behavioural economics

Cogs and Monsters: What Economics Is, and What It Should Be
by Diane Coyle
Published 11 Oct 2021

Economists working in these areas have more reason than most to know that the assumptions of competitive ‘free’ markets and rational choice are unlikely to be valid. They draw on a longstanding tradition of analysing departures from competition, as well as increasingly on the newer behavioural economics literature as applied to consumer choice. One nice example of why competition authorities are paying more attention to behavioural economics is given by Rufus Pollock, who looked at why deregulation of directory inquiries in the UK in 2003 failed to improve competition in that market. He concluded that consumers, faced with a wide range of unfamiliar numbers combined with limitations on their capacity to process information, gravitated toward one (The Number) that was easy to remember, 118 118, and was marketed with genius, the advertising campaign using identical twins.

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To pile on the contradictions, while economists are often very uncomfortable about making explicit normative judgements of this kind, preferring to believe that our recommendations stick to the territory of positive economics, behavioural economics is inherently paternalistic. This is because of its construction that people make ‘non-rational’ or ‘biased’ decisions, which implies ‘rational’ is better. For instance, economics predicts that rational consumers will use APRs to compare the cost of loans, but if that were the case none of us would borrow on credit cards, never mind take out payday loans. This means behavioural economics may prove more effective in policies ranging from financial and consumer regulation to social policy.

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Veronesi, 2018, Inequality Aversion, Populism, and the Backlash Against Globalization, NBER Working Paper 24900, National Bureau of Economic Research, Cambridge, MA. Perez, C., 2002, Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages, London: Elgar. Pesendorfer, W., 2006, ‘Behavioral Economics Comes of Age: A Review Essay on Advances in Behavioral Economics’, Journal of Economic Literature, 44 (3), 712–721. Petty, William, 1672, Essays in Political Arithmetick. Philippon, Thomas, 2019, The Great Reversal: How America Gave Up on Free Markets, Cambridge, MA: Harvard University Press. Pigou, A. C., 1908, Economic Science in Relation to Practice: An Inaugural Lecture Given at Cambridge 30th October, 1908, London: Macmillan.

Licence to be Bad
by Jonathan Aldred
Published 5 Jun 2019

But how could anyone believe that homo economicus tells us anything about the behaviour of real people? Economists nowadays present behavioural economics as the answer to these concerns. We are told it represents a major step forward in terms of realism. In truth, it is a minor tweak. The ‘people’ described by behavioural economics still bear no resemblance to real humans. They behave just as robotically as homo economicus but they also make mistakes. In essence, behavioural economics is just homo economicus with bugs. Notably, the error-prone robots of behavioural economics are, like homo economicus, predictable – they are ‘predictably irrational’.18 But real humans are not easily predictable because they are capable of genuine choices – choices which are not predetermined by their environment.

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THE WEIRD WORLD OF NUDGE A widely discussed development in economics in recent years has been the emergence of behavioural economics. In essence, behavioural economics tries to study how people actually behave – in contrast to fantasies such as homo economicus which dominate orthodox economics. It uses ideas and methods from psychology, and it was two psychologists, Daniel Kahneman and Amos Tversky, who perhaps did more than anyone else to dislodge old orthodoxies in economics about how we think and choose. One big idea in behavioural economics began with Kahneman and Tversky’s Asian disease problem: Suppose you are told that an unusual Asian disease is expected to kill 600 people in your country.

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No wonder Nudge has proved popular with politicians of all shades: desirable social outcomes can be engineered without the heavy-handed use of financial incentives or coercion via laws and regulations. Instead, Nudge works with the grain of human nature and respects freedom of choice. Or so it seems. The trouble with Nudge – and behavioural economics more generally – is that it still shares too many ideas with orthodox economics. Behavioural economics inspired by Kahneman and Tversky’s work is often labelled research on heuristics and biases. That last word reveals the underlying assumption of most behavioural economics: human decision-making is biased – in other words, flawed. While Kahneman and Tversky had launched a revolution in irrefutably demonstrating that people do not behave like homo economicus, they left unquestioned the equally central pillar of orthodox economics that people ought to behave like that – leaving homo economicus untouched as the ideal of what it means to be rational.

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

But of particular relevance here, echoing the 2003 PMSU review, Kahneman and others’ work, and the Downing Street Cialdini session, was one particular recommendation: Embrace behavioural economics Behavioural economics provides a powerful new set of tools for policymakers and citizens to address the challenges of today and improve the quality of our lives. But even though many of the key insights are twenty to thirty years old, policymakers have been slow to apply them … The application of behavioural economics could offer substantial gains in relation to the environment, crime, pro-social behaviour, education, welfare and health. (The Hidden Wealth of Nations, 2009, here.)

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But Thaler and Sunstein gave the ideas a major extra push in at least three ways. First, as non-psychologists they helped to break the ideas out of psychology, and applied them in an accessible form to problems that faced economists and lawmakers. Second, they blended into these existing literatures new ideas from ‘behavioural economics’, including a more formal recognition of the widespread power of defaults and ‘choice architecture’ – or the way in which choices are presented to people.1 Third, they engaged directly in policy, not least through an old Chicago friend and colleague, Barak Obama. Obama and Sunstein: ‘nudge’ comes to Washington In a move that attracted widespread attention, the new President Obama appointed the co-author of Nudge, Cass Sunstein, to be his ‘regulatory tsar’ in his government in 2008.

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During periods of Republican administration, it was criticised as acting as an executive-controlled brake to block new regulation. But now, in Cass’s hands, the focus shifted on to how regulations could be reshaped to have both bigger impacts and lower burdens. A key tool for achieving this improvement in the cost-effectiveness of regulation was to use the lessons of behavioural economics and insight. An everyday example that Cass cited was the food pyramid. This was a US Department of Agriculture graphic, first issued in 1992, intended to guide the eating habits of children, parents and schools, and drive underlying production and consumption of a healthy balanced diet. However, many people found it a pretty puzzling graphic.

