Name: Misbehaving
Rating: 4.206896551724138 (29 reviews)
ISBN: 9780393352795

Richard H. Thaler

Get ready to change the way you think about economics.

The Making of Behavioral Economics

Misbehaving

Mark Phillips

Jose Sbuck

Richard Thaler is an economist who started applying the findings of psychology and behavioral science to economics. This book is his account of how behavioral economics came to be and what it was like to try to convince academics and governments to accept that the traditional economic theories were not necessarily true. The problem with economics was (is?) that many of the theories are based on the assumption of rationality: Thaler calls these imaginary rational actors "Econs" as opposed to "Humans". Humans make logical errors, feel losses too strongly, and become affected to what they possess (as in endowment effect). Econs, on the other hand, are always rational and logical. Thaler's style is humorous, even exuberant. He refers to philosopher Thomas Kuhn multiple times and quotes: "Discovery commences with the awareness of anomaly." These anomalies and Supposedly Irrelevant Factors (SIFs) were essential to Thaler's thinking. He made lists of observations that were not in line with the economic theories, and then thought them through to form a hypothesis and an experiment to test the hypothesis. In many places the experiments resemble those of Tversky and Kahnemahn. And as <a href="https://www.goodreads.com/book/show/11468377.Thinking__Fast_and_Slow" title="Thinking, Fast and Slow by Daniel Kahneman" rel="nofollow noopener">Thinking, Fast and Slow</a>, also this book is a bit repetitive: often multiple tiny bit different experiments were required to fully explain a phenomenon. Misbehaving may be my most highlighted book. I found something insightful almost on every page. Things like: <blockquote> In an organizational setting, the natural feeling of loss aversion can be exacerbated by the system of rewards and punishment. In many companies, creating a large gain will lead to modest rewards, while creating an equal-sized loss will get you fired. Under those terms, even a manager who starts out risk neutral, willing to take any bet that will make money on average, will become highly risk averse. </blockquote> <blockquote> Gambling when behind in an effort to break even can also be seen in the behavior of professional investors. Mutual fund portfolio managers take more risks in the last quarter of the year when the fund they are managing is trailing the benchmark index to which their returns are compared. </blockquote> These, and many other examples feel so familiar: This is how to world works. It's easy to agree with Thaler that there are many organizations and societies that would benefit from a nudge that targets the various human biases. Of course, this is Thaler's account, and when I discussed for example the supposed irrelevance of CAPM with an economist friend, she wasn't quite that convinced. Recommended to anyone interested in economics, economic history, and behavioral economics.

Jowanza Joseph

I studied economics in college and have grown rather bored with it over the years, switching my career to software engineering. This book was a reminder to me of the people still doing interesting work in the field. The book is very easy to follow and was a real page turner for me.

Misbehaving The Making of Behavioral Economics

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