Misbehaving: The Making of Behavioral Economics

395 Pages·2016·3.73 MB·English

by  Richard H. Thaler

To:
Victor Fuchs who gave me a year to think,
and Eric Wanner and the Russell Sage Foundation
who backed a crazy idea
And to:
Colin Camerer and George Loewenstein,
early students of misbehaving
CONTENTS
Preface
I. BEGINNINGS: 1970–78
1. Supposedly Irrelevant Factors
2. The Endowment Effect
3. The List
4. Value Theory
5. California Dreamin’
6. The Gauntlet
II. MENTAL ACCOUNTING: 1979–85
7. Bargains and Rip-Offs
8. Sunk Costs
9. Buckets and Budgets
10. At the Poker Table
III. SELF-CONTROL: 1975–88
11. Willpower? No Problem
12. The Planner and the Doer
INTERLUDE
13. Misbehaving in the Real World
IV. WORKING WITH DANNY: 1984–85
14. What Seems Fair?
15. Fairness Games
16. Mugs
V. ENGAGING WITH THE ECONOMICS PROFESSION: 1986–94
17. The Debate Begins
18. Anomalies
19. Forming a Team
20. Narrow Framing on the Upper East Side
VI. FINANCE: 1983–2003
21. The Beauty Contest
22. Does the Stock Market Overreact?
23. The Reaction to Overreaction
24. The Price Is Not Right
25. The Battle of Closed-End Funds
26. Fruit Flies, Icebergs, and Negative Stock Prices
VII. WELCOME TO CHICAGO: 1995–PRESENT
27. Law Schooling
28. The Offices
29. Football
30. Game Shows
VIII. HELPING OUT: 2004–PRESENT
31. Save More Tomorrow
32. Going Public
33. Nudging in the U.K.
Conclusion: What Is Next?
Notes
Bibliography
List of Figures
Acknowledgments
Index
The foundation of political economy and, in general, of every social science, is evidently psychology. A day
may come when we shall be able to deduce the laws of social science from the principles of psychology.
— , 1906
VILFREDO PARETO
PREFACE
B
efore we get started, here are two stories about my friends and mentors, Amos
Tversky and Daniel Kahneman. The stories provide some hints about what to
expect in this book.
Striving to please Amos
Even for those of us who can’t remember where we last put our keys, life offers
indelible moments. Some are public events. If you are as old as I am, one may be
the day John F. Kennedy was assassinated (freshman in college, playing pickup
basketball in the college gym). For anyone old enough to be reading this book,
September 11, 2001, is another (just getting up, listening to NPR, trying to make
sense of it).
Other events are personal: from weddings to a hole in one. For me one such
event was a phone call from Danny Kahneman. Although we speak often, and
there are hundreds of calls that have left no trace, for this one I know precisely
where I was standing. It was early 1996 and Danny had called to share the news
that his friend and collaborator Amos Tversky was ill with terminal cancer and
had about six months to live. I was so discombobulated that I had to hand the
phone to my wife while I recovered my composure. The news that any good
friend is dying is shocking, but Amos Tversky was just not the sort of person
who dies at age fifty-nine. Amos, whose papers and talks were precise and
perfect, and on whose desk sat only a pad and pencil, lined up in parallel, did not
just die.
Amos kept the news quiet until he was no longer able to go into the office.
Prior to that, only a small group knew, including two of my close friends. We
were not allowed to share our knowledge with anyone except our spouses, so we
took turns consoling one another for the five months that we kept this awful
news to ourselves.
Amos did not want his health status to be public because he did not want to