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

Turner [1953] ‘Bystander Intervention in Emergencies: Diffusion of Responsibility’, by John Darley and Bibb Latané [Journal of Personality and Social Psychology, Vol. 8, No. 4, pp. 377–383, 1968] Creative Mischief by Dave Trott [2009] Ugly Is Only Skin-Deep: The Story of the Ads That Changed the World by Dominik Imseng [2016] Bias 25: Scarcity ‘Effects of Supply and Demand on Ratings of Object Value’, by Stephen Worchel, Jerry Lee and Akanbi Adewole [Journal of Personality and Social Psychology, Vol. 32, No. 5, pp. 906–914, 1975] Mindless Eating by Brian Wansink [2006] Thinking, Fast and Slow by Daniel Kahneman [2011] Why Smart People Make Big Money Mistakes and How to Correct Them: Lessons From The New Science of Behavioural Economics by Gary Belsky and Thomas Gilovich [1999] Ethics ‘Should Behavioural Economics in marketing be regulated – or hyped-down?’, by Lazar Dzamic, www.bobcm.net/2017/01/21/should-behavioural-economics-in-marketing-be-regulated-or-hyped-down Inside the Nudge Unit: How Small Changes Can Make a Big Difference by David Halpern [2015], ‘The Dishonesty of Honest People: A Theory of Self-Concept Maintenance’, by Nina Mazar, On Amir, Dan Ariely [Journal of Marketing Research, Vol. 45, No. 6, pp.633–644, 2008].

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” — Ian Leslie, author of Born Liars and Curious Richard delivers a wealth of cases proving the efficacy of working with, rather than against, the grain of human nature. This is catnip for the industry. — Phil Barden, author of Decoded: The Science Behind Why We Buy Richard Shotton’s application of behavioural economics is bang on the button. This book is timely, insightful, fascinating and entertaining. — Dominic Mills, former editor, Campaign “If you’re a marketer, understanding what really makes people tick – as opposed to what they might tell you – is vital. The Choice Factory book takes us on an elegant, witty and digestible tour of the 25 main principles of behavioural science.

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Your enjoyment of the wine is being influenced by the price. Experience has taught you that expensive products tend to be higher quality. It’s such an ingrained belief that it becomes self-fulfilling. The power of price in steering perceptions has been studied by Dan Ariely, Professor of Psychology and Behavioural Economics at Duke University. In 2008 he recruited 82 participants from Craigslist who were willing to receive two small electric shocks in the name of science: one before taking a painkiller and one after. Half the participants were told the painkiller cost $2.50 a dose and half that it was only 10c.

Transport for Humans: Are We Nearly There Yet?
by Pete Dyson and Rory Sutherland
Published 15 Jan 2021

Introducing Homo transporticus Homo economicus, a long-running academic joke, refers to an idealized species of beings who make decisions using rational cost–benefit analysis in an environment of perfect trust, fully aware of all the available options, acting purely in their own self-interest. Outside of academia these conditions exist rarely, if ever. However, there was one place where Homo economicus has thrived: in economic models. The species persists because it has made the modelling of complex human decisions possible for economists. Lately, the contribution of behavioural economics and the recognition that the differences between humans, households and businesses are important has improved these models immensely. Together, these developments are allowing us to consider situations in which it is important to understand that we don’t know everything, that we cannot trust everything, and that we really do need to consider the welfare of others.

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Spain has created a ‘Ministry of Transport, Mobility and Urban Agenda’, Germany has transitioned to a ‘Federal Ministry of Transport and Digital Infrastructure’, and France, in typically existential style, has a ‘Ministry for the Ecological and Inclusive Transition’. Why behavioural science? The term behavioural science describes all of the disciplines that examine how people think, feel and act. It’s a long list: cognitive and social psychology, behavioural economics, behaviour change theory, evolutionary biology, anthropology, sociology, human geography, organizational psychology, semiotics and design thinking. Marketing, when practised rigorously, is an application of behavioural science. If this seems like the study of common sense, then that is the point!

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But ‘fluffy’ is often the word attached to this young science, often because organizations adopt ‘thinking behaviourally’ merely as a perspective, without applying analytical models, creative frameworks or rigorous trials. Amos Tversky – the pioneering economist who, with his colleague Daniel Kahneman, created much of the theory that underpins behavioural economics – explained that they ‘merely examined, in a scientific way, things about behaviour that were already known to advertisers and used-car salesmen’.26 Their work (for which Kahneman won the Nobel Memorial Prize in Economic Sciences) is the opposite of fluffy. They created a rigorous common language and framework for understanding and codifying these insights.

The Mind Is Flat: The Illusion of Mental Depth and the Improvised Mind
by Nick Chater
Published 28 Mar 2018

Cooperative connectionist computation does not merely appear to clash with the reason-based explanations of common-sense psychology. It is also extremely difficult to reconcile with many scientific theories of human thought, from areas as diverse as artificial intelligence, cognitive, developmental and clinical psychology, linguistics and behavioural economics – theories that have taken common-sense ideas about minds stocked with beliefs, desires and the like as their starting point. Taking account of the computational style of the brain threatens, therefore, to have some far-reaching, and potentially destructive, consequences. After thirty years working with computational and mathematical models of the mind, and surveying and gathering experimental data, I have come to accept that our intuitive conceptions of our own minds, and many of our scientific theories of the mind that have been built upon that conception, are fundamentally flawed.

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The second reason for my long resistance to adopting the radical perspective outlined in this book is that it clashes, not just with common sense, but with theories of perception, reasoning, categorization, decision-making and more, which have been central to psychology, cognitive science, artificial intelligence, linguistics and behavioural economics. So much of our most sophisticated thinking in these disciplines has involved extending, modifying and elaborating our intuitive conception of our minds – an intuitive conception that is founded on an illusion. Jettisoning such a large portion of the ideas in disciplines I have been closely involved with for so long feels a little like vandalism.

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Economists worked on the assumption that consumers and companies would have a complete and consistent theory of the ‘world’ (or the economically relevant parts anyway), including a complete understanding of their own preferences. The behaviour of markets could be seen as ‘emerging’ from the interaction of these ‘super-rational’ agents. This programme, for all its mathematical elegance, has also foundered. For one thing, countless experiments in psychology and behavioural economics have shown just how spectacularly ill-defined and self-contradictory our beliefs and preferences are. For another, the confusion of individual decision-makers (their exuberant hopes, desperate panics, their tendency to blindly follow or wildly over-react) can generate unexpected turbulence at the level of markets or of entire economies.

