Misbehaving: The Making of Behavioral Economics, by Richard H. Thaler ISBN 9780393080940
Five out of five stars
The author is an economist that has done a lot of work to overturn a great deal of classic economic theory and conventional wisdom. In the classic theory, people make their economic decisions based on an analysis of the most advantageous course of action. Thaler calls people that behave this way “Econs” and he puts forward several examples that support his arguments against this position. The basis of the argument is that people are human and so have emotions, biased perspectives and a strong herd instinct. This combination makes them Human rather than an Econ and is the basis of behavioral economics.
With examples weaved throughout a partial professional autobiography, Thaler makes the point that behavioral economics better explains many of the anomalies seen in the actions of markets and decision making. One of the most powerful examples is in chapter 29, where some aspects of NFL football are examined. In this case, fear of public failure and a desire to maximize the likelihood of a short-term gain lead to horrible decisions being made.
Thaler is an excellent writer, even though this is fundamentally a book in theoretical economics, he writes in a way where complex economic points are made in a style that the general reader can understand. Like all other fields of human endeavor, economics suffers from a great deal of inertia, where new ideas face a difficult time being accepted.
The funniest section of the book is by far the chapter describing the allocation of offices in the new building at the Booth School of Business at the University of Chicago. In an environment where some are so dedicated to free markets that they are in favor of open markets on babies and organs, no such thing can be considered when it is something as important as office spaces. In this case, even the most dedicated Econs acted as Humans.
This book was made available for free for review purposes.