Richard Thaler

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street
by Justin Fox
Published 29 May 2009

Daniel Kahneman and Amos Tversky, “Prospect Theory: An Analysis of Decision Under Risk,” Econometrica (March 1979): 263–92. 16. Richard H. Thaler, Quasi Rational Economics (New York: Russell Sage Foundation, 1991), xi–xii. 17. Justin Fox, “Is the Market Rational?” Fortune, Dec. 9, 2002, 120. 18. Richard H. Thaler, “Toward a Positive Theory of Consumer Choice,” Journal of Economic Behavior and Organization 1 (1980): 39–60. Reprinted in Thaler, Quasi Rational Economics. 19. Richard H. Thaler and H. M. Shefrin, “An Economic Theory of Self-Control,” Journal of Political Economy (April 1981): 392–406. 20. The best description of Chamberlin’s experiment, and of the rise of experimental economics in general, is in Ross M.

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McClure, David I. Laibson, George Loewenstein, and Jonathan D. Cohen, “Separate Neural Systems Value Immediate and Delayed Rewards,” Science (Oct. 15, 2004): 503–7. 13. Richard Thaler and Shlomo Benartzi, “Save More Tomorrow: Using Behavioral Economics to Increase Employee Savings,” Journal of Political Economy (Feb. 2004): pt. 2, S164–S187. 14. Justin Fox, “Why Johnny Can’t Save for Retirement,” Fortune, March 21, 2005. 15. Richard H. Thaler, Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (New Haven: Yale University Press, 2008). 16. Cass R. Sunstein, ed., Behavioral Law and Economics (Cambridge and New York: Cambridge University Press, 2000). 17.

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A slightly different version of the story can be found in Joseph Nocera, “The Quantitative, Data-Based, Risk-Massaging Road to Riches,” New York Times Magazine, June 5, 2005. 19. The October 2000 version is available for download at http://ssrn.com/abstract=240371. 20. Williams (1997), 188. 21. Clifford Asness, “Bubble Logic: Or, How to Learn to Stop Worrying and Love the Bull,” partial draft of an unpublished book, June 1, 2000. 22. Owen A. Lamont and Richard H. Thaler. “Can the Market Add and Subtract? Mispricing in Tech Stock Carve-Outs,” Journal of Political Economy (April 2003): 227–68. 23. Jeremy Siegel, “Big-Cap Tech Stocks Are a Sucker Bet,” Wall Street Journal, March 14, 2000. 24. Justin Fox, “9% Forever?” Fortune, Dec. 26, 2005. CHAPTER 15: MIKE JENSEN CHANGES HIS MIND ABOUT THE CORPORATION 1.

More Than You Know: Finding Financial Wisdom in Unconventional Places (Updated and Expanded)
by Michael J. Mauboussin
Published 1 Jan 2006

An investor who is prepared to wait a long time before evaluating the outcome of the investment as a gain or a loss will find the risky asset more attractive than another investor who expects to evaluate the outcome soon. —Richard H. Thaler, Amos Tversky, Daniel Kahneman, and Alan Schwartz, “The Effect of Myopia and Loss Aversion on Risk Taking: An Experimental Test” Loss aversion . . . can be considered a fact of life. In contrast, the frequency of evaluations is a policy choice that presumably could be altered, at least in principle. —Shlomo Benartzi and Richard H. Thaler, “Myopic Loss Aversion and the Equity Premium Puzzle” One or One Hundred In the early 1960s, economist Paul Samuelson offered his lunch colleagues a bet where he would pay $200 for a correct call of a fair coin toss and he would collect $100 for an incorrect call.

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Time Is on My Side 1 Paul A. Samuelson, “Risk and Uncertainty: A Fallacy of Large Numbers,” Scientia 98 (1963): 108-13; reprinted at www.casact.org/pubs/forum/94sforum/94sf049.pdf. Shlomo Benartzi and Richard H. Thaler, “Myopic Loss Aversion and the Equity Premium Puzzle,” The Quarterly Journal of Economics 110, no. 1 (February 1995): 73-92, available from http://gsbwww.uchicago.edu/fac/richard.thaler/research/myopic.pdf, write: “Specifically, the theorem says that if someone is unwilling to accept a single play of a bet at any wealth level that could occur over the course of some number of repetitions of the bet, then accepting the multiple bet is inconsistent with expected utility theory.” 2 Daniel Kahneman and Amos Tversky, “Prospect Theory: An Analysis of Decision Under Risk,” Econometrica 47 (1979): 263-91. 3 Nicholas Barberis and Ming Huang, “Mental Accounting, Loss Aversion, and Individual Stock Returns,” Journal of Finance 56, no. 4 (August 2001): 1247-92. 4 Elroy Dimson, Paul Marsh, and Mike Staunton, “Global Evidence on the Equity Risk Premium,” Journal of Applied Corporate Finance 15, no. 4 (Fall 2003): 27-38. 5 Benartzi and Thaler, “Myopic Loss Aversion.” 6 This and following exhibits closely follow William J.

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Belsky, Gary, and Thomas Gilovich. Why Smart People Make Big Money Mistakes —and How to Correct Them: Lessons from the New Science of Behavioral Economics. New York: Simon and Schuster, 1999. Benartzi, Shlomo, and Richard H. Thaler. “Myopic Loss Aversion and the Equity Premium Puzzle.” The Quarterly Journal of Economics (February 1995): 73-92. http://gsbwww.uchicago.edu/fac/richard.thaler/research/myopic.pdf. Bennis, Warren. “Will the Legacy Live On?” Harvard Business Review (February 2002): 95-99. Berkshire Hathaway. Annual Shareholder Letters. http://www.berkshirehathaway.com/letters/letters.html.

Why Nudge?: The Politics of Libertarian Paternalism
by Cass R. Sunstein
Published 25 Mar 2014

See generally ADVANCES IN BEHAVIORAL ECONOMICS (Colin F. Camerer et al. eds., 2003) (offering wide range of findings); ADVANCES IN BEHAVIORAL FINANCE, VOLUME II (Richard H. Thaler ed., 2005); CHOICES, VALUES, AND FRAMES (Daniel Kahneman & Amos Tversky eds., 2000) (offering a large number of relevant findings); HEURISTICS AND BIASES: THE PSYCHOLOGY OF INTUITIVE Judgment (Thomas Gilovich et al. eds., 2002) (outlining a variety of empirical findings). 2. DANIEL KAHNEMAN, THINKING, FAST AND SLOW (2011); see also RICHARD H. THALER & CASS R. SUNSTEIN, NUDGE: IMPROVING DECISIONS ABOUT HEALTH, WEALTH, AND HAPPINESS 19–22 (2008) (discussing “Humans” and “Econs”). 3.

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See Glaeser, supra note 10, which has a rule-consequentialist flavor, but which is qualified through a recognition that (optional) nudging is justified in identifiable cases. 35. Mill, supra note 2. 36. For a valuable discussion, see Edna Ullmann-Margalit, Invisible Hand Explanations, 39 Synthese 263 (1978). 37. For discussion, see Richard H. Thaler & Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (2008). Richard Thaler et al., Choice Architecture, in Behavioral Foundations of Policy 428, 428–31 (Eldar Shafir ed. 2012). I am bracketing here the potential effects of the kinds of choice architecture that are established by the basic rules of contract law, property law, tort law, and criminal law. 38.

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To be sure, the individual mandate can be, and has been, powerfully defended on nonpaternalistic grounds; above all, it should be understood as an effort to overcome a free-rider problem that exists when people do not obtain health insurance (but are nonetheless subsidized in the event that they need medical help). 6. MILL, supra note 2. 7. Id. 8. Id. 9. An authoritative discussion is DANIEL KAHNEMAN, THINKING, FAST AND SLOW (2011). On behavioral economics and public policy, see CASS R. SUNSTEIN, SIMPLER: THE FUTURE OF GOVERNMENT (2013); RICHARD H. THALER & CASS R. SUNSTEIN, NUDGE: IMPROVING DECISIONS ABOUT HEALTH, WEALTH, and HAPPINESS (2008). 10. Richard A. Posner, Why Is There No Milton Friedman Today, 10 ECON. J. WATCH 210, 212 (2013), available at http://econjwatch.org/articles/why-is-there-no-milton-friedman-today-RP. 11. See David Laibson, Golden Eggs and Hyperbolic Discounting, 112 Q.J.

Irrational Exuberance: With a New Preface by the Author
by Robert J. Shiller
Published 15 Feb 2000

Theodore Benna, executive vice-president of the Johnson Companies, an 240 NOT ES TO PAGES 33–39 employee benefits consulting firm, tested the IRS by creating the first 401(k) plan in 1981. The IRS announced in February 1982 that the tax benefits of such plans would be allowed. 22. See New York Stock Exchange, The Public Speaks to the Exchange Community (New York, 1955). 23. Shlomo Benartzi and Richard H. Thaler, “Naive Diversification Strategies in Defined Contribution Plans,” unpublished paper, University of Chicago, 1998. 24. Investment Company Institute, Mutual Fund Fact Book (Washington, D.C., 1999), http://www.ici.org. 25. See Hugh Bullock, The Story of Investment Companies (New York: Columbia University Press, 1959). 26.

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See Kenneth R. French and Richard Roll, “Stock Return Variances: The Arrival of Information and the Reaction of Traders,” Journal of Financial Economics, 17 (1986): 5–26; see also Richard Roll, “Orange Juice and Weather,” American Economic Review, 74 (1984): 861–80. 36. See Shlomo Benartzi and Richard H. Thaler, “Myopic Loss Aversion and the Equity Premium Puzzle,” Quarterly Journal of Economics, 110(1) (1995): 73–92. 37. Data are from the National Gambling Impact Study Commission, Final Report, Washington D.C., 1999, http://www.ngisc.gov/reports/exsum_1-7.pdf. 38. See also William N. Thompson, Legalized Gambling: A Reference Handbook (Santa Barbara, Calif.: ABC-CLIO, 1994), pp. 52–53. 39.

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Wall Street Journal, October 27, 1997, p. C23. 12. See David E. Bell, “Regret in Decision Making Under Uncertainty,” Operations Research, 30(5) (1982): 961–81; and Graham Loomes and Robert Sugden, “Regret Theory: An Alternative Theory of Rational Choice under Uncertainty,” The Economic Journal, 92 (1982): 805–24. 13. See Richard H. Thaler and Eric J. Johnson, “Gambling with the House Money and Trying to Break Even: The Effect of Prior Outcomes on Risky Choice,” Management Science, 36 (1990): 643–60. 14. John Kenneth Galbraith, The Great Crash: 1929, 2nd ed. (Boston: Houghton Mifflin, 1961), p. 79. 15. Data from the National Association of Investors Corporation Web site, http://www.better-investing.org/member/history.html. 16.

The Art of Execution: How the World's Best Investors Get It Wrong and Still Make Millions
by Lee Freeman-Shor
Published 8 Sep 2015

Many managers, once they’re up 30 or 40 percent, will book their year … The way to attain truly superior long-term returns is to grind it out until you’re up 30 or 40 percent, and then if you have the convictions, go for a 100 percent year.”60 * * * 34 Lynch (2000). 35 Ibid. 36 ‘Some Empirical Evidence on Dynamic Inconsistency’, Economic Letters, by Richard Thaler (1981). 37 ‘Anomalies: Intertemporal Choice’, Journal of Economic Perspectives, George Loewenstein and Richard H. Thaler (1989). 38 ‘Risk Aversion or Myopia? Choices in Repeated Gambles and Retirement Investments’, Management Science, by Shlomo Benartzi and Richard Thaler (1999). They showed that the pain of a short-term loss overpowers the pleasure of a long-term gain. This myopic (short-term) focus and a hatred of losing is what Thaler and Benartzi called myopic loss aversion. 39 ‘Online Investors: Do the Slow Die First?

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“[T]o be a great investor you should have a clear maximum time for the idea to play out.” 23 The Dhandho Investor, by Mohnish Pabrai (2007). 24 ‘Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice’, Management Science, Richard H. Thaler and Eric J. Johnson, (1990). Available at SSRN: ssrn.com/abstract=1424076 25 Lynch (2000). 26 ‘Prospect Theory: An Analysis of Decision Under Risk’, Econometrica, by Daniel Kahneman and Amos Tversky (1979). 27 ‘The disposition effect and underreaction to news,’ The Journal of Finance, by A.

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“In the morning, when temptation is remote, we vow to go to bed early, stick to our diet, and not to have too much to drink. That night we stay out until 3:00am, have two helpings of chocolate decadence, and a variety of Aquavit at a Norwegian restaurant.”37 4. Fear The research of Shlomo Benartzi and Richard Thaler also showed that the pain of a short-term loss overpowers the pleasure of a long-term gain. This myopic (short-term) focus and a hatred of losing they called myopic loss aversion.38 This produces a fear which turns many investors into Raiders when a share starts doing well. The findings of Terrance Odean suggest that this problem has grown thanks to the unprecedented immediacy of the internet.

Thinking, Fast and Slow
by Daniel Kahneman
Published 24 Oct 2011

If the utility function for wealth is concave (bent down), the preference implies that the value of $1 has decreased by over 9% over an interval of $21! This is an extraordinarily steep decline and the effect increases steadily as the gambles become more extreme. “Even a lousy lawyer”: Matthew Rabin, “Risk Aversion and Expected-Utility Theory: A Calibration Theorem,” Econometrica 68 (2000): 1281–92. Matthew Rabin and Richard H. Thaler, “Anomalies: Risk Aversion,” Journal of Economic Perspectives 15 (2001): 219–32. economists and psychologists: Several theorists have proposed versions of regret theories that are built on the idea that people are able to anticipate how their future experiences will be affected by the options that did not materialize and/or by the choices they did not make: David E.

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“wins the contest”: John Alcock, Animal Behavior: An Evolutionary Approach (Sunderland, MA: Sinauer Associates, 2009), 278–84, cited by Eyal Zamir, “Law and Psychology: The Crucial Role of Reference Points and Loss Aversion,” working paper, Hebrew University, 2011. merchants, employers, and landlords: Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler, “Fairness as a Constraint on Profit Seeking: Entitlements in the Market,” The American Economic Review 76 (1986): 728–41. fairness concerns are economically significant: Ernst Fehr, Lorenz Goette, and Christian Zehnder, “A Behavioral Account of the Labor Market: The Role of Fairness Concerns,” Annual Review of Economics 1 (2009): 355–84.

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Johnson, Simon Gächter, and Andreas Herrmann, “Exploring the Nature of Loss Aversion,” Centre for Decision Research and Experimental Economics, University of Nottingham, Discussion Paper Series, 2006. Edward J. McCaffery, Daniel Kahneman, and Matthew L. Spitzer, “Framing the Jury: Cognitive Perspectives on Pain and Suffering,” Virginia Law Review 81 (1995): 1341–420. classic on consumer behavior: Richard H. Thaler, “Toward a Positive Theory of Consumer Choice,” Journal of Economic Behavior and Organization 39 (1980): 36–90. taboo tradeoff: Philip E. Tetlock et al., “The Psychology of the Unthinkable: Taboo Trade-Offs, Forbidden Base Rates, and Heretical Counterfactuals,” Journal of Personality and Social Psychology 78 (2000): 853–70.

Beyond the Random Walk: A Guide to Stock Market Anomalies and Low Risk Investing
by Vijay Singal
Published 15 Jun 2004

The Effects of Market Segmentation and Investor Recognition on Asset Prices: Evidence from Foreign Stocks Listing in the United States. Journal of Finance 54(3), 981–1013. Froot, Kenneth A., and Richard H. Thaler. 1990. Anomalies: Foreign Exchange. Journal of Economic Perspectives 4(3), 179–92. Goetzmann, William, and Aloke Kumar. 2001. Equity Portfolio Diversification. Working paper, NBER. Haan, Marco. 1997. Where Are the Motives? A Problem with Evidence in the Work of Richard Thaler: A Reply. Journal of Economic Psychology 18(6), 705–9. Hong, Harrison, and Jeremy C. Stein. 1999. A Unified Theory of Underreaction, Momentum Trading, and Overreaction in Asset Markets.

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The Effect of Market Segmentation and Illiquidity on Asset Prices: Evidence from Exchange Listings. Journal of Finance 49(2), 611–36. Kahneman, Daniel, Jack L. Knetsch, and Richard H. Thaler. 1991. Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias. Journal of Economic Perspectives 5(1), 193–206. Kahneman, Daniel, and Amos Tversky. 1979. Prospect Theory: An Analysis of Decision Under Risk. Econometrica 47(2), 263–92. Mackenzie, Craig. 1997. Where Are the Motives? A Problem with Evidence in the Work of Richard Thaler. Journal of Economic Psychology 18(1), 123–35. Merton, Robert C. 1987. Presidential Address: A Simple Model of Capital Market Equilibrium with Incomplete Information.

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References for Further Reading Baz, Jamil, Francis Breedon, Vasant Naik, and Joel Peress. 2001. Optimal Portfolios of Foreign Currencies. The Journal of Portfolio Management 28(1), 102–11. Engel, Charles. 1996. The Forward Discount Anomaly and the Risk Premium: A Survey of Recent Evidence. Journal of Empirical Finance 3(2), 123–92. Froot, Kenneth A., and Richard H. Thaler. 1990. Anomalies: Foreign Exchange. Journal of Economic Perspectives 4(3), 179–92. Meredith, Guy, and Menzie D. Chinn. 1998. Long Horizon Uncovered Interest Rate Parity. Working paper no. 6797, National Bureau of Economic Research. Razzak, Weshah A. 2000. The Forward Rate Unbiasedness Hypothesis Revisited.

Stocks for the Long Run 5/E: the Definitive Guide to Financial Market Returns & Long-Term Investment Strategies
by Jeremy Siegel
Published 7 Jan 2014

See Nassim Taleb, Fooled by Randomness: The Hidden Role of Chance in Life and the Markets, 2005. 18. Dreman, Contrarian Investment Strategies. 19. Richard Thaler, “Mental Accounting and Consumer Choice,” Marketing Science, vol. 4, no. 3 (Summer 1985), pp. 199-214 and Nicholas Barberis, Ming Huang and Richard H. Thaler, “Individual Preferences, Monetary Gambles, and Stock Market Participation: A Case for Narrow Framing,” The American Economic Review, vol. 96, no. 4 (Sep., 2006), pp. 1069-1090. 20. Richard H. Thaler, “Mental Accounting Matters,” Journal of Behavioral Decision Making, vol. 12 (1999), pp. 183-206. 21. Hersh Shefrin and Meir Statman, “The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence,” Journal of Finance, vol. 40, no. 3 (1985), pp. 777-792. 22.

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See Chapter 5 for a further description of the equity premium puzzle. 30. Humphrey B. Neill, The Art of Contrary Thinking, Caldwell, ID: Caxton Printers, 1954, p. 1. 31. Benjamin Graham and David Dodd, Security Analysis, New York: McGraw-Hill, 1934, p. 12. 32. A discussion of the VIX is found in Chapter 19. 33. Werner F. M. De Bondt and Richard H. Thaler, “Does the Stock Market Overreact?” Journal of Finance, vol. 49, no. 3 (1985), pp. 793-805. 34. This strategy is discussed in great detail in Chapter 12. Chapter 23 1. Benjamin Graham and Seymour Chatman, ed., Benjamin Graham: The Memoirs of the Dean of Wall Street, New York: McGraw-Hill, 1996, p. 273. 2.

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Amos Tversky and Daniel Kahneman, “Judgment Under Uncertainty: Heuristics and Biases,” Science, vol. 185 (1974), pp. 1124-1131. 25. Terrance Odean, “Are Investors Reluctant to Realize Their Losses?” Journal of Finance, vol. 53, no. 5 (October 1998), p. 1786. 26. Hersh Shefrin and Richard Thaler, “An Economic Theory of Self-Control,” Journal of Political Economy, vol. 89, no. 21 (1981), pp. 392-406. 27. See Paul Sloan, “Can’t Stop Checking Your Stock Quotes,” U.S. News & World Report, July 10, 2000. 28. Shlomo Bernartzi and Richard Thaler, “Myopic Loss Aversion and the Equity Premium Puzzle,” Quarterly Journal of Economics, 1995, pp. 73-91. 29. See Chapter 5 for a further description of the equity premium puzzle. 30.

Misbehaving: The Making of Behavioral Economics
by Richard H. Thaler
Published 10 May 2015

New York Times, September 29. Available at: http://www.nytimes.com/2007/09/29/business/29coupons.html. Barber, Brad M., and Terrance Odean. 2002. “Online Investors: Do the Slow Die First?” Review of Financial Studies 15, no. 2: 455–88. Barberis, Nicholas C., and Richard H. Thaler. 2003. “A Survey of Behavioral Finance.” In Nicholas Barberis, Richard H. Thaler, George M. Constantinides, M. Harris, and René Stulz, eds., Handbook of the Economics of Finance, vol. 1B, 1053–128. Amsterdam: Elsevier. Barberis, Nicholas, Ming Huang, and Tano Santos. 2001. “Prospect Theory and Asset Prices.” Quarterly Journal of Economics 116, no. 1: 1–53.

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“What Moves Stock Prices?” Journal of Portfolio Management 15, no. 3: 4–12. Daly, Mary, Bart Hobijn, and Brian Lucking. 2012. “Why Has Wage Growth Stayed Strong?” Federal Reserve Board of San Francisco: Economic Letter 10: 1–5. Dawes, Robyn M., and Richard H. Thaler. 1988. “Anomalies: Cooperation.” Journal of Economic Perspectives 2, no. 3: 187–97. De Bondt, Werner F. M., and Richard H. Thaler. 1985. “Does the Stock Market Overreact?” Journal of Finance 40, no. 3: 793–805. De Long, J. Bradford, Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann. 1990. “Noise Trader Risk in Financial Markets.” Journal of Political Economy 98, no. 4: 703–38.

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Lakonishok, Josef, Andrei Shleifer, and Robert W. Vishny. 1994. “Contrarian Investment, Extrapolation, and Risk.” Journal of Finance 49, no. 5: 1541–78. Lamont, Owen A., and Richard H. Thaler. 2003. “Can the Market Add and Subtract? Mispricing in Tech Stock Carve-Outs.” Journal of Political Economy 111, no. 2: 227–68. Landsberger, Michael. 1966. “Windfall Income and Consumption: Comment.” American Economic Review 56, no. 3: 534–40. Lee, Charles, Andrei Shleifer, and Richard H. Thaler. 1991. “Investor Sentiment and the Closed-End Fund Puzzle.” Journal of Finance 46, no. 1: 75–109. Lester, Richard A. 1946. “Shortcomings of Marginal Analysis for Wage-Employment Problems.”

The Elements of Choice: Why the Way We Decide Matters
by Eric J. Johnson
Published 12 Oct 2021

“Introducing Incentives in the Market for Live and Cadaveric Organ Donations.” Journal of Economic Perspectives 21 (2007): 3–24. Beko. “Freestanding 7kg Condenser Tumble Dryer DCX71100.” 2020. https://www.beko.co.uk/7kg-condenser-tumble-dryer-dcx71100-silver-white. Benartzi, Slomo, and Richard H. Thaler. “Behavioral Economics and the Retirement Savings Crisis.” Science 339, no. 6124 (March 7, 2013): 1152–53. doi:10.1126/science.1231320. Bergman, Peter, Jessica Lasky-Fink, and Todd Rogers. “Simplification and Defaults Affect Adoption and Impact of Technology, but Decision Makers Do Not Realize It.”

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Mercury News, July 24, 2007. https://www.mercurynews.com/2007/07/24/apple-att-shares-fall-on-fewer-than-expected-iphone-subscriptions/. Jung, Minah H., Chengyao Sun, and Leif D. Nelson. “People Can Recognize, Learn, and Apply Default Effects in Social Influence.” Proceedings of the National Academy of Sciences 115, no. 35 (August 14, 2018). doi:10.1073/pnas.1810986115. Kahneman, Daniel, Jack L. Knetsch, and Richard H. Thaler. “Experimental Tests of the Endowment Effect and the Coase Theorem.” Journal of Political Economy 98, no. 6 (December 1990): 1325–48. http://www.jstor.org/stable/2937761. Kaiser, Micha, Manuela Bernauer, Cass R. Sunstein, and Lucia A. Reisch. “The Power of Green Defaults: The Impact of Regional Variation of Opt-Out Tariffs on Green Energy Demand in Germany.”

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For the doctors, it was easier to remember the brand name, but harder, if not impossible, to remember the generic. Changing what people call to mind most easily is another important way that designers can change choice. * * * — The term choice architecture was coined by my friends Richard Thaler and Cass Sunstein in their book Nudge. The field has had that name for only a little over a decade, but the idea of choice architecture has been around for a while. In earliest antiquity, traders must have made deliberate decisions about how to present their goods at the market and tweaked them based on trial and error.

Work Rules!: Insights From Inside Google That Will Transform How You Live and Lead
by Laszlo Bock
Published 31 Mar 2015

Choi, Emily Haisley, Jennifer Kurkoski, and Cade Massey, “Small Cues Change Savings Choices,” National Bureau of Economic Research Working Paper 17843, revised June 29, 2012, http://www.nber.org/papers/w17843. 232. Richard H. Thaler and Shlomo Benartzi, “Save More Tomorrow: Using Behavioral Economics to Increase Employee Savings,” Journal of Political Economy 112, no. 1 (2004): S 164–S 187, http://faculty.chicagobooth.edu/Richard.Thaler/research/pdf/SMarTJPE.pdf. 233. Yes, it’s really trademarked. 234. Todd had no way of knowing that later that year we’d announce Calico, a Google business led by Art Levinson, the former CEO of Genentech, with a goal of addressing the debilitating and inevitable consequences of aging. 235.

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Scott A. Jeffrey and Victoria Shaffer, “The Motivational Properties of Tangible Incentives,” Compensation & Benefits Review 39, no. 3 (2007): 44–50. Erica Mina Okada, “Justification Effects on Consumer Choice of Hedonic and Utilitarian Goods,” Journal of Marketing Research 42, no. 1 (2005): 43–53. Richard H. Thaler, “Mental Accounting Matters,” Journal of Behavioral Decision Making 12, no. 3 (1999): 183–206. 187. This finding is consistent with the academic work, which focuses on purchases rather than gifts. People are happier when they buy experiences (trips, dinners) than when they buy things (clothes, electronics).

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Michael Barbaro, “The Bullpen Bloomberg Built: Candidates Debate Its Future,” New York Times, March 22, 2013, http://www.nytimes.com/2013/03/23/nyregion/bloombergs-bullpen-candidates-debate-its-future.html. 208. Chris Smith, “Open City,” New York, September 26, 2010, http://nymag.com/news/features/establishments/68511/. 209. Richard H. Thaler and Cass R. Sunstein, Nudge (New Haven, CT: Yale University Press, 2008), 15. 210. An obvious difference between a nudge and a bonus plan is that the former is often not disclosed, while a bonus plan is explicitly set up to drive certain behaviors. But once you concede that a company can legitimately shape its employees’ behaviors, then you’re left with a more difficult question of where exactly the company crosses the line from “good” shaping to “bad” shaping.

Wait: The Art and Science of Delay
by Frank Partnoy
Published 15 Jan 2012

More specifically, the assumption was that humans discount exponentially in a time-consistent manner, meaning that for a given discount rate (r) over a specified time period (T), the value in today’s terms of a future payment ($) equals $ divided by (1 + r)T. For example, the “present value,” or value in today’s terms, of $110 in one year at a rate of 10 percent is $110/(1 + 0.1)1 = $100. 30. Richard A. Thaler, “Some Empirical Evidence of Dynamic Inconsistency,” Economics Letters 8(3, 1981): 201–207. 31. George Loewenstein and Richard H. Thaler, “Anomalies: Intertemporal Choice,” Journal of Economic Perspectives 3(1989): 181–193. 32. George Ainslie, Picoeconomics (Cambridge University Press, 1992). 33. George A. Akerlof, “Behavioral Microeconomics and Macroeconomic Behavior,” Nobel Prize Lecture, December 8, 2001. 34. James E. Mazur, “Tests of an Equivalence Rule for Fixed and Variable Reinforcer Delays,” Journal of Experimental Psychology: Animal Behavior Process 10(1984): 426–436; James E.

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The psychologist Piers Steel says this kind of planning can be helpful: “Impulsive people find it difficult to plan work ahead of time and even after they start, they are easily distracted. Procrastination inevitably follows.” Steel, The Procrastination Equation, p. 14. 54. Bertrand and Morse, Information Disclosure, Cognitive Biases, and Payday Borrowing. 55. Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (Yale University Press, 2008). 56. See Henri C. Schouwenburg, Clarry H. Lay, and Timothy A. Pychyl, Counseling the Procrastinator in Academic Settings (American Psychological Association, 2004); Henri C. Schouwenburg and JanTjeerd Groenewoud, “Study Motivation Under Social Temptation: Effects of Trait Procrastination,” Personality and Individual Differences 30(2, 2001): 299–340.

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Marianne Bertrand, Dean Karlan, Sendhil Mullainathan, Eldar Shafir, and Jonathan Zinman, “What’s Advertising Content Worth? Evidence from a Consumer Credit Marketing Experiment,” Quarterly Journal of Economics 125(1, 2010): 263–306. Shafir also has studied, with economist Richard Thaler, some of the puzzles of how and why we delay gratification. Eldar Shafir and Richard Thaler, “Invest Now, Drink Later, Spend Never: On the Mental Accounting of Delayed Consumption,” Journal of Economic Psychology 27(5, 2006): 694–712. 3. Nassim Taleb in particular has demonstrated that human beings make all sorts of cognitive mistakes in assessing risk.

Think Twice: Harnessing the Power of Counterintuition
by Michael J. Mauboussin
Published 6 Nov 2012

Stanovich, What Intelligence Tests Miss: The Psychology of Rational Thought (New Haven, CT: Yale University Press, 2009), 2–3. 6. Richard H. Thaler, “Anomalies: The Winner’s Curse,” The Journal of Economic Perspectives 2, no. 1 (1988): 191–202. 7. Max H. Bazerman, Judgment in Managerial Decision Making, 6th ed. (New York: John Wiley & Sons, 2006), 33–35. 8. Rosemarie Nagel, “Unraveling in Guessing Games: An Experimental Study,” American Economic Review 85, no. 5 (1995): 1313–1326. Also, Richard H. Thaler, “From Homo Economicus to Homo Sapiens,” The Journal of Economic Perspectives 14, no. 1 (2000): 133–141. I have run this experiment in my own class for years.

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Naomi Mandel and Eric J. Johnson, “When Web Pages Influence Choice: Effects of Visual Primes on Experts and Novices,” Journal of Consumer Research 29, no. 2 (2002): 235–245. 16. Eric J. Johnson and Daniel Goldstein, “Do Defaults Save Lives?” Science 302 (November 21, 2003): 1338–1339. 17. Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (New Haven, CT: Yale University Press, 2008); Daniel G. Goldstein, Eric J. Johnson, Andreas Herrmann, and Mark Heitmann, “Nudge Your Customers Toward Better Choices,” Harvard Business Review, December 2008, 99–105; and Dan Ariely, Predictably Irrational: The Hidden Forces That Shape Our Decisions (New York: Harper, 2008), 1–6. 18.

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But, in fact, most people are correct only 40 to 60 percent of the time, reflecting their overconfidence.7 Even though I didn’t know the answers to those ten questions, I had a sense of where I might go wrong, so I adjusted my initial estimates. I won that contest and got a book. The second experiment showed the failure of pure rationality. Here, Richard Thaler, one of the world’s foremost behavioral economists, asked us to write down a whole number from zero to one hundred, with the prize going to the person whose guess was closest to two-thirds of the group’s average guess. In a purely rational world, all participants would coolly carry out as many levels of deduction as necessary to get to the experiment’s logical solution—zero.

Die With Zero: Getting All You Can From Your Money and Your Life
by Bill Perkins
Published 27 Jul 2020

Hurd, “Wealth Depletion and Life-Cycle Consumption by the Elderly,” in Topics in the Economics of Aging, ed. David A. Wise (Chicago: University of Chicago Press, 1992), 136, https://www.nber.org/chapters/c7101.pdf. “teach an old household new rules”: Hersh M. Shefrin and Richard H. Thaler, “The Behavioral Life-Cycle Hypothesis,” in Quasi Rational Economics, ed. Richard H. Thaler (New York: Russell Sage Foundation, 1991), 114. long enough to enjoy that money: Economists who study people’s spending and saving know that older people don’t decumulate their savings fast enough, and the reasons they give match the two reasons I so often hear in conversations: “precautionary savings” (to address the fear of running out of money or not having enough for unforeseen expenses) and “the bequest motive” (What about the kids?).

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“if you live a long time”: Ron Lieber, “The Simplest Annuity Explainer We Could Write,” New York Times, December 14, 2018, https://www.nytimes.com/2018/12/14/your-money/annuity-explainer.html. “the annuity puzzle”: Richard H. Thaler, “The Annuity Puzzle,” New York Times, June 4, 2011, https://www.nytimes.com/2011/06/05/business/economy/05view.html. Dozens of scholarly papers have been written on this topic; if you want a simple explanation of the puzzle, including some possible answers, check out this “Economic View” column by recent Nobel laureate Richard Thaler. “leaving wealth behind”: Gary Becker, Kevin Murphy, and Tomas Philipson, “The Value of Life Near Its End and Terminal Care” (working paper, National Bureau of Economic Research, Washington, D.C., 2007), http://citeseerx.ist.psu.edu/viewdoc/download?

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Myopia is often the problem of the fun-loving, free-spending grasshopper; inertia can strike the responsible ant as well—particularly later in life, when the dutiful saver must suddenly crack open the nest egg they’ve so diligently built up. Behavioral economists understand that just because something is rational to do—in this case, switching from saving to “dissaving”—that doesn’t mean people will do it easily. Inertia is a very powerful force. As economists Hersh Shefrin and Richard Thaler once put it, “It is hard to teach an old household new rules.” Dying with zero strikes me as such a clear and important goal that I want to go right to the next step: helping you figure out how to actually achieve that goal. But I’ve discussed these ideas with enough people to know that I can’t jump straight to the how: The same small set of questions and objections come up again and again, and I know I can’t ignore them.

Stocks for the Long Run, 4th Edition: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies
by Jeremy J. Siegel
Published 18 Dec 2007

IC: You and millions of other investors. In 1982, Leroy Gross wrote a manual for stockbrokers in which he called this phenomenon the “geteven-itis disease.”21 He claimed get-even-itis has probably caused more destruction to portfolios than any other mistake. 18 Richard Thaler, “Mental Accounting and Consumer Choice,” Marketing Science, vol. 4, no. 3 (Summer 1985), pp. 199–214. 19 Richard H Thaler, “Mental Accounting Matters,” Journal of Behavioral Decision Making, vol. 12 (1999), pp. 183–206. 20 Hersh Shefrin and Meir Statman, “The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence,” Journal of Finance, vol. 40, no. 3 (1985), pp. 777–792. 21 Leroy Gross, The Art of Selling Intangibles, New York: New York Institute of Finance, 1982. 330 PART 4 Stock Fluctuations in the Short Run It is hard for us to admit we’ve made a bad investment, and it is even harder for us to admit that mistake to others.

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Contrarians believe that the swings of optimism and pessimism infect individual stocks as well as the overall markets. Therefore, buying out-of-favor stocks can be a winning strategy. Werner De Bondt and Richard Thaler examined portfolios of both past stock winners and losers to see if investors became overly optimistic or pessimistic about future returns from studying the returns of the recent past.31 Portfolios of winning and losing stocks were analyzed 31 Werner F. M. De Bondt and Richard H. Thaler, “Does the Stock Market Overreact?” Journal of Finance, vol. 49, no. 3 (1985), pp. 793–805. 336 PART 4 Stock Fluctuations in the Short Run FIGURE 19–1 Investors Intelligence Sentiment Indicator, 1986 to 2007 0.90 0.80 0.70 0.60 0.50 October 0.40 Market Crash 0.30 0.20 0.10 Asian Crisis Iraqi Invasion of Bond Kuwait Market Crash LTCM/ Russia Terrorist Attacks Bear Market Bottom Fears of Crash Induced by Decline 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 over five-year intervals.

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When I look at stocks in the very short run, they seem so risky that I wonder why anyone holds them. But over the long run, the superior performance of equities is so overwhelming, I wonder why anyone doesn’t hold stocks! IC: Exactly. Shlomo Bernartzi and Richard Thaler claim that myopic loss aversion is the key to solving the equity premium puzzle.27 For years, econ26 Shlomo Bernartzi and Richard Thaler, “Myopic Loss Aversion and the Equity Premium Puzzle,” Quarterly Journal of Economics, 1995, pp. 73–91. 27 See Chapter 8 for a further description of the equity premium puzzle. CHAPTER 19 Behavioral Finance and the Psychology of Investing 333 omists have been trying to figure out why stocks have returned so much more than fixed-income investments.

Against the Gods: The Remarkable Story of Risk
by Peter L. Bernstein
Published 23 Aug 1996

.* Davidson, Paul, 1991. "Is Probability Theory Relevant for Uncertainty? A Post Keynesian Perspective." Journal of Economic Perspectives, Vol. 5, No. 1 (Winter), pp. 129-143. Davidson, Paul, 1996. "Reality and Economic Theory." Journal of Post Keynesian Economics, Summer. Forthcoming. DeBondt, Werner, and Richard H. Thaler, 1986. "Does the Stock Market Overreact?" Journal of Finance, Vol. XL, No. 3, pp. 793-807. Dewey, Donald, 1987. "The Uncertain Place of Frank Knight in Chicago Economics." A paper prepared for the American Economic Association, Chicago, December 30, 1987. Dewey, Donald, 1990. "Frank Knight before Cornell: Some Light on the Dark Years."

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Kahneman, Daniel, and Amos Tversky, 1979. "Prospect Theory: An Analysis of Decision under Risk." Econometrica, Vol. 47, No. 2, pp. 263-291.` Kahneman, Daniel, and Amos Tversky, 1984. "Choices, Values, and Frames." American Psychologist, Vol. 39, No. 4 (April), pp. 342-347. Kahneman, Daniel, Jack L. Knetsch, and Richard H. Thaler, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem." Journal of Political Economy, Vol. 98, No. 6, pp. 1325-1348. Kaplan, Gilbert Edmund, and Chris Welles, eds. 1969. The Money Managers. New York: Random House. Kelves, Daniel J., 1985. In the Name of Eugenics. New York: Knopf.

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The following people also made significant contributions to my work and warrant my deepest appreciation: Kenneth Arrow, Gilbert Bassett, William Baumol, Zalmon Bernstein, Doris Bullard, Paul Davidson, Donald Dewey, David Durand, Barbara Fotinatos, James Fraser, Greg Hayt, Roger Hertog, Victor Howe, Bertrand Jacquillat, Daniel Kahneman, Mary Kentouris, Mario Laserna, Dean LeBaron, Michelle Lee, Harry Markowitz, Morton Meyers, James Norris, Todd Petzel, Paul Samuelson, Robert Shiller, Charles Smithson, Robert Solow, Meir Statman, Marta Steele, Richard Thaler, James Tinsley, Frank Trainer, Amos Tversky,* and Marina von N. Whitman. Eight people generously undertook to read the manuscript in its entirety and to give me the benefit of their expert criticisms and suggestions. Each of them, in his own way, deserves major credit for the quality of the content and style of the book, without bearing any responsibility for the shortcomings it contains.

The Price of Inequality: How Today's Divided Society Endangers Our Future
by Joseph E. Stiglitz
Published 10 Jun 2012

For a discussion of this case and a list of resources from the New York Times, see the New York Times “Times Topic” on “Swift Veterans for Truth,” available at http://topics.nytimes.com/topics/reference/timestopics/organizations/s/swift_boat_veterans_for_truth/index.html (accessed March 4, 2012). 31. See Richard H. Thaler, “When Business Can’t Foresee Outrage,” New York Times, November 19, 2011, p. BU4. See Daniel Kahneman, Jack Knetsch, and Richard H. Thaler, “Fairness and the Assumptions of Economics,” Journal of Business 59, no 4 (1986): S285–300. Amelie Goosens and Pierre-Guillaume Meon, “The Impact of Studying Economics, and Other Disciplines, on the Belief That Voluntary Exchange Makes Everyone Better Off,” University of Brussels working paper, 2010, show that there are both selection and learning effects.

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See List, “On the Interpretation of Giving in Dictator Games,” Journal of Political Economy 115, no. 3 (2007): 482–93. 15. For a discussion of these outcomes (and the sums people will accept or veto in ultimatum games), see Colin Camerer and Richard Thaler, “Anomalies: Ultimatums, Dictators and Manners,” Journal of Economic Perspectives 9, no. 2 (1995): 209–19. 16. For a sample of the large literature, see, e.g., Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler, “Fairness and the Assumptions of Economics,” Journal of Business 59, no. 4 (1986): S285–S300; Gary E. Bolton and Axel Ockenfels, “ERC: A Theory of Equity, Reciprocity, and Competition,” American Economic Review 90, no. 1 (March 2000): 166–93; Armin Falk, Ernst Fehr, and Urs Fischbacher, “On the Nature of Fair Behavior,” Economic Inquiry 41, no. 1 (January 2003): 20–26; Daniel Kahneman, Jack L.

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Bolton and Axel Ockenfels, “ERC: A Theory of Equity, Reciprocity, and Competition,” American Economic Review 90, no. 1 (March 2000): 166–93; Armin Falk, Ernst Fehr, and Urs Fischbacher, “On the Nature of Fair Behavior,” Economic Inquiry 41, no. 1 (January 2003): 20–26; Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler, “Fairness as a Constraint on Profit Seeking: Entitlements in the Market,” American Economic Review 76, no. 4 (1986): 728–41; Amartya Sen, “Moral Codes and Economic Success,” in Market Capitalism and Moral Values, ed. C. S. Brittan and A. Hamlin (Brookfield, VT: Aldershot, 1995). 17. Morale is destroyed. The implications have been explored in the branch of the literature in economics noted earlier, called the efficiency wage theory, describing how wages affect productivity.

Priceless: The Myth of Fair Value (And How to Take Advantage of It)
by William Poundstone
Published 1 Jan 2010

Kahneman (eds.), Heuristics and Biases: The Psychology of Intuitive Judgment. New York: Cambridge University Press. ———, Jack L. Knetsch, and Richard Thaler. (1986a). “Fairness as a Constraint on Profit Seeking: Entitlements in the Market.” The American Economic Review 76, 728–41. ———, Jack L. Knetsch, and Richard Thaler. (1986b). “Fairness and the Assumptions of Economics.” The Journal of Business 59, S285–S300. ———, Jack L. Knetsch, and Richard Thaler (1991). “Anomalies: The Endowment Effect, Loss Aversion, and the Status Quo Bias.” The Journal of Economic Perspectives 5, 193–206. ———, Ilana Ritov, and David A.

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section–ews/7_on_your_side&id=6641540&rss=rss wabc-article-6641540. Plautus, trans. by E. F. Watling (1964). The Rope and Other Plays. London: Penguin. Plous, Scott (1993). The Psychology of Judgment and Decision Making. Philadelphia: Temple University Press. Post, Thierry, Martijn J. van den Assem, Guido Baltussen, and Richard H. Thaler (2008). “Deal or No Deal? Decision Making Under Risk in a Large-Payoff Game Show.” The American Economic Review 98, 38–71. Purcell, Frank (1969). “Roulette Bet May Decide Man’s Fate.” Las Vegas Review-Journal, March 2, 1969. Quattrone, G. A., C. P. Lawrence, S. E. Finkel, and D. C. Andrus (1984).

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Economist Donald Cox has gone so far as to say that much of behavioral economics is “old hat to marketing experts, who have long since booted homo economicus out of their focus groups.” Today there is a symbiosis between psychologists studying prices and the marketing and price consultant communities. Many leading theorists, including Tversky, Kahneman, Richard Thaler, and Dan Ariely, have published important work in marketing journals. Price consultant Simon-Kucher & Partners has an academic advisory board with scholars from three continents. Today’s marketers talk up anchoring and coherent arbitrariness—and their somewhat unnerving power. “Many people like myself who teach marketing start the course by saying, ‘We’re not about manipulating consumers, we’re about discovering needs and meeting them,’ ” said Eric Johnson of Columbia University.

Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism
by George A. Akerlof and Robert J. Shiller
Published 1 Jan 2009

American Economic Review 87(5):993–1008. Kahneman, Daniel, and Amos Tversky. 1979. “Prospect Theory: An Analysis of Decision under Risk.” Econometrica 47(2):263–92. ———. 2000. Choices, Values and Frames. Cambridge, Mass.: Cambridge University Press. Kahneman, Daniel, Jack Knetsch, and Richard H. Thaler. 1986a. “Fairness as a Constraint on Profit-Seeking: Entitlements in the Market.” American Economic Review 76(4):728–41. ———. 1986b. “Fairness and the Assumptions of Economics.” Journal of Business 59(4, part 2):S285–300. “Kaiser Argentine Car Plant Hit by Faulty Parts, Strikes, Delays.” 1958.

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American Economic Review 74(3):433–44. Shea, John. 1995a. “Union Contracts and the Life-Cycle/Permanent-Income Hypothesis.” American Economic Review 85(1):186–200. ———. 1995b. “Myopia, Liquidity Constraints, and Aggregate Consumption: A Simple Test.” Journal of Money, Credit and Banking 27(3):798–805. Shefrin, Hersh, and Richard H. Thaler. 1988. “The Behavioral Life-Cycle Hypothesis.” Economic Inquiry 24:609–43. Shiller, Robert J. 1981. “Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in Dividends?” American Economic Review 7(3):421–36. ———. 1982. “Consumption, Asset Markets and Macroeconomic Fluctuations.”

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It is just not done. Questionnaires But studies of fairness do indicate the strong possibility that such concerns will override the effects of rational economic motivation. One of our favorite studies comes from a team consisting of a psychologist, Daniel Kahneman, and two economists, Jack Knetsch and Richard Thaler.4 The study asked respondents about their reactions to a number of vignettes. Was the action taken acceptable or unfair? The first question, dealing with the price of snow shovels after a snowstorm, illustrates the method and the answers. According to the vignette, there has been a snowstorm, and the local hardware store has increased the price of snow shovels.

Nudge: Improving Decisions About Health, Wealth, and Happiness
by Richard H. Thaler and Cass R. Sunstein
Published 7 Apr 2008

NUDGE NUDGE * * * Improving Decisions About Health, Wealth, and Happiness * * * Richard H. Thaler Cass R. Sunstein Yale University Press New Haven & London A Caravan book. For more information, visit www.caravanbooks.org. Copyright © 2008 by Richard H. Thaler and Cass R. Sunstein. All rights reserved. This book may not be reproduced, in whole or in part, including illustrations, in any form (beyond that copying permitted by Sections 107 and 108 of the U.S. Copyright Law and except by reviewers for the public press), without written permission from the publishers.

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Redelmeier. “When More Pain Is Preferred to Less: Adding a Better End.” Psychological Science 4 (1993): 401–5. Kahneman, Daniel, Jack L. Knetsch, and Richard H. Thaler. “Experimental Tests of the Endowment Effect and the Coase Theorem.” Journal of Political Economy 98 (1990): 1325–48. ———. “Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias.” Journal of Economic Perspectives 5, no. 1 (1991): 193–206. Kahneman, Daniel, and Richard H. Thaler. “Anomalies: Utility Maximization and Experienced Utility.” Journal of Economic Perspectives 20, no. 1 (2006): 221–34. Kahneman, Daniel, and Amos Tversky, eds.