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

These initiatives enlist such tools as disclosure, warnings, and default rules, and they can be found in many areas, involving fuel economy, energy efficiency, environmental protection, health care, and obesity.23 Indeed, behavioral findings are providing an important reference point for regulatory and other policymaking in the United States.24 In the United Kingdom, Prime Minister David Cameron created a Behavioural Insights Team with the specific goal of incorporating an understanding of human behavior into policy initiatives.25 The official website states that its “work draws on insights from the growing body of academic research in the fields of behavioural economics and psychology which show how often subtle changes to the way in which decisions are framed can have big impacts on how people respond to them.”26 The Behavioural Insights Team has used this research to promote initiatives in numerous areas, including smoking cessation, energy efficiency, organ donation, consumer protection, charitable donation, and compliance strategies in general.27 Other nations have expressed keen interest in its work, and its operations are expanding.28 In 2013, the Obama administration created its own team to consider behavioral science and to bring empirical evidence to bear on government decisions. Behavioral economics has drawn attention in Europe as a whole. For example, the Organisation for Economic Development and Cooperation (OECD) has published a Consumer Policy Toolkit that recommends a number of initiatives rooted in behavioral findings.29 The European Union’s Directorate-General for Health and Consumers has also shown the influence of behavioral economics.30 Green Behavior, a report from the European Commission, enlists behavioral economics to outline policy initiatives to protect the environment.31 Efforts to catalogue the large and growing set of behaviorally informed initiatives have called attention to “the Rise of the Psychological State.”32 This term is not the best advertising, because it seems a bit alarming; no one is likely to vote for a candidate who says that he supports “the Psychological State.”

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But behavioral findings are creating serious problems for the Epistemic Argument, because they show that people make a lot of mistakes, some of which can prove extremely damaging.9 Consider the instructive words of federal judge Richard Posner, a longtime critic of behavioral economics and a longtime advocate for the view that human beings are essentially rational: What is called “behavioral economics” . . . has undermined the economic model of man as a rational maximizer of his self-interest and helped to expose the rampant exploitation by business of consumer psychology. Businesses know, and economists are learning, that consumers are easily manipulated by sellers into making bad choices—choices they would never make if they knew better—in borrowing and investing, and in buying goods and services, such as food, health care, and education.10 Human beings can be myopic and impulsive, giving undue weight to the short term (perhaps by smoking, or texting while driving, or eating too much chocolate).11 What is salient greatly matters.12 If an important feature of a situation, an activity, or a product lacks salience, people might ignore it, possibly to their advantage (perhaps because it is in the other room, and fattening) and possibly to their detriment (if it could save them money or extend their lives).

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See, e.g., Gordon Tullock, Arthur Seldon & Gordon Lo Brady, Government Failure: A Primer in Public Choice (2002). 15. See Timur Kuran & Cass R. Sunstein, Availability Cascades and Risk Regulation, 51 Stan. L. Rev. 683 (1999). The point regarding the shortcomings of behavioral economics is emphasized in Wright & Ginsburg, supra note 5. 16. See Glaeser, supra note 10, for arguments in this vein; Wright & Ginsburg, supra note 5; Niclas Berggren, Time for Behavioral Political Economy? An Analysis of Articles in Behavioral Economics (The Ratio Institute, Ratio Working Paper No. 166, 2011), http://www.ratio.se/media/81477/nb_behavioral.pdf. 17. For a general discussion, see Cass R. Sunstein, The Office of Information and Regulatory Affairs: Myths and Realities, 126 Harv.

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

An asymmetry in power is observed between us and those who hold and sell our personal data.” Hannak et al., “Measuring Price Discrimination and Steering on E-Commerce Web Sites.” 63. Chisholm, Why “Sleepers” Can’t Always Be Left to “Sleep.” 64. “David Currie speaks about the CMA experience of behavioural economics,” April 20, 2015. Available on the CMA website: https://www.gov.uk /government/speeches/david-currie-speaks-about-the-cma-experience-of -behavioural-economics. 12 • Behavioral Discrimination: Economic and Social Perspectives 1. Michael Eisen, “Amazon’s $23,698,655.93 Book about Flies,” It Is NOT Junk (April 22, 2011), http://www.michaeleisen.org/blog/?p =358. 2. P.

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Karen Freeman, “Amos Tversky, Expert on Decision Making, Is Dead at 59,” New York Times, June 6, 1996, http://www.nytimes.com/1996/06/06/us/amos -tversky-expert-on-decision-making-is-dead-at-59.html. 16. Ned Welch, “A Marketer’s Guide to Behavioral Economics,” McKinsey Quarterly, February 2010, http://www.mckinsey.com/insights/marketing _ sales/a _marketers _ guide _to_behavioral _economics. 17. Robert B. Cialdini, Influence: The Psychology of Persuasion (New York: HarperBusiness, 2007). 18. Dan Ariely, Predictably Irrational: The Hidden Forces that Shape Our Decisions (New York: HarperCollins, 2009), 2. 19. Welch, “A Marketer’s Guide to Behavioral Economics”; Sheryl E. Kimes, Robert Phillips, and Lisabet Summa, “Pricing in Restaurants,” in The Oxford Handbook of Pricing Management, A.

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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. Colin F. Camerer, “Prospect Theory in the Wild: Evidence from the Field,” in Advances in Behavioral Economics, Colin F. Camerer, George Loewenstein, and Matthew Rabin, eds.

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

In many cases it is far better to do what you want to do, or what you are good at, or what you think is good, and not waste time on the calculation. We ought more often to be in the state of mind of not counting the cost at all. Behavioural economics Behavioural economics is an attempt by economists to replace the caricature homo economicus, the human robot, with a more realistic actor. As such, it attempts to make use of the insights of psychology and neuroscience, hitherto a closed book to the economist. Behavioural economics does not challenge the idea that behaving like homo economicus is the best way for individuals to secure their own well-being. The disagreement comes over the extent to which this behaviour actually occurs.13 For neoclassical economists, deviations from rationality are assumed to be non-systemic.

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Mainstream critics say that the quirks detected by the behavioural economists cancel each other out, that average behaviour ends up much as economists would have predicted, before behavioural economics started to complicate matters with unnecessary puzzles. But the real objection to behavioural economics concerns not the frequency or infrequency of ‘quirks’, but calling irrational any behaviour which doesn’t correspond to the neoclassical model of rational choice. Many kinds of human behaviour are rooted in uncertainty. We cling to our sunk costs because we have no certain evidence that they are sunk for good: what is civilisation but a web of sunk costs? We hope for miracles because miracles sometimes happen. 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.

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The toy models exclude the all-pervasive influence of power and uncertainty in shaping outcomes. Another criticism would be that my account ignores developments in the mainstream since the 1980s. The crash of the global economy in 2008 was undoubtedly a shock, and it led to genuine soul-searching. ‘Behavioural economics’ has been its main fruit so far; and beside behavioural economics, there have been hundreds of papers in the specialist journals explaining how cascades, crashes, and fads can happen. All this is to be welcomed, if only as a belated discovery of behaviours which have long been obvious to non-economists. My criticism of these new approaches to realism is that they start life crippled by the attempt to render them consistent with a method which has as its root the contrary hypothesis of rational calculation.

