Misbehaving: The Making of Behavioral Economics

Richard H. Thaler traces in this book the origin and the making of 'Behavioural Economics', where core premises of the classical economic theory and generally accepted hypotheses in matter of finance and markets, are questioned.

Core premises
Core premises of economic theory are that people choose by optimizing (rational choices) and that supply equals demand (price equilibrium). These premises assume that economic decisions are taken by a selfish and rational agent: the homo economicus, the 'Econ'. But, the models based on those premises can generate flawed results and a lot of bad predictions. Econs exist only in a fictional world, not in the real world inhabited by Humans.
The economists guild should earnestly reckon with human psychology and the social sciences. They should not exclude supposedly irrelevant factors (SIFs) in their analyses, like 'sunk costs' (money already spent) or 'loss aversion'. Other generally accepted axioms, like the precept that buying and selling prices should be about the same or that more choices are always preferred to fewer, belong to a virtual, not a real world. People have well-defined preferences and self-control problems, while professional economists are misled by theory-induced blindness.

Finance
R. H. Thaler tries to clarify the notion of 'smart' investor, and comes to the strange conclusion that a 'smart' investor is somebody who is trying to buy stocks, of which he thinks that other 'smart' investors will later decide that those stocks are worth more. He also mentions J. M. Keynes' remark that people are willing to make extreme forecasts based on flimsy data, on 'ephemeral and non-significant' day-to-day information.
The author attacks the 'efficient market hypothesis', with its two components: you can't beat the market and prices are right. But, prices are often wrong (the October 1987 crash, close-end funds) and value stocks beat the market (B. Graham). One should read this book for the overall evaluation of these hypotheses by the author.

Ultimately, the goal of the author is not to tell people what to do, but to help them achieve their own goals.

These trenchant comments ('wickonomics' - wicked for the economic profession - not 'wackonomics') are a must read for all those who don't want to live and work in the imaginary world of Econs.

N. B. Thomas Kuhn's vision on science (the consensus model and paradigm shifts) has been criticized by Karl Popper and his own vision (the conflict model and challenging hypotheses).

This book is many things - chronicles evolution of behavioral economics, celebrates the legacy of Amos and Danny, provides a collection of author’s perspectives, markets Nudge, etc - and given many things, it is more a cacophony than an orchestra.

Secondly, the author overuses self depreciation to the extent that it seems to be conclusive. Noble laureate?

Finally, the book seems to suggest that behavioral economists scan everyday living looking for anomalies that they turn into discrete, new theories. This is engineering the fringe, making exceptions seem enticing, missing woods for the trees. The book needed a framework before examples - else it comes across as sensationalism.

The review has an extra star because the author comes across as a nice guy. And that’s the only reason I am not asking for a refund.

I have not necessarily bought in to all of behavioral economics but Professor Thaler's book is a marvelous, funny and very readable story of the encroachment of behavioral economics into mainstream economic theory and policy prescriptions. The story is primarily from the point of view of the academy and shows the influence of prestigious journals, the peer review process, and the give-and-take at academic conferences in the development of an idea. While Thaler has been at the center of the behavioral economics movement during the last three decades, his writing style reflects a modest manner and a wry sense of humor (in a debate with the "rational expectations" economist Robert Barro, Thaler says: "you think all your economic agents are as smart as you while my agents are as a dumb as me," he writes: "Barro agreed.")

Traditional economic theory, Thaler relates, focuses on the principles of optimization and market equilibrium; the more choices we have, the better, since economic agents are rational and intelligent and will gravitate to the optimal choice. This focus on the calculating entity known as "economic man", who Thaler calls "econs", has always been controversial in economics even though it's the foundation of most of economic theory. The fascinating thing about the development of behavioral economics, at least to me, is that it's a reversal of the usual trend of economics encroaching on the other social sciences particularly political science and sociology (rational choice theory has even invaded religious studies); instead, economics has borrowed heavily from psychology in developing behavioral economics and has even developed the sub-discipline of experimental economics which mimics psychology in using controlled experiments in lab-like settings.

The upshot is that psychologists and behavioral economists have uncovered many cognitive inconsistencies, irrational non-optimizing behavior, and deviations from what "econs" are posited to do that call into question much of economic theory and whose discoveries are a large part of this book. We've known for years that an equal loss results in more "pain" than the "pleasure" resulting from an equal gain. Too many choices can result in cognitive overload and result in inertia and sub-optimal selections. Economic theory suggests that people will save the optimal amount of money, but behavioral economics has uncovered impediments to saving (in the form of participating in a 401k plan) via inertia, loss aversion (unwillingness to remove spending money from your paycheck), and present bias. To overcome these biases, the behavioralists have suggested that employees must opt-out of participation (rather than opt-in) in order to overcome the bias of inertia, and making this the default has resulted in greater 401k participation.

As Thaler relates, many economists have criticized the research of behavioral and experimental economists. They've suggested: (1) if the stakes are high enough, e.g., you're not just getting a voucher to the campus dining hall, economic agents will "get it right," (2) in the real world, i.e., outside the lab or survey, agents will learn and avoid these non-optimizing mistakes, and (3) in the aggregate, errors will cancel and optimal market results will result (Perhaps the last objection is supported by James Surowiecki"s "The Wisdom of Crowds" where it's argued that optimal results can be obtained from the aggregation of independent actions or observations). In any event, Thaler responds that extension of the original behavioral research has answered these concerns. I'll conclude this review to reveal that I favor a, perhaps, intermediate point of view called "bounded rationality" (discussed in the book) and what Herbert Simon called "satisficing" where economic agents get, say, 80% of the way to an optimum but the extra effort and information costs to get to 100% optimality, however defined, is not worth it, and they're happy with their "satisfactory" result.