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Copyright Law and except by reviewers for the public press), without written permission from the publishers. Set in Galliard and Copperplate 33 types by The Composing Room of Michigan, Inc. Printed in the United States of America. Library of Congress Cataloging-in-Publication Data Thaler, Richard H., 1945– Nudge : improving decisions about health, wealth, and happiness / Richard H. Thaler and Cass R. Sunstein. p. cm. Includes bibliographical references and index. ISBN 978-0-300-12223-7 (cloth : alk. paper) 1. Economics— Psychological aspects. 2. Choice (Psychology)—Economic aspects. 3. Decision making—Psychological aspects. 4. Consumer behavior. I. Sunstein, Cass R. II. Title.

Retirementology: Rethinking the American Dream in a New Economy
by Gregory Brandon Salsbury
Published 15 Mar 2010

Martin’s Press, 1991, p. 137. 8 Aging Well Magazine, “Boomerang Burdens: Back to the Nest,” Vol. 1 No. 3, Summer 2008. 9 Forbes, “The Biggest Market Losers: The Boomers,” May 14, 2009. 10 USA Today, “Becoming “parent of your parent’ an emotionally wrenching process,” June 24, 2007. 11 AARP, “Exclusive AARP Bulletin Poll Reveals New Trends in Multigenerational Housing,” March 3, 2009. 12 Heath, Chip, and Amos Tversky, “Preference and Belief: Ambiguity and Competence in Choice under Uncertainty,” Journal of Risk and Uncertainty, 1991. 13 Benartzi, Shlomo, and Richard H. Thaler, National Bureau of Economic Research, “Heuristics and Biases in Retirement Savings Behavior,” 2007. 14 Science Direct, “Information friction and investor home bias: A perspective on the effect of global IFRS adoption on the extent of equity home bias,” October 30, 2008. 15 Internal Revenue Service, Publication 950 – Introduction to Estate and Gift Taxes, December 2009. 16 National Opinion Research Center at the University of Chicago, “Social comparisons and health: can having richer friends and neighbors make you sick?”

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I highly recommend you explore this field in more detail, as the scholars of behavioral finance have put years of sweat equity into fascinating research and study. Notably, I recommend Choices, Values, and Frames by Kahneman and Tversky; Beyond Greed and Fear by Hersh Shefrin; Nudge, written by Richard Thaler and Cass Sunstein; the investor behavior studies on 401(k)s by Shlomo Benartzi; articles, books and research by Meir Statman; Against the Gods, The Remarkable Story of Risk by Peter Bernstein, as a keen understanding of risk is more relevant than ever given the current economy; and Investment Madness by John Nofsinger, which is a good introductory book on behavioral finance written for the “lay” reader.

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Remember, a retirement nest egg is like a bar of soap; the more you touch it, the smaller it gets. Don’t peek and keep it out of reach. Regularly Increase Your Contribution Rate The automatic payroll deduction structure of 401(k) accounts can help investors stick to a more disciplined retirement plan. Professor Richard Thaler of the University of Chicago, and Professor Shlomo Benartzi of UCLA, took this strategy one step further. They created a program called Save More Tomorrow (SMarT), which is currently being adopted by some 401(k) providers. Under this program, workers agree to boost their 401(k) contributions automatically by two to three percentage points with each annual raise.

Mindware: Tools for Smart Thinking
by Richard E. Nisbett
Published 17 Aug 2015

“Dialectical Schemata: A Framework for the Empirical Study of the Development of Dialectical Thinking.” Human Development 23 (1980): 400–21. ______. Dialectical Thinking and Adult Development. Norwood, NJ: Ablex, 1984. Beccuti, Guglielmo, and Silvana Pannain. “Sleep and Obesity.” Current Open Clinical Nutrition and Metabolic Care 14 (2011): 402–12. Benartzi, Shlomo, and Richard H. Thaler. “Heuristics and Biases in Retirement Savings Behavior.” Journal of Economic Perspectives 21 (2007): 81–104. Berger, Jonah, and Gráinne M. Fitzsimons. “Dogs on the Street, Pumas on Your Feet.” Journal of Marketing Research 45 (2008): 1–14. Berger, Jonah, M. Meredith, and S. C. Wheeler. “Contextual Priming: Where People Vote Affects How They Vote.”

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Published electronically June 2, 2014. Kahn, Robert. “Our Long-Term Unemployment Challenge (in Charts).” 2013. http://blogs.cfr.org/kahn/2013/04/17/our-long-term-unemployment-challenge-in-charts/. Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011. Kahneman, Daniel, Jack L. Knetch, and Richard H. Thaler. “Experimental Tests of the Endowment Effect and the Coase Theorem.” In Tastes for Endowment, Identity, and the Emotions, vol. 3 of The New Behavioral Economics, edited by E. L. Khalil, 119–42. International Library of Critical Writings in Economics. Cheltenham, U.K.: Elgar, 2009. Kalev, Alexandra, Frank Dobbin, and Erin Kelley.

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I should be willing to sell a commodity at the same or slightly higher price than I paid for it. Even economists are susceptible to a range of biases, including the endowment effect bias, which prevent them from being fully rational in cost-benefit terms. The endowment effect concept, in fact, first occurred to the economist Richard Thaler when he thought about the behavior of an economist colleague who was a wine enthusiast. The man never paid more than thirty-five dollars for a bottle of wine but was sometimes unwilling to sell a bottle bought at that price even for amounts as large as one hundred dollars.5 Having such a large spread between buying price and selling price can’t be defended in terms of the normative rules of cost-benefit theory.

Alchemy: The Dark Art and Curious Science of Creating Magic in Brands, Business, and Life
by Rory Sutherland
Published 6 May 2019

‘. . . offered a possible evolutionary explanation.’, Colin Barras, ‘Evolution could explain the placebo effect’, New Scientist (6 September 2012). ‘. . . and more by our perception of it’, ‘The Vodka-Red-Bull Placebo Effect’, Atlantic (8 June 2017). ‘. . . the father of ‘Nudge Theory’, Richard Thaler’ Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness (2008). ‘. . . often outdone by the taste of the latter’.’, Lucas Derks and Jaap Hollander, Essenties van NLP (1996). ‘. . . for leather car seats than for books on tape.”, Daniel Kahneman, ‘Focusing Illusion’, Edge (2011).

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Imagine if it were impossible to get a well-paid job, or to hold political office, unless you supported the New York Yankees or Chelsea Football Club. We would regard such partisanship as absurd, yet devoted fans of logic control the levers of power everywhere. The Nobel Prize-winning behavioural scientist Richard Thaler said, ‘As a general rule the US Government is run by lawyers who occasionally take advice from economists. Others interested in helping the lawyers out need not apply.’ Today it sometimes seems impossible to get a job without first demonstrating that you are in thrall to logic. We flatter such people through our education system, we promote them to positions of power and are subjected every day to their opinions in the newspapers.

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But, strange though it may seem, the study of economics has long been detached from how people behave in the real world, preferring to concern itself with a parallel universe in which people behave as economists think they should. It is to correct this circular logic that behavioural economics – made famous by experts such as Daniel Kahneman, Amos Tversky, Dan Ariely and Richard Thaler – has come to prominence. In many areas of policy and business there is much more value to be found in understanding how people behave in reality than how they should behave in theory.* Behavioural economics might well be described as the study of the nonsensical and the non-sensical aspects of human behaviour.

Pound Foolish: Exposing the Dark Side of the Personal Finance Industry
by Helaine Olen
Published 27 Dec 2012

the largest seller of indexed annuities in the United States: Zeke Faux and Margaret Collins, “Indexed Annuities Can Yield Surprises,” Business Week, February 24, 2011, http://www.businessweek.com/magazine/content/11_10/b4218045699286.htm. Shlomo Benartzi: Anderson Graduate School of Management at UCLA: http://www.anderson.ucla.edu/x5515.xml. But Allianz scored a public relations coup: Richard H. Thaler, “The Annuity Puzzle,” New York Times, June 4, 2011, http://www.nytimes.com/2011/06/05/business/economy/05view.html; Paul J. Isaac, letter to the New York Times, June 11, 2011, http://www.nytimes.com/2011/06/12/business/12backpage-THEANNUITYQU_LETTERS.html. Cathy Smith: author interview. There are, according to Money magazine: Lisa Gibbs, “Index Annuities Are a Safety Trap,” Money, January 7, 2011, http://money.cnn.com/2011/01/17/pf/index_annuities_safety_trap.moneymag/index.htm.

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“Fee transparency could create”: Robert Powell, “401(k) Changes Give Savers a Brighter Future,” MarketWatch, December 16, 2010, http://articles.marketwatch.com/2010-12-16/finance/30737091_1_fee-disclosure-plan-sponsors-fees-and-expenses. As a remedy: “Should Policies Nudge People to Save?” Wall Street Journal Econblog (Richard Thaler comments), May 25, 2007, http://online.wsj.com/article/SB117977357721809835.html; Richard Thaler and Cass Sunstein, Nudge: Improving Decisions about Health, Wealth and Happiness (New Haven: Yale University Press, 2008); African Americans: Diversity and Defined Contribution Plans, The Role of Automatic Plan Features, Vanguard study, September 12, 2011, https://institutional.vanguard.com/VGApp/iip/site/institutional/researchcommentary/article/RetResDiversity; take-up increased: Regina Lewis, “The Pros and Cons of Automatic 401(k) Enrollment,” DailyFinance, July 11, 2011, http://www.dailyfinance.com/2011/07/11/401k-automatic-enrollment-pros-cons/.

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Secretary of Labor Robert Reich suggested Americans could be coached to manage their professional lives in order to “make their own way in the economy, learn new skills throughout your career, be ready to apply them in new ways and in new settings,” and thus raise their salaries, beat income inequality, and avoid both unplanned retirement and inadequate savings. Behavioral economics star Richard Thaler, then a professor at Cornell University’s business school, testified that he believed, over time, both 401(k) and individual retirement accounts would push up the nation’s savings rate, since they penalized people who took the money out early, though he did not address how this would happen given that both plans had existed for more than a decade during which savings rates had fallen, not risen.

Infotopia: How Many Minds Produce Knowledge
by Cass R. Sunstein
Published 23 Aug 2006

Hovland, Social Judgment: Assimilation and Contrast Effects in Communication and Attitude Change (New Haven: Yale University Press, 1961), 188 (discussing manner in which individuals filter information to conform to their preexisting positions). 69. Forsythe et al., Wishes, 94. 70. Berg et al., “Accuracy and Forecast Standard Error of Prediction Markets,” 42. 71. Forsythe et al., Wishes, 99–100. The term “quasi-rational” comes from Richard H. Thaler, Quasi-Rational Economics (New York: Russell Sage Foundation, 1991), xxi. 72. See Richard H. Thaler and William T. Ziemba, “Anomalies: Parimutuel Betting Markets: Racetracks and Lotteries,” Journal of Economic Perspectives 2 (1988): 163 (exploring favorite–long shot bias); see also Charles F. Manski, “Interpreting the Predictions of Prediction Markets” (unpublished manuscript, Feb. 2004) (summarizing horse race data findings), available at http://faculty.econ.nwu.edu/faculty/manski/ prediction_markets.pdf. 73.

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.; Hersh Shefrin, Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing (Oxford: Oxford University Press, 1999) (exploring markets’ susceptibility to cognitive errors); Shiller, Irrational Exuberance, 245 (discussing cognitive errors and their effects on market prices); Richard H. Thaler, ed., Advances in Behavioral Finance (New York: Russell Sage Foundation, 1993) (investigating effects of how investors actually behave). 61. For good discussions, see Hanson, “Designing Real Terrorism Futures,” 11–14; Abramowicz, “Prediction Markets, Administrative Decisionmaking, and Predictive Cost-Benefit Analysis,” 972–76. 62.

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See Robert MacCoun et al., Drug War Heresies: Learning from Other Vices, Times, and Places (New York: Cambridge University Press, 2001). 46. The Federalist No. 14 (James Madison). 47. For a good overview, see Andrei Shleifer, Inefficient Markets: An Introduction to Behavioral Finance (Oxford: Oxford University Press, 2000). 48. See Richard Thaler, ed., Advances in Behavioral Finance, vol. 2 (Princeton, NJ: Princeton University Press, 2005). 49. In fact, some rigorous tests have raised doubts about it. See ibid. 50. Robert Shiller, Irrational Exuberance, 2d ed. (Princeton, NJ: Princeton University Press, 2005), 2, 5. 51. Ibid., 11. 52.

To Save Everything, Click Here: The Folly of Technological Solutionism
by Evgeny Morozov
Published 15 Nov 2013

You’re on Casino Camera,” Associated Press, February 11, 2009, http://www.cbsnews.com/2100–205_162–274604.html. 198 Canadian casinos have recently solved: Ashlee Vance, “A Privacy-Friendly Way to Ban Gambling Addicts from Casinos,” Bloomberg Businessweek, August 29, 2012, http://www.businessweek.com/articles/2012–08–29/a-privacy-friendly-way-to-ban-gambling-addicts-from-casinos. 198 what Cass Sunstein and Richard Thaler call “nudges”: Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness, updated ed. (New York: Penguin Books, 2009). 199 as some recent studies speculate: F. Godlee, “Obesity and Climate Change,” British Medical Journal 345 (2012), http://www.bmj.com/content/345/bmj.e6516. 200 “Moral communities need to keep debating”: Brownsword, “Lost in Translation,” 1356. 200 John Dewey expressed almost a century earlier: the best short introduction to Dewey’s thought on technology and paternalism (from which most of the Dewey quotes in the book are taken) is Tan Sor Hoon, “Paternalism—a Deweyan Perspective,” Journal of Speculative Philosophy 13, no. 1 (January 1, 1999): 56–70.

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gwh=46C64CFF68C25F75639A71242B10117F. 300 “The only way we’ll fix”: “This VC Thinks Health Tracking Is About to Take Off—Like PCs in the 1970s,” Business Insider, February 7, 2012, http://articles.businessinsider.com/2012–02–07/tech/31032948_1_credit-scores-healthcare-data. 300 overdiagnosis and the continued invention and marketing of new diseases: see Joseph Dumit, Drugs for Life (Durham, NC: Duke University Press, 2012) and Jeremy Greene, “Prescribing by Numbers: Drugs and the Definition of Disease” (Baltimore: The Johns Hopkins University Press, 2008). 300 “You almost need to ‘trick’ the masses”: see “This VC Thinks Health Tracking.” 300 “In a gamified future”: quoted in Chris O’Brien, “Get Ready for the Decade of Gamification,” San Jose Mercury News, October 24, 2010, http://chris-obrien.com/clips/Gamification.pdf. 301 A 2010 survey done by the Pew Research Center’s Internet & American Life Project: Kristen Purcell et al., “Understanding the Participatory News Consumer,” Pew Internet, March 1, 2010, http://www.pewinternet.org/Reports/2010/Online-News.aspx. 301 “The route to enhancing meaningful civic life”: Elizabeth Theiss-Morse and John R. Hibbing, “Citizenship and Civic Engagement,” Annual Review of Political Science 8, no. 1 (2005): 227–249. 301 “if governments want to encourage good citizenship”: Richard H. Thaler, “Making Good Citizenship Fun,” New York Times, February 13, 2012, http://www.nytimes.com/2012/02/14/opinion/making-good-citizenship-fun.html?_r=0. 302 “anything can be fun”: quoted in Chorney, “Taking the Game out of Gamification,” 8. 302 “governments typically use two tools”: Thaler, “Making Good Citizenship Fun.” 302 “relating to the duties or activities”: “Civic,” Oxford Dictionaries, http://oxforddictionaries.com/definition/english/civic. 302 into two categories: for some reviews of the motivation literature in psychology and economics, see Roland Bénabou and Jean Tirole, “Intrinsic and Extrinsic Motivation,” Review of Economic Studies 70, no. 3 (July 1, 2003): 489–520, and Richard M.

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Or perhaps the regulators believe that you are subject to the same cognitive biases and limitations as the rest of us humans; as such, you might be tempted to do the wrong thing even if you really don’t want to. This last set of assumptions accounts for the proliferation of what Cass Sunstein and Richard Thaler call “nudges”: clever manipulations of default settings—what the authors call “choice architecture”—to get you to eat healthy foods or save money for retirement. Nudging is to manipulation what public relations is to advertising: it gets things done while making all the background tinkering implicit and invisible.

Dollars and Sense: How We Misthink Money and How to Spend Smarter
by Dr. Dan Ariely and Jeff Kreisler
Published 7 Nov 2017

Amar Cheema (Washington University, St. Louis) and Dilip Soman (University of Toronto), “Malleable Mental Accounting: The Effect of Flexibility on the Justification of Attractive Spending and Consumption Decisions,” Journal of Consumer Psychology 16, no. 1 (2006): 33–44. 5. Ibid. 6. Eldar Shafir (Princeton) and Richard H. Thaler (University of Chicago), “Invest Now, Drink Later, Spend Never: On the Mental Accounting of Delayed Consumption,” Journal of Economic Psychology 27, no. 5 (2006): 694–712. CHAPTER 6: WE AVOID PAIN 1. Donald A. Redelmeier (University of Toronto), Joel Katz (University of Toronto), and Daniel Kahneman (Princeton), “Memories of Colonoscopy: A Randomized Trial,” Pain 104, nos. 1–2 (2003): 187–194. 2.

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Simmons, LeBoeuf, and Nelson, “The Effect of Accuracy Motivation on Anchoring and Adjustment.” 6. Dan Ariely (Duke University), Predictably Irrational (New York: HarperCollins, 2008). CHAPTER 8: WE OVERVALUE WHAT WE HAVE 1. Daniel Kahneman (Princeton), Jack L. Knetsch (Simon Fraser University), and Richard H. Thaler (University of Chicago), “The Endowment Effect: Evidence of Losses Valued More than Gains,” Handbook of Experimental Economics Results (2008). 2. Michael I. Norton (Harvard Business School), Daniel Mochon (University of California, San Diego), and Dan Ariely (Duke University), “The IKEA Effect: When Labor Leads to Love,” Journal of Consumer Psychology 22, no. 3 (2012): 453-460. 3.

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Belsky and Gilovich, Why Smart People Make Big Money Mistakes. 8. Dawn K. Wilson (Vanderbilt), Robert M. Kaplan (UC San Diego), and Lawrence J. Schneiderman (UC San Diego), “Framing of Decisions and Selection of Alternatives in Health Care,” Social Behaviour 2 (1987): 51–59. 9. Shlomo Benartzi (UCLA) and Richard H. Thaler (University of Chicago), “Risk Aversion or Myopia? Choices in Repeated Gambles and Retirement Investments,” Management Science 45, no. 3 (1999): 364–381. 10. Belsky and Gilovich, Why Smart People Make Big Money Mistakes. 11. Hal R. Arkes (Ohio University) and Catherine Blumer (Ohio University), “The Psychology of Sunk Cost,” Organizational Behavior and Human Decision Processes 35, no. 1 (1985): 124–140.

Deep Value
by Tobias E. Carlisle
Published 19 Aug 2014

In other 82 DEEP VALUE 0.20 0.15 Loser Portfolio 0.10 C A 0.05 R 0.00 –0.05 Winner Porfolio –0.10 0 5 10 15 20 25 30 MONTHS AFTER PORTFOLIO FORMATION 35 FIGURE 5.1â•… Cumulative Average Returns for Winner and Loser Portfolios of 35 Stocks over 36 months (1933 to 1982) Source: Werner F.M. De Bondt and Richard H. Thaler. “Does the Stock Market Overreact?” Journal of Finance 40 (3) (1985): 793–805. words, a stock price that has fallen a great deal becomes a good candidate for subsequent earnings growth, and a stock that has gone up a lot is likely to see earnings contract. Using data for the period 1966 to 1983, De Bondt and Thaler replicated the original experiment, forming portfolios of extreme winners and losers measured by the increase or decrease in stock prices over the three-year period prior to the selection date.

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As they had theorized, the Loser 83 A Clockwork Market 400 Earnings Per Share Index 350 300 250 200 Loser Portfolio Winner Portfolio 150 100 50 0 t-3 t-2 t-1 Selection Date t+1 t+2 t+3 t+4 FIGURE 5.2â•… Change in Average Earnings Per Share for Stocks in Winner and Loser Portfolios (1966 to 1983) Source: Eyquem Investment Management LLC using data from Werner F.M. De Bondt and Richard H. Thaler. “Further Evidence on Investor Overreaction and Stock Market Seasonality?” Journal of Finance 42 (3) (1987): 557–581. portfolio—the stocks with the largest market price declines—saw far superior earnings performance in comparison to the Winner portfolio—the stocks with the largest increases in market price.

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Figure 5.3 shows the change in average earnings per share for the Undervalued and Overvalued 84 DEEP VALUE 150 Earnings Per Share Index 140 130 120 110 100 90 80 Undervalued Portfolio Overvalued Portfolio 70 60 t-3 t-2 t-1 Portfolio Selection Date t+1 t+2 t+3 t+4 FIGURE 5.3â•… Change in Average Earnings Per Share for Undervalued and Overvalued Portfolios (1926 to 1983) Source: Eyquem Investment Management LLC using data from Werner F.M. DeBondt and Richard H. Thaler. “Further Evidence on Investor Overreaction and Stock Market Seasonality?” Journal of Finance 42 (3) (1987): 557–581. portfolios in the three years leading up to the selection date and in the four years following the selection date. Figure 5.3 demonstrates that earnings grew faster for the Undervalued portfolio after the selection date than they did for the Overvalued portfolio.

Freakonomics: A Rogue Economist Explores the Hidden Side of Everything
by Steven D. Levitt and Stephen J. Dubner
Published 11 Apr 2005

Levitt has also written an academic paper about Feldman’s bagel operation: “An Economist Sells Bagels: A Case Study in Profit Maximization,” National Bureau of Economic Research working paper, 2006. / 43 The “Beer on the Beach” study is discussed in Richard H. Thaler, “Mental Accounting and Consumer Choice,” Marketing Science 4 (Summer 1985), pp. 119–214; also worth reading is Richard H. Thaler, The Winner’s Curse: Paradoxes and Anomalies of Economic Life (New York: Free Press, 1992). 2. HOW IS THE KU KLUX KLAN LIKE A GROUP OF REAL-ESTATE AGENTS? SPILLING THE KLAN’S SECRETS: This section has been substantially revised since the original version of Freakonomics was published, owing to the authors’ discovery that Stetson Kennedy—in both his memoir, The Klan Unmasked, and in interviews with the authors—had misrepresented his role in personally infiltrating and attacking the Klan.

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But just as crime tends to be low on a street where a police car is parked, the 95 percent rate was artificially high: Feldman’s presence had deterred theft. Not only that, but those bagel eaters knew the provider and had feelings (presumably good ones) about him. A broad swath of psychological and economic research has shown that people will pay different amounts for the same item depending on who is providing it. The economist Richard Thaler, in his 1985 “Beer on the Beach” study, showed that a thirsty sunbather would pay $2.65 for a beer delivered from a resort hotel but only $1.50 for the same beer if it came from a shabby grocery store. In the real world, Feldman learned to settle for less than 95 percent. He came to consider a company “honest” if its payment rate was above 90 percent.

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Trilby had had a glass of wine before we ordered, and took another glass with her meal, sauvignon blanc. I drank water. When the waitress cleared our plates, she asked again if we wanted free dessert. Just coffee, we said. As Trilby and I talked, I mentioned that not long ago I had interviewed Richard Thaler, the godfather of behavioral economics, a fairly new field of study that tries to explain why the psychology of money is so complicated. I mentioned the behavioralists’ concept of “anchoring”—a concept that used-car salesmen in particular know so well: establish a price that may be 100 percent more than what you need in order to ensure that you’ll still walk away with, say, a 50 percent profit.

Adapt: Why Success Always Starts With Failure
by Tim Harford
Published 1 Jun 2011

Available at: http://timharford.com/2006/05/the-poker-machine/; and Tim Harford, The Logic of Life (New York: Random House, 2008). 32 The brain refuses to register: Gary Smith, Michael Levere and Robert Kurtzman, ‘Poker Player Behavior after Big Wins and Big Losses’, Management Science, Vol. 55, No. 9 (September 2009), pp. 1547–55. 32 The great economic psychologists Daniel Kahneman and Amos Tversky: Daniel Kahneman and Amos Tversky, ‘Prospect Theory: An Analysis of Decision under Risk’, Econometrica, Vol. 47, No. 2 (1979), p. 287. 33 Found the perfect setting to analyse the way we respond to losses: Thierry Post, Martijn J. Van den Assem, Guido Baltussen and Richard H. Thaler, ‘Deal or No Deal? Decision Making under Risk in a Large-Payoff Game Show’, American Economic Review, Vol. 98, No. 1 (March 2008). Available at: http://ssrn.com/abstract=636508. Having written about Thaler’s research before, and even presented a radio documentary on the show, I am indebted to Jonah Lehrer and his book How We Decide (Boston, MA: Houghton Mifflin Harcourt, 2009) for emphasising how striking this result really is. 35 Unfortunately, selling winners and holding on to losers: Terrance Odean, ‘Are Investors Reluctant to Realize Their Losses?’

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She forced a faint smile as she realised what I was telling her, and we went home. (As if to confirm that we had made the right decision, the nice people at Eurostar refunded our tickets anyway. And a few months later, my wife somewhat more pregnant, we got to Paris in the end.) The behavioural economist Richard Thaler, with a team of co-authors, has found the perfect setting to analyse the way we respond to losses. He studied the TV game show Deal or No Deal, which is a great source of data because the basic game is repeated incessantly, with similar rules, for high stakes, in over fifty countries. Deal or No Deal offers contestants a choice of between twenty and twenty-six numbered boxes, each containing some prize money, ranging from pennies to hundreds of thousands of dollars, pounds or euros.

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The root cause of the loophole problem is something we also met with the Merton Rule: the crucial difference between the letter and the spirit of the law. This point was hammered home to me over a world-saving coffee (I had an espresso; he had a soya cappuccino) with the environmental economist Prashant Vaze, author of The Economic Environmentalist. Vaze was waxing lyrical about the concept of the ‘nudge’, proposed by the behavioural economist Richard Thaler and polymath legal scholar Cass Sunstein. The idea is that subtle influences could be used to direct thoughtless behaviour, while preserving individual rights consciously to choose. For example, incandescent light bulbs – which are a very wasteful way to produce light, but preferred by people with partial sight and certain light-sensitive skin conditions – could be removed from open shelves, but available from storage on request.

The Social Animal: The Hidden Sources of Love, Character, and Achievement
by David Brooks
Published 8 Mar 2011

Hallinan, Why We Make Mistakes: How We Look Without Seeing, Forget Things in Seconds, and Are All Pretty Sure We Are Way Above Average (New York: Broadway Books, 2009), 92–93. 4 In department stores Paco Underhill, Call of the Mall: The Geography of Shopping by the Author of Why We Buy (New York: Simon & Schuster, 2004), 49–50. 5 pairs of panty hose Timothy D. Wilson, Strangers to Ourselves (Cambridge, MA: Belknap Press, 2002), 103. 6 At restaurants, people eat more Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (Ann Arbor, MI: Caravan Books, 2008), 64. 7 Marketing people also realize Hallinan, 99. 8 Capital Pacific Homes David Brooks, “Castle in a Box,” The New Yorker, March 26, 2001, http://www.newyorker.com/archive/2001/03/26/010326fa_fact_brooks. 9 For all of human history Steven E.

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Frank, The Economic Naturalist: In Search of Explanations for Everyday Enigmas (New York: Basic Books, 2007), 129. 4 Ninety-four percent of college professors Andrew Newburg and Mark Robert Waldman, Why We Believe What We Believe: Uncovering Our Biological Need for Meaning, Spirituality, and Truth (New York: Free Press, 2006), 73. 5 Ninety percent of entrepreneurs Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (Ann Arbor, MI: Caravan Books, 2008), 32. 6 Ninety-eight percent of students Keith E. Stanovich, What Intelligence Tests Miss: The Psychology of Rational Thought (New Haven, CT: Yale University Press, 2009), 109. 7 College students vastly overestimate Daniel Gilbert, Stumbling on Happiness (New York: Vintage, 2007), 18. 8 Golfers on the PGA tour Joseph T.

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Augustine’s Press, 2000), 39. 2 “Reason is and ought only” David Hume, A Treatise of Human Nature, bk. 2, sect. 3 (Ithaca, NY: Cornell University Press, 2009), 286. 3 “We are generally” Edmund Burke, Reflections on the Revolution in France (Oxford: Oxford University Press, 1999), 87. 4 “senses and imagination captivate” Gertrude Himmelfarb, The Roads to Modernity: The British, French, and American Enlightenments (New York: Vintage, 2005), 76. 5 Level 2 is like Mr. Spock Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (Ann Arbor, MI: Caravan Books, 2008), 22. 6 The recall process James Le Fanu, Why Us?: How Science Rediscovered the Mystery of Ourselves (New York: Vintage, 2010), 213. 7 Half had significant errors Robert A.

The Impulse Society: America in the Age of Instant Gratification
by Paul Roberts
Published 1 Sep 2014

Household Deleveraging and Future Consumption Growth, Federal Reserve Bank of San Francisco Economic Letter, May 15, 2009, http://www.frbsf.org/publications/economics/letter/2009/el2009-16.html; and “U.S., World’s Growing HouseholdDebt,” research paper, June/July 2004, http://www.marubeni.com/dbps_data/_material_/maruco_en/data/research/pdf/0407.pdf. 4. White, “Bankruptcy Reform and Credit Cards.” 5. Richard H. Thaler, Quasi Rational Economics, p. 78. 6. Smith, “The Theory of Moral Sentiments.” In “Adam Smith, Behavioral Economist”, Carnegie Mellon University, www.cmu.edu/dietrich/sds/docs/loewenstein/AdamSmith.pdf. 7. Personal communication. 8. Ibid. 9. Michael E. Lara, “The New Science of Emotion: From Neurotransmittersto Neural Networks,” SlideShare, http://www.slideshare.net/mlaramd/science-of-emotion-from-neurotransmitters-to-social-networks. 10.

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Time and again, we get them wrong, opting to enjoy an immediate reward (or to defer an immediate cost), even when we know, with utter clarity, that any short-term pleasure will be dwarfed by long-term pain. Human history is littered with the carnage of bad intertemporal choices. Why are intertemporal decisions so difficult? In 1980 an economist at Cornell University named Richard Thaler came up with an explanation. The only rational way to understand our intertemporal irrationality, Thaler argued, was to imagine the human mind not as a single decision-making entity, but as a fractious joint venture between “two semiautonomous selves.” One of these selves Thaler dubbed the “myopic Doer,” concerned only with fast, efficient gratification.

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Walter Mischel, the researcher behind the famous “marshmallow study” from the 1970s, has developed effective strategies to train impatient children to be patient—an important success, given that impatient children have a high likelihood of growing up to be impatient adults.14 There are other potentially fruitful ventures, such as what Richard Thaler (of the two-self model) and coauthor Cass Sunstein call “choice architecture.” The term refers to carefully designed technologies, infrastructure, and other pieces of the built environment that subtly “nudge” us to act with more patience and long-term thought. An example: smartphone apps that automatically track our daily expenses and warn us when we’re exceeding our budget.

Scarcity: The True Cost of Not Having Enough
by Sendhil Mullainathan
Published 3 Sep 2014

do not undo hard work: Some of this argument can be made without resort to the psychology of scarcity. Much of policy design makes the presumption of rationality. Simply allowing for people to have natural psychological limitations already can improve policy making. This view has recently been wonderfully articulated by Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness (New Haven, Conn.: Yale University Press, 2008). See also Eldar Shafir, ed., The Behavioral Foundations of Public Policy (Princeton, N.J.: Princeton University Press, 2012). We have previously used this logic to argue that we can better understand poverty just by understanding that the poor can have the same psychological quirks that affect everyone else: Marianne Bertrand, Sendhil Mullainathan, and Eldar Shafir, “A Behavioral-Economics View of Poverty,” American Economic Review (2004): 419–23.

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Not only is it surrounded by darker squares; it also sits in the cylinder’s apparent shadow. Because things in shadows look darker, the eye will correct for the shadow, making the item appear lighter. Perceived color, much like perceived distance, depends on surrounding cues. And as it turns out, so does perceived value. A classic experiment once reported by the economist Richard Thaler does the equivalent of this optical illusion for money. We re-created this experiment along with Anuj Shah. We had subjects consider two scenarios that differ only in the bracketed words—a grocery store in one case, a fancy resort in the other: Imagine you are lying on the beach on a hot day.

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To experience this and other such illusions you can go to http://web.mit.edu/persci/people/adelson/checkershadow_illusion.html. For a more detailed discussion of the cognitive mechanisms underlying illusions such as these, see Edward H. Adelson, “Lightness Perception and Lightness Illusions,” The New Cognitive Neurosciences (1999): 339. Imagine you are lying on the beach on a hot day: This is based on Richard Thaler, “Mental Accounting and Consumer Choice,” Marketing Science 4, no. 3 (1985): 199–214. Data collected with Anuj Shah in 2012. The well off showed a significant difference between frames, whereas the poor did not; p < .01 (N = 148). when gasoline prices go up: J. Hastings and J. M. Shapiro, Mental Accounting and Consumer Choice: Evidence from Commodity Price Shocks (Cambridge, Mass.: National Bureau of Economic Research, Working Paper No. 18248, 2012).

Radical Markets: Uprooting Capitalism and Democracy for a Just Society
by Eric Posner and E. Weyl
Published 14 May 2018

Some individuals might severely understate asset values and try to hide or degrade them to avoid forced sales, but such antisocial strategies could and should be socially sanctioned, just as tax avoidance is; see below in the text. 19. Gary Becker, The Economics of Discrimination (University of Chicago Press, 2d ed., 2010). 20. See Richard H. Thaler & Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (Penguin, 2009). Epilogue. After Markets? 1. F. A. Hayek, The Use of Knowledge in Society, 35 American Economic Review 519 (1945). 2. Ludwig von Mises, Economic Calculation in the Socialist Commonwealth 19–23 (S.

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Such signaling is one of the oldest tricks in the bargaining book. Anyone who has haggled in a marketplace is familiar with the elaborate stories a seller tells to illustrate an item’s supposed value. By taxing signaling, a COST minimizes its harms. Another barrier to trade, highlighted by another Nobel Laureate, Richard Thaler, is the “endowment effect.”52 Thaler found that people’s minimum willingness to pay to buy an object is usually lower than their minimum willingness to accept to part with it, even if they have never actually touched or used it. Even just owning an object in the abstract seems to make a person value it more.

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A team of researchers led by Nikhil Naik is already using image analysis to conduct automated property assessments for real estate, so this idea is not as farfetched as it may at first sound. 51. George A. Akerlof, The Market for “Lemons”: Quality, Uncertainty and the Market Mechanism, 84 Quarterly Journal of Economics 488 (1970); Michael Spence, Job Market Signaling, 87 Quarterly Journal of Economics 355 (1973). 52. Richard Thaler, Toward a Positive Theory of Consumer Choice, 1 Journal of Economics, Behavior, and Organizations 39 (1980). 53. John A. List, Neoclassical Theory versus Prospect Theory: Evidence from the Marketplace, 72 Econometrica 615 (2004); Coren L. Apicella, Eduardo M. Azevedo, Nicholas A. Christakis, & James H.

Naked Economics: Undressing the Dismal Science (Fully Revised and Updated)
by Charles Wheelan
Published 18 Apr 2010

Wilson, Jim Stimpson, and Peter E. Hilsenrath, “Gasoline Prices and Their Relationship to Rising Motorcycle Fatalities, 1990–2007,” American Journal of Public Health, vol. 99, no. 10 (October 2009). 11. Jaime Sneider, “Good Propaganda, Bad Economics,” New York Times, May 16, 2000, p. A31. 12. Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness (New Haven, Conn.: Yale University Press, 2008). 13. Press release from The Royal Swedish Academy of Sciences, October 9, 2002. 14. Jonathan Gruber, “Smoking’s ‘Internalities,’” Regulation, vol. 25, no. 4 (Winter 2002/2003). 15.

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Given that economics is built upon the assumption that humans act consistently in ways that make themselves better off, one might reasonably ask: Are we really that rational? Not always, it turns out. One of the fiercest assaults on the notion of “strict rationality” comes from a seemingly silly observation. Economist Richard Thaler hosted a dinner party years ago at which he served a bowl of cashews before the meal. He noticed that his guests were wolfing down the nuts at such a pace that they would likely spoil their appetite for dinner. So Thaler took the bowl of nuts away, at which point his guests thanked him.12 Believe it or not, this little vignette exposes a fault in the basic tenets of microeconomics: In theory, it should never be possible to make rational individuals better off by denying them some option.

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As a practical matter, those mistakes often do spill over to affect the rest of us, as we saw in the real estate collapse and the accompanying mortgage mess. And there is a range of views in between (e.g., you’re allowed to sniff glue and roll down the steps but only while wearing a helmet). One intriguing and practical middle ground is the notion of “libertarian paternalism,” which was advanced in an influential book called Nudge by Richard Thaler, a professor of behavioral science and economics at the University of Chicago, and Cass Sunstein, a Harvard Law School professor now serving in the Obama administration. The idea behind benign paternalism is that individuals do make systematic errors of judgment, but society should not force you to change your behavior (that’s the libertarian part); instead, we should merely point you in the right direction (that’s the paternalism part).

Cheap: The High Cost of Discount Culture
by Ellen Ruppel Shell
Published 2 Jul 2009

Then Came eBay,” Boston Globe, June 10, 2007. 82 “profit-leaking paradox”: Rafi Mohammed, The Art of Pricing (New York: Crown, 2005), 24. 82 “opposition to one of their various judgments”: Janet Landman, Regret: The Persistence of the Possible (New York: Oxford University Press, 1993), 116. 85 the response was a resounding no: Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler, “Fairness as a Constraint on Profit Seeking: Entitlements in the Market,” American Economic Review 76 (September 1986): 728-41. 85 got pretty much the same response: Raymond Gorman and James B. Kehr, “Fairness as a Constraint on Profit Seeking: Comment,” American Economic Review 82, no. 1 (1992): 355-58. 85 “biggest mistake was getting caught”: David Wessel, “How Technology Tailors Price Tags,” Wall Street Journal, June 21, 2001. 86 early birds deserved to pay more: On the Wired magazine blog network, one gleeful “late adapter” wrote: “The early iPhone buyers paid a premium precisely to be among the first and the ‘coolest.’

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“If the question is difficult and an answer doesn’t immediately come to mind, we ask ourselves a related question that is easy to answer,” Kahneman said. “Generally speaking, the easy question is the wrong question.” Tversky and Kahneman may have made less practical sense of such psychological insights had they not teamed up with the promising young economist Richard Thaler. Today a professor of behavioral science and economics in the Graduate School of Business at the University of Chicago, Thaler was, when they met in the late 1970s, a newly minted visiting professor at the National Bureau of Economic Research at Stanford University. Tversky and Kahneman were fellows at the Stanford Institute of Advanced Studies in Behavioral Sciences, and Thaler translated their psychological research into a hardheaded consideration of consumer behavior.

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Marketing Letters 16, nos. 3/4 (2005): 347-60. 63 the distance estimated by the students: Plenary lecture at the annual meeting of the American Association for the Advancement of Science, February 15, 2008, in Boston. 64 “for a new field of research”: As announced in the press release from the Royal Swedish Academy of Science, October 9, 2002, available at http://nobelprize. org/nobel__prizes/economics/laureates/2002/press.html. 65 when making financial transactions: Thaler compressed and compiled many of these cases into a book. See Richard Thaler, The Winner’s Cure: Paradoxes and Anomalies of Economic Life (New York: The Free Press, 1992). My description of the Ultimatum Game was informed by Thaler’s chapter on the subject (pp. 21-36) and also by conversations with Dr. Patrick Kaufman, chairman of marketing at Boston University School of Management. 66 Emotion, Reason, and the Human Brain: Antonio R.

The Irrational Economist: Making Decisions in a Dangerous World
by Erwann Michel-Kerjan and Paul Slovic
Published 5 Jan 2010

Sunstein’s many books include After the Rights Revolution (Harvard University Press, 1990), Risk and Reason (Cambridge University Press, 2002), Laws of Fear: Beyond the Precautionary Principle (Cambridge University Press, 2005), Worst-Case Scenarios (Harvard University Press, 2007), and Nudge: Improving Decisions About Health, Wealth, and Happiness, with Richard H. Thaler (Yale University Press, 2008). He is also co-author of leading casebooks in both constitutional law and administrative law, with academic specialties in these two fields as well as in regulatory policy. W. Kip Viscusi, Vanderbilt University Law School Kip Viscusi is Vanderbilt’s first University Distinguished Professor, with appointments in the Owen Graduate School of Management and the Department of Economics as well as in the Law School.

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At the same time, and despite very important advances in economic theory that were made possible by the traditional view of economic man,7 there was a growing sense of unease among the general public and other social scientists as well as among policy makers that many economists had been unrealistic in their attempts to always rationalize how people, enterprises, and markets function. Fortunately, the story did not stop there. Stimulated by creative conceptual, methodological, and empirical work by the more senior authors in The Irrational Economist and many others, including Amos Tversky, Daniel Kahneman, and Richard Thaler, the trickle of studies challenging traditional economic assumptions of rationality became a torrent. Nobel prizes in economics awarded to Herbert Simon in 1978, to George Akerlof in 2001, and to Daniel Kahneman and Vernon Smith in 2002 for their contributions toward understanding the behavioral dynamics of economic decisions further contributed to what has become a revolution in thinking.

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Stocks that nobody really believes in but that retain value are the Delicious Apples of the investment world. RECOMMENDED READING Allen, Franklin, Stephen Morris, and Hyung Song Shin (2002). “Beauty Contests, Bubbles, and Iterated Expectations in Asset Markets.” Unpublished paper, Yale University. Barberis, Nicholas, and Richard Thaler (2003). “A Survey of Behavioral Finance.” In George Constantinides, Milton Harris, and René Stulz, eds. Handbook of the Economics of Finance. New York: Elsevier Science. Campbell, John Y., and Robert J. Shiller (1987). “Cointegration and Tests of Present Value Models.” Journal of Political Economy 97, no. 5: 1062-1088.

Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions
by Dan Ariely
Published 19 Feb 2007

James Heyman, Yesim Orhun, and Dan Ariely, “Auction Fever: The Effect of Opponents and Quasi-Endowment on Product Valuations,” Journal of Interactive Marketing (2004). RELATED READINGS Richard Thaler, “Toward a Positive Theory of Consumer Choice,” Journal of Economic Behavior and Organization (1980). Jack Knetsch, “The Endowment Effect and Evidence of Nonreversible Indifference Curves,” American Economic Review, Vol. 79 (1989), 1277–1284. Daniel Kahneman, Jack Knetsch, and Richard Thaler, “Experimental Tests of the Endowment Effect and the Coase Theorem,” Journal of Political Economy (1990). Daniel Kahneman, Jack Knetsch, and Richard H. Thaler, “Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias,” Journal of Economic Perspectives, Vol. 5 (1991), 193–206.

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Maurice Schweitzer and Chris Hsee, “Stretching the Truth: Elastic Justification and Motivated Communication of Uncertain Information,” Journal of Risk and Uncertainty (2002). Chapter 13: Beer and Free Lunches BASED ON Dan Ariely and Jonathan Levav, “Sequential Choice in Group Settings: Taking the Road Less Traveled and Less Enjoyed,” Journal of Consumer Research (2000). Richard Thaler and Shlomo Benartzi, “Save More Tomorrow: Using Behavioral Economics to Increase Employee Savings,” Journal of Political Economy (2004). RELATED READINGS Eric J. Johnson and Daniel Goldstein, “Do Defaults Save Lives?” Science, (2003). Searchable Terms Note: Entries in this index, carried over verbatim from the print edition of this title, are unlikely to correspond to the pagination of any given e-book reader.

The Power of Passive Investing: More Wealth With Less Work
by Richard A. Ferri
Published 4 Nov 2010

Van den Assem, Guido Baltussen, and Richard H. Thaler, “Deal or No Deal? Decision Making under Risk in a Large-Payoff Game Show,” American Economic Review 98, no. 1 (March 2008): 38–71. 8. Calmetta Coleman, “Beardstown Ladies Fess Up to Big Goof,” Wall Street Journal, Mar. 18, 1998, cl. 9. William N. Goetzmann and Nadav Peles, “Cognitive Dissonance and Mutual Fund Investors,” Journal of Financial Research 20, no. 2 (1997): 145–58. 10. John Maynard Keynes. The General Theory of Employment, Interest and Money (1936; repr., Boston: Houghton Mifflin Harcourt, 1964), 148. 11. Richard H. Thaler, “Toward a Positive Theory of Consumer Choice,” Journal of Economic Behavior and Organization 1, no. 1 (1980): 39–60. 12.

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bThe S&P Persistence Score Card is available at http://www.indexresearch.standardandpoors.com. CHAPTER 8 Active and Passive Asset Allocation People exaggerate their own skills. They are overoptimistic about their prospects and overconfident about their guesses, including which managers to pick. —Richard Thaler, University of Chicago It isn’t what we know that gives us trouble. It’s what we think we know that just ain’t so. —Will Rogers The second part of the active versus passive debate goes beyond mutual fund selection into the timing of purchases and sales. Asset allocation is how and when an investor diversifies among different types of investments in a portfolio.

The Darwin Economy: Liberty, Competition, and the Common Good
by Robert H. Frank
Published 3 Sep 2011

An old joke describes a camper who awoke to see his friend frantically putting on his running shoes as an angry bear approached their campsite. “Why bother?” he asked. “Don’t you know there’s no way you’ll be able to outrun that bear?” “I don’t have to outrun him,” the friend responded, “I just need to outrun you.” 5. Richard H. Thaler and Cass R. Sunstein, Nudge, New Haven, CT: Yale University Press, 2007. 6. See, for example, Peter Richerson and Robert Boyd, Not by Genes Alone: How Culture Transformed Human Evolution, Chicago: University of Chicago Press, 2004. NOTES TO PAGES 24–31 219 7. See, for example, Richard Rorty, “The Brain as Hardware, Culture as Software,” Inquiry 47(3), 2004: 219–235. 8.

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For present purposes, the important point is that traits favored because they confer advantage at the individual level are often disadvantageous to larger groups. 10. Burney J. Le Boeuf, “Male-Male Competition and Reproductive Success in Elephant Seals,” American Zoologist 14(1), 1974: 163–176. 11. Thomas C. Schelling, Micromotives and Macrobehavior, New York: W. W. Norton, 1978. 12. See, for example, Richard Thaler and Cass Sunstein, Nudge, New Haven, CT: Yale University Press, 2007. 13. John Stuart Mill, On Liberty, State College, PA: Penn State University, 1998 (originally published in 1859). 14. Others have offered cogent objections to the principle. See, for example, Joel Feinberg, Harm to Others, New York: Oxford University Press, 1987. 15.