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

By doing this he was able, as his Nobel citation said, to lay the foundation for a new field of research. Kahneman can therefore be seen as the father of behavioural economics, which is now seen as a field in its own right. Many of those who worked with him, studied under him, or were simply inspired by him, have built on his findings to further refine the genre. Policymakers increasingly accept the findings of the research by Kahneman and others into behavioural economics and finance. In the UK, the Cabinet Office has established a Behavioural Insights Team while the Department for Food and Rural Affairs has set up a Centre of Expertise on Influencing Behaviour.

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In the UK, the Cabinet Office has established a Behavioural Insights Team while the Department for Food and Rural Affairs has set up a Centre of Expertise on Influencing Behaviour. Regulatory bodies across the world such as the US Federal Trade Commission, the UK Office for Fair Trading, the OECD and the Australian Productivity Commission have begun to take behavioural economics into serious consideration and have already carried out behavioural studies to inform some of their regulatory policies. The EU’s competition authority used behavioural economics in the recent Microsoft competition case when it insisted that its products offered a selection of rival internet browsers as well as Microsoft’s own Explorer. 234 The Great Economists We have seen how Thaler coined the term endowment effect to capture and expand on Kahneman’s finding that people value things more highly once they own them.

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He coined the phrase choice architecture with law professor Cass Sunstein to describe the way in which decisions may (and can) be influenced by how the choices are presented. Thaler has developed many strands of thinking in behavioural economics, encapsulated in his book written with Sunstein aimed at a mass market, Nudge: improving decisions about health, wealth and happiness, which makes use of Kahneman’s three heuristics. This book particularly focuses on how policymakers can use behavioural economics to adapt laws to achieve outcomes by using non-coercive policies to encourage people to save more and become smarter investors. Perhaps the most famous example is the recommendation to change the default option on employment contracts so that a new worker automatically joins the pension scheme unless they opt out (rather than the other way round).

The Skeptical Economist: Revealing the Ethics Inside Economics
by Jonathan Aldred
Published 1 Jan 2009

In other words, my criticisms are outdated, redundant. Perhaps the strongest evidence in their favour lies in the recent explosive growth of behavioural economics. Behavioural economics tries to study how people actually behave, and takes seriously much of the psychological research into choice discussed in Chapter 2. It is true that the rise of behavioural economics has led to many of the old certainties — like assuming all economic actors are self-interested — being questioned. However, behavioural economics and other new developments in economics fall far short of rendering my arguments obsolete, for several reasons. First, although it represents a quiet revolution in economic thinking, the revolution is still in its early stages and relatively little has yet changed.

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See also Frederick and Loewenstein (1999), p312, who cite a large number of studies reaching the same conclusions. 26 Loewenstein and Schkade (1999), p90. 27 Schkade and Kahneman (1998). 28 Frank (1999), Ch 6; Frederick and Loewenstein (1999) Clark, et al (2008). 29 Van Praag and Frijters (1999). 30 Frank (1999), Ch 6. 31 Frederick and Loewenstein (1999), pp314-317. 32 See deBotton (2004) and Marmot (2004). 33 For balanced discussion of various aspects of this debate see Anand (1993a), Schmid (2004), Hargreaves-Heap et al (1992) and Hausman and McPherson (2006). 34 Note for economists: it might be objected that behavioural economics is beginning to influence the entire profession. But this conclusion seems premature; for example, orthodox game theory remains highly influential, but it uses a model of choice untouched by behavioural economics. In any case there remains a huge gap between the view of choice implicit in most behavioural economics, and that espoused by psychologists, a point emphasized by Kahneman in the conclusion to his Nobel lecture: Kahneman (2003), p1469. 35 Morgan et al (2006) and Varian (2003) are examples.

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To begin with, while the cutting-edge economists studying how we choose have adopted the psychological perspective of Kahneman and others, this adoption has not filtered down to economists working in other fields. This new perspective has been termed behavioural economics because it studies how people actually behave — in contrast to the approach taken in orthodox economics.34 Whether studying the decisions of company managers, or the choices of employees in the labour market, economists almost always assume that the decision makers are self-interested and think like the sovereign consumer; and they advise governments and clients on that basis. Nor is there any sign of this default view changing in the near future, not least because behavioural economics has had little impact on core undergraduate economics texts, which make absolutely no mention of it.35 Unsurprisingly therefore, it remains business as usual for the conventional wisdom on, say, advertising and economic growth.

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

That skill has enabled humans to make the leaps of imagination involved in tackling ill-defined problems which constitute scientific discovery or the artistic innovation epitomised by Brunelleschi and his contemporaries. Behavioural economics has contributed to our understanding of decision-making in business, finance and government by introducing observation of how people actually behave. But, like the proselytisers for the universal application of probabilistic reasoning, practitioners and admirers of behavioural economics have made claims far more extensive than could be justified by their findings. Kahneman offers an explanation of why earlier and inadequate theories of choice persisted for so long – a ‘theory-induced blindness: once you have accepted a theory and used it as a tool in your thinking, it is extraordinarily difficult to notice its flaws’. 19 We might say the same about behavioural economics.

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It is as though God had given us two legs so that we could run or walk, but made one leg shorter than the other so that we could not run or walk very well. An intelligent creator would not do that, and evolution did not. There is an alternative story to that told by behavioural economics. It is that many of the characteristics of human reasoning which behavioural economics describes as biases are in fact adaptive – beneficial to success – in the large real worlds in which people live, even if they are sometimes misleading in the small worlds created for the purposes of economic modelling and experimental psychology.

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Risk-taking behaviour which might appear inconsistent with axiomatic rationality is the central dynamic of a capitalist society – a key part of ‘the secret of our success’. Dual systems Daniel Kahneman, the towering figure in behavioural economics, has written of ‘system one’ and ‘system two’, differentiating intuitive reaction from the rational process of conscious thought. The ‘biases’ of behavioural economics arise when system one leads us to results which the more considered judgement of system two would reject. There is a widespread belief in folk psychology about the different influences of left brain and right brain.

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

But most of the time we operate on the software of system one – usually with remarkable success and accuracy. Unfortunately, it is prone to making systematic errors, even with very simple mathematical questions. 22 2.7 Behavioural economics Work such as Kahneman’s has inspired an entirely new area of economics, called behavioural economics, which investigates what happens in markets in which some people display human limitations and complications. Unlike ­rational choice theory, behavioural economics allows human nature to be bounded in three ways: bounded (or limited) rationality, bounded willpower and bounded selfishness. With regard to bounded rationality, it is surprising that economists are just now catching on to the importance of framing – advertisers have understood this concept for years.

