Misbehaving

Preview

Come on in, and let us spend some time with the wonderfully imperfect creatures who populate economics once you stop pretending they are robots. That is really the heart of Misbehaving. It is a story about what happens when elegant theories meet actual human beings. Standard economics built a powerful machine by imagining people who are perfectly rational, fully informed, self controlled, and always working to maximize their own welfare. Those imaginary people are neat and predictable. They make life easy for models. The trouble is that they do not look much like us. We forget, procrastinate, get emotional, care about fairness, overreact to small details, hate losses more than we enjoy gains, and often need help making choices that fit our own long term goals. The book asks a simple question with huge consequences. What if economics started with Humans instead of Econs? Richard H. Thaler tells that story partly as an intellectual adventure and partly as a personal memoir. You watch a young economist become increasingly bothered by the gap between textbook predictions and everyday behavior. He notices little anomalies, odd patterns that should not exist if people behaved the way theory says they should. Someone drives across town to save a few dollars on a cheap item but not on an expensive one, even though the savings are identical. A person refuses to sell a bottle of wine they own for the same price they would refuse to pay to buy it. Investors trade too much. Shoppers are steered by defaults. Workers fail to save enough, not because they have calculated carefully and chosen poverty in retirement, but because life is busy, temptation is real, and paperwork is annoying. These are not random mistakes at the edge of the system. They are clues. The book traces how...