Insightful, humorous, and eye-opening book on behavioral economics. In line with a handful of other books in a similar vein -- basically, that humans are not particularly rational and that some of the mental shortcuts we take that behooved us as we evolved do not necessarily assist us in modern decision-making -- that turn the mirror on human behavior and help a reader understand their own irrational decisions. Thaler has a wonderful sense of humor and a keen eye for human fallacies. His curiosity (like that of Daniel Kahneman and Amos Tversky) about human behavior and his background in economics pair up nicely and allowed him to examine generally agreed upon economic and financial beliefs and question them. He points out a number of examples of irrationality, and various heuristics and biases, that might be familiar to readers who have read some other books in related fields (including Thinking, Fast and Slow; and Superforecasting), but Thaler's book is still an excellent read and much of his findings dovetail with those of Kahneman and Tversky (he worked with them both) and are all the more interesting as you understand that all of these findings were coming about contemporaneously and upending the economic world.

Definitely recommended, if for no other reason than to understand yourself and your decision making processes better, but also for the insight into how much framing an option can do to impact how people feel about it and consequently whether or not they take one action versus another.

This is a lengthy book about the struggles that Thaler experienced in trying to get the economics profession to consider ideas that were contrary to fundamental assumptions. So for those who are receptive to those ideas and have familiarity with the author and some of the other key contributors to ths field, this is an interesting read. It is not the best introduction to the subject or the best summary of the implications for decisionmaking (read Nudge instead) since it also talks a lot about various personalities in the psychology and economics professions.

I have seen Thaler speak and he is a funny guy, especially for an economist. However, in this book he is more self-deprecating and understated in his criticism of those who disagreed with him, certainly not the way Krugman skewers his critics. In addition, he is generous about giving credit to his collaborators and especially his mentors such as Tversky and Kahneman.

And so by the end of the book, you feel like you have shared the struggles and can celebrate some of the successes that he reveals in the various stories and situations described over the course of so many decades. All in all, a good underdog story about things that matter, well told. And although not mentioned in the book, he did become president of the American Economic Association in 2015.

Second reading review post Prof Thaler's Nobel Prize (Oct 2017)

My review of the book's subject matter is already there. Surprisingly, there is not much I left unsaid in my first review in that regard. I would still like to repeat, using different words, that Prof Thaler is excellent at criticing but there is not much genuinely constructive in the theory propounded. Where the book does propose, the supposed solutions are creative practical ways which are hardly "behavioral". Slightly different settings and the same solutions may fail miserably. The author assumes that E-cons believe in some absolute rationality, while our behaviour - almost all the time - is quirky. The reality is that "rationality", except in cases like 1+1, is a human construct with roots in average human behaviour. Yes, we are inconsistent and as a result, most predictions about how we would react are only partially right. The sciences that still attempt at aggregate or average solutions have a lot of value despite errors within, perhaps more than highly subjective and rarely constructive solutions of the behavioralists. Behavioral books are more fun to read. But, when behaviorals start going after each other's suggestions, they will realise that rationality has relatively "few" forms which are all imperfect while whatever remains is in infinite multitudes and individually all more wrong.

But back to my second reading's real revelation: Prof Thaler's book is a lot about himself than his subject matter. After the nobel prize, the book could work as a movie script - of a relatively lazy, quirky backbencher rising against the famed and their hallowed theories, getting discarded and mocked to eventually winning his own nobel prize. A huge underdog story that we all love. Prof Thaler's reality is totally different (he has been a respected economist for decades) but in this book he has almost given Hollywood its next "A Beautiful Mind"!

First reading review (May 2015)
Behavioral Economics/Finance/Science is a great criticing tool but Misbehaving once again highlights the flaws in its ability to construct much.

It is not that behavioral finance does not have suggestions or constructive tools. They do, but most such suggestions are a. person dependent; b. common sensical and c. based on trial and error. Their success or failure is determined based on the eventual outcome. It appears like end results of all sorts are justifiable with some or the other tools (if A, that's because XYZ and not A then because some other PQR). Worse, success in one setting has no guarantee for the same methods' efficacy in slightly different settings. These points become quite clear when one comes across some good examples of the applicability towards the end of the book.

Much of the book is in slamming whatever author defines as traditional economists and their hyper-rationality. The learned author must know that some of his points are nothing but arguing against macroeconomics using microeconomic examples, conclusions and results. I wish the author had mentioned that as important as every individual's tendencies are, there are reasons why one needs to study the aggregate and average behaviour. This is particularly important in setting policies.

Some criticisms are valid, like in any behavioral finance book. One of them is the need to have theories that are practical. In a way, Einstein succeeded in creating something logically pure from his mind and having the reality confirm it. Economists have failed at devising theoretically appealing or consistent models that the reality could conform or even materially endorse. While the point is broadly valid, behavioral practitioners make a mincemeat of the failure of this indisputable principal, even though it is not that the economists are unaware of the shortcomings of their hallowed ideas (on which as we all know none of them agree with anyone else!).

Thaler's book is entertaining when it is pounding on others, although oftentimes rather thoughtlessly if not inconsistently. For example according to the author, GM is too dumb to even realize why one of its sale formula was so successful (yet, it is a bit astounding why the author never considered the possibility of either simply not coming across the great internal planner who knew what she was devising or not admiting to it like what any intelligent business folk would do while meeting some complete outsider visiting for a day). In another example, Debrou or Friedman are too smart yet they cannot appreciate that the average E-con are not them (really?).