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And empirically we find that unskilled workers in more profitable sectors or companies are paid more than identical unskilled workers elsewhere. When textbook economics ignores our instinct for fair shares, it misses a critical element of many economic ­interactions. 24 The impact of behavioural economics on the mainstream What impact has this research had on mainstream economics? The answer is: not much. Nowadays, most textbooks contain a box somewhere mentioning behavioural economics and describing a few ‘anomalies’ – but they are treated as exceptions that prove the rule. Take, for example, bounded selfishness: individuals have a desire to do the right thing. Mainstream economists argue that this desire can’t be that strong or there would be no pollution problem and no overfishing.

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Knowing this and how much price has changed allows the change in quantity (the base of the triangle) to be estimated. 9 This change in treatment from the earlier edition to the third edition is explained in a footnote on p. 678. 10 Nowadays it is seriously challenged by behavioural economics. One indication that behavioural economics has become mainstream is the 9 December 2002 ­article by Justin Fox in Fortune entitled ‘Is the market rational? No, say the experts. But neither are you – so don’t go thinking you can outsmart it’. 11 The amount it pays out as dividends is immaterial. Either the firm disperses its profits as dividends or it ploughs them back to grow its assets – either way, the shareholder benefits. 12 The next several paragraphs draw heavily on Mullainathan and Thaler (2004). 13 Closed-end funds are like typical (open-end) mutual funds except that to cash out of the fund, investors must sell their shares on the open market.

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

These critics have long argued that social bonds are more fundamental than market prices. The achievement of behavioural economics is to take this insight, but to then instrumentalize it in the interests of power. The very idea of the ‘social’ is being captured.3 John B. Watson had promised in 1917 that, in an age of behaviourist science, ‘the educator, the physician, the jurist and the businessman could utilize our data in a practical way, as soon as we are able, experimentally, to obtain them.’ Behavioural economics has been true to this mission statement. One of its key insights is that, if one wants to control other human beings, it is often far more effective to appeal to their sense of morality and social identity than to their self-interest.

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But remembering the philosophical contradictions inherent in these ventures, and their historical and political origins, may at least offer a source of something which has no simple bodily or neural correlate, and involves a strange tinge of happiness in spite of unhappiness: hope. Acknowledgements My interest in economic psychology, broadly understood, originated in 2009 when I noticed, to my astonishment, that behavioural economics and neuroscience were being presented as credible explanations of the global financial crisis. I subsequently spent two years as a Research Fellow at the Institute for Science Innovation and Society, University of Oxford, which allowed me to start reading the burgeoning literature in behavioural economics, happiness economics and the policy applications of both. This research resulted in a couple of articles, ‘The Political Economy of Unhappiness’, New Left Review, 71, Sept.

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In the early twenty-first century, the term ‘behaviour’ is everywhere. ‘Behaviour change’ preoccupies policy-makers, in their efforts to combat obesity, environmental degradation and civic disengagement. ‘Health behaviours’ regarding nutrition and exercise allegedly hold the key to controlling spiralling healthcare budgets. ‘Behavioural economics’ and ‘behavioural finance’ indicate the ways in which people miscalculate the optimal use of their time and money, as popularized in the best-selling Nudge, whose two authors advise presidents around the world. We are encouraged to learn tricks to alter our own ‘behaviour’ (or ‘nudge ourselves’, as some experts put it), to help us pursue more active, resilient lifestyles.17 In 2010, the British government opened a ‘Behavioural Insights Unit’ to bring such findings into policy-making.

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

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. Sometimes our behaviour is nonsensical because we evolved for conditions different to those we now find ourselves in.* However, much ‘irrational’ human behaviour is not really nonsensical at all; it is non-sensical.

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Even though I know this is true, so great is my desire to appear rational that I would find it very hard to stand in front of a board of directors and recommend that their advertising should feature rabbits, or perhaps a family of lemurs, because it sounds like nonsense. It isn’t, though. It’s a different kind of thing, which I call ‘non-sense’. Behavioural economics is an odd term. As Warren Buffett’s business partner Charlie Munger once said, ‘If economics isn’t behavioural, I don’t know what the hell is.’ It’s true: in a more sensible world, economics would be a subdiscipline of psychology.* Adam Smith was as much a behavioural economist as an economist – The Wealth of Nations (1776) doesn’t contain a single equation.

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Economic exchanges are heavily affected by context and attempts to shoehorn human behaviour into a single, one-size-fits-all straitjacket are flawed from the outset – they are driven by our dangerous love of certainty: However, this can only come from theory, which by its very universal nature doesn’t take context into account. Adam Smith, the father of economics – but also, in a way, the father of behavioural economics* – clearly spotted this fallacy over two centuries ago. He warned against the ‘man of system’, who: ‘is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it.

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

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. But behavioural economics assumes that deviations from traditional optimising behaviour result from the fact that humans are hardwired to behave in a way that is ‘irrational’.

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Information is quickly incorporated into stock prices, and explaining why prices moved in the past is no basis on which to predict the future. The stock market is a good example of the tendency of economists ‘to excel in hindsight (fitting) but fail in foresight (prediction)’.23 The danger in the assumption of behavioural economics that people are intrinsically irrational is that it leads to the view that governments should intervene to correct ‘biases’ in individual decisions or to ‘nudge’ them towards optimal outcomes. But why do we feel able to classify behaviour as irrational? Are policy-makers more rational than the voters whose behaviour they wish to modify?

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Rather than viewing unconscious emotions and conscious reasoning as two systems in conflict, Tuckett sees them as engaging in a continuous two-way communication. As he argues, ‘emotion exists to help economic human actors when reason alone is insufficient’.24 In other words, emotions help us to cope with an unknowable future and should not be seen as ‘irrational’. The problem with behavioural economics is that it does not confront the deep question of what it means to be rational when the assumptions of the traditional optimising model fail to hold. Individuals are not compelled to be driven by impulses, but nor are they living in a world for which there is a single optimising solution to each problem.

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

Economists have long believed that people are rational, that they accurately weigh the costs and benefits of the options facing them before acting. Kahneman and Tversky found that this wasn’t so. They spent decades observing people’s real-life decision-making and helped create the field of ‘behavioural economics’. 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.

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Some economists acknowledge the quirks in people’s decision-making but say that they aren’t important, and that describing the economy as rational is a useful approximation. Behavioural economists, on the other hand, argue that their special theories are needed to explain major economic events. For example, behavioural economics has been used to explain why in the 1990s the American stock market took off and then in 2000 crashed, bankrupting companies and wiping out fortunes. The American stock market had been on the rise since the early 1980s. In the 1990s people rushed to buy shares in new technology companies that offered exciting products like web browsers, search engines and online shopping.