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On this point see Bethany Moreton, To Serve God and Wal-Mart, Cambridge, MA: Harvard University Press, 2009. 9. For a more detailed account of this explanation, see chapter 8 of my 1985 book, Choosing the Right Pond: Human Behavior and the Quest for Status, New York: Oxford University Press. 10. Richard Thaler and Cass Sunstein, Nudge, New Haven, CT: Yale University Press, 2007, p. 251. 11. Thomas C. Schelling, Micromotives and Macrobehavior, New York: W. W. Norton, 1978. 12. Karl Marx, Capital, New York: Modern Library, 1936, pp. 708–709. 13. See, for example, the title essay in my 2004 book, What Price the Moral High Ground?

Decisive: How to Make Better Choices in Life and Work
by Chip Heath and Dan Heath
Published 26 Mar 2013

This is a powerful and easy-to-read book offering an overview of the problems of decision making, along with the authors’ solid recommendations for tackling those problems. For Even More: Dan Ariely (2008). Predictably Irrational: The Hidden Forces That Shape Our Decisions. A popular book about the irrational decisions we make, written with wit by one of the cleverest researchers in the field of decision making. Richard H. Thaler and Cass R. Sunstein (2008). Nudge: Improving Decisions About Health, Wealth, and Happiness. Great book by a behavioral economist and a law professor. Should be required reading for HR leaders, government officials, and anyone else who designs systems that allow other people to make choices.

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*See this page for a more thorough list of our recommended decision books, but to understand the problems we face in making decisions, essential reading would include Daniel Kahneman’s book, Thinking, Fast and Slow, mentioned above, and Dan Ariely’s Predictably Irrational. One of the handful of books that provides advice on making decisions better is Nudge by Richard Thaler and Cass Sunstein, which was written for “choice architects” in business and government who construct decision systems such as retirement plans or organ-donation policies. It has been used to improve government policies in the United States, Great Britain, and other countries. 1 The Four Villains of Decision Making 1.

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It was one of the pieces of research discussed in Kahneman’s Nobel Prize citation (sadly, Amos Tversky had died a few years earlier). The coin-flip example is from that paper. Purchase protection: David M. Cutler and Richard Zeckhauser (2004), “Extending the Theory to Meet the Practice of Insurance,” Working paper, Harvard University. Coffee-mug study: Daniel Kahneman, Jack L. Knetsch, and Richard Thaler (1990), “Experimental Tests of the Endowment Effect and the Coase Theorem,” Journal of Political Economy 98: 1325–48. 6 Max Levchin cofounded PayPal. PayPal was actually first called Confinity, and it produced a product called PayPal, but it was later renamed PayPal after a merger. To keep it simple, we just call it PayPal.

Expected Returns: An Investor's Guide to Harvesting Market Rewards
by Antti Ilmanen
Published 4 Apr 2011

Barberis, Nicholas; Andrei Shleifer; and Robert Vishny (1998), “A model of investor sentiment,” Journal of Financial Economics 49, 307–345. Barberis, Nicholas; Andrei Shleifer; and Jeffrey Wurgler (2005), “Comovement,” Journal of Financial Economics 75, 283–317. Barberis, Nicholas; and Richard H. Thaler (2003), “A survey of behavioral finance,” in Handbook of the Economics of Finance (G. Constantinides, R. Stulz, M. Harris, Eds.), Amsterdam: North Holland. Barro, Robert J. (1995), “Inflation and economic growth,” NBER working paper 5326. Barro, Robert J. (2006), “Rare disasters and asset markets in the twentieth century,” Quarterly Journal of Economics 121(3), 823–866.

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Friesen, Geoffrey; and Travis Sapp (2007), “Mutual fund flows and investor returns: An empirical examination of fund investor timing ability,” Journal of Banking & Finance 31, 2796–2816. Froot, Kenneth A. (1989), “New hope for the expectations hypothesis of the term structure of interest rates,” Journal of Finance 44, 283–305. Froot, Kenneth A.; and Richard H. Thaler (1990), “Anomalies: Foreign exchange,” Journal of Economic Perspectives 4(3), 179–192. Fu, Fangjian (2009), “Idiosyncratic risk and the cross-section of expected stock returns,” Journal of Financial Economics 91, 24–37. Fuertes, Ana; Joelle Miffre; and Giorgios Rallis (2010), “Tactical allocation in commodity futures markets: Combining momentum and term structure signals,” forthcoming in the Journal of Banking and Finance.

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Jegadeesh, Narasimhan; and Sheridan Titman (1993), “Returns to buying winners and selling losers: Implications for stock market efficiency,” Journal of Finance 48(1), 65–91. Jegadeesh, Narasimhan; and Sheridan Titman (2005), “Momentum: A review,” in Advances on Behavioral Finance, Volume II (Richard H. Thaler, Ed.), Russell Sage Foundation and Princeton University Press. Jensen, Gerald R.; and Theodore C. Moorman (2010), “Inter-temporal variation in the illiquidity premium,” forthcoming in the Journal of Financial Economics. Jung, Jeeman; and Robert J. Shiller (2005), “Samuelson’s dictum and the stock market,” Economic Inquiry 43(2), 221–228.

Competition Overdose: How Free Market Mythology Transformed Us From Citizen Kings to Market Servants
by Maurice E. Stucke and Ariel Ezrachi
Published 14 May 2020

id=10.1257/089533005774357897. 35.Ashraf et al., “Adam Smith,” 136 (quoting Smith). 36.See Yochai Benkler, “The Unselfish Gene,” Harvard Business Review 89, no. 7/8 (July–August 2011): 79, https://hbr.org/2011/07/the-unselfish-gene (“In no society examined under controlled conditions have the majority of people consistently behaved selfishly”; “Dozens of field studies have identified cooperative systems, many of which are more stable and effective than incentive-based ones”); Lynn Stout, Cultivating Conscience: How Good Laws Make Good People (Princeton, NJ: Princeton University Press, 2011), 91–92 (“Although in some contexts [the assumption that people are selfish actors] may be realistic [e.g., anonymous market transactions], a half-century of experimental gaming research demonstrates that in many other contexts, people simply refuse to behave like the ‘rational maximizers’ economic theory says they should be”). 37.Keith Jensen, Josep Call, and Michael Tomasello, “Chimpanzees Are Rational Maximizers in an Ultimatum Game,” Science 318, no. 5847 (October 5, 2007): 107, DOI:10.1126/science.1145850. 38.Richard H. Thaler, The Winner’s Curse: Paradoxes and Anomalies of Economic Life (New York: Free Press, 1992), 21–25; Werner Güth, Rolf Schmittberger, and Bernd Schwarze, “An Experimental Analysis of Ultimatum Bargaining,” Journal of Economic Behavior and Organization 3, no. 4 (December 1982): 367, 371–74, 375, tables 4–5, https://doi.org/10.1016/0167-2681(82)90011-7; Daniel Kahneman, Jack Knetsch, and Richard Thaler, “Fairness and the Assumptions of Economics,” Journal of Business 59, no. 4 (November 1986): S285, S291, table 2, Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:59:y:1986:i:4:p:s285-300. 39.Maurice E.

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If it is removed, the great, the immense fabric of human society . . . must in a moment crumble to atoms.”35 These sentiments are as much a part of classical economic theory as those expressed in The Wealth of Nations. Thus, Smith has become the patron saint of a new wave of economists—known as the behavioral economists—like recent Nobel Prize laureates Daniel Kahneman and Richard Thaler. Looking at the empirical evidence, they conclude that most people are not as purely “self-interested” as the Chicago School’s theorists suppose. On the micro level, we actually care about treating others—and being treated—fairly. And on a macro level, the empirical evidence does not support the idea that greed is a prerequisite for a successful market economy.36 Societies with greedier citizens do not necessarily have stronger economies.

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Thaler, The Winner’s Curse: Paradoxes and Anomalies of Economic Life (New York: Free Press, 1992), 21–25; Werner Güth, Rolf Schmittberger, and Bernd Schwarze, “An Experimental Analysis of Ultimatum Bargaining,” Journal of Economic Behavior and Organization 3, no. 4 (December 1982): 367, 371–74, 375, tables 4–5, https://doi.org/10.1016/0167-2681(82)90011-7; Daniel Kahneman, Jack Knetsch, and Richard Thaler, “Fairness and the Assumptions of Economics,” Journal of Business 59, no. 4 (November 1986): S285, S291, table 2, Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:59:y:1986:i:4:p:s285-300. 39.Maurice E. Stucke, “Behavioral Economists at the Gate: Antitrust in the Twenty-First Century,” Loyola University of Chicago Law Journal 38, no. 3 (Spring 2007): 513, 530 n.79, https://ssrn.com/abstract=981530. 40.Christine Jolls, Cass R. Sunstein, and Richard Thaler, “A Behavioral Approach to Law and Economics,” Stanford Law Review 50, no. 3 (May 1998): 1471, 1492, https://www.law.harvard.edu/programs/olin_center/papers/pdf/236.pdf. Even when the game is repeated ten times to allow for learning, the results are similar. 41.Joseph Henrich et al., “In Search of Homo Economicus: Behavioral Experiments in 15 Small-Scale Societies,” American Economic Review 91, no. 2 (May 2001): 73, 73–76, https://www.aeaweb.org/articles?

Investing Amid Low Expected Returns: Making the Most When Markets Offer the Least
by Antti Ilmanen
Published 24 Feb 2022

PwC (2020), “Asset and wealth management revolution: The power to shape the future,” a PwC Global report. Qian, Edward E. (2018), Portfolio Rebalancing, Chapman and Hall. Qian, Edward; Ronald Hua; and Eric Sorensen (2007), Quantitative Equity Portfolio Management: Modern Techniques and Applications, Chapman and Hall. Rabin, Matthew; and Richard H. Thaler (2001), “Anomalies: Risk aversion,” Journal of Economic Perspectives 15(1), 219–232. Rachel, Lukasz; and Lawrence H. Summers (2019), “On secular stagnation in the industrialized world,” NBER working paper 26198. Randl, Otto; Arne Westerkamp; and Josef Zechner (2018), “Equilibrium policy portfolios when some assets are non-tradable,” SSRN working paper.

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I capped them near 500 and focused on more recent research – apologies to others. For excellent books with as broad coverage as this one, see Lussier (2013), Ang (2014), and Pedersen (2015). I also recommend viewing the Words from the Wise series in aqr.com, where we interviewed many luminaries (John Bogle, Charley Ellis, Robert Engle, Marty Leibowitz, Harry Markowitz, Richard Thaler, Ed Thorp, and Roger Urwin) who have influenced our thinking. For two other wonderful sets of interviews and profiles of modern finance giants, see Towle (2014) and Lo-Foerster (2021). Chapter 2 The Secular Low Expected Return Challenge Expected returns in all major asset classes have fallen to near historic lows.

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Barberis, Nicholas (2017), “Behavioral finance: Asset prices and investor behavior,” American Economic Association lectures, https://www.aeaweb.org/content/file?id=2978 Barberis, Nicholas; and Ming Huang (2008), “Stocks as lotteries: The implications of probability weighting for security prices,” American Economic Review 98, 2066–2100. Barberis, Nicholas; and Richard Thaler (2003), “A survey of behavioral finance,” in the Handbook of the Economics of Finance (Constantinides, G., Harris, M., Stulz, R. eds.), North Holland. Barberis, Nicholas; Andrei Shleifer; and Robert Vishny (1998), “A model of investor sentiment,” Journal of Financial Economics 49, 307–345. Barberis, Nicholas; Lawrence J.

The Devil's Derivatives: The Untold Story of the Slick Traders and Hapless Regulators Who Almost Blew Up Wall Street . . . And Are Ready to Do It Again
by Nicholas Dunbar
Published 11 Jul 2011

See the remarks by Goldman’s then head of firmwide risk, Bob Litzenberger, in Nicholas Dunbar, Inventing Money: The Story of Long-Term Capital Management and the Legends Behind It (Chichester: Wiley, 2000), 203. 12. The BIS actually further liberalized the VAR-based capital rules in 1998, introducing a so-called specific risk amendment that a Federal Reserve official described in 2009 as “the kiss of death.” 13. For example, see the chapter on consumer credit in Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (New Haven, CT: Yale University Press, 2008). 14. The products are normally sold to intermediaries such as small banks or insurance companies before passing into the hands of the consumer. 15. An edited version of my interview with Sartori di Borgoricco was published in “The Key to Successful Client Solutions,” Risk, October 2004, 53. 16.

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They were envisaged as gifted beings who could frame their beliefs about potential investments in the form of detailed probability distributions, including the correlations between investments. In a footnote to his paper, Markowitz said, “This paper does not consider the difficult question of how investors do (or should) form their probability beliefs.” Since then, analysts have typically assumed that beliefs are formed purely from historical statistics. 13. Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (New Haven, CT: Yale University Press, 2008). 14. Barclays issued an emerging market CDO structured by Usi’s group named RF Alts Finance in January 2000. 15. E-mail evidence presented at Banca Popolare di Intra and Barclays Bank PLC, transcript of High Court Hearing, February 9, 2010; and witness statement of Stefano Silocchi quoted in Barclays’ pre-trial argument to the High Court. 16.

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Behavioral economists call it naive diversification, in part because it seems to be hardwired into the human psyche. Psychological experiments show that when people are not restricted to a single choice on a menu, they will spread their allocation across whatever is available. For example, in an experiment cited by Cass Sunstein and Richard Thaler in their book Nudge, children who are offered multiple brands of chocolate will almost always divide their picks so that they can taste all the chocolates rather than sticking with a single brand.13 In the same way, and with no more justification for doing so, investors who are offered a menu of different retirement funds blindly split their allocations across the menu, even when it is not in their interests to do so.

Phishing for Phools: The Economics of Manipulation and Deception
by George A. Akerlof , Robert J. Shiller and Stanley B Resor Professor Of Economics Robert J Shiller
Published 21 Sep 2015

Gary Smith, Standard Deviations: Flawed Assumptions, Tortured Data, and Other Ways to Lie with Statistics (New York: Duckworth Overlook, 2014). 9. Jesse Kornbluth, Highly Confident: The Crime and Punishment of Michael Milken (New York: William Morrow, 1992), p. 45. 10. Hickman, Corporate Bond Quality and Investor Experience, p. 10. 11. Jeremy J. Siegel and Richard H. Thaler, “Anomalies: The Equity Premium Puzzle,” Journal of Economic Perspectives 11, no. 1 (Winter 1997): 191. 12. United States Federal Deposit Insurance Corporation et al. v. Michael R. Milken et al. (1991), Southern District of New York (January 18), Amended Complaint Class Action, Civ. No. 91-0433 (MP), pp. 70–71. 13.

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Auerbach, pp. 33–68. Chicago: University of Chicago Press, 1988. Shleifer, Andrei, and Robert W. Vishny. “The Takeover Wave of the 1980s.” Science 249, no. 4970 (1990): 745–49. Sidel, Robin. “Credit Card Issuers Are Charging Higher.” Wall Street Journal, October 12, 2014. Siegel, Jeremy J., and Richard H. Thaler. “Anomalies: The Equity Premium Puzzle.” Journal of Economic Perspectives 11, no. 1 (Winter 1997): 191–200. Sinclair, Upton. The Jungle. Mineola, NY: Dover Thrift Editions, 2001; originally published 1906. __________. Letter to the New York Times. May 6, 1906. Singh, Gurkirpal. “Recent Considerations in Nonsteroidal Anti-Inflammatory Drug Gastropathy.”

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Daniel Kahneman, yes that one, some twenty-five or thirty years ago, told us that the distinctive feature of psychology is that it views people as imperfect machines. The job of the psychologist, he said, was to figure out how and when those machines would be dysfunctional. In contrast, the basic concept of economics is equilibrium. We think that this book brings together these observations. Richard Thaler, with whom Bob has been organizing behavioral economics workshops for twenty-five years, has also been an influence; he initially suggested more than twenty years ago that we two ought to work together. He was our matchmaker. We are hugely indebted to him. Mario Small and Michele Lamont cued us into thinking about how people’s decisions depend largely on the subconscious rather than the conscious.

Think Like a Freak
by Steven D. Levitt and Stephen J. Dubner
Published 11 May 2014

Krueger, What Makes a Terrorist (Princeton University Press, 2007); Claude Berrebi, “Evidence About the Link Between Education, Poverty and Terrorism Among Palestinians,” Princeton University Industrial Relations Section working paper, 2003; and Krueger and Jita Maleckova, “Education, Poverty and Terrorism: Is There a Causal Connection?” Journal of Economic Perspectives 17, no. 4 (Fall 2003). / 172 Trying to keep a public men’s room clean?: See Richard H. Thaler and Cass R. Sunstein, Nudge (Yale University Press, 2008). / 172 “. . . We are also blind to our blindness”: See Daniel Kahneman, Thinking, Fast and Slow (2011, Farrar, Straus and Giroux). / 173 “It’s easier to jump out of a plane”: Kareem Abdul-Jabbar, “20 Things Boys Can Do to Become Men,” Esquire.com, October 2013. 173 HOW MUCH DID THE ANTI-DRUG CAMPAIGN CUT DRUG USE?

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When someone is heavily invested in his or her opinion, it is inevitably hard to change the person’s mind. So you might think it would be pretty easy to change the minds of people who haven’t thought very hard about an issue. But we’ve seen no evidence of this. Even on a topic that people don’t care much about, it can be hard to get their attention long enough to prompt a change. Richard Thaler and Cass Sunstein, pioneers of the “nudge” movement, recognized this dilemma. Rather than try to persuade people of the worthiness of a goal—whether it’s conserving energy or eating better or saving more for retirement—it’s more productive to essentially trick people with subtle cues or new default settings.

The Age of the Infovore: Succeeding in the Information Economy
by Tyler Cowen
Published 25 May 2010

For the story of Ethan, see Michael D. Powers and Janet Poland, Asperger Syndrome and Your Child: A Parent’s Guide (New York: Collins Living, 2003), chapter 2. To the best of my knowledge, the phrase “infovores” originates with USC professor Irving Biederman. For a good presentation of framing effects, see for instance Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (New Haven: Yale University Press, 2008). For the Steve Hofstetter quotation, see “Thinking Man: Steve Hofstetter is Your Friend,” November 14, 2005, www.collegehumor.com/article:1632255. On “Facebook-like” services for the very young, see Camille Sweeney, “Twittering from the Cradle,” The New York Times, September 11, 2008.

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Whereas the Stoics sought to understand the psychology of the Roman Empire, exile, and the slave whip, and Smith studied the pin factory, I am looking at Facebook, Google, and the iPod. The later and more general movement of “behavioral economics” has brought psychology very directly into economics. In addition to all the formal research, behavioral economics is represented by such popular books as Dan Ariely’s Predictably Irrational, Richard Thaler and Cass Sunstein’s Nudge, and Ori and Rom Brafman’s Sway. In the most general terms, behavioral economics suggests that human decision-making is often far from rational. For instance maybe we overestimate our prospects of success when we start a new business or maybe we are very bad at evaluating risks with very small probabilities.

The Unbanking of America: How the New Middle Class Survives
by Lisa Servon
Published 10 Jan 2017

Luke Shaefer, $2.00 a Day: Living on Almost Nothing in America (New York: Houghton Mifflin Harcourt, 2015). 167 a strong safety net: Michael S. Barr, Sendhil Mullainathan, and Eldar Shafir, “Behaviorally Informed Regulation,” in No Slack: The Financial Lives of Low-Income Americans, edited by Michael S. Barr (Washington, DC: Brookings Institution Press, 2012). 169 “choice architecture”: Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (New Haven, CT: Yale University Press, 2008). simply changing the default option: John Beshears et al., “The Importance of Default Options for Retirement Savings Outcomes: Evidence from the United States,” NBER Working Paper No. 12009 (Cambridge, MA: National Bureau of Economic Research, February 2006).

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The situation she found herself in—choosing between taking out payday loans or losing her job—overrode her knowledge; as she told me, “I know it’s bad.” The upside of this finding is that the effect of context on decision making is predictable. We can find ways to protect people at vulnerable moments. The way choices are presented—what the economists Richard Thaler and Cass Sunstein call “choice architecture”—is also critical to making a good decision. Employee enrollment in retirement plans provides a good illustration. When a worker is lucky enough to get a job that includes a retirement plan, she must usually make several decisions—whether to participate, how much to contribute, how to allocate contributions across different investments.

The Signal and the Noise: Why So Many Predictions Fail-But Some Don't
by Nate Silver
Published 31 Aug 2012

Marko Kolanovic, Davide Silvestrini, Tony SK Lee, and Michiro Naito, “Rise of Cross-Asset Correlations,” Global Equity Derivatives and Delta One Strategy, J.P. Morgan, May 16, 2011. http://www.cboe.com/Institutional/JPMCrossAssetCorrelations.pdf. 77. Richard H. Thaler, “Anomalies: The Winner’s Curse,” Journal of Economic Perspectives, 2, no. 1 (1998), pp. 191–202. http://econ.ucdenver.edu/Beckman/Econ%204001/thaler-winner’s%20curse.pdf. 78. Daniel Kahneman, Thinking, Fast and Slow (New York: Farrar, Straus and Giroux, 2011), pp. 261–262. 79. Odean, “Do Investors Trade Too Much?” 80. Owen A. Lamont and Richard H. Thaler, “Can the Market Add and Subtract? Mispricing in Tech Stock Carve-outs,” Journal of Political Economy, 111, 2 (2003), pp. 227–268. http://faculty.chicagobooth.edu/john.cochrane/teaching/Empirical_Asset_Pricing/lamont%20and%20thaler%20add%20and%20subtract%20jpe.pdf. 81.

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Bubbles can take months or years to deflate. As John Maynard Keynes said, “The market can stay irrational longer than you can stay solvent.” The Price Isn’t Right At other times, investors may not have the opportunity to short stocks at all. One somewhat infamous example, documented by the University of Chicago economists Richard Thaler and Owen Lamont,80 is when the company 3Com spun off shares of its mobile phone subsidiary Palm into a separate stock offering. 3Com kept most of Palm’s shares for itself, however, so a trader could also invest in Palm simply by buying 3Com stock. In particular, 3Com stockholders were guaranteed to receive three shares in Palm for every two shares in 3Com that they held.

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Thank you to Bill Keller, Gerry Marzorati, and Jill Abramson for bringing me into the New York Times family. Thank you to John Sides, Andrew Gelman, Tom Schaller, Ed Kilgore, Renard Sexton, Brian McCabe, Hale Stewart, and Sean Quinn for their contributions to the FiveThirtyEight blog. Thank you to Richard Thaler and Anil Kashyap, of the University of Chicago, for reviewing the chapters related to economics and finance. Thank you to David Carr, Kathy Gauldin, and Page Ashley for reminding me of the importance of finishing the book, and to Will Repko for helping to instill that work ethic that might get it there.

Money Changes Everything: How Finance Made Civilization Possible
by William N. Goetzmann
Published 11 Apr 2016

Klapper, Leora, Víctor Sulla, and Dimitri Vittas. 2004. “The development of mutual funds around the world.” Emerging Markets Review 5(1): 1–38. 4. Bhattacharya, Utpal, and Neal Galpin. 2011. “The global rise of the value-weighted portfolio.” Journal of Financial and Quantitative Analysis 46(3): 737. 5. Benartzi, Shlomo, and Richard H. Thaler. 2001. “Naive diversification strategies in defined contribution saving plans.” American Economic Review 91(1): 79–98 6. Thaler, Richard H. and Cass R. Sustein. 2008. Nudge: Improving Decisions About Health, Wealth and Happiness. New Haven: Yale University Press. BIBLIOGRAPHY Aeschylus. 1926.

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Strengthen the Country and Enrich the People: The Reform Writings of Ma Jianzhong. London: Routledge. Banner, Stuart. 1998. Anglo-American Securities Regulation. Cambridge: Cambridge University Press. Barnish, S.J.B. 1985. “The wealth of Julius Argentarius.” Byzantion 55: 5–38. Benartzi, Shlomo, and Richard H. Thaler. 2001. “Naive diversification strategies in defined contribution saving plans.” American Economic Review (Evanston) 91(1): 79–98. Bernoulli, Jacob, and Edith Dudley Sylla. 2006. The Art of Conjecturing, Together with Letter to a Friend on Sets in Court Tennis. Baltimore: Johns Hopkins University Press.

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DELEGATED DECIDING The good thing about institutionalizing investment is that it saves people from themselves. We know that most investors think they are good at stock selection, but they are not. We know that indexing is the smart thing to do for the vast majority of investors, but human nature stands in the way of rational choice. Richard Thaler, professor at the University of Chicago, is one of the leading lights of behavioral finance. He and Shlomo Benartzi of the University of California in Los Angeles did a study of investor decisions about pension fund options.5 They found a disappointing pattern. People seemed not to understand the difference between stocks and bonds.

Virtual Competition
by Ariel Ezrachi and Maurice E. Stucke
Published 30 Nov 2016

Office of Fair Trading, Consumer Behavioural Biases in Competition: A Survey, Final Report, OFT1324 (May 2011), 3.10–3.201.11. 51. E. Vis and J. Toth, “ The Abolition of the No-Discrimination Rule,” (Amsterdam: ITM Research, March 2000), 7–10, http://www.creditslips.org/fi les /netherlands-no-discrimination-rule-study.pdf. Notes to Pages 111–115 293 52. Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler, “Fairness as a Constraint on Profit Seeking: Entitlements in the Market,” in Advances in Behavioral Economics, Colin F. Camerer, George Loewenstein, and Matthew Rabin, eds. (Princeton, NJ: Princeton University Press, December 28, 2003), 252, 257. 53. Organisation for Economic Co-operation and Development, Competition and Regulation in Agriculture: Monopsony Buying and Joint Selling, DAF/ COMP(2005)44 (December 21, 2005), 8, http://www.oecd.org/competition /abuse/35910977.pdf. 54.

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Horton, “Unraveling the Chicago/ Harvard Antitrust Double Helix: Applying Evolutionary Theory to Guard Competitors and Revive Antitrust Jury Trials,” University of Baltimore Law Review 41 (2012): 615, 653–654 (citing research on how “ ‘fairness evolved as a stable strategy for maintaining social harmony’ in our economic relation- Notes to Pages 123–125 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 299 ships” and how “[n]eurobiological studies have found that ‘the sense of fairness fundamental to distributive justice’ is rooted in humans’ emotional processing”), quoting Joan Roughgarden, The Genial Gene: Deconstructing Darwinian Selfishness (Berkeley: University of California Press, 2009), 160; Michael Shermer, The Mind of the Market: Compassionate Apes, Competitive Humans, and Other Tales from Evolutionary Economics (New York: Times Books, 2008), 11. Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler, “Fairness as a Constraint on Profit Seeking: Entitlements in the Market,” American Economic Review 76, no. 4 (1986): 728, 735. Ellen Garbarino and Sarah Maxwell, “Consumer Response to NormBreaking Pricing Events in E-Commerce,” Journal of Business Research 63 (2010): 1066, 1069. Lan Xia and Kent B.

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Federal Trade Commission, Data Brokers: A Call for Transparency and Accountability (May 2014), ii–iii, https://www.ftc.gov/system/fi les/documents /reports/data-brokers-call-transparency-accountability-report-federal-trade -commission-may-2014/140527databrokerreport.pdf. 48. Ibid. 49. Kahneman, Thinking, Fast and Slow. 50. Richard Thaler, Misbehaving: The Making of Behavioral Economics (New York: W. W. Norton, 2015), chap. 7. 51. G. B. Northcraft and M. A. Neale, “Experts, Amateurs, and Real Estate: An Anchoring-and-Adjustment Perspective on Property Pricing Decisions,” Organizational Behavior and Human Decision Processes 39 (1987): 84–97. 52.

The Irrational Bundle
by Dan Ariely
Published 3 Apr 2013

James Heyman, Yesim Orhun, and Dan Ariely, “Auction Fever: The Effect of Opponents and Quasi-Endowment on Product Valuations,” Journal of Interactive Marketing (2004). RELATED READINGS Richard Thaler, “Toward a Positive Theory of Consumer Choice,” Journal of Economic Behavior and Organization (1980). Jack Knetsch, “The Endowment Effect and Evidence of Nonreversible Indifference Curves,” American Economic Review, Vol. 79 (1989), 1277–1284. Daniel Kahneman, Jack Knetsch, and Richard Thaler, “Experimental Tests of the Endowment Effect and the Coase Theorem,” Journal of Political Economy (1990). Daniel Kahneman, Jack Knetsch, and Richard H. Thaler, “Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias,” Journal of Economic Perspectives, Vol. 5 (1991), 193–206.

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Ziv Carmon and Dan Ariely, “Focusing on the Forgone: How Value Can Appear So Different to Buyers and Sellers,” Journal of Consumer Research 27, no. 3 (2000): 360–370. Daniel Kahneman, Jack Knetsch, and Richard Thaler, “Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias,” Journal of Economic Perspectives 5, no. 1 (1991): 193–206. Daniel Kahneman, Jack Knetsch, and Richard Thaler, “Experimental Tests of the Endowment Effect and the Coase Theorem,” The Journal of Political Economy 98, no. 6 (1990): 1325–1348. Jack Knetsch, “The Endowment Effect and Evidence of Nonreversible Indifference Curves,” The American Economic Review 79, no. 5 (1989): 1277–1284.

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Maurice Schweitzer and Chris Hsee, “Stretching the Truth: Elastic Justification and Motivated Communication of Uncertain Information,” Journal of Risk and Uncertainty (2002). Chapter 15: Beer and Free Lunches BASED ON Dan Ariely and Jonathan Levav, “Sequential Choice in Group Settings: Taking the Road Less Traveled and Less Enjoyed,” Journal of Consumer Research (2000). Richard Thaler and Shlomo Benartzi, “Save More Tomorrow: Using Behavioral Economics to Increase Employee Savings,” Journal of Political Economy (2004). RELATED READINGS Eric J. Johnson and Daniel Goldstein, “Do Defaults Save Lives?” Science, (2003). Praise for Predictably Irrational “This is a wonderful, eye-opening book.

Investment: A History
by Norton Reamer and Jesse Downing
Published 19 Feb 2016

Daniel Kahneman and Amos Tversky, “Prospect Theory: An Analysis of Decision under Risk,” Econometrica 47, no. 2 (March 1979): 265–278. 47. Rajnish Mehra and Edward C. Prescott, “The Equity Premium: A Problem,” Journal of Monetary Economics 15, no. 2 (March 1985): 145–161. 48. Stephen J. Brown, William N. Goetzmann, and Stephen A. Ross, “Survival,” Journal of Finance 50, no. 3 (July 1995): 853–873. 49. Shlomo Benartzi and Richard H. Thaler, “Myopic Loss Aversion and the Equity Premium Puzzle,” Quarterly Journal of Economics 110, no. 1 (February 1995): 73–92. 50. Burton G. Malkiel, “The Efficient Market Hypothesis and Its Critics,” Journal of Economic Perspectives 17, no. 1 (Winter 2003): 61–62. 8. MORE NEW INVESTMENT FORMS 1.

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Forbes, June 12, 2012. http://www.forbes.com/sites/chrisbarth/2012/06/12/warren-buffett -clairvoyant-or-crazy. Bartlett, Bruce. “How Deficit Hawks Could Derail the Recovery.” Forbes, January 8, 2010. http://www.forbes.com/2010/01/07/deficit-greatdepression-recovery-opinions-columnists-bruce-bartlett.html. Benartzi, Shlomo, and Richard H. Thaler. “Myopic Loss Aversion and the Equity Premium Puzzle.” Quarterly Journal of Economics 110, no. 1 (February 1995): 73–92. Benedict XIV (Pope). Vix Pervenit. [1745]. EWTN Global Catholic Network. http://www.ewtn.com/library/ENCYC/B14VIXPE.htm. Benhamou, Michael. “Betting Against the Street.” MarketWatch, June 9, 2005. http://www.marketwatch.com/story/taking-advantage-of-convertible-arbs.

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There were some who suggested that it was merely survivorship bias that explained this phenomenon; that is, there were stocks that went bankrupt or otherwise delisted and so this high premium was not real after all.48 Others suggested that there were frictions unaccounted for, such as transaction costs. The behavioral economists mounted a different set of explanations. One of the most cited and well-regarded explanations, put forth by Shlomo Benartzi and Richard Thaler in 1995, is “myopic loss aversion,” a notion that borrows heavily from the concepts developed in prospect theory, including the fact that individuals tend to exhibit loss aversion and that they care about changes in wealth more keenly than about absolute levels of wealth. Investors who frequently look at the value of their equity portfolio—say, on a daily or weekly basis when the market behaves randomly over these short time frames, moving up and down—will thus experience more disutility on average, given that they derive greater pain from losses than pleasure from the same magnitude of gains.

Economic Dignity
by Gene Sperling
Published 14 Sep 2020

Kathryn Schulz, “The Many Lives of Pauli Murray,” New Yorker, April 10, 2017, https://www.newyorker.com/magazine/2017/04/17/the-many-lives-of-pauli-murray. 2. Pauli Murray, “An American Credo,” Common Ground 5, no. 2 (December 1945): 22–24. CHAPTER ONE: ECONOMIC METRICS AND INVISIBILITY 1. See Richard H. Thaler, “Mental Accounting Matters,” Journal of Behavioral Decision Making 12, no. 3 (1999): 183–206, https://doi.org/10.1002/(sici)1099-0771(199909)12:3<183::aid-bdm318>3.0.co;2-f) [inactive]; and Richard H. Thaler, “Behavioral Economics: Past, Present and Future,” SSRN Electronic Journal, May 27, 2016, https://doi.org/10.2139/ssrn.2790606. 2. “Robert F. Kennedy, Remarks at the University of Kansas, March 18, 1968,” JFK Library, accessed November 4, 2019, https://www.jfklibrary.org/learn/about-jfk/the-kennedy-family/robert-f-kennedy/robert-f-kennedy-speeches/remarks-at-the-university-of-kansas-march-18-1968. 3.

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Indeed, any economic metric that cannot tell us whether the great majority of people are seeing their lives enhanced cannot be a rational or humane end goal for economic policy. The only logical end goal for economic policy in a democracy is that which lifts up what matters most in the lives of the people that policy is supposed to serve. Economics, by the people, of the people, and for the people. Nobel Prize–winning economist Richard Thaler has said that a mistake in many human activities is to focus more on what can be measured than on what is most important.1 Consider your own life. For many of us, finding a loving, supportive life partner and the happiness of our children are the highest values—even if those values are incalculable and can never be measured with precision.

In Pursuit of the Perfect Portfolio: The Stories, Voices, and Key Insights of the Pioneers Who Shaped the Way We Invest
by Andrew W. Lo and Stephen R. Foerster
Published 16 Aug 2021

New York: Crown Business. ________. 2014. Stocks for the Long Run: The Definitive Guide to Financial Market Returns & Long-Term Investment Strategies. 5th ed. New York: McGraw-Hill Education. ________. 2016. “The Shiller CAPE Ratio: A New Look.” Financial Analysts Journal 72, no. 3: 41–50. Siegel, Jeremy J., and Richard H. Thaler. 1997. “Anomalies: The Equity Premium Puzzle.” Journal of Economic Perspectives 11, no. 1: 191–200. Slater, Robert. 1997. John Bogle and the Vanguard Experiment: One Man’s Quest to Transform the Mutual Fund Industry. Chicago: Richard D. Irwin. Smith, Adam. 2008. “Myron S. Scholes—Interview.”

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For example, despite Shiller’s 1996 warning to Alan Greenspan about bubbles that led to Greenspan’s famous “irrational exuberance” speech, stock market prices in March 2003, which most people would argue was after the crash of the supposed bubble, were still above those in December 1996.60 Besides these verbal sparring matches with Shiller, Fama has also had well-known debates with his Chicago colleague, the behavioral economist Richard Thaler, 2017 winner of the Nobel Prize in Economics whom Fama personally helped to hire. While Fama feels that behavioral economists haven’t really established anything in over twenty years of research, Thaler once quipped that Fama “is the only guy on earth who doesn’t think there was a bubble in Nasdaq in 2000.”61 Fama recently described their relationship.

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Using the profit forecasts of the top 20 percent of the most optimistic forecasters, he calculated that the valuation of equities was two to three times greater than those using the forecasts of the most pessimistic 20 percent. Given this variation, he concluded that it was possible that a shift in sentiment between the most optimistic forecasters and the most pessimistic was a key factor in the 1987 crash. Several years later, Siegel returned to investigating the equity premium with the future Nobel laureate Richard Thaler.27 They investigated the empirical results of previous studies that tried to explain the equity premium (including Siegel’s 1992 articles) and commented on the extent to which those papers solved the puzzle. Siegel’s earlier article suggested that a longer time period was warranted when calculating the equity premium.

The World Beyond Your Head: On Becoming an Individual in an Age of Distraction
by Matthew B. Crawford
Published 29 Mar 2015

There are, then, three time scales that matter for the question of how we come to be what we are: Darwinian evolution, the history of a civilization, and the life course of an individual. This is perhaps obvious, once stated. But it puts limits, which would seem to be fatal, on the explanatory power of evolutionary psychology—that is, on the attempt to explain human behavior as the product of adaptive pressures we faced on the savannahs in the Pleistocene epoch. 5. Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (New Haven: Yale University Press, 2008). 6. And, who knows, maybe this is to be preferred. The Protestant is a somewhat cramped human type. One might prefer to spend the evening with someone nudged into saving money (enough so he can pay for the meal), but who doesn’t have the deeply internalized ethic of thrift, which easily shades into miserliness. 7.

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In general, we are terrible at estimating probabilities. We are not so much rational optimizers as creatures who rely on biases and crude heuristics for making important decisions. In Nudge, Cass Sunstein, the former head of the Office of Information and Regulatory Affairs under President Obama, and the economist Richard Thaler argue for a mode of social engineering that takes account of these psychological facts.5 For starters, we’re a lot lazier than the rational optimizer view would have it. That is, to make everything a matter for reflection and explicit evaluation goes against the grain of how human beings normally operate.

The Economists' Hour: How the False Prophets of Free Markets Fractured Our Society
by Binyamin Appelbaum
Published 4 Sep 2019

Amartya Sen, Development as Freedom (New York: Knopf, 1999), 14. 39. Frank H. Knight, Selected Essays by Frank H. Knight, vol. 2, Laissez Faire: Pro and Con, ed. Ross B. Emmett (Chicago: University of Chicago Press, 1999), 14. 40. Samuel Brittan, “The Economic Contradictions of Democracy,” British Journal of Political Science 5, no. 2 (1975): 129–59. 41. Richard H. Thaler, “Anomalies: The Ultimatum Game,” Journal of Economic Perspectives 2, no. 4 (1988): 195–206. 42. Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962), 24. Index Abe, Shinzō, ref1 African Americans, ref1, ref2, ref3 airline industry: competition of, ref1, ref2, ref3, ref4, ref5, ref6, ref7; deregulation of, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9, ref10; economic regulation of, ref1, ref2, ref3, ref4, ref5, ref6 Alchian, Armen, ref1, ref2, ref3 Alesina, Alberto, ref1, ref2 Alessandri, Jorge, ref1, ref2 Alexis, Marcus, ref1 Allende, Salvador, ref1, ref2, ref3, ref4 American Economic Association, ref1, ref2, ref3, ref4, ref5, ref6 American Enterprise Institute, ref1, ref2, ref3, ref4, ref5 Anderson, John, ref1, ref2 Anderson, Martin: and Arthur Burns, ref1; and Milton Friedman, ref1, ref2; and Richard Nixon, ref1, ref2, ref3; and Ronald Reagan, ref1, ref2, ref3, ref4 Angermueller, Hans H., ref1 antitrust regulation: Robert Bork on, ref1, ref2, ref3, ref4; and Jimmy Carter, ref1, ref2; and corporations, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9, ref10; and efficiency, ref1, ref2, ref3, ref4, ref5; and Barack Obama, ref1; George Stigler on, ref1, ref2, ref3, ref4, ref5, ref6; and U.S.

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(B) You get £5 per week, but some people get £6 per week. Eighty percent of respondents picked the first option, forgoing £1 per week because other people would get more.40 “Homo economicus is usually assumed to care about wealth more than such issues as fairness and justice,” says the behavioral economist Richard Thaler. “The research on ultimatum games belies such easy characterizations.”41 Sometimes, the right answer is to do without a market. Congressional committees reserve at least a few seats at every hearing for the general public. The first people in line, however, generally have no interest in attending the hearing.

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Thomas Schelling, “The Life You Save May Be Your Own,” in Problems in Public Expenditure Analysis, ed. Samuel B. Chase Jr. (Washington, D.C.: Brookings Institution, 1966). 42. The early estimators included Robert Smith, an economist at Cornell; W. Kip Viscusi, a graduate student at Harvard; and Richard Thaler, a graduate student at the University of Rochester. Thaler’s father, an actuary, provided him with data on occupational mortality rates, which Thaler combined with wage data to analyze what workers were paid to take larger risks. His conclusion, published in his 1974 doctoral thesis, was that workers valued their own lives at about $200,000.

The Joys of Compounding: The Passionate Pursuit of Lifelong Learning, Revised and Updated
by Gautam Baid
Published 1 Jun 2020

Charlie Munger, “The Psychology of Human Misjudgment by Charles T. Munger,” Harrison Barnes, January 17, 2015, https://www.hb.org/the-psychology-of-human-misjudgment-by-charles-t-munger/#07. 7. Thinkmentalmodels.com, “Deprival Syndrome—The Takeaway,” accessed December 10,2019, http://www.thinkmentalmodels.com/page66/page89/page89.html. 8. Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness, rev. ed. (New York: Penguin, 2009). 9. Bill Gates, “This Animal Kills More People in a Day Than Sharks Do in a Century,” GatesNotes, April 23, 2018, https://www.gatesnotes.com/Health/Mosquito-Week-2018. 10.

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Instead of looking at overall portfolio performance, we try to gain from every single stock. This narrow framing is known as the disposition effect, and it results in selling winners and holding on to losers. As Peter Lynch puts it, this is the equivalent of “cutting the flowers and watering the weeds.” Richard Thaler and Cass Sunstein take the idea of aversion to loss one step further.8 They explain that investors also suffer from myopic loss aversion; the more often we evaluate our portfolios, the more likely we are to see losses. And the more often we see losses, the more often we experience loss aversion, which then becomes a vicious cycle.

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Thornton Oglove, Howard Schilit, and Charles Mulford educated me on how to assess the quality of reported earnings. Stephen Penman and Baruch Lev taught me the finer nuances of interpreting accounting information from the vantage point of a business analyst and a value investor. Daniel Kahneman, Amos Tversky, Richard Thaler, Dan Ariely, and James Montier educated me on the various cognitive biases. Herbert Simon enlightened me on bounded rationality, that is, the cognitive limitations of our minds. Fred Schwed made me aware of the inherent conflicts of interest in the investment industry. Robert Cialdini made me aware of the various psychological tactics used by compliance practitioners.

Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty
by Abhijit Banerjee and Esther Duflo
Published 25 Apr 2011

Clemens, “Herd Immunity Conferred by Killed Oral Cholera Vaccines in Bangladesh: A Reanalysis,” Lancet 366 (2005): 44–49. 37 The psychological research has found its way in economics thanks to researchers such as Dick Thaler from the University of Chicago, George Lowenstein from Carnegie-Mellon, Matthew Rabin from Berkeley, David Laibson from Harvard, and others, whose work we cite here. 38 Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (New York: Penguin, 2008). 39 See a comparative cost-effectiveness analysis on the Web site of the Abdul Latif Jameel Poverty Action Lab, available at http://www.povertyactionlab.org/policy-lessons/health/child-diarrhea. 40 Abhijit Banerjee, Esther Duflo, and Rachel Glennerster, “Is Decentralized Iron Fortification a Feasible Option to Fight Anemia Among the Poorest?”

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Fines or incentives can push individuals to take some action that they themselves consider desirable but perpetually postpone taking. More generally, time inconsistency is a strong argument for making it as easy as possible for people to do the “right” thing, while, perhaps, leaving them the freedom to opt out. In their best-selling book Nudge: Improving Decisions About Health, Wealth, and Happiness, Richard Thaler and Cass Sunstein, an economist and a law scholar from the University of Chicago, recommend a number of interventions to do just this.38 An important idea is that of default option: The government (or a well-meaning NGO) should make the option that it thinks is the best for most people the default choice, so that people will need to actively move away from it if they want to.

Inside the Nudge Unit: How Small Changes Can Make a Big Difference
by David Halpern
Published 26 Aug 2015

This first-hand account should be of interest to anyone curious about finding new ways to solve problems in any domain, from the public sector to the private sector to our own lives. As you read the pages that follow, my only request is the one that I write every time someone asks me to sign a copy of Nudge. ‘Nudge for good.’ Please. Richard Thaler, July 2015 PREFACE IT IS TWENTY months into the new government, elected in 2010. The Cabinet Secretary, Britain’s most senior civil servant, has gathered together the heads of the government departments. Between them, they are responsible for the collection and spending of more than half a trillion pounds and employ more than five million public sector workers.

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Similarly, it is not difficult to conclude that our brains weren’t made for the day-to-day financial judgements that are the foundation of modern economies: from mortgages, to pensions, to the best buy in a supermarket. Yet classic economic and regulatory models are themselves based on mental shortcuts, or naive models of humanity that do not ring true. They’re like ill-fitting suits, because the model on which they are based is a simplistic mental mannequin. In their book Nudge, Richard Thaler and Cass Sunstein describe these simplified creatures as ‘econs’. These econs consider and weigh up all the options, coolly and accurately, like the Vulcan Mr Spock from Star Trek, or the legendary Deep Blue that finally defeated the great chess champion Garry Kasparov (or at least how people think it ‘thought’).

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A ‘nudge’ is essentially a means of encouraging or guiding behaviour, but without mandating or instructing, and ideally without the need for heavy financial incentives or sanctions. We know what it means in everyday life: it’s a gentle hint; a suggestion; a conspicuous glance at a heap of clothes that we’re hoping our kids or our partner might clear away. It stands in marked contrast to an obligation; a strict requirement; or the use of force. For Cass Sunstein and Richard Thaler, originators of the term ‘nudge’, a key element is that it avoids shutting down choices, unlike a law or formal requirement. But, as we shall see, a ‘nudge’ is a subset of a wider, more empirical and behaviourally focused approach to policymaking. Consider how a law actually works. A parliament or executive passes a resolution that says that henceforth there will be a new requirement on people or businesses to do something in a particular way (or not to do something).

How Markets Fail: The Logic of Economic Calamities
by John Cassidy
Published 10 Nov 2009

.”: Tversky and Kahneman, “Judgement under Uncertainty,” 1126. 197 Likelihood of getting killed in a terrorist attack: See N. Wilson and G. Thomson, “Deaths from International Terrorism Compared with Road Crash Deaths in OECD Countries,” Injury Prevention 11 (2005): 332–33. 197 “Payoffs for accuracy . . .”: Tversky and Kahneman, “Judgment under Uncertainty,” 1128. 198 Thaler’s mental shortcuts: See Richard H. Thaler, Winner’s Curse: Paradoxes and Anomalies of Economic Life (Princeton, N.J.: Princeton University Press, 1992). 198 “inspired a new generation . . .”: Nobel Prize press release, October 9, 2002, available at http://nobelprize.org/nobel_prizes/economics/laureates/2002/press.html. 199 “[T]he average individual bidder/manager . . .”: Richard Roll, “The Hubris Hypothesis of Corporate Takeovers,” part 1, Journal of Business 59, no. 2 (1986): 199–200. 199 “Disaster Myopia in International Banking”: Described in James M.