The discussions on “gauging” is where the author makes the behavioral mistake of generalizing and brandishing his supposed opponents too quickly. He creates a straw-man which basically implies that rationality is short-term. The hyperrationals, according to this argument, cannot appreciate the long-term benefits of empathy or winning the customer trust in their pursuit of overnight profit. This is plain absurd. Even a pure rationalist is as likely to chide a “gauger” as the author himself but based on pure rational theories, including the time value of future benefits and the balance required between the interests of various stakeholders that include clients, employees and shareholders.

There are sections where the discussions turn terrific. The principal-agent section beautifully highlights the macro-micro issues (risks that make sense when one takes a wholistic look rather than take piecemeal approach). This section provides great proof of bounded rationality. A side point here: the points here are not exactly "behavioral" - they are generally used to prove why microeconomics is separate from macroeconomics. The section on the studies debunking the hallowed efficient market hypothesis is good even if the studies are now known for decades and hence not new.

Once again, what Prof. Thaler is unable to see is the utter lack of usable, reasonably objective constructs in the behaviroal fields that render them useless in real life. Fancy terms that are devised to explain various irrationalities are a jumble of words that smart guys can pick and choose to explain whatever decisions they make. Yet, it is almost as given that no group of behavioral economists are likely to agree on any solutions offered to any real life problem. In fact, the same economist may have different solutions at different times. This is exactly what their experiments suggest (22% at opportunity loss of A, 23% for B etc etc on small samples and with widely varying results over time).

If the world had not known Heisenberg's uncertainty principal, the behavioral equivalent in particle physics would have had a field day describing individual or a small group of particles' inconsistent velocity and position behavior to mock any physical models of the average - never mind even if those physics models are good enough to fly aeorplanes. Yet, there is a fine line from the irrationality well described by Thaler to utter randomness where almost everyone can laugh at everyone else trying to explain or construct something using whatever words and selective examples they choose. Success in such a world will only belong to person randomly making the right guess at the right time, and better if somehow he can "explain the success formula" using some good words like the author's own "success" with the skii resort business.

May be it is all random. If it is, behavioral economists' utility is in simply creating great stories to mock anyone seeing patterns in them. If not, they are more useful in the micro world, but by now and having established themselves they need to spend more time explaining their science rather than negating others (which almost all their current theories including Framing, Prospect Theory are focussed on at present: debunking other fields). The practitioners should do more than provide their views with almost unusable broad strokes (like the forever modifying loss aversion theory that means we despise losses but have rising risk appetite with higher losses but this qualifier is also valid only with the break-even possibility and without too much time lapse ...etc etc).

Once the field's practitioners realize the need of formalism, the need to create, the need to be at least some what precise to lead to some objective, practitioner-independent conclusions, they will equally appreciate that believers of most other sciences know that their models are only an approximation of the reality we live in - some good approximations and some bad or terrible ones. But without any models, we will be living by our pants.

As I said before, this book is still good at mocking others. It is well written and entertaining. If anyone needs proofs to hate all those who study various professions, make decisions based on incomplete information/logic, or have failed in their whatever endeavours on whatever timeframe - the book will provide good tools that one can use to critic. Outside that, like any other BF books, the book throws light on many of our own irrationalities.

I have been a great fan of behavioral economics and nudging ever since I read Nudge: Improving Decisions About Health, Wealth, and Happiness, coauthored by Thaler and Cass Sunstein. As a civil servant I see a lot of problems that occur when processes and policies do not result in the desired outcomes. Nudging is one relatively simple way to achieve desired results. In this book Thaler gives the story of how behavioral economics rose from being an almost eccentric part of economics in the 1970's to part of the mainstream today. Essentially its growth has come from the battle between traditional economists who adhere to the rational model of how people behave (Econs) and behavioral economists who deal with how people actually behave (Humans). A great example of this is the endowment effect when if you own something you want much more for it than you are willing to pay for it if you do not own it. Rationally, you should value the item equally, whether you own it or not. Traditional economists create models based on Econs and these sometimes fail to explain phenomena, and these economists often try to finagle their way back to a reason that fits their model. Thaler goes into great detail over the many stages, events and struggles that ensued throughout the growth, resistance and acceptance of behavioral economics. He begins with his own fascinations and how they dovetailed with the work of two of the founding fathers of the discipline, psychologists Kahneman and Taversky. The case studies are mostly fascinating, but I have to admit that I occasionally got lost in the details, especially on the chapter on finance. However, I got the gist of it and was able to absorb the main principles. Nudging and Robert Cialdini's work on influence are a powerful one-two punch that can help policy makers tackle perennial problems without excessive cost or regulation. A must read for all government bureaucrats.

There have been many books written recently on behavioral economics: Ariely's Predictably Irrational and The Upside of Irrationality, Mullainathan and Shafir's Scarcity: The New Science of Having Less and How It Defines Our Lives, Akerlof and Shiller's Phishing for Phools: The Economics of Manipulation and Deception, Thaler and Sunstein's Nudge: Improving Decisions About Health, Wealth, and Happiness, etc.

Each of these books demonstrates how people behave irrationally, in contrast to traditional economic thinking, and then discusses either public policies or personal policies that we can use -- as Thaler puts it in this book -- "to help people achieve their own goals," whether that's to save more, procrastinate less, or get out of poverty. I've read or listened to several of them.

