Misbehaving by Richard Thaler & Behavioral Economics

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.

Richard H. Thaler is the 2017 recipient of the Nobel Memorial Prize in Economic Sciences for his contributions to behavioral economics. Thaler studies behavioral economics and finance as well as the psychology of decision-making which lies in the gap between economics and psychology.

‘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.

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

All you have to do is to make behavioral pipelines and monitor them for a reasonably long time to get the hang of it. It works every single time in the long term. Markets adjust themselves over a 10 year period be it stocks, commodities, assets, etc. The central-limit theorem applies in psychology as much as elsewhere.

It is not mind-reading, it is reading the data. When I tell people this they think it is too good to be true. Fact is the research is already at least 3 decades old.