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Misbehaving: The Making of Behavioral Economics Paperback – June 14, 2016
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“A sly and somewhat subversive history of [the economics] profession . . . engrossing and highly relevant.”
- Jonathan A. Knee, New York Times
“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.”
- Carol Tavris, Wall Street Journal
“A dryly humorous history of the revolution [Thaler] helped ignite, as well as a useful (if sometimes challenging) primer on its key concepts.”
- Julia M. Klein, Chicago Tribune
“[A] masterful, readable account of behavioral economics. Very well done.”
- David Wessel, Pulitzer Prize-winning journalist, author of Red Ink and Ben Bernanke’s War on the Great Panic
“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.”
- Cass Sunstein, New Rambler
“Entertaining…. An excellent read on the shortcomings of classical economic and finance theory.”
- Ronald L. Moy, CFA Institute
“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, winner of the Nobel Prize in Economics and author of Thinking, Fast and Slow
“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
“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, winner of the Nobel Prize in Economics and author of Finance and the Good Society
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.
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Top customer reviews
The book affords a close-up look (a firsthand account) at the exploration throughout the entire professional career of an illustrious economist. The subject is the role of human psychology in the decision making process. His experiments and observations bring into question some very basic assumptions and hypotheses in classic economics, such as rationality in consumer choices and efficient markets.
The detailed discussion of economic issues is sometimes rather academic/technical. It helps if the reader comes with a basic understanding of principles and methods in the study of economics (which I do not possess). In any case, the account of the tense academic debates surrounding the subject is quite fascinating to read. Towards the end of the book, the author also provides useful insights on the implications of behavioural considerations for public policy.
In all, this is a highly recommended book that should provide an engrossing read.
And, it turns out, that an economy (be it large or small) works irrationally. How else to explain that we are perfectly happy to “save more tomorrow” (the name of a retirement scheme that actually works), pay more for a beer that is bought at fancy restaurant even though we are going to drink it on the beach, or value a (“cool”) part of company more than the whole company?
This can only be due to the fact that our biases distort how we perceive things and, as a result, distort our actions. We place too much stock on what is happening today, don’t anticipate the future, tie a set of events that may or may not be related into a story to back up a theory, and we are over-confident of our abilities. These are all very recognizable human qualities that, traditional economists assure us, don’t matter. Behavioral economists, like Thaler, are revolutionary because they insist that these very human qualities do indeed matter. They matter a great deal.
The observations Thaler makes in his book are not, of course, new. Businesses and not a few investors (Warren Buffet today, John Maynard Keynes a generation ago) not only knew about this but were able to make quite a bit of money from (mostly accurately) forecasting how a market made up of irrational humans would behave in different situations. And so I was pleased to see Thaler pay due homage to these and other giants of economics.
I was also pleased to see that his writing is lucid and entertaining. Part of the reason of course is that Richard Thaler did not dwell on the mathematics behind the different theories he was discussing. If a theory could not be explained, even at very high levels, using examples a fifth-grader could understand he left it alone. Part of the reason is that this book is part memoir, part economic theory, and part gossip. Here are the famous economists we see on the pages of major newspapers. Here too are politicians we see on our television screens. Here is the skinny on what happens when professors (even if they are economists) have to figure out where their offices will be. (Spoiler alert: office politics are not rational.)
So Bisbehaving made for entertaining, yet educating reading. And yet I felt a bit disappointed when I set it down. Not because I did not see articulated a coherent theory of economic behavior—the field is too new for that—but because I felt like I was missing out because I had not read Thaler’s earlier book which deals with how governments can structure choice options so as to nudge people to make decisions that are better for them and for society as a whole. I feel like I may have gotten the cliff notes version of that earlier book but even the cliff notes was buried in far too much (entertaining sure) anecdotes about Thaler’s career , the people he met, and the development of behavioral economics as a discipline.
So for me the bottom line is that I recommend this book with the proviso that you read Nudge first.
Thaler is a giant in the field and has been with it from its early days, as both a participant and observer. He has contributed
as an individual, as well as guiding the development of others as a leading professor in a leading school. Having worked with such notables as Daniel Kahneman, Cass Sunstein, and others, he is truly an insider's insider. As far as it goes, this book presents a nice summary of the evolution of the field in a very understandable way and I find nothing problematic with anything written.
However, in my opinion the book does not go far enough. Like many other BE books, the story is told as a series of anecdotal
events, generally dealing with independent lab experiments testing "Rationality" or lack thereof. The individual experimental findings
are usually summarized sufficiently well to make the point that the classic concepts of economic rational behavior are frequently violated in our common day-to-day activities and decisions.
Unfortunately, Thaler, like many other BE authors, does not attempt to generalize from the collective findings of BE to glean some basic principles behind, or driving. these apparent Rationality violations. He certainly would seem to have the credentials and experience to extrapolate from these findings into some meaningful generalizations, but like most others, has chosen not to do so. In fact, like most others, he seems to not even acknowledge this as a valid need of the BE field. I wish he or someone else who is willing to approach BE from a theoretical perspective, would attempt to do this, to start the roll out of an over-arching BE framework to characterize how we actually make many decisions. There has not been much formal progress on this theoretical decision making front since the 1950's with Savage's work, and that was a normative decision making framework. We need the development of a theoretical framework for descriptive decision-making. Surely the BE field can do better than simply adding one more lab experiment at a time to the already long list. Let's get someone willing to do some inductive reasoning and put together some explanation of what is behind Rationality-violating decisions, or at least some plausible hypotheses. Kahneman's book's focus on System 1 and System 2 is a very nice start, but there is quite a long way to go. With BE approaching 50 years of age, we ought to be further along on this front. Maybe these old fathers of BE are just not up to it, having too much of an experimental orientation, and some younger bloods with a theoretical bent need to step up to the plate.