This book is different and wonderfully refreshing. Thaler has been at the center of much of the development of behavioral economics, and this is a memoir of the field as he has observed and experienced it. It's full of sharp wit and insightful, entertaining anecdotes, reporting on Thaler's academic adventures as well as his application of behavioral economics in business consulting, for everyone from ski resorts to car manufacturers.

Because it's a memoir, areas of behavioral economics that Thaler has touched less get less attention, such as the development of behavioral economics in international development work. That's fine; you can read the World Bank's Mind, Society, and Behavior or Mullainathan & Shafir's Scarcity if that's what you're after.

I thoroughly enjoyed the unabridged audiobook and recommend it.

Here are a few lines that I noted, first on content:

* On discussions with psychologist Danny Kahneman: "One aspect of these mutual training sessions involved understanding how members of the other profession think, and what it takes to convince them of some finding."
* "For those who are at least living comfortably, negative transaction utility can prevent our consuming special experiences that will provide a lifetime of happy memories, and the amount by which the item was overpriced will long be forgotten."
* "Interdisciplinary meetings, especially those with high-level agendas (reduce poverty, solve climate change) tend to be disappointing, even when the attendees are luminaries, because academics don't like to talk about research in the abstract -- they want to see actual scientific results."
* "As my Chicago colleague Linda Ginzel always tells her students: 'If you don't write it down, it doesn't exist.'" (In other words, collect data in tangible form.)

And then a few pithy observations:

* "To this day, Orley [Ashenfelter] insists on calling what I do 'wackonomics,' a term he finds hysterically funny."
* "At some point people reach an age at which they can no longer be considered 'promising.' I think it is about the time they turn forty."
* "'Dumb stuff people do' is not a satisfactory title for an academic paper."

I suppose it isn't Dr. Thaler's fault that I read his buddy, Danny Kahneman's Thinking Fast and Slow before I read Misbehaving. But of course, reading Dr. Kahneman's book is an eye opener and a lot of what he wrote about overlaps with Dr. Thaler's own work (cited, of course).

Dr. Thaler takes us on a journey through 40+ years of behavioral economics. The book is a chronological journey, so those wishing to comb its pages to learn about specific topics may hope to hop towards the index or read his other book, Nudge.

The book is well written, and mostly avoids focusing on his own personal life, instead focusing on the research he's done. We bounce around the United States with Dr. Thaler as he begins to build the concept of behavioral economics--for those unfamiliar with the up-and-coming field, it's like a cross between statistics and psychology.

While a brisk read can get through some of the humdrum points in, what I lament to share, is a longer-than-necessary book, the parts that will cause a reader to slow down--his work in Wall Street especially--will truly grab ones attention.

As I wrote earlier, not a lot of new ground here that Kahneman didn't already cover. But I suppose that wasn't the point. It was about the journey these men took and it's more of a biography of a life's work than the work itself.

The book is good but could be better. Richard Thaler spends too much time telling personal anecdotes with lots of unnecessary details. I wish he concentrated more on what he and others did and what they found. His friend and colleague Daniel Kahneman does a much better job describing his own research in "Thinking: fast and slow." I feel like Thaler tried to make his book accessible to lay people, who would not read it anyway.

I was familiar with Tversky and Kahneman's work so this book was perfect for me. I found it interesting, not boring, and funny. I really liked it. Thaler is using Applied Psychology to Economic Behavior. That is what his profession should be called. Calling it Behavioral Economics doesn't really explain what these guys are doing. I highly recommend this book to all my friends. To illustrate how these guys do not fit into either Psychology or Economics just look at Thaler's student Cade Massey. Massey is a really smart guy who Penn has put in their "Operations" department. Thats the place Penn puts its teachers who either are not very good or who do not fit precisely into some category like Massey. This is just a terrific book.

Prof. Thaler upended some of my beliefs about economics, beliefs coming from modern analysis, the Efficient Market Hypothesis.
He did so in an engaging way, with many real-life and experimental observations that were usually convincing, leavened
with the story of some of his professional and personal wanderings toward his current success.

People are not always rational. Behavioral economics hopes to find the principles of their non-rationality,
to allow these human tendencies to be folded into the usual methods of economic analysis and prediction.

Congratulations to the author for a highly intelligent, easily read, well documented book on this fascinating subject.

Misbehaving is about the new development in economics. A good book for introduction. It starts with the beginning and it is a chronological introduction to the theme. The preface shows his acknowledged to the origin of Amos Tversky and Daniel Kahneman. The traditional view of economics is about the economic man (homo oeconomicus). The real life man differs from this view in some sort and it is a misbehavior to the economic models. Emotions and personal aspects differ from the economic man and this is the theme of the book. There are lots of examples in his book, like finance, poker, game shows, the instability of the system from the equilibrium model and the diversions from it gives the book a nice view. Fairness and Prospect Theory are a matter for the real persons and this a big issue in the behavioral economics.

While I did major in economics in college (and then went on to other things), I found this book to be an enjoyable traipse through this particular academic field. Some details made me laugh out loud...economists really are a strange breed. Non-economists may really enjoy shaking their heads in disbelief at some of the “new” ideas that the rest of us have always known, such as the fact that we are nice to people who are nice to us and mean to people who are mean to us....just one of the many obvious facts that seem to surprise economists. What is most telling is that the psychology these new behavioral economists are using isn’t even that interesting to pyschologists. LOL! This book has given me hope that economics may actually become interesting to the rest of us.

I was afraid this book would be too technical, and in some cases it was, but most of it was exceedingly practical advice on why we do what we do and, knowing this, how we might change. The author traces his academic history as an economist interested in why people make financial choices. This leads him to studying behavior as a whole. The psychology side of this book was replete with evidence - refreshing in a world where people make statements that have no basis in facts.

