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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 UberLaced 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. Yup this is now officially the memoirautobiography of the 2017 Nobel Prize Winner This was a lot of fun but it is what it is It s a career academic writing about his professional journey basically the story of the evolution of his successful productive and arguably paradigm shifting lifetime of research for a popular audience in the context of the intersection of economics and well everything related to behavior which of course includes a healthy dose of psychology The book holds together nicely but what makes the book a joy are the examples anecdotes and results from empirical research The topics run the gamut from retirement savings to household insulation to corporate leadership to the NFL draft to taxation to the bowls of nuts on the table to for me the most entertaining the selection of faculty offices in an elite graduate schoolIf you haven t studied or read or thought much about economics I have no idea how accessible this would be but it wouldn t surprise me if it would be interesting and thought provoking for anyone willing to read and uestion their preconceived notions and thinkThere s a lot of life inside the ivory tower stuff that I m guessing plenty of readers will find lies somewhere between inside baseball and too much information and geeks tell all drama but at least for me I found it hugely entertainingIt was fun reading this soon after enjoying Rodrik s Economics Rules and I m guessing anyone that enjoys one will enjoy the otherSide note I haven t yet read Nudge Thaler s well known collaboration with Cass Sunstein but I ll probably go back and read it at some point At least based on my experience this book stands up just fine on its own

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Misbehaving The Making of Behavioral Economics

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 conseuences 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 governmentsCoupling recent discoveries in human psychology with a practical understanding of incentives and market behavior Thaler enlightens readers about. This book is by Richard Thaler one of the founders of the field of behavioral economics When he first started getting into this field he faced mountainous obstacles mostly from his fellow economists For many years he collaborated with Daniel Kahneman and Amos Tversky who are famous for the book Thinking Fast and Slow In 2017 Thaler received the Nobel Prize in economics for his work in understanding the realities of economic decision makingThis book is enjoyable and engaging and is packed with interesting anecdotes Perhaps he goes a little overboard in describing his personal story and his interactions with Kahneman and Tversky there is a little bit too much of this and it almost feels like name dropping The book is mostly about the development and history of behavioral economics rather than the subject of behavioral economics itself On the other hand I also very much enjoyed reading one of his previous books Nudge Improving Decisions About Health Wealth and Happiness