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In the aftermath of the latest Columbine-style mass shooting, supporters of gun control invariably say, “I told you so,” but so do supporters of maintaining an armed citizenry. In 1977–1978, Kahneman and Tversky spent the academic year at Stanford, where they became friends and collaborators with Richard Thaler, a young economist who had done his Ph.D. at Rochester, a bastion of mathematical orthodoxy. During his graduate training, Thaler had developed a list of anecdotes that seemed to contradict the theory he’d been taught, such as people’s reluctance to part with minor possessions—mugs, pens, those sorts of things—and their tendency to divide their expenditures into separate mental accounts (one for leisure, another for rent, and so on).

Science Fictions: How Fraud, Bias, Negligence, and Hype Undermine the Search for Truth
by Stuart Ritchie
Published 20 Jul 2020

The soup bowl paper is: Brian Wansink and Matthew M. Cheney, ‘Super Bowls: Serving Bowl Size and Food Consumption’, JAMA 293, no. 14 (13 April 2005): pp. 1727–28; https://doi.org/10.1001/jama.293.14.1727. It was featured and described as ‘another Wansink … masterpiece’ in Richard Thaler and Cass Sunstein’s influential 2008 book Nudge. Sunstein has since won a real Nobel Prize for economics. Richard H. Thaler & Cass R. Sunstein, Nudge: Improving Decisions about Health, Wealth and Happiness (New Haven: Yale University Press, 2008): p. 43. 45.  Portion-size research: Wansink & Cheney, ‘Super Bowls’. Shopping when hungry: Aner Tal & Brian Wansink, ‘Fattening Fasting: Hungry Grocery Shoppers Buy More Calories, Not More Food’, JAMA Internal Medicine 173, no. 12 (June 24, 2013): 1146–48; https://doi.org/10.1001/jamainternmed.2013.650.

Vulture Capitalism: Corporate Crimes, Backdoor Bailouts, and the Death of Freedom
by Grace Blakeley
Published 11 Mar 2024

“This line of demarcation [between the state and civil society] shapes how other actors on the political scene orient their actions towards the ‘state,’ acting as if it existed. And struggles over dominant or hegemonic political and state imaginaries can be decisive in shaping the nature, purposes and stakes of government.” Jessop, The State. 106. Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness (New Haven, CT: Yale University Press, 2008). 107. Patrick Wintour, “David Cameron’s ‘Nudge Unit’ Aims to Improve Economic Behaviour,” The Guardian, September 9, 2010, https://www.theguardian.com/society/2010/sep/09/cameron-nudge-unit-economic-behaviour. 108. “ ‘Nudge Unit’ Sold off to Charity and Employees,” BBC News, February 5, 2014, https://www.bbc.co.uk/news/uk-politics-26030205. 109.

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The very way we think about the system in which we live helps to ensure that that system can reproduce itself.105 In fact, successive neoliberal thinkers have actually told us that shaping certain kinds of subjects was their aim: from Thatcher stating that “economics are the method: the object is to change the soul,” to von Mises’s claim that markets should “submit the individual to a harsh social pressure.” In the next section, we’ll see the various and subtle ways in which neoliberal governments seek to plan without the appearance of planning—from nudging their subjects into adopting the “right” behaviors to influencing the way we think about state power. Nudged over the Edge In 2008, Richard Thaler and Cass Sunstein published Nudge: Improving Decisions About Health, Wealth, and Happiness, which rapidly became the most famous text in the field of behavioral economics.106 The question the authors wanted to answer was “Why do people sometimes behave so irrationally?” Even those who want to live long, healthy lives drink, smoke, and eat unhealthily despite knowing that doing so is going to harm them over the long run.

The Behavioral Investor
by Daniel Crosby
Published 15 Feb 2018

Being a behavioral investor is less about adhering to some textbook notion of rationality and more about understanding and bending the idiosyncrasies of human nature to our advantage. Consider the work of Nobel Prize winner Richard Thaler who first discovered and named what we now refer to as “mental accounting,” the tendency to separate money into different buckets and spend or save it differently depending on how it is labeled. Studies have shown that people are apt to save money labeled as a rebate but to spend money labeled as a bonus. Barack Obama and his advisors, Richard Thaler among them, used framing to position the stimulus given out after the Great Recession as a bonus to incent recipients to buy big screen TVs rather than hoard it.

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After all, how can you fight a monster that you can’t see? In many cases, our universe of behavioral risk is generated from studies of investor misbehavior. As Daniel Kahneman says in The Undoing Project, “How do you understand memory? You don’t study memory. You study forgetting.” Misbehaving, Richard Thaler’s incredible origin story of the field of behavioral economics, recounts the simple but effective way that he set the discipline on its current course. Incredulous about what he was learning about efficient markets, Thaler set out to brainstorm all of the real-life ways in which the people he knew differed from the “Econs” (i.e., fictional individuals who optimize utility and always make rational financial decisions) he was learning about in his theory courses.

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According the Sales Benchmark Index, 60% of qualified leads culminate in a “no action,” meaning that the potential customer just didn’t make a choice. Retirement savers, tasked with the all-important mission of preparing a financial future, tend to just opt for whatever the company’s default choice is, a tendency deftly turned to investor advantage by Richard Thaler and colleagues.78 Yes, conservatism is everywhere. Psychological and neurological processes help account for its ubiquity. A study conducted at University College London examined neural pathways involved in status quo bias and found that the more difficult the decision we face, the more likely we are not to act.

A Mathematician Plays the Stock Market
by John Allen Paulos
Published 1 Jan 2003

“Uncertainty,” he would say, “is the only certainty there is, and knowing how to live with insecurity is the only security.” 1 Anticipating Others’ Anticipations It was early 2000, the market was booming, and my investments in various index funds were doing well but not generating much excitement. Why investments should generate excitement is another issue, but it seemed that many people were genuinely enjoying the active management of their portfolios. So when I received a small and totally unexpected chunk of money, I placed it into what Richard Thaler, a behavioral economist I’ll return to later, calls a separate mental account. I considered it, in effect, “mad money.” Nothing distinguished the money from other assets of mine except this private designation, but being so classified made my modest windfall more vulnerable to whim. In this case it entrained a series of ill-fated investment decisions that, even now, are excruciating to recall.

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Amos Tversky and Daniel Kahneman are the founders of this relatively new field of study, many of whose early results are reported upon in the classic book Judgment Under Uncertainty , edited by them and Paul Slovic. (Kahneman was awarded the 2002 Nobel Prize in economics, and Tversky almost certainly would have shared it had he not died.) Others who have contributed to the field include Thomas Gilovich, Robin Dawes, J. L. Knetschin, and Baruch Fischhoff. Economist Richard Thaler (mentioned in the first chapter) is one of the leaders in applying these emerging insights to economics and finance, and his book The Winner’s Curse, as well as Gilovich’s How We Know What Isn’t So, are very useful compendiums of recent results. What makes these results particularly intriguing is the way they illuminate the tactics used, whether consciously or not, by people in everyday life.

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It’s something of a truism that the attempt to cover up a scandal often leads to a much worse scandal. Although most people know this, attempts to cover up are still common, presumably because, here too, people are much more willing to take risks to avoid losses than they are to obtain gains. Another chink in our cognitive apparatus is Richard Thaler’s notion of “mental accounts,” mentioned in the last chapter. “The Legend of the Man in the Green Bathrobe” illustrates this notion compellingly. It is a rather long shaggy dog story, but the gist is that a newlywed on his honeymoon in Las Vegas wakes up in bed and sees a $5 chip left on the dresser.

Good Economics for Hard Times: Better Answers to Our Biggest Problems
by Abhijit V. Banerjee and Esther Duflo
Published 12 Nov 2019

Vance, Hillbilly Elegy: A Memoir of a Family and Culture in Crisis (New York: Harper, 2016). 50 Dan Ariely, George Loewenstein, and Drazen Prelec, “’Coherent Arbitrariness’: Stable Demand Curves without Stable Preferences,”Quarterly Journal of Economics 118, no. 1 (2003): 73–106. 51 Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler, “Experimental Tests of the Endowment Effect and the Coase Theorem,” Journal of Political Economy 98, no. 6 (1990): 1325–48. 52 Dan Ariely, George Loewenstein, and Drazen Prelec, “’Coherent Arbitrariness’: Stable Demand Curves without Stable Preferences,” Quarterly Journal of Economics 118, no. 1 (2003): 73–106. 53 Muzafer Sherif, The Robber’s Cave Experiment: Intergroup Conflict and Cooperation, (Middletown, CT: Wesleyan University Press, 1998). 54 Gerard Prunier, The Rwanda Crisis: History of a Genocide (New York: Columbia University Press, 1997). 55 Paul Lazarsfeld and Robert Merton, “Friendship as a Social Process: A Substantive and Methodological Analysis,” in Freedom and Control in Modern Society, eds.

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COHERENT ARBITRARINESS50 We know that people will go to great lengths to avoid evidence that would force them to revise their opinions on what they consider to be their core value system (including their opinion about other races or immigrants), because it is so related to their views of themselves. Unfortunately, it does not follow that people are particularly thoughtful about forming those initial opinions. In one of the most famous experiments in the field of behavioral economics, Daniel Kahneman and Richard Thaler chose college students randomly to receive a mug or a pen. Immediately following the gifts, they offered to buy them back from the newly endowed mug and pen owners. At the same time, they also offered those who did not get a mug or a pen the opportunity to buy what they did not get. Strikingly, the price at which the newly endowed sellers were willing to part with their mugs or pens was often two to three times greater than what those who did not have the pen or mug wanted to pay for them.51 Since who ended up with a mug or a pen was entirely random, there was absolutely no reason why the arbitrary act of being chosen to get one of them would create such a divergence in valuations.

The Acquirer's Multiple: How the Billionaire Contrarians of Deep Value Beat the Market
by Tobias E. Carlisle
Published 13 Oct 2017

Straight-Line Errors “Our statistical screens are merely exploiting a group of undervalued stocks that are easily identified and are further protected by strong balance sheets and large asset values. Additionally, because of the depressed nature and liquid make-up of the companies that meet our test criteria, they are often the object of takeover initiatives.” —Joel Greenblatt, “How The Small Investor Beats The Market” (1981) Werner De Bondt and Richard Thaler are economists who study investor behavior and stock prices. They are known as behavioral economists. In 1987, De Bondt and Thaler had an idea. Stocks get undervalued or expensive because we overreact. Mean reversion is likely. But we “extrapolate” the profit trend too far. We draw a straight line through the recent profits and assume the trend keeps going.

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They called the expensive group the expensive stocks. The chart shows the change in earnings per share for the undervalued and expensive stocks in the three years leading up to the date they’re picked. Overreaction: Profit Trend before Buying (1966–1983) Data Source: Werner F. M. De Bondt and Richard Thaler. “Further Evidence on Investor Overreaction and Stock Market Seasonality,” The Journal of Finance 42, no. 3 (1987), 557–581, doi:10.2307/2328371. It’s easy to see why the undervalued stocks were undervalued. Profits fell 30 percent in three years before they were picked. Investors expected those profits to keep falling.

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Investors expected those profits to keep falling. Expensive stocks were expensive because profits had risen 43 percent in the same three years. Investors expected the earnings to keep rising. Let’s see what happened next. Mean Reversion: Profit Trend after Buying (1966–1983) Data Source: Werner F. M. De Bondt and Richard Thaler. “Further Evidence on Investor Overreaction and Stock Market Seasonality,” The Journal of Finance 42, no. 3 (1987), 557–581, doi:10.2307/2328371. Stunning. After they were picked, the profits of the undervalued stocks went up more than expensive stocks. The undervalued stocks’ earnings rose 24 percent in the next four years.

Capital Ideas Evolving
by Peter L. Bernstein
Published 3 May 2007

Kahneman’s Nobel address defines framing as “the passive * See, in particular, Thaler (1991), which describes many examples of the failure of invariance and framing. bern_c01.qxd 8 3/23/07 8:44 AM THE Page 8 B E H AV I O R A L AT TAC K acceptance of the formulation given.” And then he adds, “Invariance cannot be achieved by a finite mind.”4  Richard Thaler of the University of Chicago, one of Kahneman’s and Tversky’s earliest and most articulate disciples, describes an amusing example of the failure of invariance involving money. Thaler proposed to students in one of his classes that they had just won $30. Now they could choose between two outcomes: a coin f lip where the individual would win $9 on heads or lose $9 on tails, or no f lip of the coin at all.

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These questions motivate the rest of this chapter.  Kahneman’s and Tversky’s work naturally attracted academics working in finance who were seeking new insights into how the capital markets work and how investors make decisions.* Among the earliest of their acolytes was a young graduate student named Richard Thaler, whose work on the house money effect we have already noted. Thaler is now among the leaders in the field of Behavioral Finance. Indeed, after teaching at Cornell and MIT, Thaler was appointed Robert P. Gwinn Professor of Behavioral Science and Economics at the Graduate School of Business of the University of Chicago in 1995, where Eugene Fama and his colleagues have had to put up with—and ultimately learn from—this energetic and iconoclastic man.

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Anson, Mark, 2005. “Institutional Portfolio Management,” The Journal of Portfolio Management, Summer, pp. 33–43. Barber, Brad M., Yi-Tsung Lee, Yu-Jane Liu, and Terrance Odean, 2006. “Just How Much Do Individual Investors Lose by Trading?” American Finance Association Annual Meetings. Benartzi, Shlomo, and Richard Thaler, 2001. “Naive Diversif ication Strategies in Retirement Savings Plans,” American Economic Review, Vol. 91, No. 57, pp. 1593–1616. Bernstein, Peter, 1992. Capital Ideas: The Remarkable Origins of Modern Wall Street, New York: Free Press. Bernstein, Peter, 1996. Against the Gods: The Remarkable Story of Risk, New York: John Wiley & Sons.

Transaction Man: The Rise of the Deal and the Decline of the American Dream
by Nicholas Lemann
Published 9 Sep 2019

Jensen, “The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems,” Journal of Finance, Volume 48, Number 3 (July 1993), 2. “a social invention of vast historical importance”: Jensen, “Eclipse of the Public Corporation,” 5. “In the course of conversation”: Richard Thaler, Misbehaving: The Making of Behavioral Economics, W. W. Norton, 2015, 51. “Keynes: Professor Jensen”: This is a passage from the original manuscript of Richard Thaler, Misbehaving, which Thaler gave to the author. It does not appear in the book. “I consent to the wishes of my wife”: Michael C. Jensen, “Toward a Theory of the Press,” in Karl Brunner, editor, Economics and Social Institutions, Martinus Nijhoff Publishing Company, 1979, 11.

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Both ideas, by positing that markets behaved imperfectly, were opening the door to a role for government in improving the way markets functioned, and this was a highly offensive idea to Jensen. The fathers of behavioral economics were two psychologists, Daniel Kahneman and Amos Tversky; their main link to economics was Richard Thaler, whose first job was as a junior faculty member at Rochester’s business school. Naturally, Jensen and Thaler quarreled constantly. Thaler eventually left for the University of Chicago’s business school, where he began to quarrel constantly with Eugene Fama. Once, Jensen invited Tversky to a conference at Rochester, out of a combination of curiosity and eagerness to argue with him.

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In just about any social encounter, such as the receptions and dinners after lectures he gave, Jensen wound up, as he liked to put it, acting like an asshole and leaving people feeling insulted. A persistent rumor among economists is that Jensen, unlike his closest colleagues (and his younger combatant, Richard Thaler), never won a Nobel Prize because the selection committee had invited him to participate in a panel discussion, as a kind of audition for his suitability for his profession’s highest honor, and he had put on his usual arrogant performance. By the end of the 1990s Jensen had been divorced twice.

Mine!: How the Hidden Rules of Ownership Control Our Lives
by Michael A. Heller and James Salzman
Published 2 Mar 2021

In recent years, engaging guides have helped us understand many of the mysteries of everyday life. If the tools of modern microeconomic analysis interest you, then look at Freakonomics, where Steven Levitt and Stephen Dubner provide a fresh perspective on everything from cheating and crime to parenting and sports. If you’re more psychologically minded, read Nudge, where Cass Sunstein and Richard Thaler show how to make better decisions for health, wealth, and happiness. Economics and psychology are great tools. They explain a lot. But they also miss a lot. Both tend to take ownership for granted, when it is anything but fixed. In the chapters that follow, we use common sayings and intuitions about what’s mine as starting points to reveal the ownership design principles that control our lives.

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Toddlers are relentless in their struggle to get ahold of what they want. These childhood battles are where humans start learning how to assert and defend our stuff, while we begin to understand and defer to others. The urge to possess goes beyond early childhood development. It’s core to adult behavior, too. Nobel Prize–winning economists Daniel Kahneman and Richard Thaler showed how the power of “I’m holding on to it” affects the value people place on ordinary items. In a now-classic experiment, they gave some students nondescript coffee mugs, then asked how much cash they wanted in exchange for giving them up; they gave others cash and asked how much they would pay to acquire an identical mug.

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If they don’t like that choice, drivers may opt out when they renew their licenses. With a no-donation baseline, relatively few opt in. (In Chapter 5, we explore additional solutions for organ shortages based in self-ownership.) These behavioral asymmetries around ownership baselines and opt-in versus opt-out rules are the engine that drive what Cass Sunstein and Richard Thaler have called the “nudge” lever in policy making. The conflict between individual self-ownership and industry labor arises every day—it’s not just genes. Our phones help marketers (and law enforcement) compile databases of our every location; omnipresent cameras feed facial recognition databases; most valuable of all, our every online move creates a clickstream of trackable data.

Skin in the Game: Hidden Asymmetries in Daily Life
by Nassim Nicholas Taleb
Published 20 Feb 2018

SCIENCE AND SCIENTISM Indeed, one can see that these academico-bureaucrats who feel entitled to run our lives aren’t even rigorous, whether in medical statistics or policymaking. They can’t tell science from scientism—in fact in their eyes scientism looks more scientific than real science. For instance, it is trivial to show the following: much of what the Cass Sunstein and Richard Thaler types—those who want to “nudge” us into some behavior—much of what they would classify as “rational” or “irrational” (or some such categories indicating deviation from a desired or prescribed protocol) comes from their misunderstanding of probability theory and cosmetic use of first-order models.

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Whether it is superstition or something else, some deep scientific understanding of probability that is stopping you, it doesn’t matter, so long as you don’t sleep under dead trees. And if you dream of making people use probability in order to make decisions, I have some news: more than ninety percent of psychologists dealing with decision making (which includes such regulators and researchers as Cass Sunstein and Richard Thaler) have no clue about probability, and try to disrupt our efficient organic paranoias. FIGURE 4. The classical “large world vs small world” problem. Science is currently too incomplete to provide all answers—and says it itself. We have been so much under assault by vendors using “science” to sell products that many people, in their mind, confuse science and scientism.

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In practice, it is done by threshold, for ease of execution, not complicated rules: you start betting aggressively whenever you have a profit, never when you have a deficit, as if a switch was turned on or off. This method is practiced by probably every single trader who has survived. Now it happens that this dynamic strategy is deemed out of line by behavioral finance econophasters such as the scarily interventionist Richard Thaler, who, very ignorant of probability, calls this “mental accounting”fn2 a mistake (and, of course, invites government to “nudge” us away from it, and prevent strategies from being ergodic).fn3 I believe that risk aversion does not exist: what we observe is, simply, a residual of ergodicity. People are, simply, trying to avoid financial suicide and take a certain attitude to tail risks.

Hooked: How to Build Habit-Forming Products
by Nir Eyal
Published 26 Dec 2013

Damien Brevers and Xavier Noël, “Pathological Gambling and the Loss of Willpower: A Neurocognitive Perspective,” Socioaffective Neuroscience & Psychology 3, no. 2 (Sept. 2013), doi:10.3402/snp.v3i0.21592. 13. Paul Graham, “The Acceleration of Addictiveness,” (accessed Nov. 12, 2013), http://www.paulgraham.com/addiction.html. 14. Night of the Living Dead, IMDb, (accessed June 25, 2014), http://www.imdb.com/title/tt0063350. 15. Richard H. Thaler, Cass R. Sunstein, and John P. Balz, “Choice Architecture” (SSRN Scholarly Paper, Rochester, NY), Social Science Research Network (April 2, 2010), http://papers.ssrn.com/abstract=1583509. Chapter 1: The Habit Zone 1. Wendy Wood, Jeffrey M. Quinn, and Deborah A. Kashy, “Habits in Everyday Life: Thought, Emotion, and Action,” Journal of Personality and Social Psychology 83, no. 6 (Dec. 2002): 1281–97. 2.

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Kara Swisher and Liz Gannes, “Pinterest Does Another Massive Funding—$225 Million at $3.8 Billion Valuation (Confirmed),” All Things Digital (accessed Nov. 13, 2013), http://allthingsd.com/20131023/pinterest-does-another-massive-funding-225-million-at-3-8-billion-valuation/. Chapter 6: What Are You Going to Do with This? 1. For further thoughts on the morality of designing behavior, see: Richard H. Thaler, Cass R. Sunstein, and John P. Balz, “Choice Architecture” (SSRN Scholarly Paper, Rochester, New York), Social Science Research Network, (April 2, 2010), http://papers.ssrn.com/abstract=1583509. 2. Charlie White, “Survey: Cellphones vs. Sex—Which Wins?,” Mashable (accessed), http://mashable.com/2011/08/03/telenav-cellphone-infographic. 3.

Liars and Outliers: How Security Holds Society Together
by Bruce Schneier
Published 14 Feb 2012

Richerson, and Robert Boyd (1995), “Can Group Functional Behaviors Evolve by Cultural Group Selection?” Current Anthropology, 36:473–94. Chapter 4 Robert Sapolsky Robert Sapolsky (2003), “A Bozo of a Baboon: A Talk with Robert Sapolsky,” Edge. Matt Ridley Matt Ridley (1993), The Red Queen: Sex and the Evolution of Human Nature, HarperCollins Publishers, 9–10. hyperbolic discounting Richard H. Thaler (1981), “Some Empirical Evidence on Dynamic Inconsistency,” Economics Letters, 8:201–7. Shane Frederick, George Loewenstein, and Ted O'Donoghue (2002), “Time Discounting and Time Preference: A Critical Review,” Journal of Economic Literature, 40:351–401. Francis Fukuyama Francis Fukuyama (1995), Trust: The Social Virtues and the Creation of Prosperity, Simon & Schuster, 27–8.

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Joseph Henrich, Richard McElreath, Abigail Barr, Jean Ensminger Clark Barrett, Alexander Bolyanatz, Juan Camilo Cardenas, Michael Gurven, Edwins Gwako, Natalie Henrich, Carolyn Lesorogol, Frank Marlowe, David Tracer, and John Ziker (2006), “Costly Punishment Across Human Societies,” Science, 312:1767–70. large amounts of money Juan Camilo Cardenas and Jeffrey P. Carpenter (2005), “Experiments and Economic Development: Lessons from Field Labs in the Developing World,” Middlebury College Economics Discussion Paper No. 0505. more lopsided Daniel Kahneman, John L. Knetsch, and Richard H. Thaler (1986), “Fairness and the Assumptions of Economics,” Journal of Business, 59:S285–S300. Christoph Engel (2011), “Dictator Games: A Meta Study,” Experimental Economics, 14:584–610. Trust game Joyce Berg, John Dickhaut, and Kevin McCabe (1995), “Trust, Reciprocity, and Social History,” Games & Economic Behavior, 10:122–42.

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not what happens Colin Cramer (2003), Behavioral Game Theory: Experiments in Strategic Interaction, Russell Sage Foundation. Public Goods game John O. Ledyard (1995), “Public Goods: A Survey of Experimental Research,” in Alvin E. Roth and John H. Kagel, eds., Handbook of Experimental Economics, Princeton University Press. fear of rejection Daniel Kahneman, John L. Knetsch, and Richard H Thaler (1986), “Fairness and the Assumptions of Economics,” Journal of Business, 59:S285–S300. Joseph Henrich, Robert Boyd, Samuel Bowles, Colin Camerer, Ernst Fehr, Herbert Gintis, Richard McElreath, Michael Alvard, Abigail Barr, Jean Ensminger, Kim Hill, Francisco Gil-White, Michael Gurven, Frank Marlowe, John Q.

Success and Luck: Good Fortune and the Myth of Meritocracy
by Robert H. Frank
Published 31 Mar 2016

Michael Mauboussin, The Success Equation, Cambridge, MA: Harvard Business Review Press, 2012. 2. Much of this research is elegantly summarized in Daniel Kahneman, Thinking Fast and Slow, New York: Farrar, Strauss, and Giroux, 2011. For an extremely readable account of how this work became important to economists, see Richard H. Thaler, Misbehaving, New York: W. W. Norton, 2015. 3. P. Cross, “Not Can but Will College Teachers Be Improved?,” New Directions for Higher Education 17 (1977): 1–15. 4. Ezra W. Zuckerman and John T. Jost, “What Makes You Think You’re So Popular? Self Evaluation Maintenance and the Subjective Side of the ‘Friendship Paradox,’ ” Social Psychology Quarterly 64.3 (2001): 207–23. 5.

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Chunliang Feng, Yi Luo, Ruolei Gu, Lucas S Broster, Xueyi Shen, Tengxiang Tian, Yue-Jia Luo, Frank Krueger, “The Flexible Fairness: Equality, Earned Entitlement, and Self-Interest,” PLOS ONE 8.9 (September 2013), http://www.plosone.org/article/info%3Adoi%2F10.1371%2Fjournal.pone.0073106. 7. Mechanical Turk, https://www.mturk.com/mturk/welcome. 8. John Locke, Second Treatise on Civil Government, 1689, chap. 5, section 27, http://www.constitution.org/jl/2ndtr05.htm. 9. Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler, “Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias,” Journal of Economic Perspectives 5.1 (1991): 193–206. 10. Liam Murphy and Thomas Nagel, The Myth of Ownership, New York: Oxford University Press, 2001. 11. David DeSteno, Monica Y. Bartlett, Jolie Baumann, Lisa A. Williams, and Leah Dickens, “Gratitude as Moral Sentiment: Emotion-Guided Cooperation in Economic Exchange,” Emotion 10.2 (2010): 289–93. 12.

The Wisdom of Crowds
by James Surowiecki
Published 1 Jan 2004

It turns out that if people have to take action to opt out of a retirement plan rather than having to take action to opt in, they are significantly more likely to stay in the plan and therefore significantly more likely to save. Inertia is a powerful tool. Similarly, if people are offered the chance to set aside part of their future income, they’re far more likely to do so than they are to set aside current income. So, the economists Richard H. Thaler and Shlomo Benartzi set up a retirement plan at a company where workers could adopt different savings rates for present and future income. Not surprisingly, the workers adopted much higher rates for income that was months in the future, and within a short time, they had doubled their average savings rate.

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Evidence from the Professional Basketball Betting Market,” Journal of Finance 48 (1993): 1193–209. Evidence for the NFL market’s late-season inefficiency can be found in Richard Borghesi, “Price Predictability: Insight from the NFL Point-Spread Market” (2003), www.cba.ufl.edu/fire/phdstudents/papers/borghesi%20price%20predictability.pdf. The long-shot bias is documented in Richard H. Thaler and William T. Ziemba, “Parimutuel Betting Markets: Racetracks and Lotteries,” Journal of Economic Perspectives 2 (1988): 161–74. Lawrence Page, Sergey Brin, Rajeev Motwani, and Terry Winograd, “The PageRank Citation Ranking: Bringing Order to the Web” (1998), http://dbpubs.stanford.edu/pub/1999-66.

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And a mountain of evidence and intelligent analysis is marshaled in support of the proposition that investor psychology matters in Kent Daniel, David Hirshleifer, and Siew Hong Teoh, “Investor Psychology in Capital Markets: Evidence and Policy Implications,” Journal of Monetary Economics 49 (2002): 139–209. Karim Jamal and Shyam Sunder, “Bayesian Equilibrium in Double Auctions Populated by Biased Heuristic Traders,” Journal of Economic Behavior and Organization 31 (1996): 273–91. See also Richard H. Thaler, “The End of Behavioral Finance,” Financial Analysts’ Journal (November–December 1999): 12–17; and Daniel Kahneman, Paul Slovic, and Amos Tversky, Judgement Under Uncertainty: Heuristics and Biases (New York: Cambridge University Press, 1982), which is the jumping-off point for much of the work in behavioral finance.

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing
by Burton G. Malkiel
Published 10 Jan 2011

Corporations that frame their 401(k) savings plans with an automatic enrollment feature (where a conscious decision must be made to fill out an “opt out” declaration) have far higher participation rates than do plans where employees must actively “opt in” to the plan. Another brilliant enticement has been developed by the economists Richard Thaler and Shlomo Benartzi. Some employees will decline to save even with plans that have automatic enrollment because they can barely make ends meet with their current salary. The essence of the Thaler-Benartzi “Save More Tomorrow” plan is to have employees commit in advance to allocate a portion of any salary increases toward retirement savings.

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Indeed, the new mantra in the academic community is that the stock market is at least partially predictable. One of the brightest of the new wave of financial economists, Andrew Lo (with A. Craig MacKinlay) of the Massachusetts Institute of Technology, published a book in the late 1990s entitled A Non-Random Walk Down Wall Street. And behavioralists such as Richard Thaler have suggested that some predictable patterns can be used by savvy investors to implement successful investment strategies that can beat the market. That’s what this chapter is about: the attempts to show that the market, as demonstrated above, is not efficient and that there is no such thing as a profitable random walk through it.

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As one wag put it, “The January Effect sometimes occurs on the previous Thanksgiving week.” Similarly, suppose there is a general tendency for stock prices to underreact to certain new events, leading to abnormal returns to investors who exploit the lack of full immediate adjustment—a finding publicized by the behavioralists Werner De Bondt and Richard Thaler and the researchers John Campbell, Andrew M. Lo, and A. Craig MacKinlay. “Quantitative” investment managers will then develop strategies in an attempt to exploit the pattern. Indeed, the more potentially profitable a discoverable pattern is, the less likely it is to survive. Moreover, many of these predictable patterns may simply be the results of data mining.

The Undoing Project: A Friendship That Changed Our Minds
by Michael Lewis
Published 6 Dec 2016

It’s like a movie monster that’s meant to have been killed but is somehow always alive for the final act. And so, once the dust had settled on the responses to my book, one of them remained more alive and relevant than the others: a review by a pair of academics, then both at the University of Chicago—an economist named Richard Thaler and a law professor named Cass Sunstein. Thaler and Sunstein’s piece, which appeared on August 31, 2003, in the New Republic, managed to be at once both generous and damning. The reviewers agreed that it was interesting that any market for professional athletes might be so screwed-up that a poor team like the Oakland A’s could beat most rich teams simply by exploiting the inefficiencies.

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“Somehow, the economists felt that we are right and at the same time they wished we weren’t because the replacement of utility theory by the model we outlined would cause them no end of problems.” * * * There was at least one economist who didn’t feel that way, but he wasn’t, at least when he came upon Danny and Amos’s theory, anyone’s idea of a future Nobel Prize winner. His name was Richard Thaler. In 1975, Thaler was a thirty-year-old assistant professor in the School of Management at the University of Rochester with vague prospects. It was a wonder he was even there. He had two deeply pronounced traits that rendered him unsuited not just to economics but to academic life. The first was that he was easily bored, and highly imaginative in his attempts to escape boredom.

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“Amos said, ‘You should stay in economics—we need you there.’ He already knew in 1982 that he was starting a movement. And he needed people inside economics.” The argument that Danny and Amos started would spill over into law and public policy. Psychology would use economics to enter these places and others. Richard Thaler—the first frustrated economist to stumble onto Danny and Amos’s work and pursue its consequences for economics single-mindedly—would help to create a new field, and give it the name “behavioral economics.” “Prospect Theory,” scarcely cited in the first decade after its publication, would become, by 2010, the second most cited paper in all of economics.

The Confidence Game: The Psychology of the Con and Why We Fall for It Every Time
by Maria Konnikova
Published 28 Jan 2016

But the order effect—what Russo was demonstrating—is but one of the many elements of decision architecture—how information is presented to us—that can get us to make decisions in a very precise way, and not necessarily in a way that corresponds to our stated preferences. There’s the positive side of decision architecture, the nudge, popularized by behavioral economist Richard Thaler and legal scholar Cass Sunstein in their 2008 book by the same name. The idea behind the nudge, in its positive guise, is a simple one. In many cases, our choices aren’t based on some innate preference. Instead, they are constructed at any given moment by a combination of situational factors.

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Eighty-five percent of students put themselves above the average in their ability to get along with others—a full quarter going so far as to place themselves in the top 1 percent. In 1977, a full 95 percent of the faculty of the University of Nebraska thought they were better than average at teaching; over two thirds placed themselves in the top quarter. In a survey that behavioral economist Richard Thaler performed on his own students, he found that less than 5 percent of the class expected to do below average, and over half thought they would be among the top fifth of performers. And, of course, almost all of us are better-than-average drivers, far more skillful and less risky than the next guy.

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Ann Freedman should have realized, if not immediately, then at least once the paintings just kept coming, that something wasn’t right. Because the flags. They are there. They are waving. And people aren’t blind, right? Except they absolutely are. And the more they have invested, the blinder they become. In the early 1980s, Paul Slovic and Richard Thaler were discussing the crazy things people do as they make decisions to buy and sell, invest and divest, in ways that seem completely illogical to an outside observer. Why, for instance, would a family drive sixty miles through a snowstorm to get to a basketball game they don’t even particularly want to see?

Toward Rational Exuberance: The Evolution of the Modern Stock Market
by B. Mark Smith
Published 1 Jan 2001

Also included in the list of behavioral biases is the “money illusion,” which refers to investors’ inability to adequately take inflation into account when comparing real and nominal values.5 Research has uncovered empirical evidence that behavioral biases such as these may be influencing the stock market. One of the most important studies was performed in 1985, by Werner De Bondt and Richard Thaler, using stock price data going back to 1933.6 For each year, two portfolios of stocks were constructed—one for the best performers over the preceding three years, and one for the worst performers over that period. Then the returns for the portfolios over the subsequent five years were calculated and compared.

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Recognizing that allegedly “irrational” behavior by investors is often hard to predict and therefore difficult for savvy market participants to exploit, and that many of the mispricings resulting from irrational behavior are relatively minor, Shefrin admits that investors “would be better off acting as if … markets are efficient.” To be sure, other behavioralists do believe that exploitable opportunities are created by irrational investor behavior. Some have even set up investment management firms, soliciting investors who seek to take advantage of these opportunities. (Richard Thaler, who coauthored the 1985 winners-losers study, is one such entrepreneur.) If they are successful, however, these academics turned portfolio managers will ultimately confront the same problem Benjamin Graham faced when his style of “value” investing became popular. Realizing that the actions of like-minded investors had competed away the market mispricings he had earlier exploited, Graham said in a 1976 interview shortly before he died that “I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities.

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This was a rewarding activity … but the situation has changed … I doubt whether such extensive efforts will [now] generate sufficient superior selections to justify their cost … I’m on the side of the efficient market school of thought.”1 To the extent that behavior-related mispricings can be shown to exist, behavioralist arbitrageurs like Richard Thaler will quickly compete them away. If the behavioralist critique of the efficient market theory is of little practical significance, then the notion that the stock market is subject to large, irrational bubbles is also suspect. In fact, over the course of the twentieth century, there is no real evidence of any speculative bubbles affecting the large-capitalization stocks that dominate the market.

The Choice Factory: 25 Behavioural Biases That Influence What We Buy
by Richard Shotton
Published 12 Feb 2018

Economists believe that the winner of an auction typically pays over the odds, as a result of something they call the winner’s curse. The phrase dates back to the 1950s when a spate of oil companies significantly overpaid at an auction for Alaskan drilling rights. Some paid so far over the odds that they went bust. Economists, such as Richard Thaler, investigated the problem and came up with an elegant explanation. Thaler, Professor of Behavioural Science and Economics at the University of Chicago, believes that during an auction each bidder makes a private valuation of the goods and then bids up to that amount. Due to a phenomenon known as the wisdom of the crowds, the average of all those valuations is reasonably accurate.

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, by Evan Davis, John Kay, and Jonathan Star [London Business School Review, Vol. 2, No. 3, pp. 1–23, 1991] Marketers Are from Mars, Consumers Are from New Jersey by Bob Hoffman [2015] Bias 16: The curse of knowledge Made to Stick: Why Some Ideas Survive and Others Die by Chip Heath and Dan Heath [2008] The Wiki Man by Rory Sutherland [2011] Bias 17: Goodhart’s law Long and Short of It: Balancing Short- and Long-Term Marketing Strategies by Les Binet and Peter Field [2012] Management in 10 Words by Terry Leahy [2012] Leading by Alex Ferguson and Michael Moritz [2015] Bias 18: The pratfall effect: Social Animal by Elliot Aronson [1972] The Wasp Factory by Iain Banks [1984] Bias 19: Winner’s curse The Winner’s Curse: Paradoxes and Anomalies of Economic Life by Richard Thaler [1991] Originals: How Non-Conformists Move the World by Adam Grant [2016] ‘Harnessing naturally occurring data to measure the response of spending to income’, by Michael Gelman, Shachar Kariv, Matthew Shapiro, Dan Silverman, Steven Tadelis [Science, Vol. 345, No. 6193, pp. 212–215, 2014] ‘The Psychology of Windfall Gains’, by Hal Arkes, Cynthia Joyner, Mark Pezzo, Jane Gradwohl Nash, Karen Siegel-Jacobs, Eric Stone Eric [Organizational Behaviour and Human Decision Processes, Vol. 59, No. 3, pp. 331–347, 1994] On the Fungibility of Spending and Earnings – Evidence from Rural China and Tanzania by Luc Christiaensen and Lei Pan [2012] Bias 20: The power of the group ‘Humour in Television Advertising: The Effects of Repetition and Social Setting’, by Yong Zhang and George Zinkhan [Advances In Consumer Research, Vol. 18, pp. 813–818, 1991] ‘Feeling More Together: Group Attention Intensifies Emotion’, by Garriy Shteynberg, Jacob Hirsh, Evan Apfelbaum, Jeff Larsen, Adam Galinsky, and Neal Roese [Emotion, Vol. 14, No. 6, pp. 1102–1114, 2014] Bias 21: Veblen goods ‘Commercial Features of Placebo and Therapeutic Efficacy’, by Rebecca Waber, Baba Shiv, Ziv Carmon; Dan Ariely [Journal of the American Medical Association, Vol. 299, No.9, pp. 1016–1017, 2008] Bias 22: The replicability crisis ‘Why Susie Sells Seashells by the Seashore: Implicit Egotism and Major Life Decisions’, by Brett Pelham, Matthew Mirenberg, and John Jones [Journal of Personality and Social Psychology, Vol. 82, No. 4, pp. 469–487, 2002] ‘Rich the banker?

The Panic Virus: The True Story Behind the Vaccine-Autism Controversy
by Seth Mnookin
Published 3 Jan 2012

Sunstein, “Availability Cascades and Risk Regulation,” Stanford Law Review 1999;51(4): 683–768. 196 “self-reinforcing process of collective belief formation”: Kuran and Sunstein, “Availability Cascades and Risk Regulation,” 683. 197 In the 2008 book Nudge: Cass Sunstein and Richard Thaler, Nudge (New Haven: Yale University Press, 2008). 197 “As all women”: Cass Sunstein and Richard Thaler, “Easy Does It: How to Make Lazy People Do the Right Thing,” The New Republic, April 9, 2008; available as “The Amsterdam Urinals” on Nudge, http://nudges.wordpress.com/the-amsterdam-urinals/. See also: Sunstein and Thaler, Nudge, 3–4. 197 how nonscientists viewed scientific claims: Ralph M.

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Several weeks later, the agency received an e-mail with an even more overt threat. “Forgiveness is between [the committee’s members] and God,” it read. “It is my job to arrange a meeting.” 46 Not all of Sunstein’s writing on behavioral law and economics is so academic. In the 2008 book Nudge, Sunstein and Richard Thaler write about external changes—nudges—that can influence human behavior. One of their examples stems from efforts to get men to stop peeing on the floor: “As all women who have ever shared a toilet with a man can attest, men can be especially spacey when it comes to their, er, aim. In the privacy of a home, that may be a mere annoyance.

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“Dishonest, Callous and Irresponsible: Verdict on Doctor in MMR Row; Wakefield Didn’t Care About Children’s Pain and Distress, Says GMC.” The Daily Telegraph (London), January 29, 2010, 7. Solovitch, Sara. “The Citizen Scientists.” Wired, September 2001. Stevens, William. “Despite Vaccine, Perilous Measles Won’t Go Away.” The New York Times, March 14, 1989, C1. Sunstein, Cass, and Richard Thaler. “Easy Does It: How to Make Lazy People Do the Right Thing.” The New Republic, April 9, 2008. Szabo, Liz. “Missed Vaccines Weaken ‘Herd Immunity’ in Children.” USA Today, January 6, 2010. Thompson, Tanya. “Doctor at Centre of MMR Controversy ‘Paid Children at Son’s Party GBP 5 for Blood Samples’: Supporters Gather Outside Hearing to Accuse GMC of ‘Witch Hunt.’ ” The Scotsman (Edinburgh), July 17, 2007, 6.

The Logic of Life: The Rational Economics of an Irrational World
by Tim Harford
Published 1 Jan 2008

One of the researchers: e-mail correspondence with Daniel Read, June 2007. “one of those ladies”: Interview with Thomas Schelling, November 2005. That public commitment: Dodge, The Strategist, p. 91. A more sophisticated example: Richard Thaler and Shlomo Benartzi, “Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving,” Journal of Political Economy 112, no. 1(February 2004): 164–87, part 2, gsbwww.uchicago.edu/fac/richard.thaler/research/ SMarTJPE.pdf. (Whom did the director): Interview with Thomas Schelling, November 2005. Also Dodge, The Strategist, p. 83. Paul Klemperer: Paul Klemperer, “What Really Matters in Auction Design,” Journal of Economic Perspectives 16 (2002): 169–89, www.nuff.ox.ac.uk/users/klemperer/wrm6.pdf.

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An addict, like a negotiator, may be able to gain an advantage by making binding decisions in advance. An everyday example is the dieter who shops for food over the Internet, and only after a good meal, so that he is not tempted by the sight of cakes and chips. A more sophisticated example, designed by economists Richard Thaler and Shlomo Benartzi, is a financial scheme called “Save More Tomorrow,” in which corporate employees boost their pensions by earmarking a proportion of future pay raises to go into their retirement accounts. The idea has nearly quadrupled retirement savings. In both cases, the forward-thinking person outwits the impatient or weak-willed person who inhabits the same body.

Foolproof: Why Safety Can Be Dangerous and How Danger Makes Us Safe
by Greg Ip
Published 12 Oct 2015

But in fact most people wouldn’t take that bet; they’ll take the envelope over the coin flip. So how much do we have to make the coin flip worth before they take it over the envelope? We have to offer $2,000 for flipping heads, so that the expected value is $2,000 × 50 percent = $1,000, which is twice the expected value of the envelope. 11 The economist Richard Thaler: Richard Thaler, “Toward a Positive Theory of Consumer Choice,” Journal of Economic Behavior and Organization l (1980): 3960. 12 George Loewenstein, an economist: Loewenstein described his work to me in several interviews. This experiment appears in the article by Leaf Van Boven, George Loewenstein, Edward Welch, and David Dunning, “The Illusion of Courage in Self-Predictions: Mispredicting One’s Own Behavior in Embarrassing Situations,” Journal of Behavioral Decision Making 25 (2012): 1–12. 13 Gorton took a circuitous route: Gary Gorton’s story is based on a series of interviews I conducted with him, on his extensive articles, and his book Misunderstanding Financial Crises: Why We Don’t See Them Coming (New York: Oxford University Press, 2012), a powerful and persuasive account of what causes financial panics. 14 When Gorton and two: Gary B.

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Going from middle class to rich is nice but going from middle class to destitute is horrible, and most of us would give up the first rather than risk the second. But even when our family’s welfare isn’t at stake, there’s an emotional cost associated with the unknown that affects our behavior. The economist Richard Thaler ran a series of experiments like the following. Coffee mugs were randomly distributed to half the students in a class, then all students were invited to trade so that those who value the mugs the most could buy them from those who valued them the least. On average, students demanded twice as much to sell what they already had as they would pay for something they did not yet have.

The Upside of Irrationality: The Unexpected Benefits of Defying Logic at Work and at Home
by Dan Ariely
Published 31 May 2010

Ziv Carmon and Dan Ariely, “Focusing on the Forgone: How Value Can Appear So Different to Buyers and Sellers,” Journal of Consumer Research 27, no. 3 (2000): 360–370. Daniel Kahneman, Jack Knetsch, and Richard Thaler, “Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias,” Journal of Economic Perspectives 5, no. 1 (1991): 193–206. Daniel Kahneman, Jack Knetsch, and Richard Thaler, “Experimental Tests of the Endowment Effect and the Coase Theorem,” The Journal of Political Economy 98, no. 6 (1990): 1325–1348. Jack Knetsch, “The Endowment Effect and Evidence of Nonreversible Indifference Curves,” The American Economic Review 79, no. 5 (1989): 1277–1284.

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Chapter 11: Lessons from Our Irrationalities: Why We Need to Test Everything Additional readings Colin Camerer and Robin Hogarth, “The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework,” Journal of Risk and Uncertainty 19, no. 1 (1999): 7–42. Robert Slonim and Alvin Roth, “Learning in High Stakes Ultimatum Games: An Experiment in the Slovak Republic,” Econometrica 66, no. 3 (1998): 569–596. Richard Thaler, “Toward a Positive Theory of Consumer Choice,” Journal of Economic Behavior and Organization 1, no. 1 (1980): 39–60. Index The pagination of this electronic edition does not match the edition from which it was created. To locate a specific passage, please use the search feature of your e-book reader.

Strategy: A History
by Lawrence Freedman
Published 31 Oct 2013

Amos Tversky and Daniel Kahneman, “The Framing of Decisions and the Psychology of Choice,” Science 211, no. 4481 (1981): 453–458; “Rational Choice and the Framing of Decisions,” Journal of Business 59, no. 4, Part 2 (October 1986): S251–S278. 15. Richard H. Thaler, “Toward a Positive Theory of Consumer Choice,” Journal of Economic Behavior and Organization 1, no. 1 (March 1980): 36–90; “Mental Accounting and Consumer Choice,” Marketing Science 4, no. 3 (Summer 1985): 199–214. 16. Joseph Henrich, Steven J. Heine, and Ara Norenzayan, “The Weirdest People in the World?” Behavioral and Brain Sciences, 2010, 1–75. 17. Chris D. Frith and Tania Singer, “The Role of Social Cognition in Decision Making,” Philosophical Transactions of the Royal Society 363, no. 1511 (December 2008): 3875–3886; Colin Camerer and Richard H. Thaler, “Ultimatums, Dictators and Manners,” Journal of Economic Perspectives 9, no. 2: 209–219; A.