An intellectual history of behavioural economics by one of the founder of this field. Following Kahaneman and Tversky the book presents cases were people are allegedly irrational contrary to the main model of economics.

The author's objective was to write a history and overview by example of behavioral economics, a field he helped develop. This is not your typical economics book, with a lot of personal flavor and many names named. Many examples are well chosen and can be understood by the casual Humans and not just Econs. Sunk costs and risk aversion, for example, may be formal concepts people will recognize in themselves and others. The academic side seems so much different than the science and technology fields, other than infighting and prestige, of course.

The annoying start was too much about Thaler himself, which I did not find particularly interesting and involved a lot of name dropping. When the personal touch was more effectively blended into the content, the book seemed less about himself and more about economics.

I expected a memoir and I got an intellectual history of the Behavior Economic movement. There are certainly reflections on the Thaler's personal life, but the majority of the book provides a gentle introduction to large theoretical disagreements. Although, overall one gets the sense that the mainstream academic canon doesn't disagree with what Thaler's saying. They just want it better explained.

Part VI of the book is almost entirely devoted to the battle between Eugene Fama, and EMH vs Thaler and the behavioral discipline. This part alone is worth buying and the battle is still raging about who is more right.

Great book for anyone slightly interested in economics or psychology.

I had a hard time getting through this read. The information was fascinating but I grew weary of the abundance of academic speak. I have an advanced degree and have taught at the college level during my career. Now that I'm no longer working in my career field but doing other things more enjoyable I don't have to read academic journal stuff anymore. No doubt the author writes very expertly about the topic. Maybe I've just gotten lazy!

I suppose three types of people will love this book very much. First, the fans of the author, Daniel Kahneman and Amos Tversky. Second, those who regard themselves as avid behavioral economists and would love to know the evolution of it. Third, those who appreciate smooth and sometimes humorous writing. In case you are not one of them, and simply want to learn the subject in a structured format, "Thinking fast and slow" would be a normal choice. For those who aim at improving their trading, "The psychology of trading by Steenbarger" and "Trading for a living by Elder" are more pragmatic choices.

There is one passage in the book that makes me say, “wtf?”. In chapter 2, in order to highlight what seems to him an anomaly in an attitude toward paying for a perceived benefit, he creates an experiment with 2 scenarios. There is a small risk of contracting a deadly disease in each, the difference in risk being .004 vs .005. In the first, the average the test subject was willing to pay to escape the risk was $2000, in the second be PAID $500,000 to engage the risk, with some subjects unwilling to engage for ANY amount of money. The author finds this huge difference in behavior over a tiny increase in risk flabbergasting! He judges the difference to be irrational, “by inescapable logic”. But he totally fails to take into account a fundamental difference in the scenarios that he himself created: in the first, there is a small chance to obtain an antidote; in the second, no antidote is available! How does he set up an experiment and overlook the essential features that make what he calls irrational behavior totally rational? The difference is one in which there is a chance to live vs NO chance! Perhaps this was some kind of brain burp, but it is ironic that he presents this example from the point of view of a “traditional” economist rather than from the view of a “behavioral” economist, which he offers himself as a shining example.

As a general review, this book shows some of the failures of intuition when it comes to assessing numbers, and also attitudes toward money that are less than rational. This information, the “meat” of the book, would not be more that a dozen pages long. Most of the book describes the history of the author’s efforts to get economists with entrenched beliefs to accept new and more accurate paradigms that take into account human factors that can and often do override mathematical considerations.

This struggle against widely held but inaccurate beliefs of economist professionals is true across many disciplines, not to mention politics and religion, and shows the powerful investment in “being right” that plagues the human species. Although the author doesn’t present this phenomenon explicitly, he makes available a valuable lesson here.

The author becomes increasingly successful in his efforts to promote the use of psychology as a tool for economists, and he can hardly be blamed for being less than modest. His findings apply mainly to Americans, although he does a bit of cross-cultural comparison of attitudes involving money. More of such would be very interesting.

Misbehaving: The Making of Behavioral Economics by Richard H. Thaler articulates the problems inherent in conventional economic theory. During my time as an economics major in college, I grew a mixed bag of fascination and disdain toward the subject: fascination because it was an empirical measurement of rational human behavior, and disdain because it was so often inaccurate, haunted by the inability to make reliable predictions or falsifiable theories. Economics is a dismal science indeed, and learning more about it didn't quell any concerns. This book is what I was looking for.

Thaler weaves the tale of the emergence of an economic theory that can better explain the world we live in. The story is part-memoir and told in a chronological order, and through that Thaler illustrates his points with colorful anecdotes and case studies backed by rigorous scientific studies.
I would recommend this book to anyone interested in economics, psychology, public policy, leadership, or business.

Being a NYU Stern graduate, a value engineering school, I find this book as a good indicator of the limits of models and theorems emphasized in school. It also provokes thought; for instance, the dividend irrelevance theory is emphasized in school while more often you read in financial press about stock movement to cut in dividend. GE cut it's dividend for the first time since the Great Recession was the big news of the day. Even if you believe in EMH or the weak form, read this book for an another opinion/viewpoint.

Thaler does have a sense of humor, although a light one. He may not be as funny as he thinks he is ;)

I was disaapointed by Misbehaving. There isn't as much depth as I would like on this subject. Like another reviewer (Roger, August 1) said, the constant name dropping gets tiresome. Thaler spends much or most of the book trying to make his opponents look foolish--Look at all these Nobel Laureates who aren't as smart as they think they are!