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Eventually shopkeepers, cabdrivers and teachers were buying shares in their lunch hours. In the late 1990s, the stock market leapt by 20, even 30 per cent a year. The problem was that the income of the economy hadn’t risen anything like as fast. A few economists warned that the trend couldn’t go on. One was Robert Shiller (b. 1946), who’d applied behavioural economics to financial markets. The market was being lifted up by overexcited investors and soon it would thud to the ground, he said. In March 2000 he was embarking on a tour to promote his new book Irrational Exuberance – just when, with perfect timing, the stock market was about to crash. One day Shiller took part in a radio talk-show.

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

See, for example, the blogs and columns of Noah Smith of Bloomberg View for a discussion of this trend. 10 Abhijit Banerjee, ‘Inside the Machine’, Boston Review, March/April 2007. 11 See ‘Buzzwords and Tortuous Impact Studies Won’t Fix a Broken Aid System,’ jointly authored by fifteen leading economists: Guardian, 16 July 2018. 12 Cabinet Office Behavioural Insights Team, ‘Applying Behavioural Insights to Organ Donation: Preliminary Results from a Randomized Controlled Trial’, December 2013. 13 Tim Harford, ‘Behavioural Economics and Public Policy’, Financial Times, 21 March 2014. Full disclosure: Tim is also presenter of More or Less, a radio programme I helped start some years ago. 14 Quoted by Tim Harford, in ‘Behavioural Economics and Public Policy’ cited above. 15 In public health, this has been referred to as ‘particularism’: are there general explanations why some places grow healthier and others don’t, or does each trajectory have its own explanation?

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One of the three social-proof inspired messages – shown with a photo (in previous work, photos have increased response) – was the least successful of all eight variants they tried. The writer and broadcaster Tim Harford drew my attention to this example. Tim has a background and particular interest in behavioural economics,13 and described the success of social-proof theory in some places, followed by failure in this one, as ‘unnerving’. He wrote: ‘Social proof is a widely accepted idea in psychology but, as the donor experiment shows, it does not always apply and it can be hard to predict when or why. This patchwork of sometimes-fragile psychological results hardly invalidates the whole field but complicates the business of making practical policy.’

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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.

The Alternative: How to Build a Just Economy
by Nick Romeo
Published 15 Jan 2024

This book, based on years of reporting for the New Yorker magazine, examines a portfolio of practical solutions to urgent economic problems, from decreasing wealth inequality to addressing the climate crisis and creating meaningful jobs. If you have some knowledge of history and philosophy, the so-called revolution in behavioral economics over the past few decades appears less revolutionary. Many major insights of behavioral economics are rediscoveries of patterns already identified by ancient philosophers. Plato’s dialogues depict and analyze the cognitive-emotional processes that behavioral economics now calls confirmation bias, availability bias, framing effects, loss aversion, representativeness heuristic, and anchoring.4 There is some value in establishing these patterns with the methods of experimental psychology, using double-blind studies and populations from around the world.

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O’Donnell, Keynes: Philosophy, Economics and Politics: The Philosophical Foundations of Keynes’s Thought and Their Influence on His Economics and Politics (New York: Macmillan, 1989), 278. 3. Henry David Thoreau, Walden (New York: Houghton Mifflin, 1854), 84. 4. Nick Romeo, “Platonically Irrational,” Aeon, 2015, https://aeon.co/essays/what-plato-knew-about-behavioural-economics-a-lot. 5. Richard Davenport-Hines, Universal Man: The Lives of John Maynard Keynes (New York: Basic Books, 2015), 10. 6. Davenport-Hines, Universal Man, 326. 7. Davenport-Hines, 174. 8. Milton Friedman, Essays in Positive Economics (Chicago: University of Chicago Press, 1953), 4. 9. Julie A.

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He has already invested so much effort; it would be foolish to stop now! So he continues pouring more energy into a doomed endeavor. Moments before his death, he realizes this. “I have grasped too much and ruined the whole affair,” he thinks. Like the heroes of ancient Greek tragedy, he recognizes a vital truth only when it is too late. Long before behavioral economics existed, Tolstoy grasped the structure of some of its central concepts, such as the sunk cost fallacy and the hedonic treadmill. Yet he understands these phenomena more as frailties than fallacies, not bugs in our cognitive software so much as risks within a landscape of moral possibilities.

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

They will also point to the progressive elements in the economists’ research programme. What is called ‘behavioural economics’ only really took off after the crisis, although in 1984 Robert Shiller, the doyen of behavioural economics, had already labelled the Efficient Market Hypothesis ‘one of the most remarkable errors in the history of economic thought’.53 Behavioural economics utilizes empirical psychology to explain why individual behaviour does not conform to the neo-classical model of rationality. One might think this is an act of supererogation, were it not for the primitive character of economists’ understanding of psychology. Thus behavioural economics studies the emotional factors involved when an investor buys a stock and, unsurprisingly, alights on ‘herd behaviour’.

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Herd behaviour causes speculative bubbles as investors buy on escalating market sentiment 388 r e i n v e n t i ng p ol i t ic a l e c onom y rather than underlying stock value. So while rational expectations theory says that investors are always right in aggregate (exceptions are too small to matter), behavioural economics tells us that they can all be wrong at once. Behavioural economics has other revelations up its sleeve. We learn that people can exhibit cognitive biases such as over-confidence. Robert Nielsen explains how ‘many display an “it-won’t-happen-tome” approach. While it is obvious that some people will lose money on the stock market, each individual believes they have above-average talents that mean it won’t be them.