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Individuals compared alternative courses of action by focusing on one aspect, often randomly chosen, rather than keep in the frame all key aspects.14 Another important finding concerned loss aversion. The value of a good to an individual appeared to be higher when viewed as something that could be lost or given up than when evaluated as a potential gain. Richard Thaler, one of the first to incorporate the insights from behavioral economics into mainstream economics, described the “endowment effect,” whereby the selling price for consumption goods was much higher than the buying price.15 Experiments Another challenge to the rational choice model came from experiments that tested propositions derived from game theory.

Intertwingled: Information Changes Everything
by Peter Morville
Published 14 May 2014

Relative to information, architecture is a less direct but more persuasive path to change. Of course, the two tactics usually work best when paired. For instance, asking designers and engineers to collaborate may have a limited effect, unless we also co-locate their desks. As Winston Churchill famously remarked “We shape our buildings; thereafter they shape us.” In Nudge, Richard Thaler and Cass Sunstein define a “choice architect” as a person responsible for “organizing the context in which people make decisions.”cxvii They note that by rearranging a school cafeteria, it’s possible to increase or decrease the consumption of many food items by as much as 25 percent.cxviii Of course the context need not be physical.

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cix Spradley (1979), adapted from Figure 10.1, p.176. cx The Fifth Discipline by Peter Senge (1990), p.57. cxi Senge (1990), p.88. cxii Senge (1990), p.63. cxiii Schein (1999), p.34. cxiv Schein (1999), p.223. cxv Schein (1999), p.86. cxvi Leading from the Emerging Future by Otto Scharmer and Katrim Kaufer (2013), p.16. cxvii Nudge by Richard Thaler and Cass Sunstein (2008), p.3. cxviii Thaler and Sunstein (2008), p.1. cxix Thaler and Sunstein (2008), p.71. cxx Thaler and Sunstein (2008), p.111. cxxi Culture Mapping by Dave Gray. cxxii The Power of Habit by Charles Duhigg (2012), p.139. cxxiii The Fastest Way to Make Change (2012).

Reinventing Capitalism in the Age of Big Data
by Viktor Mayer-Schönberger and Thomas Ramge
Published 27 Feb 2018

eBay’s recent troubles: Nicole Perlroth, “EBay Urges New Passwords After Breach,” New York Times, May 21, 2014, https://www.nytimes.com/2014/05/22/technology/ebay-reports-attack-on-its-computer-network.html?_r=0. sellers of Yahoo’s shares: Matt Levine, “How Can Yahoo Be Worth Less Than Zero?” Bloomberg, April 17, 2014, http://www.bloomberg.com/view/articles/2014-04-17/how-can-yahoo-be-worth-less-than-zero; see generally, Richard H. Thaler, Misbehaving: The Making of Behavioural Economics (London: Allen Lane, 2015), 244–253. “electronic markets”: Thomas W. Malone, Joanne Yates, and Robert I. Benjamin, “Electronic Markets and Electronic Hierarchies,” Communications of the ACM, June 1987, https://www.researchgate.net/publication/220425850.

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The development of Cybersyn also underlies the plot of a work of fiction: see Sascha Reh, Gegen die Zeit (Frankfurt, Germany: Schöffling, 2015). Great Famine of 1932–1933: See Anne Applebaum, Red Famine: Stalin’s War on Ukraine (New York: Doubleday, 2017). to coax us to transact appropriately: See, e.g., Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (New Haven: Yale University Press, 2008). CHAPTER 9: UNBUNDLING WORK “The drive was as mundane”: Alex Davies, “Uber’s Self-Driving Truck Makes Its First Delivery: 50,000 Beers,” Wired, October 25, 2016, https://www.wired.com/2016/10/ubers-self-driving-truck-makes-first-delivery-50000-beers.

How to Predict the Unpredictable
by William Poundstone

New York Times, Aug. 9, 2012. Cones, Harold, John H. Bryant, and Martin Blankinship (2003). Zenith Radio, the Glory Years, 1936– 1945: History and Products. Altgen, Penna.: Schiffer Publishing. Coupling, J. J. (1950). “Science for Art’s Sake.” Astounding Science Fiction, Nov. 1950, 83–92. De Bondt, Werner, and Richard H. Thaler (1985). “Does the Stock Market Overreact?” Journal of Finance 40, 793–805. Deckert, Joseph, Mikhail Myagkov, and Peter C. Ordeschook (n.d.). “The Irrelevance of Benford’s Law for Detecting Fraud in Elections.” www.vote.caltech.edu/sites/default/files/benford_pdf_4b97cc5b5b.pdf. DeStefano, Joseph, Peter Doyle, and J.

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Institutional Investor, Nov. 1, 2000. faculty.fuqua.duke.edu/~charvey/Teaching/BA453_2006/II_On_Jim_.pdf. MacLean, Leonard, William T. Ziemba, and George Blazenko (1987). “Growth versus Security in Dynamic Investment Analysis.” University of British Columbia, Faculty of Commerce and Business Administration, mimeograph. Massey, Cade, and Richard H. Thaler (2010). “The Loser’s Curse: Overconfidence vs. Market Efficiency in the National Football League Draft.” Working paper, ssrn.com/abstract=697121. Mather, Victor (2011). “2011 N.C.A.A. Tournament: How to Win a Pool That Rewards Upsets.” New York Times, Mar. 14, 2011. Matson, John (2012). “The Not So Hot Hand.”

The Googlization of Everything:
by Siva Vaidhyanathan
Published 1 Jan 2010

There is no formula for assessing it: I can’t give Google three of my privacy points in exchange 88 TH E G OOGL IZATION OF US for 10 percent better service. More seriously, Mayer and Google fail to acknowledge the power of default settings in a regime ostensibly based on choice. T H E IRR EL EVANC E O F C H O I C E In their 2007 book Nudge: Improving Decisions about Health, Wealth, and Happiness, the economist Richard Thaler and law professor Cass Sunstein describe a concept they call “choice architecture.” Plainly put, the structure and order of the choices offered to us profoundly influence the decisions we make. So, for instance, the arrangement of foods in a school cafeteria can influence children to eat better.

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Barry Schwartz, “First Google Image Result for Michelle Obama Pure Racist,” Search Engine Round Table, November 13, 2009, www.seroundtable.com/ archives/021162.html; David Colker, “Google Won’t Exclude Distorted Michelle Obama Image from Its Site,” Los Angeles Times, November 25, 2009; Judit BarIlan, “Web Links and Search Engine Ranking: The Case of Google and the Query ‘Jew’,” Journal of the American Society for Information Science and Technology 57, no. 12 (2006): 1581. 8. Richard Thaler and Cass Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness (New Haven: Yale University Press, 2008). 9. Levy, “Secret of Googlenomics.” 10. Randall E. Stross, Planet Google: One Company’s Audacious Plan to Organize Everything We Know (New York: Free Press, 2008), 109–28. 11.

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Paul Ohm, “Broken Promises of Privacy: Responding to the Surprising Failure of Anonymization,” SSRN eLibrary, August 13, 2009, http://papers.ssrn .com. 6. “Privacy Policy,” Google.com. March 11, 2009. 7. Arshad Mohammed, “Google Refuses Demand for Search Information,” Washington Post, January 20, 2006. 8. Charlie Rose Show, 2009, available at http://video.google.com. 9. Richard Thaler and Cass Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness (New Haven, CT: Yale University Press, 2008), 109. 10. Ibid., 3. 11. Google Search Privacy: Plain and Simple, 2007, www.youtube.com. 12. Louise Story and Brad Stone, “Facebook Retreats on On-Line Tracking,” New York Times, November 30, 2007. 13.

The Intelligent Investor (Collins Business Essentials)
by Benjamin Graham and Jason Zweig
Published 1 Jan 1949

Brands, Inc. in May 2002. 7 See “CEO Speaks” and “The Bottom Line,” Money, May 2000, pp. 42–44. 8 In early 2003, Capital One’s chief financial officer resigned after securities regulators revealed that they might charge him with violations of laws against insider trading. 9 For a more advanced look at this bizarre event, see Owen A. Lamont and Richard H. Thaler, “Can the Market Add and Subtract?” National Bureau of Economic Research working paper no. 8302, at www.nber.org/papers/w8302. 10 CMGI began corporate life as College Marketing Group, which sold information about college professors and courses to academic publishers—a business that bore a faint but disturbing similarity to National Student Marketing, discussed by Graham on p. 235. 11 All stock prices for Red Hat are adjusted for its two-for-one stock split in January 2000. 12 Ironically, 65 years earlier Graham had singled out Brown Shoe as one of the most stable companies on the New York Stock Exchange.

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Higher Dividends = Higher Earnings Growth,” Financial Analysts Journal, January/February, 2003, pp. 70–87. 14 Doron Nissim and Amir Ziv, “Dividend Changes and Future Profitability,” The Journal of Finance, vol. 56, no. 6, December, 2001, pp. 2111–2133. Even researchers who disagree with the Arnott-Asness and Nissim-Ziv findings on future earnings agree that dividend increases lead to higher future stock returns; see Shlomo Benartzi, Roni Michaely, and Richard Thaler, “Do Changes in Dividends Signal the Future or the Past?” The Journal of Finance, vol. 52, no. 3, July, 1997, pp. 1007–1034. 15 The tax reforms proposed by President George W. Bush in early 2003 would change the taxability of dividends, but the fate of this legislation was not yet clear by press time. 16 Historically, companies took a common-sense approach toward share repurchases, reducing them when stock prices were high and stepping them up when prices were low.

Fault Lines: How Hidden Fractures Still Threaten the World Economy
by Raghuram Rajan
Published 24 May 2010

Rather than falling short for sure, they preferred to move into longer-term riskier bonds, such as mortgage-backed securities, that paid higher interest rates. In addition, as long-term interest rates fell and the value of stocks, bonds, and housing rose, households felt wealthier and may have felt the confidence to take more risks. Some of these choices may have been irrational. As my colleague Richard Thaler has argued, when gamblers win money, they take more risks, because they treat their earlier winnings as “house” money—not their own—and therefore less important if lost. Whatever the reason, with investors more willing to take risks, the risk premium on all manner of assets came down. One effect of the search for yield was that money moved out of the United States into other countries, especially into the high-yielding bonds, stocks, and government securities in developing countries.

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Americans need to save more, and the government should be far less eager to encourage them to spend. Savings rates are increasing as households dig themselves out of this crisis. A number of interesting ideas have been proposed to encourage savings and are worth exploring. For instance, my colleague Richard Thaler at the University of Chicago has suggested innovative ways by which households can be nudged into saving more. In his “Save More Tomorrow” plan, devised with Shlomo Benartzi, workers sign an agreement with their employer and their financial services provider that they will place some portion of future salary raises into savings plans.

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However, some reasonable portion of their savings should be independent of the health of their firms. 33 See, for instance, Robert Shiller, The New Financial Order (Princeton, NJ: Princeton University Press, 2003), 118–19. 34 The next few paragraphs draw on my previous book with Luigi Zingales, Saving Capitalism from the Capitalists (Princeton, NJ: Princeton University Press, 2004). 35 Shlomo Benartzi and Richard Thaler, “Save More Tomorrow: Using Behavioral Economics to Increase Employee Savings,” unpublished manuscript, University of Chicago. Chapter Ten. The Fable of the Bees Replayed 1 Bernard Mandeville, The Fable of the Bees (1714) (Oxford: Clarendon Press, 1957). 2 Ibid. 3 Yashwant Sinha, speech at World Economic Forum, Davos, Switzerland, January 2001. 4 Jeffry Frieden, “Global Imbalances, National Rebalancing, and the Political Economy of Recovery,” working paper, Council on Foreign Relations, New York, 2009. 5 Ibid. 6 “Leaders’ Statement: The Pittsburgh Summit,” Pittsburgh Summit, www.pittsburgh summit.gov/mediacenter/129639.htm, September 25, 2009. 7 M.

Licence to be Bad
by Jonathan Aldred
Published 5 Jun 2019

Some markets, notably in the financial world, couldn’t even exist without an economic theory to explain them and give them rules: the financial products being traded are so complex that without a theory (or its manifestation as a computer model) to consult, traders cannot tell whether prices are cheap or expensive. When economists see the chasm between economic theory and real-world behaviour their solution is often to change the world, not the theory.fn3 Economist Richard Thaler recently won the Nobel Prize for his work leading to the Nudge idea. Nudge economists seek to change the environment in which we make choices, to steer us to choose as homo economicus would do – to make us behave in accordance with economic theory, even though we don’t think like that. This approach, making our choice environment human-proof, assumes human decisions are generally inferior, and never superior, to those of machine-like homo economicus.

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The central lesson of behavioural economics is that people make poor decisions – yet the policy innovation it provoked seeks to rely on precisely those poor decisions to bring about desirable outcomes. Welcome to the weird world of Nudge. Nudge began with a 2008 book of that name by economist Richard Thaler and lawyer Cass Sunstein. Both of them had worked with Kahneman and Tversky, who had shown that real people do not act like homo economicus. Rather than weighing up all relevant considerations and carefully calculating the ‘optimal’ choice, people are guided by rules of thumb, intuition, impulse and inertia.

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objection, 107, 119–20 Friedman, Milton, 4–5, 56, 69, 84, 88, 126, 189 awarded Nobel Prize, 132 and business responsibility, 2, 152 debate with Coase at Director’s house, 50, 132 as dominant Chicago thinker, 50, 132 on fairness and justice, 60 flawed arguments of, 132–3 influence on modern economics, 131–2 and monetarism, 87, 132, 232 at Mont Pèlerin, 5, 132 rejects need for realistic assumptions, 132–3 Sheraton Hall address (December 1967), 132 ‘The Methodology of Positive Economics’ (essay, 1953), 132–3 ‘The Social Responsibility of Business is to Increase Its Profits’ (article, 1970), 2, 152 Frost, Gerald, Antony Fisher: Champion of Liberty (2002), 7* Galbraith, John Kenneth, 242–3 game theory assumptions of ‘rational behaviour’, 18, 28, 29–32, 35–8, 41–3, 70, 124 Axelrod’s law of the instrument, 41 backward induction procedure, 36–7, 38 and Cold War nuclear strategy, 18, 20, 21–2, 24, 27, 33–4, 35, 70, 73, 198 focus on consequences alone, 43 as form of zombie science, 41 and human awareness, 21–3, 24–32 and interdependence, 23 limitations of, 32, 33–4, 37–40, 41–3 minimax solution, 22 multiplicity problem, 33–4, 35–7, 38 Nash equilibrium, 22–3, 24, 25, 27–8, 33–4, 41–2 the Nash program, 25 and nature of trust, 28–31, 41 the Prisoner’s Dilemma, 26–8, 29–32, 42–3 real world as problem for, 21–2, 24–5, 29, 31–2, 37–8, 39–40, 41–3 rise of in economics, 40–41 and Russell’s Chicken, 33–4 and Schelling, 138–9 and spectrum auctions, 39–40 theory of repeated games, 29–30, 35 tit-for-tat, 30–31 and trust, 29, 30–31, 32, 41 uses of, 23–4, 34, 38–9 view of humanity as non-cooperative/distrustful, 18, 21–2, 25–32, 36–8, 41–3 Von Neumann as father of, 18, 19, 20–22, 25, 26, 28, 30, 34, 41 zero-sum games, 21–2 Gates, Bill, 221–2 Geithner, Tim, 105 gender, 127–8, 130–31, 133, 156 General Electric, 159 General Motors (GM), 215–16 George, Prince of Cambridge, 98 Glass–Steagall Act, repeal of, 194 globalization, 215, 220 Goldman Sachs, 182, 184, 192 Google, 105 Gore, Al, 39 Great Reform Act (1832), 120 greed, 1–2, 196, 197, 204, 229, 238 Greenspan, Alan, 57, 203 Gruber, Jonathan, 245 Haifa, Israel, 158, 161 Harper, ‘Baldy’, 7 Harsanyi, John, 34–5, 40 Harvard Business Review, 153 Hayek, Friedrich and Arrow’s framework, 78–9 economics as all of life, 8 and Antony Fisher, 6–7 influence on Thatcher, 6, 7 and Keynesian economics, 5–6 and legal frameworks, 7* at LSE, 4 at Mont Pèlerin, 4, 5, 6, 15 and Olson’s analysis, 104 and public choice theory, 89 rejection of incentive schemes, 156 ‘spontaneous order’ idea, 30 The Road to Serfdom (1944), 4, 5, 6, 78–9, 94 healthcare, 91–2, 93, 178, 230, 236 hedge funds, 201, 219, 243–4 Heilbroner, Robert, The Worldly Philosophers, 252 Heller, Joseph, Catch-22, 98, 107, 243–4 Helmsley, Leona, 105 hero myths, 221–3, 224 Hewlett-Packard, 159 hippie countercultural, 100 Hoffman, Abbie, Steal This Book, 100 Holmström, Bengt, 229–30 homo economicus, 9, 10, 12, 140, 156–7 and Gary Becker, 126, 129, 133, 136 and behaviour of real people, 15, 136, 144–5, 171, 172, 173, 250–51 and behavioural economics, 170, 171, 172, 255 long shadow cast by, 248 and Nudge economists, 13, 172, 173, 174–5, 177 Hooke, Robert, 223 housing market, 128–9, 196, 240–41 separate doors for poor people, 243 Hume, David, 111 Huxley, Thomas, 114 IBM, 181, 222 identity, 32, 165–6, 168, 180 Illinois, state of, 46–7 immigration, 125, 146 Impossibility Theorem, 72, 73–4, 75, 89, 97 Arrow’s assumptions, 80, 81, 82 and Duncan Black, 77–8 and free marketeers, 78–9, 82 as misunderstood and misrepresented, 76–7, 79–82 ‘paradox of voting’, 75–7 as readily solved, 76–7, 79–80 Sen’s mathematical framework, 80–81 incentives adverse effect on autonomy, 164, 165–6, 168, 169–70, 180 authority figure–autonomy contradiction, 180 and behavioural economics, 171, 175, 176–7 cash and non-cash gifts, 161–2 context and culture, 175–6 contrast with rewards and punishments, 176–7 ‘crowding in’, 176 crowding out of prior motives, 160–61, 162–3, 164, 165–6, 171, 176 impact of economists’ ideas, 156–7, 178–80 and intrinsic motivations, 158–60, 161–3, 164, 165–6, 176 and moral disengagement, 162, 163, 164, 166 morally wrong/corrupting, 168–9 origins in behaviourism, 154 and orthodox theory of motivation, 157–8, 164, 166–7, 168–70, 178–9 payments to blood donors, 162–3, 164, 169, 176 as pervasive in modern era, 155–6 respectful use of, 175, 177–8 successful, 159–60 as tools of control/power, 155–7, 158–60, 161, 164, 167, 178 Indecent Proposal (film, 1993), 168 India, 123, 175 individualism, 82, 117 and Becker, 134, 135–8 see also freedom, individual Industrial Revolution, 223 inequality and access to lifeboats, 150–51 and climate change, 207–9 correlation with low social mobility, 227–8, 243 and demand for positional goods, 239–41 and economic imperialism, 145–7, 148, 151, 207 and efficiency wages, 237–8 entrenched self-deluding justifications for, 242–3 and executive pay, 215–16, 219, 224, 228–30, 234, 238 as falling in 1940–80 period, 215, 216 Great Gatsby Curve, 227–8, 243 hero myths, 221–3, 224 increases in as self-perpetuating, 227–8, 230–31, 243 as increasing since 1970s, 2–3, 215–16, 220–21 and lower growth levels, 239 mainstream political consensus on, 216, 217, 218, 219–21 marginal productivity theory, 223–4, 228 new doctrine on taxation since 1970s, 232–5 and Pareto, 217, 218–19, 220 poverty as waste of productive capacity, 238–9 public attitudes to, 221, 226–8 rises in as not inevitable, 220, 221, 242 role of luck downplayed, 222, 224–6, 243 scale-invariant nature of, 219, 220 ‘socialism for the rich’, 230 Thatcher’s praise of, 216 and top-rate tax cuts, 231, 233–5, 239 trickle-down economics, 232–3 US and European attitudes to, 226–7 ‘you deserve what you get’ belief, 223–6, 227–8, 236, 243 innovation, 222–3, 242 Inside Job (documentary, 2010), 88 Institute of Economic Affairs, 7–8, 15, 162–3 intellectual property law, 57, 68, 236 Ishiguro, Kazuo, Never Let Me Go, 148 Jensen, Michael, 229 Journal of Law and Economics, 49 justice, 1, 55, 57–62, 125, 137 Kahn, Herman, 18, 33 Kahneman, Daniel, 170–72, 173, 179, 202–3, 212, 226 Kennedy, President John, 139–40 Keynes, John Maynard, 11, 21, 162, 186, 204 and Buchanan’s ideology, 87 dentistry comparison, 258–9, 261 on economics as moral science, 252–3 Friedman’s challenge to orthodoxy of, 132 Hayek’s view of, 5–6 massive influence of, 3–4, 5–6 on power of economic ideas, 15 and probability, 185, 186–7, 188–9, 190, 210 vision of the ideal economist, 20 General Theory (1936), 15, 188–9 Khomeini, Ayatollah, 128 Khrushchev, Nikita, 139–40, 181 Kilburn Grammar School, 48 Kildall, Gary, 222 Kissinger, Henry, 184 Knight, Frank, 185–6, 212 Krugman, Paul, 248 Kubrick, Stanley, 35*, 139 labour child labour, 124, 146 and efficiency wages, 237–8 labour-intensive services, 90, 92–3 lumpenproletariat, 237 Olson’s hostility to unions, 104 Adam Smith’s ‘division of labour’ concept, 128 Laffer, Arthur, 232–3, 234 Lancet (medical journal), 257 Larkin, Philip, 67 law and economics movement, 40, 55, 56–63, 64–7 Lazear, Edward, ‘Economic Imperialism’, 246 legal system, 7* and blame for accidents, 55, 60–61 and Chicago School, 49, 50–52, 55 and Coase Theorem, 47, 49, 50–55, 63–6 criminal responsibility, 111, 137, 152 economic imperialist view of, 137 law and economics movement, 40, 55, 56–63, 64–7 ‘mimic the market’ approach, 61–3, 65 Posner’s wealth-maximization principle, 57–63, 64–7, 137 precautionary principle, 211–12, 214 transaction costs, 51–3, 54–5, 61, 62, 63–4, 68 Lehmann Brothers, 194 Lexecon, 58, 68 Linda Problem, 202–3 LineStanding.com, 123 Little Zheng, 123, 124 Lloyd Webber, Andrew, 234–5, 236 lobbying, 7, 8, 88, 115, 123, 125, 146, 230, 231, 238 loft-insulation schemes, 172–3 logic, mathematical, 74–5 The Logic of Life (Tim Harford, 2008), 130 London School of Economics (LSE), 4, 48 Long-Term Capital Management (LTCM), 201, 257 Machiavelli, Niccoló, 89, 94 Mafia, 30 malaria treatments, 125, 149 management science, 153–4, 155 Mandelbrot, Benoît, 195, 196, 201 Mankiw, Greg, 11 marginal productivity theory, 223–4 Markowitz, Harry, 196–7, 201, 213 Marx, Karl, 11, 101, 102, 104, 111, 223 lumpenproletariat, 237 mathematics, 9–10, 17–18, 19, 21–4, 26, 247, 248, 255, 259 of 2007 financial crash, 194, 195–6 and Ken Arrow, 71, 72, 73–5, 76–7, 82–3, 97 axioms (abstract assumptions), 198 fractals (scale-invariance), 194, 195–6, 201, 219 and orthodox decision theory, 190–91, 214 Ramsey Rule on discounting, 208–9, 212 and Savage, 189–90, 193, 197, 198, 199, 205 and Schelling, 139 Sen’s framework on voting systems, 80–81 standard deviation, 182, 192, 194 and stock market statistics, 190–91, 195–6 use of for military ends, 71–2 maximizing behaviour and Becker, 129–31, 133–4, 147 and catastrophe, 211 and Coase, 47, 55, 59, 61, 63–9 economic imperialism, 124–5, 129–31, 133–4, 147, 148–9 Posner’s wealth-maximization principle, 57–63, 64–7, 137 profit-maximizing firms, 228 see also wealth-maximization principle; welfare maximization McCluskey, Kirsty, 194 McNamara, Robert, 138 median voter theorem, 77, 95–6 Merton, Robert, 201 Meucci, Antonio, 222 microeconomics, 9, 232, 259 Microsoft, 222 Miles, David, 258 Mill, John Stuart, 102, 111, 243 minimum wage, national, 96 mobility, economic and social correlation with inequality, 226–8, 243 as low in UK, 227 as low in USA, 226–7 US–Europe comparisons, 226–7 Modern Times (Chaplin film, 1936), 154 modernism, 67 Moivre, Abraham de, 193 monetarism, 87, 89, 132, 232 monopolies and cartels, 101, 102, 103–4 public sector, 48–9, 50–51, 93–4 Mont Pèlerin Society, 3–9, 13, 15, 132 Morgenstern, Oskar, 20–22, 24–5, 28, 35, 124, 129, 189, 190 Mozart, Wolfgang Amadeus, 91, 92–3 Murphy, Kevin, 229 Mussolini, Benito, 216, 219 Nash equilibrium, 22–3, 24, 25, 27–8, 33–4, 41–2 Nash, John, 17–18, 22–3, 24, 25–6, 27–8, 33–4, 41–2 awarded Nobel Prize, 34–5, 38, 39, 40 mental health problems, 25, 26, 34 National Health Service, 106, 162 ‘neoliberalism’, avoidance of term, 3* Neumann, John von ambition to make economics a science, 20–21, 24–5, 26, 35, 125, 151, 189 as Cold War warrior, 20, 26, 138 and expansion of scope of economics, 124–5 as father of game theory, 18, 19, 20–22, 25, 26, 28, 30, 34, 41 final illness and death of, 19, 34, 35, 43–4 genius of, 19–20 as inspiration for Dr Strangelove, 19 and Nash’s equilibrium, 22–3, 25, 38* simplistic view of humanity, 28 theory of decision-making, 189, 190, 203 neuroscience, 14 New Deal, US, 4, 194, 231 Newton, Isaac, 223 Newtonian mechanics, 21, 24–5 Nixon, Richard, 56, 184, 200 NORAD, Colorado Springs, 181 nuclear weapons, 18–19, 20, 22, 27, 181 and Ellsberg, 200 and game theory, 18, 20, 21–2, 24, 27, 33–4, 35, 70, 73, 198 MAD (Mutually Assured Destruction), 35, 138 and Russell’s Chicken, 33–4 and Schelling, 138, 139 Nudge economists, 13, 171–5, 177–8, 179, 180, 251 Oaten, Mark, 121 Obama, Barack, 110, 121, 157, 172, 180 Olson, Mancur, 103, 108, 109, 119–20, 122 The Logic of Collective Action (1965), 103–4 On the Waterfront (Kazan film, 1954), 165 online invisibility, 100* organs, human, trade in, 65, 123, 124, 145, 147–8 Orwell, George, Nineteen Eighty-Four, 42–3 Osborne, George, 233–4 Packard, David, 159 Paine, Tom, 243 Pareto, Vilfredo 80/20 rule’ 218 and inequality, 217, 218–19, 220 life and background of, 216–17 Pareto efficiency, 217–18, 256* Paul the octopus (World Cup predictor, 2010), 133 pensions, workplace, 172, 174 physics envy, 9, 20–21, 41, 116, 175–6, 212, 247 Piketty, Thomas, 234, 235 plastic shopping bag tax, 159–60 Plato’s Republic, 100–101, 122 political scientists and Duncan Black, 78, 95–6 Black’s median voter theorem, 95–6 Buchanan’s ideology, 84–5 crises of the 1970s, 85–6 influence of Arrow, 72, 81–2, 83 see also public choice theory; social choice theory Posner, Richard, 54, 56–63, 137 ‘mimic the market’ approach, 61–3, 65 ‘The Economics of the Baby Shortage’ (1978), 61 precautionary principle, 211–12, 214 price-fixing, 101, 102, 103–4 Princeton University, 17, 19–20 Prisoner’s Dilemma, 26–8, 29–32, 42–3 prisons, cell upgrades in, 123 privatization, 50, 54, 88, 93–4 probability, 182–4 and Keynes, 185, 186–7, 188–9, 210 Linda Problem, 202–3 modern ideas of, 184–5 Ramsey’s personal probabilities (beliefs as probabilities), 187–8, 190, 197, 198, 199, 204–5 and Savage, 190, 193, 197, 198, 199, 203, 205 ‘Truth and Probability’ (Ramsey paper), 186–8, 189, 190 see also risk and uncertainty Proceedings of the National Academy of Sciences, 22 productivity Baumol’s cost disease, 90–92, 93, 94 and efficiency wages, 237–8 improvement in labour-intensive services, 92–3 labour input, 92 protectionism, 246, 255 psychology availability heuristic, 226 behaviourism, 154–8, 237 and behavioural economics, 12, 170–71 cognitive dissonance, 113–14 and financial incentives, 156–7, 158–60, 163–4, 171 framing effects, 170–71, 259 of free-riding, 113–14, 115 intrinsic motivations, 158–60, 161–3, 164, 165–6, 176 irrational behaviour, 12, 15, 171 learning of social behaviour, 163–4 moral disengagement, 162, 163, 164, 166 motivated beliefs, 227 ‘self-command’ strategies, 140 view of in game theory, 26–31 view of in public choice theory, 85–6 and welfare maximization, 149 ‘you deserve what you get’ belief, 223–6, 227–8, 236, 243 public choice theory as consensus view, 84–5 and crises of the 1970s, 85–6 foolish voter assumption, 86–8 ‘paradox of voter turnout’, 88–9, 95–6, 115–16 partial/self-contradictory application of, 86, 87–9 ‘political overload’ argument, 85, 86–7 ‘public bad, private good’ mantra, 93–4, 97 and resistance to tax rises, 94, 241 self-fulfilling prophecies, 95–7 and selfishness, 85–6, 87–8, 89, 94, 95–7 as time-bomb waiting to explode, 85 public expenditure in 1970s and ’80s, 89 Baumol’s cost disease, 90–92, 93, 94 and Keynesian economics, 4 and public choice theory, 85–8, 89, 241 and tax rises, 241–2 public-sector monopolies, 48–9, 50–51, 93–4 Puzzle of the Harmless Torturers, 118–19 queue-jumping, 123, 124 QWERTY layout, 42 racial discrimination, 126–7, 133, 136, 140 Ramsey, Frank, 186–8, 189, 190, 205, 208 Ramsey Rule, 208–9, 212 RAND Corporation, 17, 41, 103, 138, 139 and Ken Arrow, 70–71, 72–3, 74, 75–6, 77, 78 and behaviourism, 154 and Cold War military strategy, 18, 20, 21–2, 24, 27, 33–4, 70, 73, 75–6, 141, 200, 213 and Ellsberg, 182–4, 187, 197–8, 200 and Russell’s Chicken, 33 Santa Monica offices of, 18 self-image as defender of freedom, 78 rational behaviour assumptions in game theory, 18, 28, 29–32, 35–8, 41–3, 70, 124 axioms (abstract mathematical assumptions), 198 Becker’s version of, 128–9, 135, 140, 151 behavioural economics/Nudge view of, 173, 174–5 distinction between values and tastes, 136–8 economic imperialist view of, 135, 136–8, 140, 151 and free-riding theory, 100–101, 102, 103–4, 107–8, 109–10, 115–16 and orthodox decision theory, 198, 199 public choice theory relates selfishness to, 86 term as scientific-sounding cover, 12 see also homo economicus Reader’s Digest, 5, 6 Reagan, Ronald, 2, 87–8, 89, 104, 132 election of as turning point, 6, 216, 220–21 and top-rate tax cuts, 231, 233 regulators, 1–2 Chicago view of, 40 Reinhart, Carmen, 258 religion, decline of in modern societies, 15, 185 renewable energy, 116 rent-seeking, 230, 238 ‘right to recline’, 63–4 risk and uncertainty bell curve distribution, 191–4, 195, 196–7, 201, 203–4, 257 catastrophes, 181–2, 191, 192, 201, 203–4, 211–12 delusions of quantitative ‘risk management’, 196, 213 Ellsberg’s experiment (1961), 182–4, 187, 197, 198–200 errors in conventional thinking about, 191–2, 193–4, 195–7, 204–5, 213 financial orthodoxy on risk, 196–7, 201–2 and First World War, 185 and fractals (scale-invariance), 194, 195–6, 201 hasard and fortuit, 185* ‘making sense’ of through stories, 202–3 ‘measurable’ and ‘unmeasurable’ distinction, 185–6, 187–9, 190, 210–11, 212–13 measurement in numerical terms, 181–4, 187, 189, 190–94, 196–7, 201–2, 203–5, 212–13 orthodox decision theory, 183–4, 185–6, 189–91, 193–4, 201–2, 203–5, 211, 212–14 our contemporary orthodoxy, 189–91 personal probabilities (beliefs as probabilities), 187–8, 190, 197, 198, 199, 204–5 precautionary principle, 211–12, 214 pure uncertainty, 182–3, 185–6, 187–9, 190, 197, 198–9, 210, 211, 212, 214, 251 redefined as ‘volatility’, 197, 213 the Savage orthodoxy, 190–91, 197, 198–200, 203, 205 scenario planning as crucial, 251 Taleb’s black swans, 192, 194, 201, 203–4 ‘Truth and Probability’ (Ramsey paper), 186–8, 189, 190 urge to actuarial alchemy, 190–91, 197, 201 value of human life (‘statistical lives’), 141–5, 207 see also probability Robertson, Dennis, 13–14 Robinson, Joan, 260 Rodrik, Dani, 255, 260–61 Rogoff, Ken, 258 Rothko, Mark, 4–5 Rumsfeld, Donald, 232–3 Russell, Bertrand, 33–4, 74, 97, 186, 188 Ryanair, 106 Sachs, Jeffrey, 257 Santa Monica, California, 18 Sargent, Tom, 257–8 Savage, Leonard ‘Jimmie’, 189–90, 193, 203, 205scale-invariance, 194, 195–6, 201, 219 Scandinavian countries, 103, 149 Schelling, Thomas, 35* on access to lifeboats, 150–51 awarded Nobel Prize, 138–9 and Cold War nuclear strategy, 138, 139–40 and economic imperialism, 141–5 and game theory, 138–9 and Washington–Moscow hotline, 139–40 work on value of human life, 141–5, 207 ‘The Intimate Contest for Self-command’ (essay, 1980), 140, 145 ‘The Life You Save May be Your Own’ (essay, 1968), 142–5, 207 Schiphol Airport, Amsterdam, 172 Schmidt, Eric, 105 Scholes, Myron, 201 Schwarzman, Stephen, 235 Second World War, 3, 189, 210 selfishness, 41–3, 178–9 and Becker, 129–30 and defence of inequality, 242–3 as free marketeers’ starting point, 10–12, 13–14, 41, 86, 178–9 and game theory, 18 and public choice theory, 85–6, 87–8, 89, 94, 95–7 Selten, Reinhard, 34–5, 36, 38, 40 Sen, Amartya, 29, 80–81 service sector, 90–93, 94 Shakespeare, William, Measure for Measure, 169 Shaw, George Bernard, 101 Shiller, Robert, 247 Simon, Herbert, 223 Skinner, Burrhus, 154–5, 158 Smith, Adam, 101, 111, 122 The Wealth of Nations (1776), 10–11, 188–9 snowflakes, 195 social choice theory, 72 and Ken Arrow, 71–83, 89, 95, 97, 124–5, 129 and Duncan Black, 78, 95 and free marketeers, 79, 82 Sen’s mathematical framework, 80–81 social media, 100* solar panels, 116 Solow, Bob, 163, 223 Sorites paradox, 117–18, 119 sovereign fantasy, 116–17 Soviet Union, 20, 22, 70, 73, 82, 101, 104, 167, 237 spectrum auctions, 39–40, 47, 49 Stalin, Joseph, 70, 73, 101 the state anti-government attitudes in USA, 83–5 antitrust regulation, 56–8 dismissal of almost any role for, 94, 135, 235–6, 241 duty over full employment, 5 economic imperialist arguments for ‘small government’, 135 increased economic role from 1940s, 3–4, 5 interventions over ‘inefficient’ outcomes, 53 and monetarism, 87, 89 and Mont Pèlerin Society, 3, 4, 5 and privatization, 50, 54, 88, 93–4 public-sector monopolies, 48–50, 93–4 replacing of with markets, 79 vital role of, 236 statistical lives, 141–5, 207 Stern, Nick, 206, 209–10 Stigler, George, 50, 51, 56, 69, 88 De Gustibus Non Est Disputandum (with Becker, 1977), 135–6 Stiglitz, Joseph, 237 stock markets ‘Black Monday’ (1987), 192 and fractals (scale-invariance), 194, 195–6, 201 orthodox decision theory, 190–91, 193–4, 201 Strittmatter, Father, 43–4 Summers, Larry, 10, 14 Sunstein, Cass, 173 Nudge (with Richard Thaler, 2008), 171–2, 175 Taleb, Nassim, 192 Tarski, Alfred, 74–5 taxation and Baumol’s cost disease, 94 and demand for positional goods, 239–41 as good thing, 231, 241–2, 243 Laffer curve, 232–3, 234 new doctrine of since 1970s, 232–4 property rights as interdependent with, 235–6 public resistance to tax rises, 94, 239, 241–2 and public spending, 241–2 revenue-maximizing top tax rate, 233–4, 235 tax avoidance and evasion, 99, 105–6, 112–13, 175, 215 ‘tax revolt’ campaigns (1970s USA), 87 ‘tax as theft’ culture, 235–6 top-rate cuts and inequality, 231, 233–5, 239 whines from the super-rich, 234–5, 243 Taylor, Frederick Winslow, 153–4, 155, 167, 178, 237 Thaler, Richard, 13 Nudge (with Cass Sunstein, 2008), 171–2, 175 Thatcher, Margaret, 2, 88, 89, 104, 132 election of as turning point, 6, 216, 220–21 and Hayek, 6, 7 and inequality, 216, 227 privatization programme, 93–4 and top-rate tax cuts, 231 Theory of Games and Economic Behavior (Von Neumann and Morgenstern, 1944), 20, 21, 25, 189 Titanic, sinking of (1912), 150 Titmuss, Richard, The Gift Relationship, 162–3 tobacco-industry lobbyists, 8 totalitarian regimes, 4, 82, 167–8, 216, 219 see also Soviet Union trade union movement, 104 Tragedy of the Commons, 27 Truman, Harry, 20, 237 Trump, Donald, 233 Tucker, Albert, 26–7 Tversky, Amos, 170–72, 173, 202–3, 212, 226 Twitter, 100* Uber, 257 uncertainty see risk and uncertainty The Undercover Economist (Tim Harford, 2005), 130 unemployment and Coase Theorem, 45–7, 64 during Great Depression, 3–4 and Keynesian economics, 4, 5 United Nations, 96 universities auctioning of places, 124, 149–50 incentivization as pervasive, 156 Vietnam War, 56, 198, 200, 249 Villari, Pasquale, 30 Vinci, Leonardo da, 186 Viniar, David, 182, 192 Volkswagen scandal (2016), 2, 151–2 Vonnegut, Kurt, 243–4 voting systems, 72–4, 77, 80, 97 Arrow’s ‘Independence of Irrelevant Alternatives’, 81, 82 Arrow’s ‘Universal Domain’, 81, 82 and free marketeers, 79 ‘hanging chads’ in Florida (2000), 121 recount process in UK, 121 Sen’s mathematical framework, 80–81 Waldfogel, Joel, 161* Wanniski, Jude, 232 Watertown Arsenal, Massachusetts, 153–4 Watson Jr, Thomas J., 181 wealth-maximization principle, 57–63 and Coase, 47, 55, 59, 63–9 as core principle of current economics, 253 created markets, 65–7 extension of scope of, 124–5 and justice, 55, 57–62, 137 and knee space on planes, 63–4 practical problems with negotiations, 62–3 and values more important than efficiency, 64–5, 66–7 welfare maximization, 124–5, 129–31, 133–4, 148–9, 176 behavioural economics/Nudge view of, 173 and vulnerable/powerless people, 146–7, 150 welfare state, 4, 162 Wilson, Charlie, 215 Wittgenstein, Ludwig, 186, 188 Wolfenschiessen (Swiss village), 158, 166–7 Woolf, Virginia, 67 World Bank, 96 World Cup football tournament (2010), 133 World Health Organization, 207 Yale Saturday Evening Pest, 4–5 Yellen, Janet, 237 THE BEGINNING Let the conversation begin … Follow the Penguin twitter.com/penguinukbooks Keep up-to-date with all our stories youtube.com/penguinbooks Pin ‘Penguin Books’ to your pinterest.com/penguinukbooks Like ‘Penguin Books’ on facebook.com/penguinbooks Listen to Penguin at soundcloud.com/penguin-books Find out more about the author and discover more stories like this at penguin.co.uk ALLEN LANE UK | USA | Canada | Ireland | Australia India | New Zealand | South Africa Allen Lane is part of the Penguin Random House group of companies whose addresses can be found at global.penguinrandomhouse.com First published 2019 Copyright © Jonathan Aldred, 2019 The moral right of the author has been asserted Jacket photograph © Getty Images ISBN: 978-0-241-32544-5 This ebook is copyright material and must not be copied, reproduced, transferred, distributed, leased, licensed or publicly performed or used in any way except as specifically permitted in writing by the publishers, as allowed under the terms and conditions under which it was purchased or as strictly permitted by applicable copyright law.

Life You Can Save: Acting Now to End World Poverty
by Peter Singer
Published 3 Mar 2009

In seven countries with “opt out” systems, the lowest proportion of potential donors is 85.9 percent.8 Just as we tend to leave unchanged the factory settings on a computer, so other kinds of “defaults” can make a big difference to our behavior—and, in the case of organ donations, save thousands of lives. There is a new wave of interest in exploring how to frame choices so that people make better decisions. Richard Thaler and Cass Sunstein, professors of economics and law, respectively, teamed up to write Nudge: Improving Decisions About Health, Wealth, and Happiness, which advocates using defaults to nudge us to make better choices.9 Even when we are choosing in our own interests, we often choose unwisely. When employees have the option of participating in a retirement-savings scheme, many do not, despite the financial advantages of doing so.

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Plan International, “Sponsor a Child: Frequently Asked Questions,” www.plan-international.org/sponsorshipform/sponsorfaq/, accessed January 16, 2008. 8. Eric Johnson and Daniel Goldstein, “Do Defaults Save Lives?” Science 302 (November 2003), pp. 1338-39. I owe this reference to Eldar Shafir, whose comments on this topic were very helpful. 9. Richard Thaler and Cass Sunstein, Nudge: Improving Decisions about Health, Wealth and Happiness (New Haven, CT: Yale University Press, 2008). 10. Brigitte Madrian and Dennis Shea, “The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior,” Quarterly Journal of Economics 116:4 (2001), pp. 1149-87. 11.

Survival of the Richest: Escape Fantasies of the Tech Billionaires
by Douglas Rushkoff
Published 7 Sep 2022

Conner, A People’s History of Science (New York: Nation Press, 2005), 364.   59   “atheistical” materialism : Charles Webster, From Paracelsus to Newton: Magic and the Making of Modern Science (Cambridge: Cambridge University Press, 1982), 99–102.   61   “survival machines” : Richard Dawkins, The Selfish Gene: 40th Anniversary Edition (New York: Oxford University Press, 2016), xxix.   62   master classes in behavioral economics : Daniel Kahneman, “A Short Course in Thinking About Thinking,’ ” Edge Masterclass 2007, https:// www .edge .org /events /the -edge -master -class -2007 -a -short -course -in -thinking -about -thinking; Richard Thaler, Sendhil Mullainathan, and Daniel Kahneman, “A Short Course in Behavioral Economics,” Edge Master Class 2008, https:// www .edge .org /event /edge -master -class -2008 -richard -thaler -sendhil -mullainathan -daniel -kahneman -a -short -course -in. Chapter 6: Pedal to the Metal   68   “The power to dominate … authoritarian” : Riane Eisler, The Chalice and the Blade: Our History, Our Future (New York: HarperCollins, 1987), 86.   69   Initially the market economy : For a description of how these money systems worked, see Douglas Rushkoff, Life Inc.: How Corporatism Conquered the World, and How We Can Take It Back (New York: Random House, 2009).   69   People worked less : Bernard Lietaer and Stephen M.

Not Working: Where Have All the Good Jobs Gone?
by David G. Blanchflower
Published 12 Apr 2021

John Cochrane, “Russ Roberts on Economic Humility,” Grumpy Economist, March 3, 2017, http://johnhcochrane.blogspot.com/2017/03/russ-roberts-on-economic-humility.html. 40. Robert Shiller, “Richard Thaler Is a Controversial Nobel Prize Winner—but a Deserving One,” Guardian, October 11, 2017. Six percent of all Nobels have been awarded, says Shiller, to people who can be classified as behavioral economists including Richard Thaler (2017), Bob Shiller (2013), George Akerlof (2001), Robert Fogel (1993), Daniel Kahneman (2002), and Elinor Ostrom (2009). 41. Stephen Nickell, “Household Debt, House Prices and Consumption Growth” (Speech given at Bloomberg in London, September 14, 2004). 42.

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The Economics of Walking About I will document in some detail what I call the “economics of walking about.” There was a long tradition in labor economics to try to understand how the world worked and to reveal, what the great Harvard economist John Dunlop once told me, rules of thumb on how people make decisions. It involves listening to what people say and taking it seriously. Richard Thaler (2018) in his 2017 Nobel Prize lecture noted that “what economists often call estimates or forecasts, and heuristics is a fancy word for rules-of-thumb … faced with a complex prediction problem (‘What is the chance this applicant will do well in graduate school?’) people often rely on simple rules-of-thumb (‘heuristics’) to help them.”

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Famously, Ronald Coase in his Nobel Prize lecture argued that “inspiration is most likely to come through the stimulus provided by the patterns, puzzles, and anomalies revealed by the systematic gathering of data, particularly when the prime need is to break our existing habits of thought” (1992, 718). In a recent column celebrating the award of the 2017 Sveriges Riksbank Nobel Economics prize to Richard Thaler, Robert Shiller, who won the prize in 2013, noted that there had been antagonism within the profession to the research agenda of the behavioral economists, which includes him. Shiller notes that “many in economics and finance still believe that the best way to describe human behavior is to eschew psychology and instead model human behavior as mathematical optimization by separate and relentlessly selfish individuals, subject to budget constraints.”

The Four Pillars of Investing: Lessons for Building a Winning Portfolio
by William J. Bernstein
Published 26 Apr 2002

Now, almost a decade later, this title is in its seventeenth printing; so I suppose I’ve succeeded. Special thanks go to those who have provided encouragement and help along the way, including Cliff Asness, John C. Bogle Sr., Scott Burns, Edward Chancellor, Mark Gochnour, Christian Oelke, John Rekenthaler, Bill Schultheis, Larry Swedroe, Robert Sidelsky, Richard Thaler, Mike Veseth, and Jason Zweig. I’ll never understand what motivated Catherine Dassopoulos and Jeffrey Krames of McGraw-Hill to take an interest in an obscure electronic file by an unknown scribbler floating around in cyberspace, but their editorial and publishing support has been a constant source of delight and satisfaction.

