical Economics.
Read this only if you are brave enough to contemplate that the world might be a little more complex than we wish it were.
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Showing 1-10 of 10 posts in this discussion
Initial post: Apr 24, 2010 10:01:33 AM PDT
C. Estes says:
I wish there were more intelligent, informed, and thorough reviews like yours.
In reply to an earlier post on Sep 28, 2010 10:23:02 PM PDT
This is a well-written and on-target review. Behavioral economists have a lot to say about people behaving in not-so-rational ways (as psychologists have demonstrated for years) and it's important for us to listen to them. If you're interested in behavioral economics, you might like reading up on economic sociology, especially the work of social network theory expert and Stanford professor, Mark Granovetter.
Posted on Jun 28, 2011 3:32:10 AM PDT
Corporate Coach says:
A nice, thoughtful, analytical review. I have already read Ariely's book, but this review added a bit of insight on the larger questions. Thanks.
Posted on Sep 25, 2011 11:51:57 AM PDT
M. Mcnivens says:
The trouble with behavioral econ is that ignores irrationality in politics and the public sector. Behavioral Economists have made strong claims regarding the potential for using public policy to improve market outcomes. Markets may seem distubingly irrational when compared problem solving by electrical engineers, but markets are highly rational compared to politics. Engineers frequently fall prey to the notion that society can be designed and improved through scientific methods, but its politicians, not scientists, who actually craft and implement policy. All that BeEc adds to Classical Econ is the false notion that "we" can design and build a better economy than one which evolves out of competition. The Institutional Darwinism of Adam Smith and David Hume was correct.
Posted on Oct 21, 2011 6:45:22 AM PDT
James B. Johnson says:
What youre speaking of is how advertising works. Expose people to the message often enough and theyll accept it.
In reply to an earlier post on Dec 13, 2011 12:57:11 PM PST
I don't think markets are more rational. In so far compared to free market dogma's assertion of efficiency and rationality, we should not then experience markets bubbling and busting once or twice now a decade since time immemorial. I think it's tempting to see the bust portion of the business cycle as a rationality signal, but in reality as the current recession indicate, it is more akin to Keynes animal spirits where uncertainty prevails.
The market cannot price the future of Euro markets, nor can it accurately forecast demand in the USA accurately to any useful time window. China ironically with its laser sharp Keynesian focus engendering demand on demand is turning out to be more rational and systematic, as are the Germans.
To Drifty's original comparison of classical v relativity, I daresay a better comparative would be with quantum mechanics, and the matriced Heisenbergian uncertainty inherent in the very foundations of the natural world and reality as we know and measure it. QM deals with individual atomic actors whose interactions are predictably irrational as behavioral economics suggests in the same vein that humans are rationally irrationally... which in my view is that evolution thru the ages has constructed our minds and bodies to perceive things to survive and reproduce, which has gotten us this far obviously. But with modernity, there are gaps between what evolution engendered and the perceptive gaps and blind spots we are now discovering about ourselves.
Posted on Jul 19, 2012 5:34:42 AM PDT
Paul M. Tidwell says:
I just have to say that I LOVE That your experience and your reading of this book helped reform you away from darwinist thought. To me evolutionary biology is showing us that reciporical alturism is the way to go.
In reply to an earlier post on Jul 19, 2012 5:40:49 AM PDT
Paul M. Tidwell says:
this was an awesome reply =)
Posted on Sep 17, 2012 11:53:47 AM PDT
EASY TRAVELER says:
Thanks for the review. Comes from an educated person. I got this book for my daughter. She's an RN. She was a school teacher too. She has a special way of screwing her life up. A lot. I figure the title alone might trigger something close to an improvement!
Behavioral psychology is very definitely used to influence people every day! That is why things are the way they are. There is no such thing as an accident. Goofs are carefully planned and executed.
When I get back from Europe I am going to get this book and "Thinking Fast and Slow". They work like a black light to reveal a different reality.
In reply to an earlier post on Nov 1, 2012 7:42:23 PM PDT
Thank you. I'm rather humbled to return here after such a long time and find my own as the #1 review on this book. I never would have anticipated that. Humbled.
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