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London: Centre for Policy Studies. 460 Index Italic figures refer to graphs and charts Abramovitz, Moses, 157, 158 the Acadamy and scholarship, 11–12, 13 ageing populations, 301–2, 371 AIG bail-out (2008), 325 Albermarle, Duke of, 78 Alesina, Alberto, 192, 231, 233, 241 anthropology, classical, 24 anti-Semitism, 30–31, 131 ‘Aquarius’ CDO structure, 326 Aquinas, Thomas, 28–9 Aristotle, 22, 23, 31 Asian Development Bank Institute, 327 ‘asset-backed commercial paper’ (ABCP), 326 ‘asset-backed securities’ (ABSs), 322–6, 327, 330 Attwood, Thomas, 48 austerity policy, 3, 49, 84, 114, 219, 225 and Bocconi School, 192, 231 and comparative recovery patterns, 241–4, 242, 243, 273, 273–4 cost of to British economy, 243–4, 244, 245 and financial folklore, 235–6 and inequality, 245–6 neo-classical errors, 232–3 Osborne’s crucial mistake, 229–30 Reinhart-Rogoff work, 232 theory behind, 228–35, 236–9 Austria, 91, 92 Austrian School, 46, 104, 192, 226, 296, 349–50 automation, 299, 370–71 Bagehot, Walter, Lombard Street (1873), 50 balance of payments, 103, 142, 143, 144, 145, 150, 152, 153, 159–60, 165, 332 balanced budget theory and gold standard, 56–7 and Keynesian economics, 126–7, 137–8, 142, 143–4, 146, 149–50, 151, 155 as mainstream until Keynes, 76, 95, 98 mandated by EU fiscal rules, 242–3 neo-Victorian reassertion of (from 1980s), 76, 114, 185, 193, 215, 221–2 nineteenth-century fiscal policy, 9, 29, 43, 76, 85, 87–8, 92 and post-2008 austerity policies, 223–4, 227–39, 242–6 461 i n de x balanced budget theory – (cont.) post-W W1 attempts to return to, 106–14 Roosevelt on, 130 Stiglitz’s balanced-budget multiplier, 235* Baldwin, Stanley, 108 Balogh, Thomas, 169 Bank of England 1950s view on monetary policy, 146 actions during 2008 crisis, 234–5, 253–4, 254, 257 Bank Charter Act (1844), 50 Bank Rate, 58, 101–2, 113, 115, 116, 145, 146, 249, 251, 253–6, 254, 261–2, 276 ‘Consols’ (consolidated debt), 43, 80–81 Currency School vs Banking School debate, 49–50 founding of (1694), 42–3, 80 given ‘operational independence’ (1998), 249, 272–3 imposes ‘Corset’ (1973), 168 inflation targeting, 188, 189, 249–53 and ‘law of reflux’, 46 as ‘lender of last resort’, 50, 249 ‘loss function’ for inflation target, 252 macroeconomic model (2004–10), 233, 310, 310–11 Monetary Policy Committee (MPC), 249, 254, 265, 275 during Napoleonic wars, 45–8 power over credit conditions, 105, 115–16 Prudential Regulatory Authority, 363 quantitative easing (QE) by, 254, 257, 259–62, 263–73, 274, 275–7, 276 Bank of International Settlements, 342–3 Bank of Japan, 271 Bank Rate after 2007–8 crisis, 254, 261–2, 279 during 2008 crisis, 253–6, 254, 278 and Bank of England, 58, 101–2, 113, 115, 116, 145, 146, 249, 251, 253–6, 254, 261–2, 276 and broad money monetarism, 186 in Cunliffe’s model, 54, 54–5, 102, 145 after First World War, 101–2 and inflation targeting, 188, 249, 251, 252, 358–9 and Keynes, 101, 102, 115, 166, 255* and managed gold standard, 71 in pre-crash USA, 340 and Radcliffe Report (1959), 146 set by independent central banks, 188, 249–50 and Thornton, 47, 278 transmission mechanism of, 250, 250–51 and Wicksell, 69, 70, 358–9 Banking School, 49–50 banks Austrian School’s 100 per cent reserve requirement, 350, 367 bail-outs, 30, 217, 223, 319–20, 364–5 ‘bank lending channel’, 64 Basel I (1988) and Basel II (2003), 320, 363 Basel III, 363, 364 capital adequacy requirements, 320, 363–4 capital/collateral requirements weakened, 320 collapse of in 2008 crisis, 217, 223, 319 and consolidated debt, 43, 80–81 continued bonuses after crash, 319–20 462 i n de x continued complaints by over regulation, 363–4, 367 creation of money by, 27, 34, 61, 67–8, 71, 311 damage inflicted by, 361–2 deposit and joint-stock banking, 92 deregulation, 307–9, 310–16, 318–22, 328, 332–3 development of modern system, 34 functional separation proposals, 362–3 funding of CR As by, 326–7, 329 Glass–Steagall overturned in USA (1999), 319 growth of unregulated sector, 168 late-medieval rediscovery of, 33–4 leverage concept, 317–18, 322 liquidity concept, 316–17 ‘living wills’, 365 LTROs (long-term refinancing operations), 257 macroprudential regulation, 363–5 maturity mismatch of SPVs, 326 ‘money multiplier’, 35, 64, 146, 179, 185, 258–9, 268–9, 277–8, 280 off balance-sheet assets, 318, 324, 325–6 post-crash reform agenda, 361–8 pre-crash orthodoxy, 5, 308–11 and quantity theory, 61, 64, 65–6, 67–70 reasons for regulation of, 316 reserve or liquidity requirements, 364 root of problem as greed, 365–6 solvency concept, 316–17 ‘stress testing’, 364 see also financial system Barber, Anthony, 167 Barings Bank demise of (1995), 366 rescue of (1890), 50 basic income guarantee, 371 Bavarian Banking Association, 266 Bayes’ theorem, 209 Bear Stearns, 217 ‘behavioural economics’, 388–90 Bernanke, Ben, 105, 179, 188, 248, 256, 275, 278, 334, 344 Besley, Tim, 226, 235 Bible, 30 Bismarck, Otto, 89, 92 Blanchard, Olivier, 230–31, 239 BNDES (Brazilian Development Bank), 354 Bocconi School, 192, 231 Bodin, Jean, 33 Boer War, 86 bond markets, 7, 90–92, 148, 186, 218, 219, 235, 246, 287, 341 Borio, C., 342–3 Brash, Donald, 188 Bretton Woods system, 16, 139, 159, 374–3, 381 collapse of in 1970s, 16–17, 162, 164–5, 166–7, 184 Brexit vote (June 2016), 257, 316*, 373 Britain, xviii adoption of Keynesian policy, 141, 142–3 austerity policy see austerity policy: cost to British economy bullionist vs ‘real bills’ controversy, 44, 45–9 centralization of tax collection, 80 Currency School vs Banking School debate, 44, 49–50 debate on post-crash policy, 225–8 deficit and public sector borrowing statistics (1956–2013), 156 Employment White Paper (1944), 141, 142 463 i n de x Britain – (cont.) final suspension of gold standard (1931), 113, 125 First World War borrowing, 95 fiscal experience (1692–2012), 77 forced out of ERM (1992), 188 GDP per capita growth (1919–2007), 154 ‘Geddes Axe’ (1920s), 108 and gold standard, 9, 42, 43, 44, 45–50, 53, 57–9, 80, 101 and Great Depression, 97, 98, 110–13 growth Keynesianism (1960–70), 148–9, 150–51, 152 industrial relations system, 147, 167–8, 169 inflation peak (1975), 166 inter-war cyclical downturns, 107, 113 and mercantilism, 78–81, 82 monetarism in, 185, 186–8, 189, 192–3, 249 nationalization in post-war period, 142, 158 post-crash bank liquidity ratios, 364 pre-crash housing bubble, 304 ‘prices and incomes policy’ in, 147, 150, 151, 167–8 public finances before 2008 crash, 224, 225 Public Sector Borrowing Requirement (PSBR), 155–6 public spending and tax revenue (1950–2000), 157 rearmament in late 1930s, 113 recession of early 1980s, 186–7 recoinage debate (1690s), 40, 41–3 return to gold standard (1925), 102, 103, 107 sharp rise in inequality since 1970s, 288–9, 299–300, 300 slow recovery from 2008 crash, 241, 242, 243–4, 245, 273, 273–4 ‘stop-go’ in post-war period (‘fine tuning’), 142–3, 145–6, 150, 152 victories over France (eighteenthcentury), 43, 80, 81 see also Bank of England; Conservative Party; Labour Party British Empire, 57, 58, 80 Brittan, Samuel, 225 Brown, Gordon, 193, 220, 221–3, 354, 357 and 2008 crash, 220, 223, 224 declares era of ‘boom and bust’ over, 215 ‘prudence’ as watchword, 226 Bryan, William Jennings, 52 budget deficit see balanced budget theory Buchanan, James, 198 Buffett, Warren, 326 Bundesbank, 140, 154, 257, 275 Bush, George W., 242 business schools, financing of, 13 Cairncross, A.