There are many better books on behavioral economics. I suggest Daniel Kahneman's Thinking Fast and Slow.

This is an exceedingly well written book about the new world of behavioral economics. The writing is excellent, the ideas pertinent and contemporary, and the source from the horses mouth. The development of behavioral economics has re-engineered how we look at both microeconomics and macroeconomics. Thaler has an engaging style and wit, and has been at the center of this field. His anecdotes about Tversky and Kahneman give life to the narrative, and one comes away from the book with a sturdy understanding of a very important new development in our understanding of how people make personal and economic decisions. Damon LaBarbera

The actual information about the subject Behavioral Economics as it pertains to real world application fit on one notebook page. If you are not a fan of the typical self congratulatory, elevated sense of self importance tone of so many books written by academics you will dislike this book, and regret the time wasted reading it.

Just give it a read, you'll learn something! Professionally, yes, but personally too... Thalers voice is entertaining, arguments eye opening, and he must have quite a mind to recount history with such colorful detail.

As a person with a minor in economics at an engineering school, I was intrigued with the prospect of reading about real life situations that don't follow traditional economic thinking. This book presents incredible examples of behavioral theory is such a way that it relates to the reader, instead of putting the reader to sleep. The melding of economical and psychological theories is absolutely astounding! I would recommend this book for anyone who has had even the slightest interest in real world economics or psychology. I cannot wait to read some of Thaler's other publications.

Fantastic history of the origins of behavioral economics from the original pioneer himself. Clearly the Nobel was well deserved. Great prose and storytelling with straightforward examples of experiments and how the "nudges" are supposed to work. A really insightful review of the key discoveries in behavioral economics.

Excellent book, specially for those interested in behavioral economics/psychology/consumer research. Richard Thaler brings a biographical narrative about his academic career and the emergence of behavioral economics field (overlap between economics and psychology). I recommend this book to graduate students in psychology, economics, and marketing. And also for those who plan to pursue an academic career in one of these fields. The author brings his personal experience as an academic that challenged the assumptions, beliefs, and status quo on his field.

Misbehaving is two books interwoven. One is the story of the evolution of behavioral economics - a tale of economic history that Thaler makes unexpected entertaining. The second is a crystal clear set of explanations of the concepts of prospect theory and behavioral economics and where and how they diverge from standard economic theory. The result is both interesting and fun, even if for the non-economists among us.

Fifty years ago I broached this concept with an economic professor. I wish I had this "told ya" book. Well done and easy to follow for the layperson. But, equally enjoyable is seeing how those in academia have to form alliances and endeavor to "stay in the loop" to further their lot in life...indeed, to survive.

I loved the history of behavioral economics. This overview extends to today's research and a sense of what is on the horizon. This understanding changes one's concept as we now see our own misbehaving! I was motivated to change some behaviors after reading this book, and that is why I give it 5 stars. It is not a 5 star literary work, but it is readable and provides supportive tables, graphs, and pictures. Enjoy, as you see discover the insights of why we do what we do (in economics, which touches all we do).

Read some chapters for my MOOC in Neuroeconomy. Interesting but I didn't get everything, still the topic is absolutely fascinating for me.

Ho letto alcuni capitoli per il mio corso sulla Neuroeconomia. Interessante ma non é che abbia proprio capito tutto, ma di quel poco ho trovato tutto molto affascinante.

This is a very interesting topic and helpful in understanding a complex world. We would all be better off if we tried to be more practical in our understanding of our own humanity. Of course we are illogical at times but it would be a dull world if we were not.

Fascinating discussion of behavioral economics interspersed with long tedious sections describing who went to work for whom and how conferences were scheduled. As I read, I realized I could skip over several pages at a time and not miss any relevant parts.

Thaler spars nothing when explaining just why we do the things we do. In this eye- opening read you will come face to face with your inconsistencies, inexplicable tendencies and irrational behavior. Entertaining, thought - provoking, and enlightening, Misbehavior, encourages you to do a double take-- for the better! Claire Dorotik-Nana, author, Leverage: The Science of Turning Setbacks into Springboards

An intellectual history of behavioural economics by one of the founder of this field. Following Kahaneman and Tversky the book presents cases were people are allegedly irrational contrary to the main model of economics.

This is a very interesting topic and helpful in understanding a complex world. We would all be better off if we tried to be more practical in our understanding of our own humanity. Of course we are illogical at times but it would be a dull world if we were not.

Fascinating discussion of behavioral economics interspersed with long tedious sections describing who went to work for whom and how conferences were scheduled. As I read, I realized I could skip over several pages at a time and not miss any relevant parts.

Thaler spars nothing when explaining just why we do the things we do. In this eye- opening read you will come face to face with your inconsistencies, inexplicable tendencies and irrational behavior. Entertaining, thought - provoking, and enlightening, Misbehavior, encourages you to do a double take-- for the better! Claire Dorotik-Nana, author, Leverage: The Science of Turning Setbacks into Springboards

Really well written and insightful book on a topic that most of us non-Econs regard as magic. If an Economist can be chatty and light, Thaler is it.

It's not for everybody, but if you really want to know how a mysterious subject works (or doesn't work) this book is the answer.

There are very few new "psychological" insights in this book, but it is a fascinating story of a "scientists" journey making headway against traditional beliefs. It also is a forthright discussion of the difficulties and successes of implementing behavioral insights in the real world. The author has a style that invites us to travel with him through his real world journey.

Richard Thaler not only does a great job of telling the story of how Behavioral Economics started, but what it took to get people to believe it, and how it ultimately can be applied to not only business decisions, but public policies.