…

Investors, like everyone else, are most often the hapless captives of human nature. As Benjamin Graham said, we are our own worst enemies. But until very recently, financial economists ignored the financial havoc wreaked by human beings on themselves. Thirty years ago, a young finance academic by the name of Richard Thaler and a friend were contemplating driving across Rochester, New York, in a blinding snowstorm to see a basketball game. They wisely elected not to. His companion remarked, “But if we had bought the tickets already, we’d go.” To which Thaler replied, “True—and interesting.” Interesting because according to economic theory, whether or not the tickets have already been purchased should not influence the decision to brave a snowstorm to see a ball game.

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In fact, many academicians refer to this as “The Equity Premium Puzzle”—why investors allowed stocks to remain so cheap that their returns so greatly and consistently exceeded that of other assets. The answer is that our primordial instincts, a relic of millions of years of evolution, cause us to feel more pain when we suddenly lose 30% of our liquid net worth than when we face the more damaging possibility of failing to meet our long-term financial goals. How bad is the problem? Richard Thaler, in an immensely clever bit of research, examined the interaction of the risk premium and investor preference. He estimated the risk horizon of the average investor to be about one year. Myopic indeed! Trees Don’t Grow to the Sky One of the most dangerous of all investment illusions is the great company/great stock fallacy.

Luxury Fever: Why Money Fails to Satisfy in an Era of Excess
by Robert H. Frank
Published 15 Jan 1999

If the value people assign to winning such a gamble were on a par with the value they assign to losing, they might nonetheless be inclined to roll the dice. For most people, however, these values are highly discrepant. As a burgeoning literature in psychology and economics has amply demonstrated, people assign much greater weight to losses than to gains of the same magnitude.11 The economist Richard Thaler coined the term loss aversion to describe this tendency. Loss aversion means not just that the pain of losing, say, $1,000, is larger, for most of us, than the pleasure from winning that same amount. It means that it is much larger. Thaler illustrates the asymmetry in our reactions to gains and losses by asking his students to consider the following hypothetical questions: 1.

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If instead she had postponed her purchases until she could pay for them out of savings, and then used that $1,800 to buy treasury bonds paying 5 percent interest each year, she would have had an extra $10,443 after 5 years, an extra $62,494 after 20 years. The telltale footprints of self-control problems are also evident in the steps many of us take to prevent ourselves from spending too much. As the economists Richard Thaler and Herschel Shefrin have suggested, people who want to save for Christmas gifts, yet find they deplete their savings whenever a tempting purchase opportunity arises, sometimes respond by joining “Christmas clubs,” special savings accounts that prevent them from making withdrawals before a specified date in late autumn.10 We also buy whole-life insurance policies, which pay submarket rates of return and impose substantial penalties on withdrawals before retirement.

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“A General Experimentation Bargaining in Demand Games with Outside Options, American Economic Review 83, December 1993: 1260-80. Kahneman, Daniel. “Assessments of Individual Well-Being: A Bottom-Up Approach,” in Understanding Well-Being: Scientific Perspectives on Enjoyment and Suffering, ed. Daniel Kahneman, Ed Diener, and Norbert Schwartz, New York: Russell Sage, 1998. Kahneman, Daniel; Jack Knetsch; and Richard Thaler, “Perceptions of Unfairness: Constraints on Wealth-Seeking,” American Economic Review 76, September 1986: 728-41. Kahneman, Daniel; P. Slovic; and A. Tversky, eds. Judgment Under Uncertainty: Heuristics and Biases, New York: Cambridge University Press, 1982. Kaldor, Nicholas. An Expenditure Tax, London: Allen and Unwin, 1955.

The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk
by William J. Bernstein
Published 12 Oct 2000

That the historically modest market declines of 1987, 1990, and 1997, far from resulting in inflows from legions of long-termers buying cheap, produced dramatic mutual fund outflows? Most authoritatively of all, in an elegant study published in the Quarterly Journal of Economics in 1993 Shlomo Benzarti and Richard Thaler calculated that the risk horizon of the average investor was just one year. The easiest way of thinking about the interplay of short- and longterm risk is to imagine a new kind of 30-year Treasury bond, similar to the conventional bond, except that the government stands ready at all times to redeem it at par (face value).

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The answer is that our primordial instincts, a useless relic of millions of years of evolutionary history, cause us to feel more pain when we suddenly lose 30% of our liquid net worth than the more damaging possibility of failing to meet our long-term financial goals. How bad is the problem? I’ve already mentioned the immensely clever article by Shlomo Benzarti and Richard Thaler (one of behavioral finance’s brightest stars) which examined the interaction of the risk premium and investor preference. They estimated that the risk horizon of the average investor, was about one year. Myopic indeed. Socrates told us that the unexamined life is not worth living. For the modern investor, failure of self-examination can be as damaging to the pocketbook as to the soul.

The Self-Made Billionaire Effect: How Extreme Producers Create Massive Value
by John Sviokla and Mitch Cohen
Published 30 Dec 2014

Setbacks such as those experienced by Mark Cuban, who had to rebuild his first major business, MicroSolutions, after a secretary defrauded the company of its entire cash flow. Setbacks at the level experienced by the oil-and-gas magnate T. Boone Pickens, who was ousted from the business he’d spent decades building, Mesa Petroleum, in a scenario similar to that faced by the now-iconic Steve Jobs when he was removed from Apple. The economists Richard Thaler and Eric Johnson have studied individuals who have suffered investment losses or business failures, and posit that the experience causes them to view future opportunities through a different, more pessimistic lens than they would otherwise. In the context of this chapter, past failure makes most people less able to take a relative view.7 There are few things more anxiety provoking than the prospect of making a bad call that will cost you your job or your business.

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For a more approachable treatment, see Daniel Kahneman, Thinking Fast and Slow (New York: Farrar, Straus and Giroux, 2011), in which Kahneman revisits that work with thirty years of perspective and corroborating experiments. 6. Quote published at www.womenofchina.cn/html/womenofchina/report/123585-1.htm, accessed February 3, 2014. 7. Richard Thaler and Eric Johnson, “Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice,” Management Science (June 1990): 643–60. 8. Osnos, “Wastepaper Queen.” 9. For more on Yan Cheung, see ibid. Will Hutton, “Thanks to Mao, Zhang Yin’s a Billionaire,” Observer, October 14, 2006; David Barboza, “Blazing a Paper Train in China,” New York Times, January 16, 2007; and an interview conducted by CNN’s Talk Asia on June 3, 2007, http://www.cnn.com/2007/WORLD/asiapcf/06/03/talkasia.cheungyan/index.html?

The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing
by Michael J. Mauboussin
Published 14 Jul 2012

Benchmarking Sustained Superior Performance Without Being Fooled By Randomness,” Strategic Management Journal 33, no. 4 (April 2012): 387–406. 22. Charles MacKay, Extraordinary Delusions and the Madness of Crowds (New York: Three Rivers Press, 1995). 23. John C. Bogle, Common Sense on Mutual Funds: Fully Updated 10th Anniversary Issue (Hoboken, NJ: John Wiley & Sons, 2010). 24. Werner F. M. De Bondt and Richard H. Thaler, “Anomalies: A Mean-Reverting Walk Down Wall Street,” Journal of Economic Perspectives 3, no. 1 (Winter 1989): 189–202. 25. Mark Grinblatt and Sheridan Titman, “The Persistence of Mutual Fund Performance,” Journal of Finance 47, no. 5 (December 1992): 1977–1984; Darryll Hendricks, Jayendu Patel, and Richard Zeckhauser, “Hot Hands in Mutual Funds: Short-Run Persistence of Relative Performance, 1974–1988,” Journal of Finance 48, no. 1 (March 1993): 93–129; and Stephen J.

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Summers. “What Moves Stock Prices?” Journal of Portfolio Management 15, no. 3 (Spring 1989): 4–12. Danto, Arthur. Analytical Philosophy of History. Cambridge: Cambridge University Press, 1965. Dawes, Robyn M. Everyday Irrationality. Boulder, CO: Westview Press, 2001. De Bondt, Werner F. M., and Richard H. Thaler. “Anomalies: A Mean-Reverting Walk Down Wall Street.” Journal of Economic Perspectives 3, no. 1 (Winter 1989): 189–202. Del Guercio, Diane, and Paula A. Tkac. “The Determinants of the Flow of Funds of Managed Portfolios: Mutual Funds Versus Pension Funds.” Journal of Financial and Quantitative Analysis 37, no. 4 (December 2002): 523–555.

Networks, Crowds, and Markets: Reasoning About a Highly Connected World
by David Easley and Jon Kleinberg
Published 15 Nov 2010

[379] Éva Tardos and Tom Wexler. Network formation games and the potential function method. In Noam Nisan, Tim Roughgarden, Éva Tardos, and Vijay Vazirani, editors, Algorithmic Game Theory, pages 487–516. Cambridge University Press, 2007. [380] Richard H. Thaler. Anomalies: The ultimatum game. Journal of Economic Perspectives, 2(4):195–206, 1988. [381] Richard H. Thaler. Anomalies: The winner’s curse. Journal of Economic Perspectives, 2(1):191–202, 1988. [382] Michael F. Thorpe and Philip M. Duxbury. Rigidity Theory and Applications. Springer, 1999. [383] Shane Thye, Michael Lovaglia, and Barry Markovsky.

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ADVANCED MATERIAL: BIDDING STRATEGIES IN FIRST-PRICE AND ALL-PAY AUCTIONS269 to be an over-estimate. As a result she will likely lose money on the resale relative to what she paid. This is known as the winner’s curse, and it is a phenomenon that has a rich history in the study of auctions. Richard Thaler’s review of this history [381] notes that the winner’s curse appears to have been first articulated by researchers in the petroleum industry [94]. In this domain, firms bid on oil-drilling rights for tracts of land that have a common value, equal to the value of the oil contained in the tract.

Smart Money: How High-Stakes Financial Innovation Is Reshaping Our WorldÑFor the Better
by Andrew Palmer
Published 13 Apr 2015

Monkeys have not yet evolved far enough to invent pensions, but if they did, the Save More Tomorrow program would help. Because take-home pay does not go down when contributions go up, there is no perceived loss of earnings and people are much happier to keep saving. The first application of the program, which was developed by two behavioralists named Shlomo Benartzi and Richard Thaler, prompted employees at a manufacturer to increase their contribution rates from 3.5 percent to 13.6 percent of salary in only three and a half years. The option is now offered by more than half of the large companies in the United States.19 With these encouraging examples to build from, a mini industry devoted to behavioral prompts and nudges is springing up.

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Anne Tergesen, “401(k) Law Suppresses Saving for Retirement,” Wall Street Journal, July 7, 2011. 18. M. Keith Chen, Venkat Lakshminarayanan, and Laurie Santos, “How Basic Are Behavioural Biases? Evidence from Capuchin Monkey Trading Behaviour,” Journal of Political Economy (2006). 19. Shlomo Bernartzi and Richard Thaler, “Behavioural Economics and the Retirement Savings Crisis,” Science (March 8, 2013). 20. James Choi et al., “Small Cues Change Savings Choices” (NBER Working Paper 17843, February 2012). 21. Amos Tversky and Daniel Kahnemann, “Judgment Under Uncertainty: Heuristics and Biases,” Science (September 1974). 22.

When to Rob a Bank: ...And 131 More Warped Suggestions and Well-Intended Rants
by Steven D. Levitt and Stephen J. Dubner
Published 4 May 2015

Third, you can’t really blame yourself for house prices falling, but you could second-guess your decision to carry around $18,000 in cash. Fourth, the fact that a thief has your money might make it worse than the money just evaporating into space, like it does when house prices fall. There are probably other reasons as well. More generally, the economist Richard Thaler coined the phrase mental accounts to describe the way in which people seem to treat different assets as non-fungible, even though in principle it seems like they should be. Although my economist friends make fun of me for it, I definitely use mental accounts myself. For me, a dollar made playing poker means much more than a dollar earned from the stock market going up.

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Trilby had had a glass of wine before we ordered, and took another with her meal, sauvignon blanc. I drank water. When the waitress cleared our plates, she asked again if we wanted complimentary dessert. No, we said, just coffee. As Trilby and I talked, I mentioned that I had not long ago interviewed Richard Thaler, the godfather of behavioral economics, which seeks to marry psychology and economics. Thaler and I had considered some small experiments at lunch—offering the waiter a gigantic tip, perhaps, in exchange for special considerations—but we didn’t get around to it. Trilby was interested, so we kept talking about money.

Stuffocation
by James Wallman
Published 6 Dec 2013

Thank you for that, and also, among other things: for your suggestions of more avenues to explore, for challenging and inspiring me over lunch and email and phone and Skype, for responding to far more fact-checking emails than strictly necessary, for patiently explaining how you do what you do, and for pushing me to re-examine whether I believed in what I believe – and whether I really was reading the data right. So, thank you: Richard Thaler, Oliver James, Barry Schwartz, Stuart Ewen, Robert Fogel, Chris Goodall, Michael Schrage, Ron Inglehart, Ryan Howell, Jeanne Arnold, Darby Saxbe, Travis Carter, Leaf van Boven, Tom Gilovich, Brian Wansink, Geoffrey Miller, Danny Miller, Rupert Pennant-Rea, Garson O’Toole, Daniel Franklin, John Andrews, Rob Hyndman, Corinne Shefner-Rogers, Jim Dearing, Juliet Schor, Anna Coote, Benjamin Kline Hunnicutt, Pippa Norris, Trudi Toyne, Felipe Fernandez-Armesto, Avner Offer, Peter Stearns, Joe Pine, Jim Gilmore, Grant McCracken, Blake Mycoskie, Rob Symington, Alice Marwick, Harry Parr, Sam Bompas, Jules Evans, Bob Cummins, Bernice Steinhardt, Chris Hoenig, Mark Tungate, Ann Mack, Albert Cañigueral, Anna-Maren Ashford, James O’Shaughnessy, Joe Goodman, Alastair Humphreys, Richard Layard, Tim Kasser, Vicki Robin, Gabriel Rossman, Janice Rutherford, and Eve Fisher.

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Source: Taos Ski Valley Chamber of Commerce. “The way to make sense of this is, as behavioural psychologists have showed time and again, that people do not necessarily behave in a rational, logical way.” To understand this, read Daniel Kahneman, Thinking, Fast and Slow (New York: Penguin, 2011), and Richard Thaler and Cass Sunstein, Nudge (New York: Penguin, 2008). For the best visualization of how the two parts of the brain work together, read about the elephant and its rider in Jonathan Haidt, The Happiness Hypothesis: Putting Ancient Wisdom to the Test of Modern Science (London: Arrow, 2007). Not Simple, but Simpler Living To read a more complete account of how LeVally and Harris came down from the mountain, and struggled with that decision, read www.cagefreefamily.com.

Vassal State
by Angus Hanton
Published 25 Mar 2024

BMW of Munich ran a short-lived scheme in which drivers of some new cars were forced to pay monthly to access heated seats (£15 per month) and a system that alerted the driver to nearby speed cameras (£25 per year). Why has renting become so popular? The answer, in part, is a matter of behavioural science. Nudge, nudge As a 26-year-old marketer at Oracle Corporation, Marc Benioff was an admirer of leading behavioural economist Richard Thaler, a professor at the University of Chicago. Thaler, who would later explain his life’s work in an influential book called Nudge, studied why people choose one option over another.11 Again and again, he found they seek to avoid hard choices. Thinking about his own customers’ choices, Benioff noticed their preference for renting on a monthly basis rather than making large, one-off capital investments.

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Life-as-a-Service: The Twin Treadmills of Subscriptions and Debt 1 ‘Trip Adler’, Quote.org [website], https://quote.org/author/trip-adler-49853. 2 For more on Benioff, see Marc Benioff and Carlye Adler, Behind the Cloud: The Untold Story of How Salesforce.com Went from Idea to Billion-Dollar Company – and Revolutionized an Industry (San Francisco: Wiley-Blackwell, 2009). 3 Marilyn Much, ‘How Salesforce’s Marc Benioff revolutionized the software industry’, Investor’s Business Daily [website] (11 February 2019), https://www.investors.com/news/management/leaders-and-success/how-salesforces-marc-benioff-revolutionized-the-software-industry/. 4 Phil Wainewright, ‘Microsoft CEO to business: your future as a SaaS provider’, Diginomica [website] (16 March 2015), https://diginomica.com/microsoft-ceo-business-future-saas-provider. 5 Erik Bullard, ‘The escalating costs buried in your Salesforce agreement’, UpperEdge [website] (26 February 2020), https://upperedge.com/salesforce/the-escalating-costs-buried-in-your-salesforce-agreement/. 6 Mario Grunitz, ‘Everything-as-a-service: a look into the subscription-based model’, WeAreBrain [website] (30 August 2022), https://wearebrain.com/blog/everything-as-a-service/. 7 Quoted in Catrin Jones, ‘Caterpillar release cloud-based system to boost performance’, Construction Briefing [website] (23 November 2022), https://www.constructionbriefing.com/news/caterpillar-release-cloud-based-system-to-boost-performance/8024919.article. 8 ‘Power by the hour (PBH)’, AJW Group [website], https://www.ajw-group.com/services/supply-chain-management/power-by-the-hour/. 9 ‘The Princess of Wales rents a gown for the Earthshot Prize ceremony in Boston’, Harper’s Bazaar (3 December 2022), https://www.harpersbazaar.com/uk/fashion/fashion-news/a42139785/kate-middleton-rents-green-dress-earthshot-prize/; Rebecca Cohen and Madison Hall, ‘AOC only paid for her Met Gala outfit and other possible “impermissible gifts” after investigators asked about it, ethics agency finds’, Business Insider [website] (2 March 2023), https://www.businessinsider.com/aoc-ethics-prove-paid-met-gala-outfit-house-report-2023-3?r=US&IR=T. 10 ‘The story of Zipcar’, Zipcar [website], https://www.zipcar.com/en-gb/about#:~:text=We’re%20on%20a%20mission,vehicles%20that%20support%20environmental%20sustainability. 11 Richard Thaler, Nudge: Improving Decisions about Health, Wealth, and Happiness (New Haven, CT: Yale University Press, 2008). 12 Daniel Kahneman, Thinking, Fast and Slow (New York: Farrar, Straus & Giroux, 2011). 13 Quoted in Tim Bradshaw, ‘Apple aims to double service revenues by 2021’, Financial Times (31 January 2017), https://www.ft.com/content/a3e00a3a-4372-3f96-b8d6-d673ac4a5d57. 14 Quoted in ‘Apple paid subscriptions top 1 billion, doubling in three years’, Pymnts [website] (2 November 2023), https://www.pymnts.com/apple/2023/apple-paid-subscriptions-top-1-billion-doubling-in-three-years/. 15 ‘Media nations UK 2023’ [PDF], Ofcom [website] (3 August 2023), https://www.ofcom.org.uk/__data/assets/pdf_file/0029/265376/media-nations-report-2023.pdf. 16 Quoted in ‘Pain of paying – everything you need to know’, InsideBE [website], https://insidebe.com/articles/pain-of-paying/. 17 Florent Geerts, ‘The jam experiment – how choice overloads makes consumers buy less’, Medium [website] (17 August 2017), https://medium.com/@FlorentGeerts/the-jam-experiment-how-choice-overloads-makes-consumers-buy-less-d610f8c37b9b. 18 Barry Schwartz, The Paradox of Choice: Why More Is Less (New York: Harper Perennial, 2004).

Them And Us: Politics, Greed And Inequality - Why We Need A Fair Society
by Will Hutton
Published 30 Sep 2010

But economics is beginning to change as the weight of evidence about real-life behaviour challenges its woeful abstractions. Process and fairness do matter, and they need to be incorporated into economists’ thinking about market behaviour. For example, Nobel Prize-winning economist Daniel Kahneman, along with psychologists Richard Thaler and Jack Knetsch, has developed the thesis that people hold an idea about what they consider to be a fair price or wage.37 This is usually determined by prices and wages that have prevailed in the past – what the authors call ‘reference prices’ – and it governs their conduct in markets. People consider themselves to be entitled to reference prices, and firms to reference profits.

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, Independent, 20 August 2009, at http://www.independent.co.uk/news/business/analysis-and-features/streets-ahead-does-john-lewis-offer-a-revolutionary-way-forward-for-big-business-1774510.html. 35 Both points come from Lehki and Blaug (2009) ‘Ownership and Good Work’. 36 Lucian Bebchuk, Martijn Cremers and Urs Peyer (2009) ‘The CEO Pay Slice’, mimeo, at http://www.law.harvard.edu/faculty/bebchuk/. 37 Daniel Kahneman, Jack Knetsch and Richard Thaler (1986) ‘Fairness as a Constraint on Profit Seeking Entitlements in the Market’, American Economic Review 76 (4): 728–41. 38 For a history, see Robert Dahl (1991) Democracy and Its Critics, Yale University Press; and David Held (2002) Models of Democracy, 2nd edn, Polity Press. Chapter Four: The Good, the Bad and the Ugly 1 Eric J.

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Steinmueller and Juan Mateos-Garcia (2009) ‘Rebooting Britain’, Nesta Policy Briefing. 6 Rohit Talwar and Tim Hancock (2010) ‘The Shape of Jobs to Come: Possible New Careers Emerging from Advances in Science and Technology (2010–2030)’, report, Fast Future. 7 Ian Brinkley (2008) ‘The Knowledge Economy: How Knowledge is Reshaping the Economic Life of Nations’, report, Work Foundation. 8 Robert Nozick (1974) Anarchy, State, and Utopia, Basic Books, p. 169. 9 Liam Murphy and Thomas Nagel (2002) The Myth of Ownership: Taxes and Justice, Harvard University Press. 10 Will Hutton and Philippe Schneider (2008) ‘The Failure of Market Failure: Towards a 21st Century Keynesianism’, Nesta Provocation. 11 George Akerlof (1970) ‘The Market for Lemons: Quality Uncertainty and the Market Mechanism’, Quarterly Journal of Economics 84 (3): 488–500. 12 Nava Asraf, Colin Camerer and George Loewenstein (2005) ‘Adam Smith,Behavioral Economist’, Journal of Economic Perspectives 19 (3): 131–45. 13 John Coates and Joe Herbert (2008) ‘Endogenous Steroids and Financial Risk Taking on a London Trading Floor’, Proceedings of the National Academy of Sciences 105: 6167–72. 14 Technically, this can be understood as rational behaviour. 15 Studies have sought to limit attention to one potential bias at a time; but several biases might plausibly explain behaviour. There is a need to distinguish between biases insofar as the policy responses to the underlying explanations for behaviour point in very different directions. 16 John Sterman (2000) Business Dynamics: Systems Thinking and Modeling for a Complex World, Irwin McGraw-Hill. 17 Richard Thaler and Cass Sunstein (2008) Nudge: Improving Decisions about Health, Wealth and Happiness, Yale University Press, esp. Part V. See also Jack Fuller (2009) ‘Heads, You Die: Bad Decisions, Choice Architecture, and How to Mitigate Predictable Irrationality’, Per Capita, at http://www.percapita.org.au/01_cms/details.asp?

Walk Away
by Douglas E. French
Published 1 Mar 2011

They believe the benefits of staying and consuming (if you will) the house outweigh the amount of the payment. But when the hole becomes too deep the increasing numbers of borrowers begin to feel like they are paying for nothing. They don’t feel the benefit of increasing equity, but only the pain of making the monthly payment. Economist Richard Thaler has found that people are irrationally regret averse. In an experiment where respondents had the choice of being a person who wins $100 in one scenario or a person who wins $150, but was just short of winning $1,000 in another, most people said that they would rather win the $100 and not have to deal with the regret of just missing the $1,000 windfall.

Can It Happen Here?: Authoritarianism in America
by Cass R. Sunstein
Published 6 Mar 2018

From 2009 to 2012, he served as Administrator of the White House Office of Information and Regulatory Affairs. From 2013 to 2014, he served on the President’s Review Group on Intelligence and Communications Technologies. Sunstein is the author of hundreds of articles and dozens of books, including Republic.com (2001), Nudge: Improving Decisions About Health, Wealth, and Happiness (with Richard H. Thaler 2008), and Simpler (2013). His latest books are The World According to Star Wars (2016) and The Ethics of Influence (2016). Sunstein received his bachelor of arts from Harvard College in 1975 and his doctorate in law from Harvard Law School in 1978. Duncan J. Watts is a principal researcher at Microsoft Research and a founding member of the MSR-NYC lab.

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SUNSTEIN is the Robert Walmsley University Professor at Harvard University, where he is founder and director of the Program on Behavioral Economics and Public Policy and a columnist for Bloomberg View. His many books include the New York Times bestsellers The World According to Star Wars and Nudge (with Richard H. Thaler). He lives in Concord, Massachusetts. Discover great authors, exclusive offers, and more at hc.com. Copyright “Lessons from the American Founding” contains content adapted from Introduction, The Federalist (Cambridge: Harvard University Press, 2009). CAN IT HAPPEN HERE? Copyright © 2018 by Cass R.

The Knowledge Illusion
by Steven Sloman
Published 10 Feb 2017

If you offload financial responsibility, you don’t even notice financial information.” We think it is inevitable that people will continue to make decisions—even very consequential decisions—without deep understanding. So how can we help people to make wiser choices? Nudging Better Decisions The University of Chicago economist Richard Thaler and the Harvard legal scholar Cass Sunstein have developed a philosophy that they call libertarian paternalism. Although the name is a mouthful, the idea is simple and compelling. The main observation is that people don’t always make the best possible decisions; they don’t always choose the option that makes it most likely that they will achieve their own goals.

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People post questions, often about difficult topics like particle physics or finance, and forum members try to provide a satisfying explanation that is easily understood. The popularity of this forum speaks to how enjoyable it is to read explanations that we can actually make sense of. It also highlights how rare these are in our day-to-day lives. Lesson 2: Simple Decision Rules Richard Thaler, one of the fathers of the libertarian paternalism approach, has thought a lot about financial decision-making. He agrees that attempting to give people a deep understanding of financial topics is unlikely to work. The financial world is just too complex and people’s abilities are too limited.

The Revolution That Wasn't: GameStop, Reddit, and the Fleecing of Small Investors
by Spencer Jakab
Published 1 Feb 2022

Less than a year before the GameStop squeeze, Robinhood and its peers would have an incredible stroke of luck—some of the most thrilling conditions ever witnessed in the stock market coincided with the exact time the sports world went dark worldwide. Nudged into Bad Decisions Some of the most effective methods used by the new generation of app-first brokers are usually associated with more benign goals than getting young people to trade frequently. For example, research by Nobel Prize–winning economist Richard Thaler about how people can be nudged into healthy choices was adopted during a subtle redesign of workplace retirement rules that was hailed by both employers and consumer advocates.[16] The mutual fund giant Vanguard found that companies that switched from having new employees send in paperwork to sign up for their 401(k) retirement plans to having them do the same to opt out of a modest contribution saw participation rise from 56 percent to 89 percent.

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BACK TO NOTE REFERENCE 13 Interview with Keith S. Whyte, conducted by telephone, May 14, 2021. BACK TO NOTE REFERENCE 14 Susan Weinschenk, “Use Unpredictable Rewards to Keep Behavior Going,” Psychology Today, November 13, 2013. BACK TO NOTE REFERENCE 15 Ian Salisbury, “Meet Richard Thaler, the Man Who Just Won the Nobel Prize for Helping You Save for Your Retirement,” Money, October 9, 2017. BACK TO NOTE REFERENCE 16 James Choi, David Laibson, and Brigitte C. Madrian, “Plan Design and 401(k) Savings Outcomes,” National Tax Journal, June 2004. BACK TO NOTE REFERENCE 17 Mazarakis and Shontell, “Founders of Robinhood.”

What to Think About Machines That Think: Today's Leading Thinkers on the Age of Machine Intelligence
by John Brockman
Published 5 Oct 2015

SMITH After the Plug Is Pulled GIULIO BOCCALETTI Monitoring and Managing the Planet IAN BOGOST Panexperientialism AUBREY DE GREY When Is a Minion Not a Minion? MICHAEL I. NORTON Not Buggy Enough THOMAS A. BASS More Funk, More Soul, More Poetry and Art HANS ULRICH OBRIST The Future Is Blocked to Us KOO JEONG-A An Immaterial Thinkable Machine RICHARD FOREMAN Baffled and Obsessed RICHARD H. THALER Who’s Afraid of Artificial Intelligence? SCOTT DRAVES I See a Symbiosis Developing MATTHEW RITCHIE Reimagining the Self in a Distributed World RAPHAEL BOUSSO It’s Easy to Predict the Future JAMES CROAK Fear of a God, Redux ANDRÉS ROEMER Tulips on My Robot’s Tomb LEE SMOLIN Toward a Naturalistic Account of Mind STUART A.

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And why did I have to go in circles to get here, where I’m offering an opinion—worth not nearly as much as the rhythm of my circling . . . a Hole. Yes, I am caught in a trap of my own making—just like everyone. But not like machines that think! The trap they’re in—well, they cannot “know.” WHO’S AFRAID OF ARTIFICIAL INTELLIGENCE? RICHARD H. THALER Father of behavioral economics; director, Center for Decision Research, University of Chicago Booth School of Business; author, Misbehaving: The Making of Behavior Economics My brief remarks on this question are framed by two one-liners that happen to have been uttered by brilliant Israelis.

Rockonomics: A Backstage Tour of What the Music Industry Can Teach Us About Economics and Life
by Alan B. Krueger
Published 3 Jun 2019

I have separate buckets in my head for what I should be paid in music and what I should be paid in my day job. If we make $150 a night playing, that’s usually a good night. If we make $300 a night, that’s an amazingly good night. But that’s a fraction of what I get paid with my day job. So, they’re ridiculously incongruent. Perhaps behavioral economist Richard Thaler could explain it. Have you ever played with any members of the Grateful Dead? I’ve played with Bob Weir a couple of times. Stella Blue’s played the Capitol Theater in Westchester, and Phil Lesh came on and played a set with us. What was it like playing with Bob Weir and Phil Lesh?

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If ticket prices are not set with an eye toward balancing supply and demand, the result will be an empty house (if prices are set too high) or a large secondary market where resale prices are much higher than the list value (if prices are set too low). Resistance to congestion pricing, a method for charging drivers a higher price when roads are congested, has left roads from Los Angeles to New York City gridlocked with traffic during rush hour. When asked about the tension in concert ticket pricing, Richard Thaler, the University of Chicago economist who won a Nobel Prize for his seminal contributions to behavioral economics, observed, “A good rule of thumb is we shouldn’t impose a set of rules that will create moral outrage, even if that moral outrage seems stupid to economists.”21 One indication of the distance that concerts have traveled in the direction of charging market-determined prices is the extent to which ticket prices vary within the venue, from the worst seat to the best seat.

Money Moments: Simple Steps to Financial Well-Being
by Jason Butler
Published 22 Nov 2017

So why did I succumb to an impulsive purchase of an expensive and unnecessary item instead of putting that money in my retirement plan? A key reason is because we have two modes of thinking, one instinctive and the other reflective. Think of these two modes as a bit like having different financial personalities. Richard Thaler and Cass Sunstein, two distinguished professors of behavioural economics describe these personalities as a far-sighted ‘Planner’ and a myopic ‘Doer’. The Planner represents the reflective thinking mode and the Doer represents the instinctive mode. ‘The Planner is trying to promote your long-term welfare but must cope with the feelings, mischief, and strong will of the Doer, who is exposed to the temptations that come with arousal.

Grouped: How Small Groups of Friends Are the Key to Influence on the Social Web
by Paul Adams
Published 1 Nov 2011

We often change our behavior to conform to the expectations, attitudes, and behavior of our group. We overrate the advice of experts. Random strangers can often outperform experts. Further reading 1. See the Wikipedia article titled Mirror Neuron for an introduction and further reading. 2. See Richard Thaler and Cass Sunstein’s book Nudge: Improving Decisions About Health, Wealth, and Happiness (Yale University Press, 2008). 3. In their book Connected (Little, Brown, 2009), Nicholas Christakis and James Fowler describe how people are influenced by social proof. 4. See the 2002 research paper “Evidence on learning and network externalities in the diffusion of home computers” by Austan Goolsbee and Peter Klenow. 5.

No Slack: The Financial Lives of Low-Income Americans
by Michael S. Barr
Published 20 Mar 2012

.: National Bureau of Economic Research (www.nber.org/papers/w11768). Loewenstein, George, and Nachum Sicherman. 1991. “Do Workers Prefer Increasing Wage Profiles?” Journal of Labor Economics 9:67–84 (www.jstor.org/stable/2535114). 12864-09_CH09_2ndPgs.indd 216 3/23/12 11:57 AM expensive tax refunds 217 Loewenstein, George, and Richard H. Thaler. 1989. “Anomalies: Intertemporal Choice.” Journal of Economic Perspectives 3 (Autumn): 181–93 (www.jstor.org/stable/1942918). Neumark, David. 1995. “Are Rising Earnings Profiles a Forced-Saving Mechanism?” Economic Journal 105, no. 428: 95–106 (www.jstor.org/stable/2235321). President’s Advisory Panel on Federal Tax Reform. 2005.

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In On Understanding Poverty: Perspectives from the Social Sciences, edited by Daniel P. Moynihan, 187–220. New York: Basic Books. Loewenstein, George, and Nachum Sicherman. 1991. “Do Workers Prefer Increasing Wage Profiles?” Journal of Labor Economics 9:67–84 (www.jstor.org/stable/2535114). Loewenstein, George, and Richard H. Thaler. 1989. “Anomalies: Intertemporal Choice.” Journal of Economic Perspectives 3 (Autumn): 181–93 (www.jstor.org/stable/1942918). 12864-10_CH10_3rdPgs.indd 244 3/23/12 11:57 AM paying to save 245 Mishkin, Frederick S. 1981. “The Real Interest Rate: An Empirical Investigation.” Carnegie-Rochester Conference Series on Public Policy 15:151–200 (doi:10.1016/01672231(81)90022-1).

This Will Make You Smarter: 150 New Scientific Concepts to Improve Your Thinking
by John Brockman
Published 14 Feb 2012

Timothy Taylor Technology Paved the Way for Humanity Thinking through things and with things, and manipulating virtual things in our minds, is an essential part of critical self-consciousness. Paul Saffo Time Span of Discretion We all have a natural time horizon we are comfortable with. Tania Lombrozo Defeasibility Between blind faith and radical skepticism is a vast but sparsely populated space where defeasibility finds its home. Richard Thaler Aether Aether variables are extremely common in my own field of economics. Mark Pagel Knowledge as a Hypothesis There will always be some element of doubt about anything we come to “know” from our observations of the world. Evgeny Morozov The Einstellung Effect Familiar solutions may not be optimal.

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Consider the world we could live in if all of our local and global leaders, if all of our personal and professional friends and foes, recognized the defeasibility of their beliefs and acted accordingly. That sure sounds like progress to me. But of course I could be wrong. Aether Richard Thaler Economist; director, Center for Decision Research, Booth School of Business, University of Chicago; coauthor (with Cass Sunstein), Nudge: Improving Decisions About Health, Wealth, and Happiness I recently posted a question on Edge asking people to name their favorite example of a wrong scientific belief.

The Data Detective: Ten Easy Rules to Make Sense of Statistics
by Tim Harford
Published 2 Feb 2021

John Ioannidis—he of the “Why Most Published Research Findings Are False” paper—argues that despite the flaws of the method, it’s “a convenient obstacle to unfounded claims.” Unfortunately, there is no single clever statistical technique that would make all these problems evaporate. The journey toward more rigorous science requires many steps, and we at least are taking some of them. I recently had the chance to interview Richard Thaler, a Nobel Memorial Prize winner in economics, who has collaborated with Daniel Kahneman and many other psychologists. He struck me as well placed to evaluate psychology as a sympathetic outsider. “I think the replication crisis has been great for psychology,” he told me. “There’s just better hygiene.”36 Brian Nosek, meanwhile, told the BBC: “I think if we do another large reproducibility project five years from now, we are going to see a dramatic improvement in reproducibility in the field.”37 * * * — In the early chapters of this book, I cited numerous psychological studies of motivated reasoning and the biased assimilation of information.

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,” Full Fact (blog), March 20, 2019, https://fullfact.org/blog/2019/mar/does-backfire-effect-exist/; Brendan Nyhan, “Read this! Widespread neglect of more recent studies since my paper w/ @JasonReifler,” Twitter, March 20, 2019, 10:40 a.m., https://twitter.com/BrendanNyhan/status/1108377656414879744. 36. Author interview with Richard Thaler, July 17, 2019. 37. “The Replication Crisis,” BBC Analysis, November 12, 2018, https://www.bbc.co.uk/programmes/m00013p9. 38. Antonio Granado, “Slaves to Journals, Serfs to the Web: The Use of the Internet in Newsgathering among European Science Journalists,” Journalism 12, no. 7 (2011), 794–813. 39.

Gene Eating: The Science of Obesity and the Truth About Dieting
by Giles Yeo
Published 3 Jun 2019

A classic example of ‘nudge’ was when the guy in charge of keeping the loos clean at Amsterdam’s Schiphol Airport (if you’ve ever been to Schiphol, there are many loos indeed) etched an image of a housefly in the men’s urinals, in an effort to, shall we say, ‘improve aim’. It ended up working a treat and lowering cleaning bills, so much so that the fly (or flying saucer, or skull and crossbones, or flower) in the urinal is now much mimicked throughout the world. It was a theory first mooted by Richard Thaler in the book Nudge – Improving Decisions about Health, Wealth and Happiness, which he published with Cass Sunstein in 2008. In it they write: ‘A nudge, as we will use the term, is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives.

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Putting fruit at eye level counts as a nudge. Banning junk food does not’.18 You will note that a ‘nudge’ has no negative reinforcement, it doesn’t involve any penalty, economic or otherwise, and it cannot be mandatory. Yet this theory turned out to be such a powerful influence on so many aspects of human behaviour that Richard Thaler received the 2017 Nobel Prize in Economics for his ‘Nudge’ theory.20 Nudge is based on the simple premise that people, when making decisions quickly (and sometimes even when making decisions with apparent thought), will often choose what is easiest over what is wisest. Supermarkets, for example, have known for ages that where they place items in the store powerfully influences the likelihood of whether they are bought.

The Age of Entitlement: America Since the Sixties
by Christopher Caldwell
Published 21 Jan 2020

During the presidential campaign of 2008, two of Barack Obama’s friends and advisors from the University of Chicago collaborated on a book called Nudge, which used behavioral economics to justify an activist state. The law professor Cass Sunstein would become the senior advisor on regulation to the Obama White House. The economist Richard Thaler, an early collaborator of Kahneman, would take up a similar role as head of the Behavioural Insights Team for Britain’s Conservative prime minister David Cameron. Thaler and Sunstein laid out the baleful consequences of poorly designed choosing systems and suggested ways to fix them. Schoolchildren carrying their trays through lunch lines don’t usually mull over which dessert they prefer; they often grab the first thing their eyes alight on.

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“largely an empirical question”: Cass Sunstein, “It’s for Your Own Good!,” review of Sarah Conly, Against Autonomy: Justifying Coercive Paternalism, New York Review of Books, March 7, 2013. “So I left him”: Plato, The Apology 21, in The Dialogues of Plato, Jowett translation (New York: Macmillan, 1892), 113–14. “We agree that”: Richard Thaler and Cass Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (New Haven, Connecticut: Yale University Press, 2008), 238. When New Republic editor Andrew Sullivan: Andrew Sullivan, “Here Comes the Groom,” New Republic, August 28, 1989: 20–22. The first male strippers started performing: Henry Weinstein, “Chippendale Club Owner Kills Himself,” Los Angeles Times, October 25, 1994.

The Fifth Domain: Defending Our Country, Our Companies, and Ourselves in the Age of Cyber Threats
by Richard A. Clarke and Robert K. Knake
Published 15 Jul 2019

The book was coauthored by her boss, Cass Sunstein. Sunstein, a Democrat, was not necessarily a fan of regulation. A former colleague of President Obama’s at the University of Chicago Law School, Sunstein had advocated for simple but not always popular ideas, such as subjecting regulation to cost-benefit analysis. With the economist Richard Thaler, Sunstein had written Nudge, arguing that government may be more effective when it shapes voluntary action rather than when it sets mandatory requirements. On his first date with his future wife and former UN ambassador Samantha Power, he told her his dream job was to run OIRA and implement these ideas.

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The CSIS commission report: “Securing Cyberspace for the 44th Presidency,” Report of the CSIS Commission on Cybersecurity for the 44th Presidency, Center for Strategic and International Studies, December 2008, https://csis-prod.s3.amazonaws.com/s3fs-public/legacy_files/files/media/csis/pubs/081208_securingcyberspace_44.pdf. She pulled out a copy of a book: Richard Thaler and Cass Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (New York: Penguin, 2009). Twenty years ago, when President Clinton: “Defending America’s Cyberspace: National Plan for Information Systems Protection,” White House, 2000, https://fas.org/irp/offdocs/pdd/CIP-plan.pdf.

Loonshots: How to Nurture the Crazy Ideas That Win Wars, Cure Diseases, and Transform Industries
by Safi Bahcall
Published 19 Mar 2019

Requiring equal pay for both C-sections and vaginal births does not tell physicians and patients which treatment to choose, unlike, for example, a seat-belt law, which tells you to put on your seat belt. But it eliminates a perverse incentive. Simple changes that encourage, but don’t mandate, behaviors we would like to see have been called “nudges.” In their book with that title, Cass Sunstein and Richard Thaler offer a handful of policy examples, ranging from the serious (a plan that improves employee retirement-savings rates) to the less serious but equally effective (painting a fly on urinals has been shown to reduce urinal spillage by 80 percent). For his work in helping launch the field of behavioral economics, Thaler was awarded the 2017 Nobel Prize.

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jail terms: For more on behavioral economics, see Thinking, Fast and Slow by Daniel Kahneman (from which the jail term example is drawn, pages 225–26); the Predictably Irrational series by Dan Ariely; or the Freakonomics collection and blog by Steven Levitt and Stephen Dubner. For a recent summary and entertaining history, see Misbehaving: The Making of Behavioral Economics by Richard Thaler. for both types of deliveries: See Allin for a recent economic analysis, and NPW for an assessment of likely reasons and common myths behind the steep rise in C-section rates. Although legal pressures have been frequently cited as contributing to the rise, recent studies have shown they have played little role (Sakala).

The Age of Surveillance Capitalism
by Shoshana Zuboff
Published 15 Jan 2019

Rosalind Picard, “Towards Machines That Deny Their Maker—Lecture with Rosalind Picard,” VBG, April 22, 2016, http://www.vbg.net/ueber-uns/agenda/termin/3075.html. 122. Joseph Weizenbaum, “Not Without Us,” SIGCAS Computers and Society 16, nos. 2–3 (1986): 2–7, https://doi.org/10.1145/15483.15484. CHAPTER TEN 1. Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness, rev. ed. (New York: Penguin, 2009). 2. Elizabeth J. Lyons et al., “Behavior Change Techniques Implemented in Electronic Lifestyle Activity Monitors: A Systematic Content Analysis,” Journal of Medical Internet Research 16, no. 8 (2014), e192, https://doi.org/10.2196/jmir.3469.

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Strategies that produce economies of action vary according to the methods with which these approaches are combined and the salience of each. “Tuning” occurs in a variety of ways. It may involve subliminal cues designed to subtly shape the flow of behavior at the precise time and place for maximally efficient influence. Another kind of tuning involves what behavioral economists Richard Thaler and Cass Sunstein call the “nudge,” which they define as “any aspect of a choice architecture that alters people’s behavior in a predictable way.”1 The term choice architecture refers to the ways in which situations are already structured to channel attention and shape action. In some cases these architectures are intentionally designed to elicit specific behavior, such as a classroom in which all the seats face the teacher or an online business that requires you to click through many obscure pages in order to opt out of its tracking cookies.

Big Mistakes: The Best Investors and Their Worst Investments
by Michael Batnick
Published 21 May 2018

Know when you're wrong; use price levels, dollar loss levels, or percentage loss levels. Making decisions ahead of time, especially decisions that involve admitting defeat, can help conquer one of the biggest hurdles investors face; looking in the mirror and seeing an ability that we just do not possess. Notes 1. Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler, “Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias,” Journal of Economic Perspectives 5, no. 1 (Winter 1991): 193–206. 2. Robert Shiller, Irrational Exuberance (Princeton, NJ: Princeton University Press, 2000), 60. 3. David Dreman, Contrarian Investment Strategies: The Psychological Edge (New York: Free Press, 2012), 176. 4.

The Economics Anti-Textbook: A Critical Thinker's Guide to Microeconomics
by Rod Hill and Anthony Myatt
Published 15 Mar 2010

For example, if the risk associated with a medical procedure is expressed as a 10 per cent risk of dying, fewer people will accept the procedure than when the risk is expressed as a 90 per cent chance of living (Redelmeier et al. 1993). don’t. It has proved an intractable problem. But through a better understanding of our psychology, the behavioural economist Richard Thaler (Thaler and Bernartzi 2004) came up with a solution: the Save More Tomorrow programme. The idea is that people commit a portion of their future salary increases into a retirement savings account. Brilliant! There is no sacrifice today; we do our savings tomorrow as we would prefer. When this plan was offered in several firms, a high proportion (78 per cent) joined.

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On the other hand, Dewald et al. found that the errors did not significantly affect the conclusions in the majority of cases. 8 Another example would be whether asset markets are efficient. There has been a long-running battle between Eugene Fama and his associates in support of the efficient market hypothesis, and Andrei Shleifer, Richard Thaler and others in support of the inefficient market hypothesis. 9 Donald McCloskey and Deirdre McCloskey are the same person, the transition occurring (from Donald to Deirdre) in 1995. 10 A good Internet source is the History of Economic Thought website developed through the New School of Economic Research.

Rationality: What It Is, Why It Seems Scarce, Why It Matters
by Steven Pinker
Published 14 Oct 2021

Before being faced with that temptation, we might allow our employers to make the choice for us (and other choices that benefit us in the long run) by enrolling us in mandatory savings by default: we would have to take steps to opt out of the plan rather than to opt in. This is the basis for the philosophy of governance whimsically called libertarian paternalism by the legal scholar Cass Sunstein and the behavioral economist Richard Thaler in their book Nudge. They argue that it is rational for us to empower governments and businesses to fasten us to the mast, albeit with loose ropes rather than tight ones. Informed by research on human judgment, experts would engineer the “choice architecture” of our environments to make it difficult for us to do tempting harmful things, like consumption, waste, and theft.

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The decision weight graph differs from fig. 4 in Kahneman & Tversky 1979 and is instead based on fig. 12.2 in Hastie & Dawes 2010, which I believe is a better visualization of the theory. 35. Based on Kahneman & Tversky 1979. 36. This pervasive asymmetry is called the Negativity bias; Tierney & Baumeister 2019. 37. Maurice Allais, Herbert Simon, Daniel Kahneman, Richard Thaler, George Akerlof. 38. Gigerenzer 2008b, p. 20. 39. Abito & Salant 2018; Braverman 2018. 40. Sydnor 2010. 41. Gigerenzer & Kolpatzik 2017; see also Gigerenzer 2014, for a similar argument on breast cancer screening. CHAPTER 7: HITS AND FALSE ALARMS (SIGNAL DETECTION AND STATISTICAL DECISION THEORY) 1.

