Misbehaving

The Making of Behavioral Economics

By: Richard H. Thaler

Narrated by: L. J. Ganser

Length: 13 hrs and 35 mins

Publisher's summary

Get ready to change the way you think about economics.

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, frequently 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 world.

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.

Coupling recent discoveries in human psychology with a practical understanding of incentives and market behavior, Thaler enlightens listeners about 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 Uber.

Laced 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.

Download the accompanying reference guide.

©2015 Richard H. Thaler (P)2015 Audible, Inc.

A Wiinner: A Case for Misbehaving

This was fabulous. I couldn't put it down. The thread of an academic career will stimulate many students and young professors to find a passion and build on it. The practical sense of the behavioral problems discussed was fantastic. I will look for the problems in my own field to brainstorm solutions from a behavioral point of view. This was fun to read as well as inspiring. Dolores Pretorius, MD, Professor of Radiology, Univ of Calif, San Diego

An entertaining look at modern economics

Richard Thaler is one of the founders of behavioral economics, and he gives us a clear, enlightening, and entertaining account of its origins, principles, and findings.

Traditional economics operates on the theory of the rational economic person--homo economicus, or as Thaler shortens it for convenience, Econs. For the purposes of economic theory, Econs are assumed to always make rational and fully informed choices, for maximum economic benefit. The problems should be obvious; we are rarely fully rational in our decision-making, and almost never have complete, and completely accurate, information. The more important our decisions are--career choice, marriage, retirement planning, the less likely we are to have enough information to make "correct" economic choices.

Over a period of forty years, Thaler and others, recognizing, sometimes dimly, sometimes clearly, that humans don't make purely rational decisions, often not even when we do have "enough" information, began to tease this out. They needed to prove not only that humans make economic decisions based on incomplete information, emotion, impulse, and what economists consider irrelevant factors, but that it matters. If the collective effect of all our individual decisions adds up to the same result as if we had made those decisions rationally, it wouldn't matter, and rational economic theory, "efficient market theory," would still be fully sufficient for economic analysis.

The book is lively, filled with stories and anecdotes, but also clear explanations of the basic principles. It's clear, and in some ways more rational than traditional economic theory that assumes human economic behavior can be accurately predicted based on a model of human behavior that resembles no human being who has ever lived. As an example of the divergence between Econs and humans, Thaler offers the example of a bowl of cashews on the coffee table before dinner. You may like cashews. You may enjoy having cashews before dinner--but you probably don't want to eat so many that you spoil your dinner. What's the sensible thing to do?

The Econ, homo economicus, who always makes completely rational decisions, just stops eating the cashews when he decides he's had enough. The ordinary, real, human being who really wants to stop eating before eating enough to spoil dinner, is more likely to take that cashew bowl and put it away, so that it's not sitting there as a temptation.

And, once you allow for the fact of real human beings rather than Econs, that's a completely rational decision. It's also one that the Econ would never understand. Either you prefer to stop eating cashews, so you do, or you prefer to keep eating cashews, so you do. No need to move the bowl!

More directly economic matters are the cab driver who works each day until he's hit his target income for the day, and then ends his work day. This means he works more hours when earning is low, and fewer hours on the days when earning is good. From the point of view of homo economicus, this is insane. It's just not worth working that many hours when pay is bad, but on the days when pay is good, he could boost his total income by working more hours! From the viewpoint of income maximization, this is completely rational, and Thaler agrees. It's a mistake not to take advantage of the high-pay days, and knock off early when the pay is bad. I'm not sure income maximization is the only consideration here, but it's quite reasonable for an economist to think it should be.

More interesting are strange anomalies in the part of the economy that, it would seem, should be most rational, the stock market. Surely most of the money in the stock market is invested or managed by professionals able to master all available information and make rational decisions, right?

Turns out, not so much. Even the professionals can succumb to irrational exuberance, over- or under-estimate value and risk, and find themselves unable to properly exploit market inefficiencies (which are not supposed to exist), even when they recognize them.

It's a fascinating, enlightening, entertaining book, well worth your time. Recommended.

I bought this audiobook.

A valuable point

I enjoy behaviorism. I’m a big fan and I use it. Still I felt lost in the deluge of examples. If the intention of the book was to drill into my mind that humans do not easily function from executive control, then it succeeded in its mission. Yes, even I needed this important lesson. Lesson two is, it is up to our leadership and behavioral scientists to guide the public toward evidence based decisions, to speak up, and to take risks. If I may be blunt, people must be goaded into making their own bed.

Detailed and informative history

Any additional comments?

Detailed and informative history of behavioral economics. This should NOT be the first book you read on this subject though. Read things like "Predictably Irrational" or "Thinking, Fast and Slow" first, as they are a more entertaining introduction to the subject.

Powerful, convincing book. Large biases

Thaler gives a powerful history of behavioral economics. It got me thinking. It was a great book. Thaler also has some pretty large biases that manifest when he leaves the data and in his attitude. Not too unexpected, though

Super interesting but no graphics

Very interesting and well-told story of the development of behavioral economics. The only downside is you can't see the referenced graphics. However you can pretty well imagine them if you've got any familiarity with the subject, and they are described well.

Too much history, but the material is excellent!

Too much of the book focuses on who wrote what paper, and when certain studies were published. The rest, however is an excellent intro to behavioral economics topics.

Behavioral economics by examples

Entertaining and informative. Having read Thinking Fast and Slow before I found repeating ideas here. However this book mostly concentrates on economic implications of human decision making.

Economic Behavior

This book represents a good review of the beginnings of Behavioral Economics and its acceptance within academia. Worth a listen for the overview of the field and the studies that were developed to test some of the theories. Also a good refutation of the magic of the Market System.

Great book

I loved this book. Great insight into humans and how we are sold plans by politicians that believe we are all rational econs. I will always remember this book. Now to start it over again to memorize the points.