Book Review Misbehaving: The Making of Behavioral Economics

Abstract

First edition. "Traditional 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 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 consequences. 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 governments"--Amazon.com. I. Beginnings : 1970-78. Supposedly irrelevant factors ; The endowment effect ; The list ; Value theory ; California dreamin' ; The gauntlet -- II. Mental accounting : 1979-85. Bargains and rip-offs ; Sunk costs ; Buckets and budgets ; At the poker table -- III. Self-Control : 1975-88. Willpower? No problem ; The Planner and the doer -- Interlude. Misbehaving in the real world -- IV. Working With Danny : 1984-85. What seems fair? ; Fairness games ; Mugs -- V. Engaging with the economics profession : 1986-94. The debate begins ; Anomalies ; Forming a team ; Narrow framing on the Upper East Side -- VI. Finance : 1983-2003. The beauty contest ; Does the stock market overreact?; The reaction to overreaction ; The price is not right ; The battle of closed-end funds ; Fruit flies, icebergs, and negative stock prices -- VII. Welcome to Chicago : 1995-present . Law schooling ; The offices ; Football ; Game shows -- VIII. Helping out : 2004-present. Save more tomorrow ; Going public ; Nudging in the U.K. ; Conclusion: What is next?