My family and friends now roll their eyes when I try to get a conversation going about behavioral economics. I can’t figure out why – it really is fascinating material. Ever since I read Thinking, Fast and Slow by Daniel Kahneman, I have been intrigued. Who wouldn’t be? Richard Thaler, a friend of Kahneman and Amos Tversky, explains behavioral economics and its emergence as a field of study in Misbehaving: The Making of Behavioral Economics. Weaving autobiography with humor, Thaler writes with warmth, wisdom and great disciplinary intellect.
OK, if not eye rolls, than at least skepticism. Fair enough. Economics, after all, is the dismal science. What could make behavioral economics any less dreary? It is fundamentally about how people behave. Yes, it relies on rigorous mathematics and modeling. However, economics is not grounded in abstract formulas but on actions in the word. It is an empirical discipline. Thaler understood early in his career that the traditional rational human actor of classical economics, the homo economicus, is a created construct that can lead us astray. It may be good for the formulas, but it is not necessarily human. Thaler’s conception of economics is essentially human – and by making it a human science, economics can be more effective.
Thaler’s narrative is biographical and professional, capturing the journey of his career as he moved from question to question and from institution to institution. He explains academic turf wars and how scholars navigate their careers. The history is interesting and the questions he investigates are wide-ranging and simply interesting. He has studied household savings, the endowment effect (we are hard-wired to value something more if we think of it as ours), how faculty are assigned/obtain offices in academic buildings, the NFL draft, television game shows, and governmental “nudges.” There is more, too. Thaler repeatedly returns to the observation that people consistently behave as people. We are rare rational actors maximizing our gains. It is a very important realization.
Misbehaving explains a field of study that makes me think about people and behavior in new and different ways. It has implications well beyond economics. Over time we will see the impact of behavioral economics more and more in the marketplace, in policy, and in how we run our colleges and universities. It is a special book – and the jokes aren’t all that bad, either.