To me, one of the best ways to grasp a new concept is to learn it's history, so you can see how it started and what it took to evolve into what it is today. After reading this book you get a front row seat into the history, and come away with a deep understanding of all the underlying concepts, far more than a book on the concepts alone.

In tracing his career, Thaler shows the institutional biases of entrenched academy models. In introducing evidence to economics, perhaps he helped rising generations to save the world from we ourselves.

This books is quite interesting, but not exciting. It delves in the history of behavioral economics and while it describes some of the common human decision mistakes, I strongly recommend the book Thinking Fast and Slow by Daniel Kahneman instead.

One of the best explanations of why people’s actions are important and how those actions might best be understood and predicted. Lively sense of humor lightens what could appear to be a dull topic. My favorite line is not even his, “THERE ARE IDIOTS, look around!”

The author is detailing more his own career and every chapter is just about the different research projects in University. Although he may have some interesting concepts and reflections, I think that there is really no story throughout the book.

Try to forget that the author has since won an Economics Nobel; this is is an entertaining read, that will sneak a whole lot of knowledge about economics into your brain before you notice. Any educated reader will be able to appreciate it. If you happen to have been trained as an economist any time in the last half century, this is a superb account of some of the most important shifts in thinking in its recent history.

This is a book about behavioral economics written by a Nobel prize winner. I was expecting something serious and thorough, but instead I got a lot of good stories that really helped me understand human behaviors. High recommended!

Over the years I have been seeing and putting together many of the points outlined in this book. Having not only these points confirmed but expanded on far further than I had previously imagined keeps me pin point engaged. Great book with an eye opening map of behavior that I am already implementing to effective ends.

The book was definitely solid and it starts out with the warning to only read what you think you need out of it. That being said, the structure of it wasn't as cohesive as it could have been. Then again the author is an economist.

A world famous academic telling the history of the field he helped create. Entertaining, engaging and you learn a lot about the interaction between humans and economic behavior — which is not boring at all. Highly recommended!

A very entertaining book following the growth of Behavioral Economics. The book is written on a very conversational level, and several concepts that are brought up in the book, like Loss Aversion, provided (me, at least) with a better understanding of how people make decisions.

This often fascinating book summarizes the contribution of the author and other like-minded individuals to the field of behavioral economics. It sometimes gets too detailed and/or petty about the infighting, but those sections can be safely skimmed over. Overall it is a very nice overview of how Economics got dragged back into the real world.

I have the audible edition. This is a very good read on real world economics (i.e. how people behave in real life vs. in the minds of a theoretical economist). It makes for some interesting reading as well as being able to answer some questions that I've always wanted answers to but didn't think anyone would be able to provide.

The author takes you on his journey to bring common sense and evidence based science to the field of economics, illustrating the innumerable ways in which human behaviour is at times irrational and imperfect, and the implications of this on a field that sought to reduce the world to purely rational agents, the author dubs "econs". Excellent read, highly recommend!

I was fully primed to read this book after reading Nudge (which I picked up after reading Thinking Fast and Slow). Given the background I had, it was an absolutely fascinating read for me. Without the background, effect may be a little attenuated. One Certainty is that you will never see the world and human behaviors the same way again!

I'm an individual Investor / Trader. This book taught me how to recognize my own "Misbehavior" when dealing with changing market conditions and economic forces. Great book, and it will get at least a few re-read in the future.

A great insight on the ethos of behavioral economics. It is not about disproving the currebt paradigm, it is about a man's journey in pointing out inconsistencies in the ground work of what we claim to believe.

How do you review the classic and fundamental work of a brilliant mind?

One just studies in silence, thanks one's own fortune for being able to read such eye and mind opening work and humbly remain grateful to the great mind, the Author.

Thank you Mr. Thaler

Virtually no economists saw the financial crisis of 2007-08 coming (Robert Shiller being an exception), and many even thought that both the crash and its aftermath were things that could not happen - per their formal models built on the premises that people choose by optimizing, and supply equals demand.

Thaler suggests we need to stop assuming abstract models are accurate descriptions of behavior, basing policy decisions on such flawed analyses, and start paying attention to supposedly irrelevant factors. Example - some view major event tickets given them as valuable and will try to sell them, while others view them as 'free' and will personally use them.

And on and on, lots of little situations, many involving utility theory, and none amounting to a hill of beans. The book quickly becomes tiring.

I have a simpler explanation of why economists can't predict worth a damn - it's simply that all their models/reasonings are based on ceteris paribus, and that never exists.

Herbert Simon pointed out that people lack the cognitive ability to solve complex problems, and Kahneman and Tversky added that the resulting estimation errors are not random.

Really enjoyed Thaler's book. I found the information pertinent to my everyday experience as a Human and as a financial advisor. He's a great story teller and a rare academician who is interested in writing so that amateurs can understand.
I have previously read Nudge, Dan Ariely's "Predictably Irrational" Chip and Dan Heath's books and "Thinking Fast and Slow". It's all fascinating.
--Brian Simon, son of Herbert Simon (but not THAT Herbert Simon).

A great insight on the ethos of behavioral economics. It is not about disproving the currebt paradigm, it is about a man's journey in pointing out inconsistencies in the ground work of what we claim to believe.

How do you review the classic and fundamental work of a brilliant mind?

One just studies in silence, thanks one's own fortune for being able to read such eye and mind opening work and humbly remain grateful to the great mind, the Author.