The Mesh: Why the Future of Business Is Sharing
by Lisa Gansky
Published 14 Oct 2010

Mortgage News Daily, February 20, 2008, http://www.mortgagenewsdaily.com/2202008_Permanent_House_Swap.asp (accessed March 17, 2010). Siegler, M. G. “Twitter Can Now Know Where You Tweet.” TechCrunch, August 20, 2009, http://www.techcrunch.com/2009/08/20/twitter-can-now-know-where-you-tweet (accessed March 17, 2010). Sunstein, Cass R., and Richard H. Thaler. Nudge: Improving Decisions about Health, Wealth, and Happiness. New York: Caravan, 2008. “Survive in ’09: Neighborhood Sharing on the Rise.” CBS3, August 26, 2009, http://cbs3.com/topstories/sharing.neighborhood.survive.2.1145308.html (accessed March 16, 2010). Taylor, Tanis. “Meet the Urban Sharecroppers.”

Little Bets: How Breakthrough Ideas Emerge From Small Discoveries
by Peter Sims
Published 18 Apr 2011

Status quo bias and loss aversion: Origin of status quo bias terminology and research: “Status Quo Bias in Decision Making,” by William Samuelson and Richard Zeckhauser, Journal of Risk and Uncertainty, vol. 1, 1988, 7–59. Addition of loss aversion and endowment effect: “The Endowment Effect, Loss Aversion, and Status Quo Bias,” by Daniel Kahneman, Jack L. Knetsch, Richard H. Thaler, Journal of Economic Perspectives, vol. 5, 193–206. “Timid Choices and Bold Forecasts,” by Daniel Kahneman and Dan Lavallo, Management Science, 39, 17–31. Chet Pipkin: Interview with Pipkin. Procter & Gamble: Interviews with P&G innovation-focused executives Karl Ronn and Chris Thoen. The Game-Changer: How You Can Drive Revenue and Profit Growth with Innovation by A.G.

Speculative Everything: Design, Fiction, and Social Dreaming
by Anthony Dunne and Fiona Raby
Published 22 Nov 2013

Available at http://www.arterritory.com/en/ texts/interviews/ 538-between-art-and-designwithout-borders/2. Accessed December 24, 2012. CHAPTER 9 1. From Nico Macdonald's seminar "Designerly Thinking and Beyond" for design interactions MA students at the RCA (January 25, 2006). Available at http:// www.spy.co.uk/Communication/Talks/Colleges/RCA_ID/2006. Accessed December 24, 2012. 2. See Richard Thaler and Cass Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness (London: Penguin, 2009). 3. For more on this, see B.J.Fogg, Persuasive Technology: Using Computers to Change What We Thin k and Do (Burlington, MA: Morgan Kaufmann, 2003). 4. Available at http://www.cabinetoffice.gov.uk/behavioural-insights-team.

People, Power, and Profits: Progressive Capitalism for an Age of Discontent
by Joseph E. Stiglitz
Published 22 Apr 2019

As sociologist Zeynep Tüfekçi is fond of pointing out, it could exploit each of our weaknesses, an irrational desire for new shoes or handbags or trips to warm beaches, and feed us information that leads us to dissipate our incomes, our emotional self prevailing over our more deliberative self.21 Research by Nobel Prize winner Richard Thaler has described what might be viewed as a war going on inside many individuals between these different identities. These new technologies intervene in this war on behalf of our lesser selves. The fear is that Big Data and AI will allow firms to have near perfect insight into these dynamics, and adjust their practices accordingly to maximize profits.

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As I return to the issues of globalization, I need to thank Dani Rodrik as well as Danny Quah, Rohinton Medhora, and Mari Pangestu; and on the role of globalization in tax avoidance, Mark Pieth and the Independent Commission for Reform of International Corporate Taxation, chaired by José Antonio Ocampo, on which I serve. Daniel Kahneman, Richard Thaler, and especially Karla Hoff have greatly influenced my thinking on the role of culture, our society, and our economy in shaping individuals, and other aspects of behavioral economics. As I’ve thought about how to respond to the challenges of globalization, financialization, and new technologies, I need to acknowledge my indebtedness to Akbar Noman, Giovanni Dosi, Justin Yifu Lin, and Mario Cimoli for insights about industrial policy; and to Karl Ove Moene, Leif Pagrotsky, Isabel Ortiz, and other members of the Initiative for Policy Dialogue/Roosevelt project on revisiting the welfare state, for insights on the welfare state, including the Scandinavian model.

Adam Smith: Father of Economics
by Jesse Norman
Published 30 Jun 2018

It does not date from the dawn of political economy; rather, it was first developed by Eugene Fama, an economist at the University of Chicago, in the late 1960s. It comes in different varieties: strong, semi-strong and weak. But at their heart these varieties all have two key ideas: what the behavioural economist Richard Thaler has aptly called ‘The Price is Right’ and ‘No Free Lunch’. The Price is Right is the idea that the prices in financial markets reflect all available information about the assets being traded, so that capital allocations through financial markets are economically efficient. No Free Lunch is the idea that market prices are impossible to predict, so that any investor will struggle to beat the market, after adjusting for risk.

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Camerer and George Loewenstein, ‘Adam Smith, Behavioral Economist’, Journal of Economic Perspectives, 19.3, Summer 2005 CHAPTER 8: ADAM SMITH AND MARKETS ‘He’s kind of a drunken psycho’: Warren Buffett, quoted on Benzinga.com, 6 January 2015 Benjamin Graham: The Intelligent Investor, Harper & Bros. 1949 Efficient Market Hypothesis: Richard Thaler, ‘Markets can be wrong and the price is not always right’, Financial Times, 4 August 2009. On the theory, see e.g. Andrei Shleifer, Inefficient Markets, Oxford University Press 2000. A highly readable overview of the history is Justin Fox, The Myth of the Rational Market, Harriman House 2009 Information incentives and efficient markets: see Sanford J.

To Sell Is Human: The Surprising Truth About Moving Others
by Daniel H. Pink
Published 1 Dec 2012

The opposite of clarity is murkiness. And murkiness’s close cousin is mindlessness—the state of being unaware. Wansink shows how mindlessness allows us to fall prey to hidden persuaders that make us overeat without even knowing it. Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler and Cass R. Sunstein. Two professors harvest the field of behavioral economics to reveal how altering “choice architecture” can nudge people to make better decisions about their lives. Ask the Five Whys. Those of you with toddlers in the house are familiar with, and perhaps annoyed by, the constant why-why-why.

Essentialism: The Disciplined Pursuit of Less
by Greg McKeown
Published 14 Apr 2014

“Ministers Knew Aircraft Would Not Make Money,” Independent, http://www.independent.co.uk/news/uk/ministers-knew-aircraft-would-not-make-money-concorde-thirty-years-ago-harold-macmillan-sacked-a-third-of-his-cabinet-concorde-was-approved-the-cuba-crisis-shook-the-world-and-ministers-considered-pit-closures-anthony-bevins-and-nicholas-timmins-review-highlights-from-1962-government-files-made-public-yesterday-1476025.html 3. Gillman, “Supersonic Bust.” 4. Michael Rosenfield, “NH Man Loses Life Savings on Carnival Game,” CBS Boston, April 29, 2013, http://boston.cbslocal.com/2013/04/29/nh-man-loses-life-savings-on-carnival-game/. 5. Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler, “Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias,” Journal of Economic Perspective 5, no. 1 (1991): 193–206, http://users.tricity.wsu.edu/~achaudh/kahnemanetal.pdf. 6. Tom Stafford, “Why We Love to Hoard … and How You Can Overcome It,” BBC News, July 17, 2012, www.bbc.com/future/story/20120717-why-we-love-to-hoard. 7.

MONEY Master the Game: 7 Simple Steps to Financial Freedom
by Tony Robbins
Published 18 Nov 2014

Could it be that you’re not systematically saving money because it feels like a sacrifice—a loss—instead of a gift to yourself today and in the future? In my search for answers, I met with Shlomo Benartzi of the UCLA Anderson School of Management. He said, “Tony, the problem is people feel like the future is not real. So it’s hard to save for the future.” Benartzi and his colleague, Nobel Prize winner Richard Thaler of the University of Chicago, came up with an amazing solution called Save More Tomorrow (SMarT) with a simple but powerful premise: if it hurts too much to save more money now—just wait until your next pay raise. How did they come up with it? First, Shlomo told me, they had to address the challenge of immediate gratification, or what scientists call “present bias.”

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If that’s true, before we talk about anything else, let’s remember the most fundamental strategy you learned back in chapter 2.9, “Myth 9: The Lies We Tell Ourselves”: the best strategy to get around your belief system is to develop a new belief! You can’t squeeze water from a rock, but you can change your story. Even if you’re convinced you have no room to save, Nobel Prize winner Richard Thaler showed us that we can all Save More Tomorrow. Remember those blue-collar workers who said they could never save? And just five years and three pay raises later, they were saving 14%. And 65% of them were saving as much as 19%! You can do this, and you can make it painless if you use that strategy.

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Morgan, for being such an extraordinary example of the power of servant leadership, and for modeling how we can all be extraordinary in business and yet still so connected to what really matters most. To all the extraordinary, insightful academics and businessmen and businesswomen. From Nobel laureates like Robert Schiller and Harry Markowitz to Dan Ariely (MIT) and the tandem of Shlomo Benartzi and Richard Thaler, whose Save More Tomorrow allows individuals to get around the cognitive and emotional limitations that most human beings find themselves entrapped by. To Dr. David Babbel, your focus on lifetime income and your living example helped shape a big part of this book. Burton Malkiel, you are a treasure to this country.

An Elegant Puzzle: Systems of Engineering Management
by Will Larson
Published 19 May 2019

This ensures that each time you push information to a team, it includes important information that they should act on! What’s so powerful about nudges is that simply letting folks know their behavior has changed will typically stir them to action, and it doesn’t require any sort of organizational authority to do so. (For more on this topic, take a look at Nudge by Richard H. Thaler and Cass R. Sunstein.)21 Baseline: In the best case, you’ll be able to drive the organizational impact you need with contextualized nudges, but in some cases that isn’t quite enough. The next step is to work with the key teams to agree on baseline metrics for their performance. This is useful because it ensures that the baselines are top-of-mind, and it also gives them a powerful tool for negotiating priorities with their stakeholders.

Radical Uncertainty: Decision-Making for an Unknowable Future
by Mervyn King and John Kay
Published 5 Mar 2020

We conclude that their failure . . . reflects imperfect attention, limited memory or related cognitive limitations.’ 17 Woodford simply assumed that the ideal benchmark is the Bayesian solution, and an auxiliary hypothesis of human failure (described by Woodford as ‘rational inattention’, a failing with which we find it easy to sympathise) was required to reconcile the model with the experimental results. The philosopher Anthony Appiah coined the term ‘cognitive angels’ to describe idealised agents who can maximise expected utility correctly, and contrasted them with real people who take time to compute and make errors in the process. Richard Thaler, winner in 2017 of the Nobel Prize in Economics, similarly distinguished ‘econs’ and ‘humans’. 18 We do not regard the pursuit of expected utility maximisation – in a world of radical uncertainty – as characteristic of an angel. It is unlikely that the students at Columbia were angels in any sense of the word; they were human.

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And ask instead how humans do behave in large worlds of which they can only ever have imperfect knowledge. Nudge Failure to appreciate the fact that people are struggling to know what it is to be rational in a world of radical uncertainty leads to the conclusion that their ‘mistakes’ should be corrected by policy interventions, and recommendations of this kind have been suggested by Richard Thaler. Thaler was careful in his use of the word ‘rationality’. His Nobel lecture contained only a handful of references to ‘rational’ or ‘rationality’ whereas the citation by the committee that awarded the prize used the words forty-seven times. 20 But Thaler was clear what he meant by rational behaviour – he urges his students in his MBA class to ‘maximize expected utility’ and avoid the biases of those who require to be nudged into more appropriate choices.

Economics Rules: The Rights and Wrongs of the Dismal Science
by Dani Rodrik
Published 12 Oct 2015

Winter, An Evolutionary Theory of Economic Change (Cambridge, MA: Belknap Press of Harvard University Press, 1982). 12. Daniel Kahneman, Paul Slovic, and Amos Tversky, Judgement under Uncertainty: Heuristics and Biases (Cambridge: Cambridge University Press, 1982). 13. Werner F. M. De Bondt and Richard Thaler, “Does the Stock Market Overreact?” Journal of Finance 40, no. 3 (1985): 793–805. 14. David Laibson, “Golden Eggs and Hyperbolic Discounting,” Quarterly Journal of Economics 112, no. 2 (1997): 443–77; Brigitte C. Madrian and Dennis F. Shea, “The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior,” Quarterly Journal of Economics 116, no. 4 (2000): 1149–87; Jeffrey Liebman and Richard Zeckhauser, Simple Humans, Complex Insurance, Subtle Subsidies, NBER Working Paper 14330 (Cambridge, MA: National Bureau of Economic Research, 2008); Esther Duflo, Michael Kremer, and Jonathan Robinson, Nudging Farmers to Use Fertilizer: Theory and Experimental Evidence from Kenya, NBER Working Paper 15131 (Cambridge, MA: National Bureau of Economic Research, 2009). 15.

Willful: How We Choose What We Do
by Richard Robb
Published 12 Nov 2019

Of course, we may prefer a cold drink in the summer and a hot one in the winter. We may prefer variety; after an orange is chosen over an apple five times, oranges yield diminishing marginal utility and we switch to apples. Viewed at a sufficiently general level, these choices reflect coherent, stable preferences. An ostensible paradox formulated by behavioral economist Richard Thaler has a simple resolution if we consider the importance of authenticity. Thaler points out the inconsistency of a man refusing to hire somebody to mow his lawn for eight dollars but then turning down the opportunity to mow a neighbor’s similarly sized lawn for twenty dollars. Thaler attributes this paradox to cognitive bias.3 Rational choice economists might point to different reasons for this behavior: if the man hired himself out as a mower, he could suffer diminished status among his neighbors or incur transaction costs in negotiating the terms of the job, as well as additional income tax.

Lean In: Women, Work, and the Will to Lead
by Sheryl Sandberg
Published 11 Mar 2013

Gloria Steinem, “In Defense of the ‘Chick-Flick,’ ” Alternet, July 6, 2007, http://​www.​alternet.​org/​story/​56219/​gloria_​steinem%3A_​in_​defense_​of_​the_​‘chick_flick’. 2. Marianne Cooper, “The New F-Word,” Gender News, February 28, 2011, http://​gender.​stanford.​edu/​news/​2011/​new-​f-​word. 3. Susan Faludi, Backlash: The Undeclared War Against American Women (New York: Crown, 1991). 4. Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (New Haven, CT: Yale University Press, 2008). 5. Corinne A. Moss-Racusin et al., “Science Faculty’s Subtle Gender Biases Favor Male Students,” Proceedings of the National Academy of Sciences of the United States of America 109, no. 41 (2012): 16474–79. 6.

Empirical Market Microstructure: The Institutions, Economics and Econometrics of Securities Trading
by Joel Hasbrouck
Published 4 Jan 2007

Brunnermeier, Markus K., 2001, Asset Pricing under Asymmetric Information (Oxford University Press, Oxford). Brunnermeier, Markus K., and Lasse Heje Pedersen, 2005. Market liquidity and funding liquidity (Stern School, NYU). Caballe, Jordi, and Murugappa Krishnan, 1994, Imperfect competition in a multi-security market with risk neutrality, Econometrica 62, 695–704. Camerer, Colin, and Richard H. Thaler, 1995, Anomalies: Ultimatums, dictators and manners, Journal of Economic Perspectives 9, 209–19. Campbell, John Y., Sanford J. Grossman, and Jiang Wang, 1993, Trading volume and serial correlation in stock returns, Quarterly Journal of Economics 108, 905–39. CFA Institute, 2002, Trade Management Guidelines, CFA Institute (formerly the American Institute for Management Research), available online at http://www.cfainstitute.org/standards/pdf/trademgmt_ guidelines.pdf.

Raw Data Is an Oxymoron
by Lisa Gitelman
Published 25 Jan 2013

The detailed counsel about risk management online offered by the Electronic Frontier Foundation’s Surveillance-Self Defense Project is paradigmatic. See https://ssd.eff.org (accessed October 14, 2011). 47. Anthony Giddens, The Nation-State and Violence (Berkeley: University of California Press, 1985), 186. 48. See Richard H. Thaler, “Show Us the Data. (It’s Ours, After All),” New York Times (April 23, 2011), http://www.nytimes.com/2011/04/24/business/24view.html (accessed April 23, 2011) and “Better Choices, Better Deals,” U.K. Cabinet Office (April 13, 2011), http://www .cabinetoffice.gov.uk/resource-library/better-choices-better-deals (accessed July 14, 2011). 49.

The Long Good Buy: Analysing Cycles in Markets
by Peter Oppenheimer
Published 3 May 2020

Results indicate that the economy is highly driven by human psychologies, a result which is in conformity with the prediction of Keynes (1930) and Akerlof and Shiller (2010).’27 The renewed focus on psychology in understanding responses to and behaviour regarding decisions is also increasingly used in public policy. In 2008, Richard H. Thaler and Cass R. Sunstein published Nudge: Improving Decisions about Health, Wealth, and Happiness, which focused on behavioural economics. The book became a bestseller and has had a widespread impact on policy. Mr Thaler went on to win the Nobel Prize for Economics in 2017 for his work in the field.

People Powered: How Communities Can Supercharge Your Business, Brand, and Teams
by Jono Bacon
Published 12 Nov 2019

Behavioral Economics Homework If you are interested in learning more about behavioral economics, the following books are a great start: •Dan Ariely, Predictably Irrational: The Hidden Forces That Shape Our Decisions, rev. and expanded ed. (HarperCollins, 2009). •Dan Ariely, The Upside of Irrationality: The Unexpected Benefits of Defying Logic at Work and at Home (HarperCollins, 2010). •Daniel Kahneman, Thinking, Fast and Slow (Farrar, Straus & Giroux, 2011). •Richard H. Thaler and Cass Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (Penguin Books, 2009). The SCARF Model Behavioral economics provides an enormously valuable blueprint for one of the most challenging elements of building communities and teams: Why do people behave the way they do, and how can we tune our work to map well to those automatic behaviors?

This Could Be Our Future: A Manifesto for a More Generous World
by Yancey Strickler
Published 29 Oct 2019

Bob Gibbs was kind enough to speak with me. I asked whether the no-left-turn rule was still alive and well. He assured me that it continues to guide where shopping centers and stores are built today. Cass Sunstein has written: Cass Sunstein wrote about white lines in parking lots as a kind of hidden default in his 2008 book with Richard Thaler, Nudge. citizens are default opted-out: Data on organ donation rates comes from a 2004 study, “Defaults and Donation Decisions,” by Eric J. Johnson and Daniel G. Goldstein. keep paying anyway: Data on gym attendance rates comes from USA Today (“Is Your Gym Membership a Good Investment?

Hello, Habits
by Fumio Sasaki
Published 6 Nov 2020

Wouldn’t Billy—or anyone else for that matter—head straight to the field where his friend is waiting for him? It isn’t easy for people to imagine future rewards. So, they tend to see the value of, and choose, rewards that are in front of them instead of those that await them in the future. It was apples that Richard Thaler, a theorist in behavioral economics, used in an experiment to consider this issue. I would like you to think about which of the following choices you would make. Question 1 Would you rather: A.Receive an apple a year from today B.Receive two apples a year and a day from today The majority of people who were asked this chose B.

The Great Economists Ten Economists whose thinking changed the way we live-FT Publishing International (2014)
by Phil Thornton
Published 7 May 2014

This problem is compounded by the endowment effect, a bias that makes people give a higher value to something that they now own compared with before they acquired it. In other words they value things more simply because they own them. The endowment effect, a term coined by Kahneman’s collaborator Richard Thaler, is the difference between what people are willing to accept (WTA) for something they own and the price they are willing to pay (WTP) for something they do not yet have. Thaler had seen that an economics professor who was a wine collector would never pay more than $35 for a bottle but never sell for less than $100, even though EUT would say he was sacrificing up to $65 profit each time he held on to the bottle.

Eat People: And Other Unapologetic Rules for Game-Changing Entrepreneurs
by Andy Kessler
Published 1 Feb 2011

But so do your parents and your priest or rabbi and certainly your boss. It makes sense. Who has any idea how to confront situations unless there is some anchor of honesty or morality or self-interest or just kindness that influences what we do? Entire wings of psychology departments exist to study this stuff. And now so do businesses and society. Richard Thaler and Cass Sunstein wrote Nudge, a book about how governments can act with “libertarian paternalism” to influence people’s behavior, to nudge them away from making poor decisions. Of course, who decides what is right or wrong, good or bad? Andrew Ferguson wrote an April 2010 piece in The Weekly Standard aptly titled “Nudge Nudge, Wink Wink,” pointing out that many of the favorite behavioral economics studies are done by grad students observing paid volunteer undergraduates doing trivial tasks, and arguing that this is hardly a basis for making largescale policy recommendations for a better society.

A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan
by Ben Carlson
Published 14 May 2015

On an annual basis stocks are up roughly three out of every four years. Go out to five years and the winning percentage jumps to almost 90 percent. And going out to 20 years, U.S. stocks have shown positive returns over all 20-year periods historically.13 The more often you check the market value of your portfolio, the more likely it is that you'll see losses. Richard Thaler, a behavioral economist who has spent his career studying these types of investor problems, laid out the simple, yet difficult, solution when he said, “The attractiveness of the risky asset depends on the time horizon of the investor. An investor who is prepared to wait a long time before evaluating the outcome of the investment as a gain or a loss will find the risky asset more attractive than another investor who expects to evaluate the outcome soon.”14 The Cycle of Fear and Greed While the average long-term returns on the stock market look great, there is nothing average about market cycles.

Brave New Work: Are You Ready to Reinvent Your Organization?
by Aaron Dignan
Published 1 Feb 2019

The same is true: James J. Choi, David Laibson, and Brigitte C. Madrian, “Plan Design and 401(k) Savings Outcomes,” working paper 10486 (Cambridge, MA.: National Bureau of Economic Research, 2004): www.nber.org/papers/w10486.pdf. We prefer to stick with what we’ve got: Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler, “Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias,” Journal of Economic Perspectives 5, no. 1 (1991), doi:10.1257/jep.5.1.193. “put a man on the moon”: Astro Teller, “Google X Head on Moonshots: 10x Is Easier Than 10 Percent,” Wired, February 11, 2013, www.wired.com/2013/02/moonshots-matter-heres-how-to-make-them-happen.

More Money Than God: Hedge Funds and the Making of a New Elite
by Sebastian Mallaby
Published 9 Jun 2010

This line of attack went after the protagonist at the center of economists’ models, the impeccably rational figure known as Homo economicus. When investors could revise their valuation of corporate America by as much as a quarter in a single day, something other than rational analysis was in play; homo was not fully economicus. Economists were suddenly open to ideas that might explain the extent of the divergence. In 1988 Richard Thaler of the University of Chicago began to publish regular features in the Journal of Economic Perspectives that pointed out instances in which human choices appeared to violate economists’ expectations of rational beings. To Soros, who had obsessed about the limits to cognition since his student days in London, it was another victory.

…

Summers, “The Noise Trader Approach to Finance,” Journal of Economic Perspectives 4, no. 2 (Spring 1990). In the wake of the financial crisis of 2007–2009, it was said that financial economists had finally been forced to wake up to market inefficiencies. But their existence had already been widely accepted among economists for at least two decades. 9. There are many more examples. Richard Thaler, the leading light in behavioral finance, is involved in the investment-management firm Fuller & Thaler. At Long-Term Capital Management, Eric Rosenfeld, a former finance professor at Harvard Business School, was more important but less famous than Merton and Scholes, the Nobel laureates. Kenneth French is a director of Dimensional Fund Advisors.

Quantitative Value: A Practitioner's Guide to Automating Intelligent Investment and Eliminating Behavioral Errors
by Wesley R. Gray and Tobias E. Carlisle
Published 29 Nov 2012

Wall Street Journal, Fund Track (December 31, 2009), http://online.wsj.com/article/SB10001424052748704876804574628561609012716.html. 33. Jesse J. Prinz, Gut Reactions: A Perceptual Theory of Emotion (Philosophy of Mind) (Oxford: Oxford University Press, USA, 2004). 34. Nicholas Barberis and Richard Thaler, “A Survey of Behavioral Finance.” NBER Working Paper No. 9222, September 2002, www.nber.org/papers/w9222. 35. Amos Tversky and Daniel Kahneman, “Judgment under Uncertainty: Heuristics and Biases.” Science, New Series 185(4157) (September 27, 1974): 1124–1131; www.jstor.org/pss/1738360. 36.

Big Three in Economics: Adam Smith, Karl Marx, and John Maynard Keynes
by Mark Skousen
Published 22 Dec 2006

Neo-Keynesians have contributed extensively to the new field of "behavioral economics," which questions the efficiency/rational expectations model of the Chicago school, and proposes ways to counter the tendency of individuals to make financial mistakes, such as undersaving, over-consuming, and undeipeiforming the stock market averages. See, for example, Richard Thaler (2004) andRobert Shiller (2005). However, not all behavioral economists are Keynesian. See Jeremy Siegel (2005). could exist even without minimum wage laws or labor unions, he contends. During the Great Depression, "had there been more wage and price flexibility, matters might have been even worse," he states (2001, 477).

The Formula: How Algorithms Solve All Our Problems-And Create More
by Luke Dormehl
Published 4 Nov 2014

If laws or rules are an effort to moralize other people, does this differ from attempts to moralize technology? Can we quantify in any real sense the difference between a rule that asks that we not waste water in the shower and the use of a water-saving showerhead technology that ensures that we do not? In their book Nudge: Improving Decisions about Health, Wealth, and Happiness, authors Richard Thaler and Cass Sunstein recount the story of a fake housefly placed in each of the urinals at Schiphol Airport in Amsterdam. By giving urinating men something to aim at, spillage was reduced by a whole 80 percent.37 While few would likely decry the kind of soft paternalism designed to keep public toilets clean, what about the harder paternalism of a car that forcibly brakes to stop a person breaking the speed limit?

The Paradox of Choice: Why More Is Less
by Barry Schwartz
Published 1 Jan 2004

What matters is whether you’ll feel better safe and warm at home, watching the game on TV, or slogging through the snow on treacherous roads to see the game in person. That’s all that should matter. But it isn’t all that matters. To stay home is to incur a loss of $50, and people hate losses, so they drag themselves out to the game. Economist Richard Thaler provides another example of sunk costs that I suspect many people can identify with. You buy a pair of shoes that turn out to be really uncomfortable. What will you do about them? Thaler suggests: The more expensive they were, the more often you’ll try to wear them. Eventually, you’ll stop wearing them, but you won’t get rid of them.

The Happiness Curve: Why Life Gets Better After 50
by Jonathan Rauch
Published 30 Apr 2018

It would be one thing if people were just randomly guessing wrong about their utility, but that, too, is demonstrably untrue. Experiments show a whole assortment of ways in which people’s irrationality is not random but systematically biased. To name just one example (from a famous 1990 experiment by the Nobel Prize–winning psychologist Daniel Kahneman and colleagues Jack Knetsch and Richard Thaler), people who would be willing to pay, say, only $3 for a mug will then, if given that mug, demand more like $7 to part with it a few minutes later, as if their simply coming into possession of the mug had increased its value. People seem averse to losing what they have, even when they would be better off getting something new.

Rebel Ideas: The Power of Diverse Thinking
by Matthew Syed
Published 9 Sep 2019

A host of other excellent books follow this approach but in a slightly different way. Even when we have developed expertise, we can still be vulnerable to biases and quirks that undermine our capacity to make wise judgements. Thinking, Fast and Slow by Daniel Kahneman, Predictably Irrational by Dan Ariely and Misbehaving by Richard Thaler all seek to improve performance by understanding these biases, and how to guard against them. But by focusing on individuals, there has been a tendency to overlook what we might call the ‘holistic perspective’. A good way to understand the difference is to consider a colony of ants. A naive entomologist might seek to understand the colony by examining the ants within the colony.

What's Wrong With Economics: A Primer for the Perplexed
by Robert Skidelsky
Published 3 Mar 2020

Another finding of behavioural economics is that imperfect information, complexity, uncertainty, and limited calculating capacity force agents to use of rules of thumb, or heuristics, rather than ‘pure’ optimising behaviour. Widespread use of heuristics – short-cuts – produces systematic behavioural biases. These mean that it might be both possible and desirable for government to ‘nudge’ (aka incentivise) people to act more rationally. Nobel Laureate Richard Thaler (b.1945) and Cass Sunstein (b.1954) argue people might be ‘nudged’ to eat more healthily by taxing sugar or to save more by making wage increases conditional on savings commitments.15 How successful this last ‘nudge’ would be is open to question. Saving for the future implies a belief that money will hold its value, and that government will honour its commitment to keep savings for retirement tax-free or tax-deferred.

The Happiness Industry: How the Government and Big Business Sold Us Well-Being
by William Davies
Published 11 May 2015

This is not to imply ‘guilt by association’ but simply to point out that certain types of knowledge are useful to certain types of agency, with particular strategic interests. Pop behaviourism, offering to reveal the secrets of social influence, has become a booming area of non-fiction publishing, making minor celebrities of psychologists such as Dan Ariely and Robert Cialdini and behavioural economists such as Richard Thaler. Speaking fees for these academics range between $50,000–$75,000 a day, giving an indication of the types of network that their knowledge is fed into.16 The circuit of behavioural expertise feeds directly into the marketing and advertising industries, as it has done pretty much ever since the American visitors to Wilhem Wundt’s laboratory returned home at the end of the nineteenth century.

Average Is Over: Powering America Beyond the Age of the Great Stagnation
by Tyler Cowen
Published 11 Sep 2013

Haven’t thousands of articles from psychology and behavioral economics outlined major weaknesses in human perception and decision-making abilities? There are the works of Daniel Kahneman, Dan Ariely, and many others. Haven’t we all heard about “nudge,” the concept so eloquently outlined by Cass Sunstein and Richard Thaler? In that worldview, experts know the biases of other decision makers and design the choice architecture to manipulate better human choices, such as changing the default options for which pension plan you will enroll in. Yes, but the chess result differs. Computer chess is pointing out some imperfections in the world’s experts, or you might say it is pointing out imperfections in those who, in other contexts, might be nudgers themselves.

SuperFreakonomics
by Steven D. Levitt and Stephen J. Dubner
Published 19 Oct 2009

ULTIMATUM AND DICTATOR: The first paper on Ultimatum as it is commonly known is Werner Guth, Rolf Schmittberger, and Bernd Schwarze, “An Experimental Analysis of Ultimatum Bargaining,” Journal of Economic Behavior and Organization 3, no. 4 (1982). For a good background on the evolution of such games, see Steven D. Levitt and John A. List, “What Do Laboratory Experiments Measuring Social Preferences Tell Us About the Real World,” Journal of Economic Perspectives 21, no. 2 (2007). See also: Daniel Kahneman, Jack L. Knetsch, and Richard Thaler, “Fairness as a Constraint on Profit Seeking: Entitlements in the Market,” American Economic Review 76, no. 4 (September 1986); Robert Forsythe, Joel L. Horowitz, N. E. Savin, and Martin Sef-ton, “Fairness in Simple Bargaining Experiments,” Games and Economic Behavior 6, no. 3 (May 1994); Colin F.

Mastering the Market Cycle: Getting the Odds on Your Side
by Howard Marks
Published 30 Sep 2018

Most swing to those positions at the wrong time—becoming greedier after the emergence of positive developments has caused prices to become elevated, and becoming more fearful after negative events have caused prices to become depressed. Here’s some of what I wrote about the swing of psychology in “On the Couch” (January 2016): There are many more ways in which non-objective, non-rational quirks commonly affect behavior. As Carol Tavris pointed out in her May 15, 2015 Wall Street Journal review of Prof. Richard Thaler’s book Misbehaving: The Making of Behavioral Economics (2015): As a social psychologist, I have long been amused by economists and their curiously delusional notion of the “rational man.” Rational? Where do these folks live? Even 50 years ago, experimental studies were demonstrating that people stay with clearly wrong decisions rather than change them, throw good money after bad, justify failed predictions rather than admit they were wrong, and resist, distort or actively reject information that disputes their beliefs.

A Little History of Economics
by Niall Kishtainy
Published 15 Jan 2017

All economics is about behaviour, of course, but behavioural economics was new because it built its theories around the quirks in people’s actual decision-making, rather than simply assuming that they were completely rational. One quirk is that people weigh up gains and losses differently. Rationally, a gain of $50 should exactly offset a loss of $50. However, people seem to hate losses more than they love gains. When he was still a student, the behavioural economist Richard Thaler (b. 1945) noticed ‘loss aversion’ in one of his own economics professors! The professor, a wine lover, was willing to pay a high price for a bottle of a certain wine to add to his collection. But he really hated giving one up: even if you offered him three times what he’d paid, he wouldn’t sell a bottle to you.

The Hidden Half: How the World Conceals Its Secrets
by Michael Blastland
Published 3 Apr 2019

The challenge, says Tim Harford, is to refine the theory ‘without collapsing into a mess of special cases’. This strikes me as the ultimate challenge for all theory – to maintain its general fitness while being refined to cope with ever more particulars. Something often has to give – either the coherence of the theory, or its power in particular cases. Richard Thaler, one of the leading thinkers in behavioural economics, has said: ‘If you want one unifying theory of economic behaviour, you won’t do better than the neoclassical model, which is not particularly good at describing actual decision making.’14 It’s a wretched but unavoidable trade-off:15 unified and often impractical; or particular, and perhaps more locally helpful, but fragmented and messy.

Cloudmoney: Cash, Cards, Crypto, and the War for Our Wallets
by Brett Scott
Published 4 Jul 2022

This is not often reflected in commentary about the future of money, because commentary tends to be a speciality of people in higher-status social circles. Take, for example, Kenneth Rogoff, the high-profile author of The Curse of Cash, formerly head economist at the IMF, and now a professor at Harvard. His anti-cash opinions get easy access to politicians, high-profile academics and the media. Others, like Richard Thaler – who won the Nobel Prize in economics for his work on nudge theory – publicly praised India’s Modi government for clamping down on cash. These are the people conditioning our views on cash, but they do not represent its culture. A social worker once suggested to me that a person’s social status can be ascertained by the level of trust they place in the police treating them fairly.

The End of Ownership: Personal Property in the Digital Economy
by Aaron Perzanowski and Jason Schultz
Published 4 Nov 2016

Swift’s Red tour, which wrapped up in 2014, grossed $150 million, more than the next highest-grossing tours from Beyonce, Jay-Z, and Justin Timberlake combined. 33. Taylor Swift, “For Taylor Swift, the Future of Music Is a Love Story,” Wall Street Journal, July 7, 2014, http://www.wsj.com/articles/for-taylor-swift-the-future-of-music-is-a-love-story-1404763219, accessed June 15, 2015. 34. Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler, “Experimental Tests of the Endowment Effect and the Coase Theorem,” Journal of Political Economy 98, no. 6 (1990): 1325–1348. 35. Carey K. Morewedge et al., “Bad Riddance or Good Rubbish? Ownership and Not Loss Aversion Causes the Endowment Effect,” Journal of Experimental Psychology 45, no. 4 (July 2009): 947–951. 36.

Value Investing: From Graham to Buffett and Beyond
by Bruce C. N. Greenwald , Judd Kahn , Paul D. Sonkin and Michael van Biema
Published 26 Jan 2004

On cognitive biases, the starting point is the collection of papers: Daniel Kahneman, Paul Slovic, and Amos Tversky, editors, Judgment under Uncertainty (New York: Cambridge University Press, 1982). The consequences for investments form the relatively new field of behavioral finance. Books and articles to consult: Andrei Shleifer, Inefficient Markets: An Introduction to Behavioral Finance (Oxford: Oxford University Press, 2000). Richard H. Thaler, editor, Advances in Behavioral Finance (New York: Russell Sage Foundation, 1993). David Dreman, Contrarian Investment Strategies: The Next Generation (New York: Simon & Schuster, 1998), makes use and has references to many of the articles in this field. Chapter Four We owe the analysis of Hudson General to Mario J.

Irresistible: The Rise of Addictive Technology and the Business of Keeping Us Hooked
by Adam L. Alter
Published 15 Feb 2017

Potts, and Jane Wardle, “How Are Habits Formed: Modelling Habit Formation in the Real World,” European Journal of Social Psychology 40, no. 6 (October 2010): 998–1009. We know this works: Vanessa M. Patrick and Henrik Hagtvedt, “‘I Don’t’ versus ‘I Can’t’: When Empowered Refusal Motivates Goal-Directed Behavior,” Journal of Consumer Research 39 (2011), 371–81. That’s the idea behind the: The term “behavioral architecture” is from: Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness (New Haven, CT: Yale University Press, 2008). When World War II: This section contains excerpts from a piece I wrote for 99u: Adam L. Alter, “How to Build a Collaborative Office Space Like Pixar and Google,” n.d., 99u.com/articles/16408/how-to-build-a-collaborative-office-space-like-pixar-and-google; Leon Festinger, Kurt W.

We Are Data: Algorithms and the Making of Our Digital Selves
by John Cheney-Lippold
Published 1 May 2017

Michel Foucault, “Society Must Be Defended”: Lectures at the Collège de France, 1975–1976 (New York: Picador, 2003), 135. 47. Katia Genel, “The Question of Biopower: Foucault and Agamben,” Rethinking Marxism: A Journal of Economics, Culture & Society 18, no. 1 (2006): 43–62. 48. Let’s Move!, “Get Active,” 2014, www.letsmove.gov. 49. Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness (New York: Penguin Books, 2009). 50. Let’s Move!, “Get Active.” 51. Quantified Self, “About the Quantified Self,” 2014, http://quantifiedself.com. 52. Dawn Nafus and Jamie Sherman, “Big Data, Big Questions | This One Does Not Go Up to 11: The Quantified Self Movement as an Alternative Big Data Practice,” International Journal of Communication 8 (2014): 1785. 53.

How Big Things Get Done: The Surprising Factors Behind Every Successful Project, From Home Renovations to Space Exploration
by Bent Flyvbjerg and Dan Gardner
Published 16 Feb 2023

Bent Flyvbjerg (Cheltenham, UK: Edward Elgar, 2014), 291–309; Helga Drummond, “Megaproject Escalation of Commitment: An Update and Appraisal,” in The Oxford Handbook of Megaproject Management, ed. Bent Flyvbjerg (Oxford, UK: Oxford University Press, 2017), 194–216; Flyvbjerg, “Top Ten Behavioral Biases in Project Management.” 34. Sleesman et al., “Cleaning Up the Big Muddy.” 35. Richard H. Thaler, Misbehaving: How Economics Became Behavioural (London: Allen Lane, 2015), 20. 36. Vogel, The Pentagon, 24. 37. Bent Flyvbjerg, Massimo Garbuio, and Dan Lovallo, “Delusion and Deception in Large Infrastructure Projects: Two Models for Explaining and Preventing Executive Disaster,” California Management Review 51, no. 2 (Winter 2009): 170–93. 38.

Moneyball
by Michael Lewis
Published 1 Jan 2003

—Mark Emmons, San Jose Mercury News “Anyone who cares about baseball must read it.” —Cathleen McGuigan, Newsweek “Michael Lewis has written what might be the best book ever about baseball.” —Steve Weinberg, Orlando Sentinel “Lewis has a wonderful story to tell, and he tells it wonderfully.” —Richard H. Thaler and Cass R. Sunstein, The New Republic “[Lewis’s] descriptive writing allows Beane and the others in the lively cast of baseball characters to come alive.” —Publishers Weekly “Lewis’s book is a thoroughly modern, entertaining…even revolutionary look at the way the game has changed and is changing…guaranteed to ruffle a lot of feathers.”

The Willpower Instinct: How Self-Control Works, Why It Matters, and What You Can Doto Get More of It
by Kelly McGonigal
Published 1 Dec 2011

Knowing how to strengthen the limited self-control of a nation is a trickier thing. Rather than hope that we as a nation develop more willpower in order to meet our biggest challenges, our best bet might be to take self-control out of the equation whenever possible—or at least reduce the self-control demands of doing the right thing. Behavioral economist Richard Thaler and legal scholar Cass Sunstein have argued persuasively for “choice architecture,” systems that make it easier for people to make good decisions consistent with their values and goals. For example, asking people to become organ donors when they renew a driver’s license or register to vote. Or having health insurance companies automatically schedule annual check-ups for their members.

The Precariat: The New Dangerous Class
by Guy Standing
Published 27 Feb 2011

This is an illusion of empowerment that degrades responsibility and professionalism. Soon, everybody will be rating everybody else. The state as libertarian paternalist A new perspective on social and economic policy is behavioural economics, which has produced libertarian paternalism. Nudge, an influential book by Cass Sunstein and Richard Thaler (2008), two Chicago-based advisers and friends of Barack Obama, was premised on the idea that people have too much information and so make irrational decisions. People must be steered, or nudged, to make A POLITICS OF INFERNO 139 the decisions that are in their best interest. The authors do not attribute the idea to Bentham but say the state should create ‘an architecture of choice’.

Capitalism: Money, Morals and Markets
by John Plender
Published 27 Jul 2015

The point is underlined by the brilliant quote from Daniel Defoe with which Charles Mackay begins his book: Some in clandestine companies combine; Erect new stocks to trade beyond the line; With air and empty names beguile the town, And raise new credits first, then cry ’em down; Divide the empty nothing into shares, And set the crowd together by the ears.80 Missing from the work of efficient market theorists are the insights of behavioural finance, which brings the disciplines of psychology and sociology to the analysis of behaviour in financial markets. In discussing bubbles, economists such as Robert Shiller and Richard Thaler posit a feedback theory. When prices rise fast, the profits made by investors attract public attention, promoting word-of-mouth enthusiasm and encouraging expectations of further price rises. Commentators fuel the boom with rationalisations such as the idea that the economy has reached a new era of permanently higher returns.

The 100-Year Life: Living and Working in an Age of Longevity
by Lynda Gratton and Andrew Scott
Published 1 Jun 2016

We expect that as the understanding of savings psychology improves, a number of innovative products will come to market aimed at helping automate savings decisions. For instance, a financial package called Acorns will round up any purchases made on a debit or credit card and then put this rounding amount into an investment fund. It’s unlikely to fund a retirement, but it does help reduce an under-saving bias.22 Economists Richard Thaler and Shlomo Benartzi devised a financial product based around commitment that exploits hyperbolic discounting and turns the status quo bias into a positive. This was a savings plan for employees called Save More Tomorrow (SMarT plan).23 The plan had four features aimed at overcoming a range of behavioural biases, including hyperbolic discounting.

Mindwise: Why We Misunderstand What Others Think, Believe, Feel, and Want
by Nicholas Epley
Published 11 Feb 2014

Americans getting too fat? Try to raise awareness about the dangers of obesity so that they’ll be more motivated to lose weight. Common sense suggests targeting people’s minds to change their actions, but many of these solutions are useless because they misunderstand the cause of the problems. As my colleagues Richard Thaler and Cass Sunstein point out in their book Nudge, much more effective for changing behavior is targeting the broader context rather than individual minds, making it easier for people to do the things they already want to do.29 Consider four examples: • ENCOURAGING ENVIRONMENTALISM. Convincing people not to litter is hard, and most already know that they’re not supposed to simply toss their garbage on the ground.

Switch: How to Change Things When Change Is Hard
by Chip Heath and Dan Heath
Published 10 Feb 2010

Our favorite book of Kotter’s, this book will be useful if you are trying to change a big organization. Mindless Eating, by Brian Wansink [Dieting]. Do you want to lose a few pounds, or are you just curious about why everyone else is getting fatter? This book is filled with clever research like the popcorn study we described in the first chapter. Nudge, by Richard Thaler and Cass Sunstein [Decision making and public policy]. The authors argue that people can be “nudged” to make better decisions, and they propose some great Path solutions. One Small Step Can Change Your Life, by Robert Maurer [Individual and organizational change]. If you liked the chapter on shrinking the change, this is your book.

The Loop: How Technology Is Creating a World Without Choices and How to Fight Back
by Jacob Ward
Published 25 Jan 2022

Whether I’m forced under by a wave or falling off the board, I close my eyes fiercely while I’m submerged and scramble for the board when I come back up, fighting panic. This is my brain’s effort to negotiate with my fears, and to wipe out the uncertainty of my situation. That horror of uncertainty, and the tendency to find reassurance in empty gestures, is now the basis of whole industries, as the economist Richard Thaler explained to me. Thaler won the Nobel Prize for carrying Kahneman and Tversky’s prospect theory forward into new domains, formulating along the way notions like the endowment effect, the theory that when evaluating two identical items, the one that belongs to me is magically endowed with greater value in my estimation.

Straight Talk on Trade: Ideas for a Sane World Economy
by Dani Rodrik
Published 8 Oct 2017

Paul Krugman, a Nobel laureate who also writes a newspaper column, has made a habit of slamming the latest generation of models in macroeconomics for neglecting old-fashioned Keynesian truths.6 Paul Romer, one of the originators of new growth theory, has accused some leading names, including the Nobel laureate Robert Lucas, of what he calls “mathiness”—using math to obfuscate rather than clarify.7 Richard Thaler, a distinguished behavioral economist at the University of Chicago, has taken the profession to task for ignoring real-world behavior in favor of models that assume people are rational optimizers.8 And finance professor Luigi Zingales, also at the University of Chicago, has charged that his fellow finance specialists have led society astray by overstating the benefits produced by the financial industry.9 This kind of critical examination by the discipline’s big names is healthy and welcome—especially in a field that has often lacked much self-reflection.

SEDATED: How Modern Capitalism Created Our Mental Health Crisis
by James. Davies
Published 15 Nov 2021

To understand why the Department of Work and Pensions had become so excited by psycho-compulsion courses, and the positive psychology and behaviourist teachings that underpinned them, we must go back to the summer of 2010, when David Cameron asked his entire Cabinet to read the same book over the August recess. The book was called Nudge, and was written by the famous behavioural economists Richard Thaler and Cass Sunstein. Its central message was that through ‘nudging’ people (i.e. subjecting them to small and low-cost behavioural interventions), you could reshape their behaviour in desired ways. Classic examples of this included putting green arrows on shop floors that pointed towards the fruit and veg counters (increasing the amount of veg purchases); making recycling bins larger than regular bins (prompting people to recycle more due to limited space for general waste); or, more quirkily, putting an image of a fly at the centre of public urinals (leading men to aim their pee at the fly, reducing splashing).

System Error: Where Big Tech Went Wrong and How We Can Reboot
by Rob Reich , Mehran Sahami and Jeremy M. Weinstein
Published 6 Sep 2021

under significant criticism: Josh Constine, “Zuckerberg says Facebook will offer GDPR privacy controls everywhere,” Techcrunch, April 4, 2018, https://techcrunch.com/2018/04/04/zuckerberg-gdpr/. “If people really knew”: Nicholas Confessore, “The Unlikely Activists Who Took On Silicon Valley—and Won,” New York Times, August 14, 2018, https://www.nytimes.com/2018/08/14/magazine/facebook-google-privacy-data.html. Nudges are design features: Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth and Happiness (New Haven: Yale University Press, 2008). a neutral online identifier: Jordan Mitchell, “The Evolution of the Internet, Identity, Privacy and Tracking,” IAB Technology Laboratory, September 4, 2019, https://iabtechlab.com/blog/evolution-of-internet-identity-privacy-tracking/.