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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 freuently 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 worldTraditional 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. He s taken his time and he s waited his turn but Richard Thaler has delivered the definitive book on Behavioral Economics the one you can t afford to miss It s a summary of the main findings a history of how they came about and a preview of coming attractions with due care taken to pay tribute to those who came before Thaler and apportion credit to those who worked with himThe field is not as new as Thaler would have you think There s bias in this account and it is a bias against those among his predecessors who tried to explain human behavior in a way that was consistent with mainstream economic theory I m thinking Gary Becker here who tried to explain long lines outside empty clubs and packed cheap restaurants alike using an upward sloping demand curve and famously sat down to write a paper on suicide when his wife took her own life I m thinking the very same Robert Barro that Thaler makes fun of when he describes him as the smartest man ever but who nonetheless made me understand in his book Getting it Right why superstars could get paid so much in a zero sum game and got confirmation to his theory when Maradona got paid than the rest of his team Napoli put together and justifiably so because he not only took them to the Campionato but also deprived much fancied teams from winning itThaler s predecessors operated in a world where most Economics books had to start with a chapter explaining why Economics is a science Of course they had to stick to the utility maximizing profit maximizing orthodoxy Besides orthodox economic theory was not all that shabby when it came to predicting human behaviorBy the time Thaler was entering his prime Economics no longer had to apologize to anybody and was much open to heresy of course It was in a position to withstand additional uestioning Armed with a nice piece of math invented by Tversky and Kahneman it was ready to be taken to the next levelThaler takes you through the whole thing in the space of the shortest 358 pages you will ever read As he promises at the start he tells it through a bunch of stories mostly the stories of his collaborations and his epic fights with Economic OrthodoxyThe book is worth reading for the humor alone The jokes range from pure slapstick example p 128 we were trying to learn what ordinary citizens albeit Canadians think is fair to the esoteric inside joke like when he mentions Vishny is a common co author of Shleifer to the best of my knowledge he s never written a paper without Shleifer If you re not laughing the whole time basically there are suadrons of jokes flying over your head My favorite type of humor relentless repetition is also very well represented I lost count of the number of times I read the expression invisible handwave The man is irrepressible basically You can t keep him downThere s a sadness that goes with this too and it s that this is a bit of a category killer Misbehaving Pareto dominates all behavioral economics books that precede it in terms of readability context scope you name it I don t know what I would do with myself if I was Dan Ariely or if I was Steven Levitt Roe v Wade findings notwithstanding to say nothing of Tim Hartford They now have to accept that there s a book out there that beats their entire life s work on all frontsThe long problem set masuerading as a re interpretation of behavioral economics that is Kahneman s Thinking Fast and Slow is the only true exception to the rule it continues to stand alone but relative to Misbehaving it s a cop out As he told Michael Lewis in the interview that preceded that book Kahnemann did not want to write the history of the field he did not want the book to have the feel of one s last book So the door was left wide open to Kahneman s self admittedly lazy student to jump into the breachThis he has done with gustoProspect Theory how we are risk averse when we re winning and risk loving when we re losing is taught straight from Tversky and Kahneman s 1976 graph and is used to explain i transaction utility including Costco s business model ii sunk costs ie why you will carry on wearing an uncomfortable pair of shoes you paid 300 dollars for iii the endowment effect including later in the book how it undermines the Coase theorem and iv gambling with the house s money at the casino versus the fact that outsiders get overpriced toward the end of the day at the racetrack Bucketing of budgets gets thrown in for freeNext comes a tutorial on Self Control Thaler explains that many humans discount future pleasure or pain on a scale that is totally unrelated to how we present value bond cashflows and mainly operates on three levels Now intense Later much less intense and Much Later only slightly less intense than Later This leads to preferences that are intertemporally inconsistent a nightmare to Economic Orthodoxy but very often true in real life Heady stuff and I promise he makes it clear He does not use graphs or charts or math He explains it all with one picture the famous cover of New Yorker magazine where everything this side of the Hudson is rendered in great detail New Jersey through to California takes up as much space as West Manhattan and Asia is visible behind You get that chart you get how we humans really think about delayed gratification GeniusA chapter follows which is a summary of Thinking Fast and Slow but without trying to shoehorn the rest of Behavioral Economics into that modelThe next couple chapters deal with Fairness the Ultimatum Game the Dictator Game the Punishment Game cooperation games such as the Prisoner s Dilemma and a revisit of the Endowment Effect as exemplified by the trading of Mugs with capital M Then Thaler attacks Finance and the Efficient Market Hypothesis in ParticularNot that anybody sane thinks markets are efficient but you could tear out the rest of the book and keep pages 203 to 253 as a uick guide to why markets are inefficient Thaler starts with Keynes beauty contest analogy for stock picking we pick the girl we think most other people will like not the one we really fancy Next he explains why a stock ought to be worth the net present value of its dividends and takes the reader through Shiller s discovery that stocks move around tons than dividends do or can be reasonably expected to do which proves they wander around tons relative to what they will ever pay out He offers additional proof by going through closed end funds variation from their NPV and gets some serious kicks from pointing out that stocks on occasion sell for less than the market value of their listed subsidiaries He s a bit of a showman Thaler he calls this negative stock prices From there he goes for the kill and notes that Royal Dutch Shell shares have a different price in New York versus Europe and never so than they did during the blow up of LTCM providing a real life example of Shleifer and Vishny s mathematical formalization of Keynes old aphorism that the market can stay irrational for longer than you can stay solvent At some point Chicago had to follow Al Pacino s view that you keep your friends close and your enemies closer and put him on the faculty From his angle it was time to storm the citadel and this is what Thaler chronicles nextHe had been ready for them from day one The book actually starts with The Gauntlet which is the series of challenges orthodox economists lay out for the behavioral crowd1 The As If challenge states that even if nobody is an expert in everything society operates as if we all were because through division of labor we all end up doing things we understand2 The Incentives challenge states that people respond to incentives once the stakes are large enough All the wishy washy behavioral stuff washes away once we re talking real money3 The Learning challenge states that even if we get it wrong in one shot games in real life most games are repeated and behavior thus converges to what Orthodox Economics would suggest4 The Invisible Hand argument states that if we all go about doing what s best for us we nevertheless end up doing what s right for everyone else as wellWon t spoil it for you and take you through Thaler s answers to the above It s after all what the book is really all about But forgive me one indulgence I ve GOT to tell you about the bit where he demolishes Robert BarroThe Rational Expectations Hypothesis has a number of implications chief amongst them the prediction that fiscal stimulus does not work If the government writes you a check the story goes you know you ll be taxed for it in the future so you save it rather than spend it And the stimulus ends up being a damp suib Thaler proves the circularity of this argument by suggesting a similarly circular counter argument what if the rational agents that compose this economy believed in Keynes multiplier What if they thought the stimulus will work and the economy will fly and their taxes will actually go down Should they spend TWICE the check they were sentFrom Chicago he goes on to a couple well earned victory laps He applies Behavioral Economics to Americal Football where he advised three separate teams on how to conduct their affairs during the annual draft to game shows he was allowed to set up with Endemol where he proved that his theories can withstand some pretty high stakes and from there onto nudging people to contribute to their pension and pay their taxes on timeHe ends the book with a wish that one day there will be one Economics again with the Orthodox Economics of utility maximization and profit maximization as a uaint special case We re probably already there

10 thoughts on “Misbehaving The Making of Behavioral Economics

  1. says:

    He’s taken his time and he’s waited his turn but Richard Thaler has delivered the definitive book on Behavioral Economics the one you can

  2. says:

    What is the value of 'Misbehaving' after 'Nudge' and 'Thinking Fast and Slow'? After all 'Thinking' told us the discovery process b

  3. says:

    Thaler was one of the people who brought behavioural economics into being and this book covers the story of his journey He says that classic economics describes man as a logical creature and bases its theories up

  4. says:

    First book I've returned to Audible and Audible makes that astonishingly easy not that I expect to need to do it often but my gosh ju

  5. says:

    This book is by Richard Thaler one of the founders of the field of behavioral economics When he first started getting into this field he faced

  6. says:

    For someone without any background in economics before this book is an eye opener It gives me many tools that I'm sure I can effectively use to argue with my friends in the future It's also an easy read Richard has many interesting stories to tell each with many lessons to learn from

  7. says:

    I have mixed feelings about this book I wrote a brief article about how college doesn't teach you anything and to my horror I realiz

  8. says:

    It was once a cliche that economics theory dealt only with completely rational human beings under the principle that this was the only way to develop workable models Even though classical economists from Smith to Keynes had acknowledg

  9. says:

    Yup this is now officially the memoirautobiography of the 2017 Nobel Prize Winner This was a lot of fun but it is what it is It's a career academic writing about his professional journey basically the story of th

  10. says:

    This was a really fun read It gives kind of a behind the scenes look at how the field came about from one of the most prominent creators of the field

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