Thank you Mr. Thaler

Virtually no economists saw the financial crisis of 2007-08 coming (Robert Shiller being an exception), and many even thought that both the crash and its aftermath were things that could not happen - per their formal models built on the premises that people choose by optimizing, and supply equals demand.

Thaler suggests we need to stop assuming abstract models are accurate descriptions of behavior, basing policy decisions on such flawed analyses, and start paying attention to supposedly irrelevant factors. Example - some view major event tickets given them as valuable and will try to sell them, while others view them as 'free' and will personally use them.

And on and on, lots of little situations, many involving utility theory, and none amounting to a hill of beans. The book quickly becomes tiring.

I have a simpler explanation of why economists can't predict worth a damn - it's simply that all their models/reasonings are based on ceteris paribus, and that never exists.

Herbert Simon pointed out that people lack the cognitive ability to solve complex problems, and Kahneman and Tversky added that the resulting estimation errors are not random.

Really enjoyed Thaler's book. I found the information pertinent to my everyday experience as a Human and as a financial advisor. He's a great story teller and a rare academician who is interested in writing so that amateurs can understand.
I have previously read Nudge, Dan Ariely's "Predictably Irrational" Chip and Dan Heath's books and "Thinking Fast and Slow". It's all fascinating.
--Brian Simon, son of Herbert Simon (but not THAT Herbert Simon).

As a trained accountant, I am glad to see economics has evolved since I was in school. I always struggled with "all else being equal" making things work.

Well written and easily understood but you also need some basic desire to understand how thing work or behave.

Professor Thayer plays the entertaining tour guide on a journey through his own personal history of the flowering of a new science - Behavioral Economics. With a shout-out to a ski resort close to every Cornellian's heart - Greek Peak!

I thought I would find a book full of interesting studies with associated evidence. Instead you get the stories and history behind how behavioral economics came to be (along with a number of key findings and studies). The book is well written and interesting read.

This book gives a great overview of the growth of behavioral economics. It’s fascinating to hear some of Thaler’s evidence on the ways in which real Humans differ from the austere Econs of classical economics.

I bought this book thinking that it would provide some insights on making investments, WRONG. It is more of a history book. Pleasantly written, and useful if you want to understand how ideas and theories develop and change. But the actual material on economics and how it relates to investing is all common knowledge now.

The best piece of advice comes in the beginning: If you don't enjoy the book, stop reading it. This is a very personal overview of the rise of behavioral economics. It ignored a lot that came before and after, and zooms in on the studies and viewpoints of the author and his collaborators. The sentence ' Danny, Amos, and I' appears at least 100 times throughout the book. If you are heavily invested in behavioral economics, such an inside look must be great. But I you want to read this to learn something, there's not much to take away from the book. The obvious topics are discussed (losses hurt more than gains, in 20 different ways), but often a bit cumbersome. The book will appeal to many, but definately not to everyone.

There is as much information in this book on the author and how great he believes he is as there is on economics. This makes it difficult to read and will have you rolling your eyes a quarter of the way through the book. Less hubris and egocentrism would have made for a significantly better read.

I don't know anything about economics, but his understanding and analysis of statistics on firearms is obviously colored by his own biases. This made the rest of his research and analysis suspect. He needs a better fact-checker and I'll be looking elsewhere for my economic analysis.

Meh. Thaler seems to want to enthrone "Econs" above other humans and other behavioral scientists who belong to true scientific communities. This is a nonsense concept. His stories attempt to build his own legacy, mixing in obviously false humility. I did learn some things about econ theory though, even though all the precepts assume people should value money over human experience. I guess Thaker Exons don't have a deep understanding of life. Oh, and didn't Andy Bernard go to Cornell?

'The value of a human life.' I asked people a question: 'Suppose you had some risk, a one in a thousand risk of dying, how much would you pay to eliminate it?' People would give one-answers and say '$5,000.' And then I’d say, 'How much would you have to be paid to take an extra one in a thousand risk of death?' And they’d say, 'Well, I wouldn't do that at all' or 'I would demand a million dollars!' Well, economic theory says the answers to those two questions should be basically the same, and they were like way different. Those kind of questions by the writer are a window to human behavior which makes this book an interesting read. Let the writer explain to you How human behavior impacts the economy, link provided in comment section.

Mmmm yeah, who am I to put a low mark to a Nobel Prize? well... I didn't buy the book bec of that but bec. I liked the subject and realise only 30 pages before finishing who Thaler was. And if you're focusing more on the subject than on the person this book is a bad choice.
I expected something more organised on the substance, less "look the great academic life I made". So probably the story-telling of his life is well organised but not the concepts bec it's like "ok, let's start a chapter: 10 pages on me at the beginning and end and 3 in the middle on economics". I skipped entire pages of this book bec . eventually, do I really need to know that he divorced and the house of his fellow researcher burnt when he was doing some research on xyz?
So once i had understood the structure, flying over pages, I took a bit more out of the book especially bec. he gets better in the end like rushing to finally speak about economics and real impact of the findings. Still, the concepts are not articulated among them so I assimilated very few of what he wrote apart from the chapter on fairness value in people's choice, the endowment effect and the economics applied (well not apllied in reality) to the choice of American footbal players by US teams.
To summarise, the important words in the title are "the making of". And while I thought it was only me maybe being too stupid or not in the mood, I can read now other similar opinions in the reviews.

Richard Thaler has written a superb book on behavioral economics. This is very interesting and insightful. The book is s very well researched and well written. Must Read! I recommend this book without qualifications. This book is text to speech enabled so you can listen to the book or read the book or both. I recommend using the store Echo with Alexa.