Financial Statement Analysis: A Practitioner's Guide
by Martin S. Fridson and Fernando Alvarez
Published 31 May 2011

Laing, “The New Math: Why an Accounting Guru Wants to Shake Up Some Basic Tenets of His Profession,” Barron's, November 20, 2000, 31–36. 4. Henny Sender and Aline van Duyn, “Lack of Consistency in Lehman's Asset Valuations,” Financial Times, March 15, 2010, 17. 5. Barnaby J. Feder, “JDS Uniphase Will Write Down $44.8 Billion in Assets,” New York Times, July 27, 2001, C1–C2. 6. Richard H. Thaler, ed., Advances in Behavioral Finance (New York: Russell Sage Foundation, 1993). CHAPTER 3 The Income Statement 1. There are a few exceptions to this generalization. Tax collectors, for example, examine a company's income statement to determine its tax liability. For them, next year is irrelevant because they can assess a tax only on what has already been earned. 2.

On the Clock: What Low-Wage Work Did to Me and How It Drives America Insane
by Emily Guendelsberger
Published 15 Jul 2019

Fitz The Mythology of Work: How Capitalism Persists Despite Itself, Peter Fleming Live Work Work Work Die: A Journey into the Savage Heart of Silicon Valley, Corey Pein Confronting Dystopia: The New Technological Revolution and the Future of Work, Eva Paus On economics An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith Capital, Karl Marx “Economic Possibilities for Our Grandchildren” (essay), John Maynard Keynes The Great Risk Shift: The New Economic Insecurity and the Decline of the American Dream, Jacob S. Hacker Capital in the Twenty-First Century, Thomas Piketty The Economics of Inequality, Thomas Piketty Who Gets What—and Why: The New Economics of Matchmaking and Market Design, Alvin E. Roth Misbehaving: The Making of Behavioral Economics, Richard H. Thaler Notes Introduction 1. Carl Benedikt Frey and Michael A. Osborne, “The Future of Employment: How Susceptible Are Jobs to Computerisation?,” Technological Forecasting and Social Change 114 (January 2017): 254–80. Part One: Amazon 1. Spencer Soper, “Inside Amazon’s Warehouse: Lehigh Valley Workers Tell of Brutal Heat, Dizzying Pace at Online Retailer,” Morning Call (Allentown, PA), September 18, 2011, http://articles.mcall.com/2011-09-18/news/mc-allentown-amazon-complaints-20110917_1_warehouse-workers-heat-stress-brutal-heat. 2.

The Price of Everything: And the Hidden Logic of Value
by Eduardo Porter
Published 4 Jan 2011

The discussion on racial diversity and support for redistributive policies draws from William Julius Wilson, When Work Disappears: The World of the New Urban Poor (New York: Vintage Books, 1997), p. 202. Data on tipping patterns in the United States come from Daniel Kahneman, Jack Knetsch, and Richard Thaler, “Fairness as a Constraint on Profit Seeking: Entitlements in the Market,” American Economic Review, Vol. 76, September 1986, pp. 728-741; and Michael Lynn, “Tipping in Restaurants and Around the Globe: An Interdisciplinary Review,” in Morris Altman, ed., Handbook of Contemporary Behavioral Economics, Foundations and Developments (Armonk, N.Y.: M .E.

All About Asset Allocation, Second Edition
by Richard Ferri
Published 11 Jul 2010

A fledgling field of study in the early 1960s, behavioral finance has grown to be an important area of research at How Behavior Affects Asset Allocation Decisions 273 several influential institutions. Professors recognized as experts in the field include Daniel Kahneman (Princeton), Meir Statman (Santa Clara), Richard Thaler (University of Chicago), Robert J. Shiller (Yale), and Amos Tversky. Tversky is frequently cited as the forefather of the field. He died in 1996. The following list touches on a few observations made by behavioral finance researchers. Unfortunately, the list only scratches the surface. Much more information about this fascinating field is available on the Internet and in your local library: ● ● ● ● ● ● ● ● ● People tend to be more optimistic about stocks after the market goes up and more pessimistic after it goes down.

Superforecasting: The Art and Science of Prediction
by Philip Tetlock and Dan Gardner
Published 14 Sep 2015

The person whose guess comes closest to two-thirds of the average guess of all contestants wins. That’s it. And imagine there is a prize: the reader who comes closest to the correct answer wins a pair of business-class tickets for a flight between London and New York. The Financial Times actually held this contest in 1997, at the urging of Richard Thaler, a pioneer of behavioral economics. If I were reading the Financial Times in 1997, how would I win those tickets? I might start by thinking that because anyone can guess anything between 0 and 100 the guesses will be scattered randomly. That would make the average guess 50. And two-thirds of 50 is 33.

Messy: The Power of Disorder to Transform Our Lives
by Tim Harford
Published 3 Oct 2016

Akiko Fujita, “Tracking Disaster: Japanese Tourists Drive Straight into the Pacific,” ABC News, March 16, 2012, http://abcnews.go.com/blogs/headlines/2012/03/-tracking-disaster-japanese-tourists-drive-straight-into-the-pacific/. Also see Lauren Hansen, “8 Drivers Who Blindly Followed GPS into Disaster,” The Week, May 7, 2013, http://theweek.com/articles/464674/8-drivers-who-blindly-followed-gps-into-disaster. 15. Richard Thaler, Misbehaving (London: Penguin/Allen Lane, 2015). 16. Gary Klein, Streetlights and Shadows: Searching for the Keys to Adaptive Decision Making (London: MIT Press, 2009), pp. 118–119. 17. Sarah O’Connor, “Leave the Robotic Jobs to Robots and Improve Humans’ Lives,” Financial Times, January 5, 2016, https://next.ft.com/content/da557b66-b09c-11e5-993b-c425a3d2b65a. 18.

Beyond Diversification: What Every Investor Needs to Know About Asset Allocation
by Sebastien Page
Published 4 Nov 2020

“Exchange Traded Funds and Asset Return Correlations,” European Financial Management. Retrieved from wileyonlinelibrary.com/journal/eufm. Dahlquist, Magnus, and Campbell R. Harvey. Spring 2001. “Global Tactical Asset Allocation,” Journal of Global Capital Markets. Dalio, Ray. 2017. Principles: Life and Work. New York: Simon & Schuster. De Bondt, Werner F. M., and Richard Thaler. 1985. “Does the Stock Market Overreact?,” Journal of Finance, vol. 40, no. 3, pp. 793–805. Retrieved from JSTOR, http://www.jstor.org/stable/2327804. DeMiguel, Victor, Lorenzo Garlappi, and Raman Uppal. 2007. “Optimal Versus Naive Diversification: How Inefficient Is the 1/N Portfolio Strategy?

Chaos Kings: How Wall Street Traders Make Billions in the New Age of Crisis
by Scott Patterson
Published 5 Jun 2023

Brockman had earlier sent Taleb a list of topics included in the so-called Master Class, a dizzying witches’ brew of techno-wizardry: what is life, origins of life, in-vitro synthetic life, mirror life, metabolic engineering for hydrocarbons and pharmaceuticals, computational tools, electronic-biological interfaces, nanotech-molecular manufacturing, biosensors, accelerated lab evolution, engineered personal stem cells, multivirus-resistant cells, humanized mice, bringing back extinct species. At the SpaceX facility, Church gave a talk called “Dreams and Nightmares.” Attendees included venture capitalist Sean Parker, an original Facebook backer; Google’s Larry Page; behavioral economist Richard Thaler; Stewart Brand, creator of the Whole Earth Catalog; someone from the White House; and a bunch of egghead scientists. Elon Musk ducked in from time to time to listen. Taleb introduced himself as a professor of risk engineering, which he said “doesn’t explain what I do.” Church, a tall, wizardly man with a heavy white beard, explained that, contrary to popular belief, geneticists still hadn’t mapped the entire human genome.

The Ascent of Money: A Financial History of the World
by Niall Ferguson
Published 13 Nov 2007

Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places (New York / Chichester, 2006). 12 Mark Buchanan, The Social Atom: Why the Rich Get Richer, Cheaters Get Caught, and Your Neighbor Usually Looks Like You (New York, 2007), p. 54. 13 For an introduction, see Andrei Shleifer, Inefficient Markets: An Introduction to Behavioral Finance (Oxford, 2000). For some practical applications see Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (New Haven, 2008). 14 See Peter Bernstein, Capital Ideas Evolving (New York, 2007). 15 See for example James Surowiecki, The Wisdom of Crowds (New York, 2005); Ian Ayres, Supercrunchers: How Anything Can Be Predicted (London, 2007). 16 Daniel Gross, ‘The Forecast for Forecasters is Dismal’, New York Times, 4 March 2007. 17 The classic work, first published in 1841, is Charles MacKay, Extraordinary Popular Delusions and the Madness of Crowds (New York, 2003 [1841]). 18 Yudkowsky, ‘Cognitive Biases’, pp. 110f. 19 For an introduction to Lo’s work, see Bernstein, Capital Ideas Evolving , ch. 4.

Geek Heresy: Rescuing Social Change From the Cult of Technology
by Kentaro Toyama
Published 25 May 2015

Harvard University Press. Cairncross, Frances. (1997). The Death of Distance: How the Communications Revolution Will Change Our Lives. Harvard Business School Press. ———. (2001). The Death of Distance 2.0: How the Communications Revolution Will Change Our Lives. Texere. Camerer, Colin F., and Richard H. Thaler. (1995). Anomalies: Ultimatums, dictators and manners. Journal of Economic Perspectives 9(2):209–219, www.aeaweb.org/articles.php?doi=10.1257/jep.9.2.209. Cameron, William Bruce. (1963). Informal Sociology: A Casual Introduction to Sociological Thinking. Random House. Caplan, Bryan. (2012).

Capital Ideas: The Improbable Origins of Modern Wall Street
by Peter L. Bernstein
Published 19 Jun 2005

Indianapolis, IN: Principia Press. Cowles, Alfred 3rd. 1944. “Stock Market Forecasting.” Econometrica, Vol. 12, Nos. 3 & 4 (July-October), pp. 206–214. Debreu, Gerald. 1991. “The Mathematization of Economic Theory.” American Economic Review, Vol. 81, No. 1 (March), pp. 1–7. De Bondt, Werner F. M. and Richard H Thaler. 1990. “Do Security Analysts Overreact?” American Economic Review, Vol. 80, No. 2 (May), pp. 52–57. Dimson, Elroy and Paul Marsh. 1982. “Calculating the Cost of Capital.” Long Range Planning, Vol. 15, No. 2, pp. 112–120. Durand, David. 1957. “Growth Stocks and the Petersburg Paradox.” Journal of Finance, Vol.

The Great Delusion: Liberal Dreams and International Realities
by John J. Mearsheimer
Published 24 Sep 2018

Daniel Kahneman maintains that there are two systems that influence the way we think: System 1, which involves fast thinking and relies mainly on intuition; and System 2, where thinking is slower and relies on careful reasoning. Kahneman, Thinking Fast and Slow (New York: Farrar, Straus and Giroux, 2011), especially part I. Also see Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness, rev. ed. (New York: Penguin, 2009), which distinguishes between the Automatic and Reflective Systems. This distinction between these two cognitive processes is widely reflected in the psychology literature. 32.

Human Compatible: Artificial Intelligence and the Problem of Control
by Stuart Russell
Published 7 Oct 2019

The idea that there are acceptable routes to preference modification seems related to the idea that there are acceptable methods of behavior modification whereby, for example, an employer engineers the choice situation so that people make “better” choices about saving for retirement. Often this can be done by manipulating the “non-rational” factors that influence choice, rather than by restricting choices or taxing “bad” choices. Nudge, a book by economist Richard Thaler and legal scholar Cass Sunstein, lays out a wide range of supposedly acceptable methods and opportunities to “influence people’s behavior in order to make their lives longer, healthier, and better.” It’s unclear whether behavior modification methods are really just modifying behavior. If, when the nudge is removed, the modified behavior persists—which is presumably the desired outcome of such interventions—then something has changed in the individual’s cognitive architecture (the thing that turns underlying preferences into behavior) or in the individual’s underlying preferences.

The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution
by Gregory Zuckerman
Published 5 Nov 2019

They believed investors are prone to cognitive biases, the kinds that lead to panics, bubbles, booms, and busts. Simons didn’t realize it, but a new strain of economics was emerging that would validate his instincts. In the 1970s, Israeli psychologists Amos Tversky and Daniel Kahneman had explored how individuals make decisions, demonstrating how prone most are to act irrationally. Later, economist Richard Thaler used psychological insights to explain anomalies in investor behavior, spurring the growth of the field of behavioral economics, which explored the cognitive biases of individuals and investors. Among those identified: loss aversion, or how investors generally feel the pain from losses twice as much as the pleasure from gains; anchoring, the way judgment is skewed by an initial piece of information or experience; and the endowment effect, how investors assign excessive value to what they already own in their portfolios.

Why Startups Fail: A New Roadmap for Entrepreneurial Success
by Tom Eisenmann
Published 29 Mar 2021

S1 (1988): 71–78; and Sara Moeller, Frederik Schlingemann, and Rene Stulz, “Wealth Destruction on a Massive Scale? A Study of Acquiring-Firm Returns in the Recent Merger Wave,” Journal of Finance 60, no. 2 (2005): 757–782. This phenomenon is known: For a description of the winner’s curse, see Richard Thaler, The Winner’s Curse: Paradoxes and Anomalies of Economic Life (Princeton, NJ: Princeton University Press, 1994), Ch. 5. VC Fred Wilson has estimated: Fred Wilson, “Why Early Stage Venture Investments Fail,” Union Square Ventures blog, Nov. 30, 2007. As Fred Wilson advises: Fred Wilson, “The Finance to Value Framework,” AVC blog, May 20, 2018.

The Future of Ideas: The Fate of the Commons in a Connected World
by Lawrence Lessig
Published 14 Jul 2001

Telephone interview with David Reed. 38 Noam, “Beyond Spectrum Auctions.” 39 Ibid., 465. 40 Ibid., 466. 41 George Gilder, Telecosm: How Infinite Bandwidth Will Revolutionize Our World (New York: Free Press, 2000), 159. 42 Ibid., 159-60. Gilder's point is correct whether or not there is a true “winner's curse.” A “winner's curse” exists only when the bid was irrationally high. Richard H. Thaler, “Anomalies: The Winner's Curse,” Journal of Economic Perspectives 2 (1988): 191, 192. Whether or not the bid was irrational, it can still create this pressure on the system. 43 The story is told in Lawrence Lessing, Man of High Fidelity: Edwin Howard Armstrong (New York: J. B. Lippincott, 1956). 44 The best example is the slow deployment of ultrawideband (UWB) technologies.

Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined
by Lasse Heje Pedersen
Published 12 Apr 2015

Krishnamurthy, Arvind, and Annette Vissing-Jorgensen (2012), “The Aggregate Demand for Treasury Debt,” Journal of Political Economy 120, 233–267. Lakonishok, Josef, Andrei Shleifer, and Robert W. Vishny (1994), “Contrarian Investment, Extrapolation, and Risk,” The Journal of Finance 49(5), 1541–1578. Lamont, Owen (2012), “Go Down Fighting: Short Sellers vs. Firms,” Review of Asset Pricing Studies 2, 1–30. Lamont, Owen, and Richard H. Thaler (2003), “Can the Stock Market Add and Subtract? Mispricing in Tech Stock Carve-Outs,” Journal of Political Economy 111(2), 227–268. Lefèvre, E. (1923), Reminiscences of a Stock Operator, John Wiley & Sons, New York. Lin, Hai, Junbo Wang, and Chunchi Wu (2011), “Liquidity Risk and Expected Corporate Bond Returns,” Journal of Financial Economics 99, 628–650.

What's Next?: Unconventional Wisdom on the Future of the World Economy
by David Hale and Lyric Hughes Hale
Published 23 May 2011

As nobody enters married life thinking that he or she might get divorced, nobody enters the investment world thinking he or she might fail. Doing the opposite would require humility, which is a quality not found in abundance within the world of investment. Potentially a victim of this hubris, my prediction for 2011 may in the end be nothing more than wishful thinking. If it is, how disconcerting! When Richard Thaler and Cass Sunstein published Nudge–Improving Decisions About Health, Wealth, and Happiness with Yale University Press in 2008, they showed that what’s come out of behavioral economics—and by extension neuroeconomics—can lead to improved decisions in terms of better health or sounder investments.

Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist
by Kate Raworth
Published 22 Mar 2017

We (the WEIRD ones, at least) typically exhibit: availability bias – making decisions on the basis of more recent and more accessible information; loss aversion – the strong preference to avoid a loss rather than to make an equivalent gain; selective cognition – taking on board facts and arguments that fit with our existing frames; and risk bias – underestimating the likelihood of extreme events, while overestimating our ability to cope with them. There are many more. Indeed one Wikipedia page lists over 160 cognitive biases, like a jumbo-size game of spot-the-difference between rational economic man and his fallible human equivalent.36 What to do in the face of such irrational shortcomings? Introduce nudge policies, say Richard Thaler and Cass Sunstein, which they define as ‘any aspect of the choice architecture that alters people’s behaviour in a predictable way without forbidding any options or significantly changing their economic incentives’.37 Thanks to Edward Bernays, brands and retailers have been nudging us for almost a century in the implicit messaging of advertisements, in the placements of products in shops and TV shows, and in the psychology of sales.

Prosperity Without Growth: Foundations for the Economy of Tomorrow
by Tim Jackson
Published 8 Dec 2016

Mechanisms which make it a little easier for us to curtail our appetite for immediate arousal and protect our own future interests. And indeed – although this is less obvious in Offer’s exposition – the interests of affected others. The idea that paternalistic interventions in the ‘choice architecture’ can help us counter short-termism and overcome social traps has been proposed by economist Richard Thaler and Harvard law professor Cass Sunstein in their enormously popular book Nudge: Improving Decisions about Health, Wealth, and Happiness. So, for example, by placing healthy foods rather than sweets near the checkout or making people opt out of pension fund contributions rather than having them opt in are seen as ways of ‘nudging us’ towards good long-term decisions and away from bad short-term ones.18 It’s an appealing idea.

Super Thinking: The Big Book of Mental Models
by Gabriel Weinberg and Lauren McCann
Published 17 Jun 2019

In studies, this preference is often revealed through asking people variations of the $100 question, finding points at which people are willing to get a lesser amount of money sooner rather than a greater amount later. One such study, “Some Empirical Evidence on Dynamic Inconsistency” by economist Richard Thaler, found that people on average were equally willing to receive $15 immediately, $30 after three months, $60 after one year, or $100 after three years. These values imply decreasing annual discount rates, declining from 277 percent to 139 percent to 63 percent as the delays get longer. Once you are old enough (like us) to have plenty of regrets about procrastination, you can more easily appreciate that your future self is going to have even greater struggles if you continue to put things off.

They Don't Represent Us: Reclaiming Our Democracy
by Lawrence Lessig
Published 5 Nov 2019

While they conclude that consumer surplus from the platform is, on balance, positive, they found that deactivating users reduced online activity generally, were less informed and less polarized about news, were happier, and demonstrated a large persistent reduction in Facebook use after the experiment. 109.See Richard Thaler and Cass Sunstein, Nudge: Improving Decisions about Health, Welfare, and Happiness (New York: Penguin, 2009). 110.Mark Zuckerberg, “The Facts About Facebook,” Wall Street Journal, January 24, 2019, available at link #133. 111.Zuboff, Surveillance Capitalism, 310. 112.Dirk Bergemann and Alessandro Bonatti, “The Economics of Social Data” (working paper, January 15, 2019). 113.This example is purely hypothetical, although in 2016, Microsoft received a patent for “User Behavior Monitoring on a Computerized Device.”

The Costs of Connection: How Data Is Colonizing Human Life and Appropriating It for Capitalism
by Nick Couldry and Ulises A. Mejias
Published 19 Aug 2019

He says nothing about the close connections between ubiquitous data collection and the new direction of capitalism, and he says little about the familiar ways of understanding the social that this new “social physics” casts into permanent shadow.141 Pentland’s “social physics” presents in sharp profile what elsewhere is a more diffuse recalibration of social science values. A decade ago a book called Nudge by a behavioral economist (Richard Thaler) and a legal theorist (Cass Sunstein) shot up the reading lists of government advisers around the world. The nudge is a basic way of influencing actions by subtle prompts and signals. Whereas critics quickly saw Nudge as a way of locking in market-oriented behavior, Thaler and Sunstein claim that the nudge is just a tilting of the “choice environment” that helps individuals reach the outcomes they would want anyway “as judged by themselves.”142 But how many times does an environment have to nudge you before it starts to govern what you want?

Finance and the Good Society
by Robert J. Shiller
Published 1 Jan 2012

Social programs to provide early education have been the subject of some experimentation, and e ective methods of developing talent among the poor are starting to be implemented. See Heckman and Carneiro (2003). 9. A living history of this revolution can be seen on my behavioral nance web site (http://www.econ.yale.edu/~shiller/behfin/index.htm), which shows a list of the seminars that Richard Thaler and I have organized since 1991, and my behavioral macroeconomics web site (http://www.econ.yale.edu/~shiller/behmacro/index.htm), which shows a list of seminars that George Akerlof and I have organized since 1994. Books about behavioral economics include Shleifer (2000), Shefrin (2007), and Thaler and Sunstein (2008). 10.

The Birth of the Pill: How Four Crusaders Reinvented Sex and Launched a Revolution
by Jonathan Eig
Published 12 Oct 2014

Other writer friends who pitched in along the way include Stephen Fried, Louise W. Knight, Gioia Diliberto, T. J. Stiles, Rachel Shteir, Jane Leavy, Rebecca Skloot, Chuck McCutcheon, Bob Spitz, Ben Kesling, and Charlie Newton. I am also thankful for good advice received from Linda Ginzel, Boaz Keysar, Sayuri Hayakawa, and Richard Thaler. My friend Suzie Takacs of the Book Cellar in Chicago urged me to pursue this subject when I had doubts. The wonderful staff at Unabridged Books in Chicago supplied me with loads of good reading. Thanks also to the top-notch staff at the Book Stall in Winnetka, Mitchell Kaplan at Books & Books in Miami, the Biographers International Organization, and the Tucson Festival of Books.

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Eleventh Edition)
by Burton G. Malkiel
Published 5 Jan 2015

Corporations that frame their 401(k) savings plans with an automatic enrollment feature (where a conscious decision must be made to fill out an “opt out” declaration) have far higher participation rates than do plans where employees must actively “opt in” to the plan. Another brilliant enticement has been developed by the economists Richard Thaler and Shlomo Benartzi. Some employees will decline to save even with plans that have automatic enrollment because they can barely make ends meet with their current salary. The essence of the Thaler-Benartzi “Save More Tomorrow” plan is to have employees commit in advance to allocate a portion of any salary increases toward retirement savings.

Crisis and Leviathan: Critical Episodes in the Growth of American Government
by Robert Higgs and Arthur A. Ekirch, Jr.
Published 15 Jan 1987

Fuchs, "The Economics of Health in a Post-Industrial Society," Public Interest (Summer 1979): 16; Shultz and Dam, Economic Policy Beyond the Headlines, pp. 51-52; John Mark Hansen, "The Political Economy of Group Membership," American Political Science Review 79 (March 1985): 81. 30. See the related discussions of the "endowment effect" by Richard H. Thaler, "Illusions and Mirages in Public Policy," Public Interest (Fall 1983): 64-65; of "hysteresis" by Hardin, Collective Action, pp. 82-83; of "universalism and reciprocity" by Alt and Chrystal, Political Economics, pp. 196-197. 31. Nordlinger, Autonomy, p. 38; Dye and Zeigler, The Irony of Democracy, pp. 98-99, 101-102; Dye, Understanding Public Policy, p. 199; Karl, Uneasy State, p. 226; Mancur Olson, The Rise and Decline of Nations: Economic Growth, Stagflation and Social Rigidities (New Haven, Conn.: Yale University Press, 1982), p. 71; Karen A., Rasler and William R.

Red-Blooded Risk: The Secret History of Wall Street
by Aaron Brown and Eric Kim
Published 10 Oct 2011

And before we discuss exchange, we have to discuss the idea of property. Until someone owned something, nothing could be exchanged. One of the strongest early findings of experimental game theory is that people value things they have more than identical things they don’t have. For example, a classic experiment by Daniel Kahneman, Jack Knetsch, and Richard Thaler used coffee mugs with a school logo on them. These mugs sold for $6 at the campus store. A group of students was divided randomly. Half were asked how much they would pay for a mug. The other half were given mugs, and asked how much they would sell them for. Buyers offered an average of $2.87, whereas sellers demanded an average of $7.12.

The Righteous Mind: Why Good People Are Divided by Politics and Religion
by Jonathan Haidt
Published 13 Mar 2012

I thank them all: Gerard Alexander, Scott Atran, Simon Baron-Cohen, Paul Bloomfield, Chris Boehm, Rob Boyd, Arthur Brooks, Teddy Downey, Dan Fessler, Mike Gazzaniga, Sarah Estes Graham, Josh Greene, Rebecca Haidt, Henry Haslam, Robert Hogan, Tony Hsieh, Darrell Icenogle, Brad Jones, Rob Kaiser, Doug Kenrick, Judd King, Rob Kurzban, Brian Lowe, Jonathan Moreno, Lesley Newson, Richard Nisbett, Ara Norenzayan, Steve Pinker, David Pizarro, Robert Posacki, N. Sriram, Don Reed, Pete Richerson, Robert Sapolsky, Azim Shariff, Mark Shepp, Richard Shweder, Richard Sosis, Phil Tetlock, Richard Thaler, Mike Tomasello, Steve Vaisey, Nicholas Wade, Will Wilkinson, David Sloan Wilson, Dave Winsborough, Keith Winsten, and Paul Zak. Many others contributed in a variety of ways: Rolf Degen found me dozens of relevant readings; Bo Ledbetter did background research for me on public policy issues; Thomas Talhelm improved my writing in the early chapters; Surojit Sen and his father, the late Sukumar Sen of Orissa, India, were my generous hosts and teachers in Bhubaneswar.

The End of Alchemy: Money, Banking and the Future of the Global Economy
by Mervyn King
Published 3 Mar 2016

It is just that in a world of radical uncertainty even smart people do not find it easy to know what it means to behave in a smart manner. The main challenge to the economists’ assumption of optimising behaviour comes from ‘behavioural economics’, a relatively new field often associated with Daniel Kahneman, Richard Thaler and Amos Tversky.20 It studies the emotional and psychological dimensions of economic choices.21 Behavioural economics has identified an impressive array of cognitive biases in the way people behave in practice. For example, people are observed both to display overconfidence in their ability to judge probabilities and to underestimate the likelihood of rare events.

Actionable Gamification: Beyond Points, Badges and Leaderboards
by Yu-Kai Chou
Published 13 Apr 2015

Not everyone knows the rules of poker, but hopefully the text within is descriptive enough. For the full rules of Texas Hold’em Poker, visit: http://www.yukaichou.com/PokerRules↩ Daniel Kahneman and Amos Tversky. Econometrica, 47:263-91.* “Prospect Theory: an analysis of decision under risk”. 1979.↩ Richard Thaler, and Cass Sunstein. Nudge: Improving Decisions about Health, Wealth, and Happiness. New Haven, CT: Yale University Press. 02/24/2009.↩ Gary Belsky and Thomas Gilovich. Why Smart People Make Big Money Mistakes - and How to Correct Them. Simon & Schuster, New York. 01/12/2010.↩ Daniel Kahneman.

Narrative Economics: How Stories Go Viral and Drive Major Economic Events
by Robert J. Shiller
Published 14 Oct 2019

One widespread and important innovation is the creation of economic think tanks interested in creating policies based on the insights of behavioral economics. These think tanks have been called “nudge units,” following the Behavioral Insights Team in the UK government in 2010. Working with the ideas popularized by Richard Thaler and Cass Sunstein in their 2008 book Nudge: Improving Decisions about Health, Wealth, and Happiness, these units try to redesign government institutions toward “nudging” people away from their irrational behavior without coercing them. According to the Organization for Economic Cooperation and Development, there are now close to two hundred such units around the world.6 I advocate formalizing some of the intuitive judgment that national leaders already use to acknowledge and harness changing economic narratives.

Masters of Management: How the Business Gurus and Their Ideas Have Changed the World—for Better and for Worse
by Adrian Wooldridge
Published 29 Nov 2011

But in reality it preserves the mindset of old-fashioned paternalism, in which people need to be guided from on high to follow their own best interests. The most prominent advocate of this position is Cass Sunstein, one of America’s leading legal scholars and a long-standing professor at the University of Chicago. Sunstein is the author of Nudge: Improving Decisions about Health, Wealth, and Happiness (2008), which he co-wrote with Richard Thaler, a behavioral economist. The argument of Nudge, in a nutshell, is that people frequently make poor choices that they look back on with a mixture of regret and bafflement. They give in to short-term impulses or fail to calculate the long-term costs of what they do. But never fear: the government can use insights from behavioral economics to nudge them into behaving in a more sensible manner without ever having to resort to anything so crude as compulsion.

The Moral Animal: Evolutionary Psychology and Everyday Life
by Robert Wright
Published 1 Jan 1994

American Anthropologist 94:551–67. Butterfield, Herbert (1965) The Whig Interpretation of History. W. W. Norton. Cahill, Thomas (1995) How the Irish Saved Civilization. Anchor. Camerer, Colin F. (1997) “Progress in Behavioral Game Theory.” Journal of Economic Perspectives 11:167–88. Camerer, Colin, and Richard H. Thaler (1995) “Ultimatums, Dictator and Manners.” Journal of Economic Perspectives 9:209–19. Cameron, Euan (1999) “The Power of the Word: Renaissance and Reformation,” in Euan Cameron, ed., Early Modern Europe. Oxford University Press. Campbell, Jeremy (1982) Grammatical Man: Information, Entropy, Language and Life.

Nonzero: The Logic of Human Destiny
by Robert Wright
Published 28 Dec 2010

American Anthropologist 94:551–67. Butterfield, Herbert (1965) The Whig Interpretation of History. W. W. Norton. Cahill, Thomas (1995) How the Irish Saved Civilization. Anchor. Camerer, Colin F. (1997) “Progress in Behavioral Game Theory.” Journal of Economic Perspectives 11:167–88. Camerer, Colin, and Richard H. Thaler (1995) “Ultimatums, Dictator and Manners.” Journal of Economic Perspectives 9:209–19. Cameron, Euan (1999) “The Power of the Word: Renaissance and Reformation,” in Euan Cameron, ed., Early Modern Europe. Oxford University Press. Campbell, Jeremy (1982) Grammatical Man: Information, Entropy, Language and Life.

The Singularity Is Nearer: When We Merge with AI
by Ray Kurzweil
Published 25 Jun 2024

v=uqXVAo7dVRU; “Thinking Fast and Slow by Daniel Kahneman #2—Heuristics and Biases: Animated Book Summary,” One Percent Better, YouTube video, November 12, 2016, https://www.youtube.com/watch?v=Q_wBt5aSRYY; “Kahneman and Tversky: How Heuristics Impact Our Judgment,” Intermittent Diversion, YouTube video, June 7, 2018, https://www.youtube.com/watch?v=3IjIVD-KYF4; Richard H. Thaler et al., “The Effect of Myopia and Loss Aversion on Risk Taking: An Experimental Test,” Quarterly Journal of Economics 112, no. 2 (May 1997): 647–61, https://www.jstor.org/stable/2951249; Daniel Kahneman and Amos Tversky, “The Psychology of Preferences,” Scientific American 246, no. 1 (January 1981): 160–73; Daniel Kahneman, Paul Slovic, and Amos Tversky, eds., Judgment Under Uncertainty: Heuristics and Biases (Cambridge, UK: Cambridge University Press, 1982); Amos Tversky and Daniel Kahneman, “Judgment Under Uncertainty: Heuristics and Biases,” Science 185, no. 4157 (September 27, 1974): 1124–31, http://doi.org/10.1126/science.185.4157.1124; Daniel Kahneman and Amos Tversky, “On the Study of Statistical Intuitions,” Cognition 11, no. 2 (March 1982): 123–41; Daniel Kahneman and Amos Tversky, “Variants of Uncertainty,” Cognition 11, no. 2 (March 1982): 143–57.

Wall Street: How It Works And for Whom
by Doug Henwood
Published 30 Aug 1998

"Rudolf Hilferding: The Dominion of Capitalism and the Dominion of Gold,' AEA Papers and Proceedings 75 (May), pp. 363-368. Davidson, Paul (1972). Money and the Real World (New York: John Wiley & Sons). Davis, Carolyn D., and Alice P. White (1987), "Stock Market Volatility" (summary of staff study). Federal Reserve Bulletin, September, pp. 609-610. de Bondt, Werner F.M., and Richard Thaler (1985). "Does the Stock Market Overreact?," Journal of Finance 40 (July), pp. 793-805. de Brunhoff, Susanne (1976). Marx on Money (New York: Urizen Books). Debreu, Gerard (1991). "The Mathematization of Economic Theory," American Economic Review 81 (March), pp. 1-7. du Boff, Richard B., and Edward S.

The Future of the Internet: And How to Stop It
by Jonathan Zittrain
Published 27 May 2009

See Cubby, Inc. v. CompuServe, Inc., 766 F. Supp. 135, 139—40 (S.D.N.Y. 1991) (discussing the nature of CompuServe’s involvement in running the forums). 18. See ADVANCES IN BEHAVIORAL ECONOMICS (Colin F. Camerer, George Loewenstein & Matthew Rabin eds., 2003); Christine Jolls, Cass R. Sunstein & Richard Thaler, A Behavioral Approach to Law and Economics, 50 STAN. L. REV. 1471 (1998); Daniel Kahne-man & Amos Tversky, Prospect Theory: An Analysis of Decision Under Risk, 47 ECONO-METRICA 263 (1979). 19. See Cass R. Sunstein, INFOTOPIA 80 (2006). 20. Tim Wu, Wireless Carterfone, 1 INT’L. J. COMM. 389, 404—15 (2007), available at http://ijoc.org/ojs/index.php/ijoc/article/view/152/96. 21.

The Fissured Workplace
by David Weil
Published 17 Feb 2014

Washington and Lee Law Review 68, no. 1: 313–373. Kahn, Shulamit. 1997. “Evidence of Nominal Wage Stickiness from Microdata.” American Economic Review 87, no. 5: 993–1008. Kahneman, Daniel. 2011. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux. Kahneman, Daniel, Jack Knetsch, and Richard Thaler. 1986. “Fairness as a Constraint on Profit Seeking: Entitlements in the Market.” American Economic Review 76, no. 4: 728–741. Kahneman, Daniel, and Amos Tversky. 1984. “Choices, Values, and Frames.” American Psychologist 34, no.4: 341-350. Kalleberg, Arne. 2011. Good Jobs / Bad Jobs: The Rise of Polarized and Precarious Employment Systems in the United States, 1970s to 2000s.

Model Thinker: What You Need to Know to Make Data Work for You
by Scott E. Page
Published 27 Nov 2018

Bush, Robert, and Frederick Mosteller. 1954. Stochastic Models for Learning. New York: John Wiley and Sons. Camerer, Colin F. 2003. Behavioral Game Theory: Experiments in Strategic Interaction. Princeton, NJ: Princeton University Press. Camerer, Colin, Linda Babcock, George Loewenstein, and Richard Thaler. 1997. “Labor Supply of New York City Cabdrivers: One Day at a Time.” Quarterly Journal of Economics 112, no. 2: 407–441. Camerer, Colin, and Tek Ho. 1999. “Experience-Weighted Attraction Learning in Normal Form Games.” Econometrica 67, no. 4: 827–874. Camerer, Colin, George Loewenstein, and Drazen Prelec. 2005.

Fancy Bear Goes Phishing: The Dark History of the Information Age, in Five Extraordinary Hacks
by Scott J. Shapiro

Fancy Bear did so by triggering a set of heuristics—Representative, Availability, Affect—that all gave the same answer: your email account has been hacked, click the link, change your password. Add in the time pressure for good measure, and it’s easy to see why System 2 gladly capitulated to System 1’s suggestions. Hackers, we might say, do the opposite of what the economist Richard Thaler and legal scholar Cass Sunstein have called nudging. A nudge alters the choice situation to avoid triggering heuristics that lead to irrational behavior. For example, when the standard default on employee retirement plans is “no contribution,” employees tend not to save for their retirements.

Termites of the State: Why Complexity Leads to Inequality
by Vito Tanzi
Published 28 Dec 2017

Welfare across Countries and Time,” The American Economic Review 106 (9) (September), pp. 2426–2457. The Journal of Political Perspective, Summer 2013. Kahneman, Daniel, 1994, “New Challenges to the Rationality Assumption,” Journal of Institutional and Theoretical Economics 150, pp. 18–36. Kahneman, Daniel and Richard H. Thaler, 2006, “Anomalies: Utility Maximization and Experienced Utility,” Journal of Economic Perspective 20 (1), pp. 221–234. Kaul, Inge, P. Conceição, K. Le Goulven, and R. U. Mendoza, editors, 2003, Providing Global Public Goods: Managing Globalization (New York and Oxford: Oxford University Press).

Manias, Panics and Crashes: A History of Financial Crises, Sixth Edition
by Kindleberger, Charles P. and Robert Z., Aliber
Published 9 Aug 2011

More and more economic theorists are moving away from unswerving reliance on the assumption that market participants are uniformly intelligent, informed, and independent in thought, introducing such concepts as asymmetric information (different knowledge available to different participants), cognitive dissonance (unconscious suppression of information that fails to fit a priori views), herd behavior, procrastination that results in failure to act in timely fashion, and so on. Those interested should consult the work especially of George Akerlof and Richard Thaler. For relevant studies, see Frederic S. Miskin, ‘Asymmetric Information and Financial Crises: a Historical Perspective’, in R. Glenn Hubbard, ed., Financial Markets and Financial Crises (Chicago: University of Chicago Press, 1991), pp. 69–108; and Thomas Lux, ‘Herd Behavior, Bubbles and Crashes’, Economic Journal, vol. 105 (July 1995), pp. 881–96. 11.

The Third Pillar: How Markets and the State Leave the Community Behind
by Raghuram Rajan
Published 26 Feb 2019

I have also benefited from discussions with, and comments from, Marianne Bertrand, Steve Davis, Douglas Diamond, Eugene Fama, Rob Gertner, Chang-Tai Hsieh, Erik Hurst, Steven Kaplan, Anil Kashyap, Yueran Ma, Bhanu Pratap Mehta Lubos Pastor, Sam Peltzman, Eswar Prasad, Ram Shivakumar, Amir Sufi, Chad Syverson, Richard Thaler, Rob Vishny, and Eric Zwick. Rohit Lamba and Prateek Raj were especially kind in going through the early chapters and giving me detailed useful comments. Krishna Kamepalli and Adarsh Kumar provided very helpful research assistance. I had very useful conversations with Douglas Baird, Marshall Bouton, Mark Carney, Dipesh Chakrabarty, Raj Chetty, John Cochrane, Matt Gentzkow, Rakesh Kochhar, Prachi Mishra, David Nirenberg, Josh Rauh, and James Robinson over the course of this book.

Extreme Money: Masters of the Universe and the Cult of Risk
by Satyajit Das
Published 14 Oct 2011

Small-size firms outperformed large stocks—the small-firm effect. In the loser effect, stocks that had fallen significantly outperformed stocks that performed well in previous periods. There was little relationship between beta (risk) and return. Behavioural economists, such as Tversky, Daniel Kahneman and Richard Thaler, argued that efficient financial markets were rife with cognitive biases and errors in reasoning and information processing, including overconfidence, overreaction, representative bias, information bias, and the use of linear reasoning. Cliff Asness, a student of Fama and founder of hedge fund AQR Capital Management, exploited these anomalies.

Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown
by Philip Mirowski
Published 24 Jun 2013

57 Washington Post, June 7, 2008. 58 Stiglitz, “The Non-existent Hand.” 59 This distinction has been a crucial component in some contemporary defenses of the EMH. See, for instance, Szafarz, “How Did Crisis-Based Criticisms of Market Efficiency Get It So Wrong?” or the Cassidy interview with Richard Thaler: “I always stress that there are two components to the theory. One, the market price is always right. Two, there is no free lunch: you can’t beat the market without taking on more risk. The no-free-lunch component is still sturdy, and it was in no way shaken by recent events: in fact, it may have been strengthened” (“Rational Irrationality”). 60 S.

Money and Government: The Past and Future of Economics
by Robert Skidelsky
Published 13 Nov 2018

Financial Times, 12 December 2017. Lo (2018). Masch (2017). Lo (2018). Keynes (1980a), p. 53. James (2002), p. 1. For an excellent survey of what needs to be reconsidered in economics, see Lavoie (2018). Harvey (2015), p. 111. Milner (2009). Nielsen (2012). Frydman and Goldberg (2011). Professor Richard Thaler received a Nobel Prize in economics in 2017 for ‘nudge’ theory. This identifies behaviours which fall short of rational: enrolment in private pension plans is increased when people are given the option to opt out rather than opt in, which is clearly irrational if an objective assessment of the benefits of the plans is available.

The Social Life of Money
by Nigel Dodd
Published 14 May 2014

As Zelizer herself has noted (Zelizer 2012: 14–18), there are some suggestive parallels between the process of monetary differentiation that takes place through what she calls earmarking, and the phenomenon that is known by behavioral economists as mental accounting. Mental accounting—defined by Richard Thaler as “a set of cognitive operations used by individuals and households to organize, evaluate, and keep track of financial activities” (Thaler 1999: 183)—takes place when individuals allocate different portions of the monies they possess to distinct cognitive spaces according to how those monies will be used.

What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right
by George R. Tyler
Published 15 Jul 2013

It is no accident that Soros’ Quantum fund is named in honor of physicist Werner Heisenberg. 39 John Kay, “How economics lost sight of the real world,” Financial Times, April 21, 2009. 40 Joseph Stiglitz, “Bleakonomics,” New York Times, September 30, 2007. 41 John Plender, “Capitalism in convulsion: Toxic assets head toward the public balance sheet,” Financial Times, September 19, 2008. 42 Nouriel Roubini, “Anglo-Saxon model has failed,” Financial Times, February 9, 2009. 43 Richard Thaler, “Markets can be wrong and the price is not always right,” Financial Times, August 4, 2009. 44 Ken Silverstein, “Labor’s Last Stand,” Harper’s Magazine, July 2009. 45 Naomi Klein, The Shock Doctrine: The Rise of Disaster Capitalism (New York: Picador, 2007), 68. 46 David E. Hoffman, The Dead Hand: The Untold Story of the Cold War Arms Race and Its Dangerous Legacy (New York: Knopf Doubleday, 2009), 41. 47 See David Frum, Comeback: Conservatism That Can Win Again (New York: Broadway Books, 2008). 48 See Simon Johnson, “The Quiet Coup,” The Atlantic, May 2009. 49 Christine Mattauch, “The Secret Lobbyists,” Handelsblatt, February 28, 2011.

Human Diversity: The Biology of Gender, Race, and Class
by Charles Murray
Published 28 Jan 2020

In almost half (18 of the 39), the major topic of the article directly involved sex, ethnicity, or class.[31] Economics and political science. The role of psychological factors in economics goes back to Adam Smith’s Theory of Moral Sentiments. The work of Daniel Kahneman, Amos Tversky, and Paul Slovic on decision making under conditions of uncertainty and, more recently, the work of Cass Sunstein and Richard Thaler on “nudge” theory, are both rich fields of study that will be informed by genomic data.32 They are only part of the growing field of behavioral economics. Similarly, questions about how humans act as political agents are at the core of political science. Genomic information is just as relevant to voting decisions as it is to economic decisions.

Building Secure and Reliable Systems: Best Practices for Designing, Implementing, and Maintaining Systems
by Heather Adkins , Betsy Beyer , Paul Blankinship , Ana Oprea , Piotr Lewandowski and Adam Stubblefield
Published 29 Mar 2020

“Do Developers Learn New Tools on the Toilet?” Proceedings of the 41st International Conference on Software Engineering. https://oreil.ly/ZN18B. 7 This topic is closely related to nudging, a method of changing behavior by subtly encouraging people to do the right thing. Nudge theory was developed by Richard Thaler and Cass Sunstein, who were awarded a Nobel Prize in Economics for their contribution to behavioral economics. For more information, see Thaler, Richard H., and Cass R. Sunstein. 2008. Nudge: Improving Decisions About Health, Wealth, and Happiness. New Haven, CT: Yale University Press. 8 Dave Rensin, Director of Customer Reliability Engineering at Google, considers this topic in greater detail in his talk “Less Risk Through Greater Humanity”. 9 The final report of the Columbia Disaster Investigation Board is preserved on the NASA website for the general public to read.

The Blank Slate: The Modern Denial of Human Nature
by Steven Pinker
Published 1 Jan 2002

Indeed, though Herrnstein was a conservative and Murray a right-leaning libertarian and communitarian, they were not opposed to simple redistributive measures such as a negative income tax for the lowest wage earners, which would give a break to those who play by the rules but still can’t scrape by. Murray’s libertarianism leads him to oppose government programs that are more activist than that, but he and Herrnstein noted that a hereditarian left is a niche waiting to be filled. An important challenge to conservative political theory has come from behavioral economists such as Richard Thaler and George Akerlof, who were influenced by the evolutionary cognitive psychology of Herbert Simon, Amos Tversky, Daniel Kahneman, Gerd Gigerenzer, and Paul Slovic.54 These psychologists have argued that human thinking and decision making are biological adaptations rather than engines of pure rationality.

Empire of Things: How We Became a World of Consumers, From the Fifteenth Century to the Twenty-First
by Frank Trentmann
Published 1 Dec 2015

For UK figures, see the Society of Motor Manufacturers and Traders: http://www.smmt.co.uk/2015/01/uk-new-car-registrations-december-2014/. Similar reservations apply to the hope some attach to 3-D printing: why assume that the opportunity for the personalized, bespoke making of stuff will only be used to prolong the life of objects and that people will stop wanting novelty and variety? 20. Richard H. Thaler and Cass R. Sunstein, Nudge: Improving decisions about health, wealth and happiness (London, 2009). For a short overview, see Cass Sunstein, ‘Behavioural economics, consumption and environmental protection’ in Reisch and Thøgersen (eds), Handbook of Research on Sustainable Consumption, pp. 313–27.

The Better Angels of Our Nature: Why Violence Has Declined
by Steven Pinker
Published 24 Sep 2012

Much of what looks like a lack of self-control in the modern world may consist of using a discounting rate that was wired into our nervous systems in the iffy world of our pre-state ancestors, when people died much younger and had no institutions that could parlay savings now into returns years later.76 Economists have noted that when people are left to their own devices, they save far too little for their retirement, as if they expect to die in a few years.77 That is the basis for the “libertarian paternalism” of Richard Thaler, Cass Sunstein, and other behavioral economists, in which the government would, with people’s consent, tilt the playing field between their current and future selves.78 One example is setting an optimal retirement savings plan as the default, which employees would have to opt out of, rather than as a selection they would have to opt into.