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

This is what we should expect, for where there are obvious mistakes of perspective and judgement, it is the function of the impartial spectator within Smith’s system to correct for them. And as some have pointed out, there is ample scope for further work now in behavioural economics along lines already laid out by Smith, including people’s desire to be well regarded by posterity; their negative reactions to being misjudged; their mistaken belief in the objectivity of tastes; and their sympathy for the rich and great. No less that he is for economics as a whole, Smith is the father of behavioural economics. Secondly, any such simple account of motivation runs directly contrary to Smith’s very nuanced understanding of human psychology.

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Virtually every great economist of the past two centuries has claimed Smith’s influence; virtually every major modern branch of economics, from the so-called neoclassical mainstream to the Austrian and Marxist schools—of which more anon—and the more recent offshoots of institutional, developmental and behavioural economics, traces its lineage back to Smith. Politicians, academics and pub bores around the world have found the authority of The Wealth of Nations and the simplicity of its core ideas an irresistible combination, and routinely draw on them to dignify and adorn their own beliefs or arguments. The result has been to obscure Smith, to mistake the range and power of his ideas and to breed myths without number.

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In very rough chronological order, they include Marxism, focused on production, class conflict, capital accumulation, business cycles and technological change; Austrian economics, stressing limitations on human rationality, the importance of norms, spontaneous order, prices as signals, innovation and entrepreneurship; post-Keynesianism, emphasizing uncertainty and ‘animal spirits’, stagnation, unemployment and the scope for active government fiscal interventions; developmental economics, analysing the industrial linkages which hinder or assist improvements in productive capabilities, protection and the role of policy in nurturing infant industries; institutional economics, exploring how institutions shape individual and collective behaviour, and more recently the specific role of transaction costs; and monetarism, emphasizing the importance of the money supply and the influence of monetary factors on inflation, economic performance and national output. The boundaries are porous: many would argue, for example, that institutional economics or behavioural economics should now be considered part of the mainstream. Mainstream economics thus represents one set of ideas elaborated from The Wealth of Nations. But it is far from clear that Smith would have endorsed many aspects of it. Such is the power of his original insights about the centrality of markets, and such is the range of his wider views, that every single other modern school of economics can with justice claim him as a progenitor as well.

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

The nudge is also a useful technique for data colonialism, generating at scale not the gentle subtlety Thaler and Sunstein intended but the force of what legal scholar Karen Yeung calls the “hypernudge”: dynamic and interactive behavior modulation enabled by continuous connectivity and continuous data flows.144 Nudge’s guest appearance in social science is just a token in the contemporary battle over economics’ explanatory status. Behavioral economics emerged in response to an impasse over the model of rational-choice actor that mainstream economics has assumed for so long. Behavioral economics insists that alongside utility maximization the human subject has another dimension, less rational and more impulsive (in the jargon these are called, respectively, “System One” and “System Two”).145 Behavioral economics is having significant influence in the broader marketing profession, at least in the United States. As Anthony Nadler and Lee McGuigan argue, behavioral economics, through its selective emphasis on the less conscious, less reflective side of brain functioning, “refine[s] marketers’ existing conceptions of human nature,” which have always sought to tap into the irrational.

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Some interpretative sociologists have challenged the idea that individual economic calculations are irrational and are reinterpreting them not in terms of numbers but of the complex moral relations in which economic transactions are in fact embedded (Zelizer, Economic Lives, discussed in Wherry, “Relational Accounting”). Yet the rise of behavioral economics continues unimpeded. For a lively if controversial critique, see Shaw, “Invisible Manipulators.” 146. Nadler and McGuigan, “Impulse to Exploit,” 7; compare Padios, “Mining the Mind” on “emotional extraction.” 147. Quoted in Lewis, “What If He’s Right?,” 30. 148. See, for example, Camerer, Loewenstein, and Prelec, “Neuroscience.” 149. Camerer, “Neuroeconomics,” C28, emphasis added. 150. For critique, see McMahon, “Behavioral Economics.” 151. Ariely and Berns, “Neuromarketing.” We also found inspiring a paper by Oscar Gandy and Selena Nemorin, “Political Economy of Nudge.” 152.

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“TASER Makes Two Acquisitions to Create Axon AI.” February 9, 2017. https://www.prnewswire.com/news-releases/taser-makes-two-acquisitions-to-create-axon-ai-300404780. Prosser, William L. “Privacy.” California Law Review 48 (1960): 383–423. Pykett, Jessica. “Neurocapitalism and the New Neuros: Using Neuroeconomics, Behavioural Economics and Picoeconomics for Public Policy.” Journal of Economic Geography 13, no. 5 (2013): 845–69. Qiu, Jack Linchuan. Goodbye iSlave. Champaign: University of Illinois Press, 2016. Quijano, Aníbal. “Coloniality and Modernity/Rationality.” Cultural Studies 21, nos. 2–3 (2007): 168–78. . “Coloniality of Power, Eurocentrism, and Latin America.”

Frugal Innovation: How to Do Better With Less
by Jaideep Prabhu Navi Radjou
Published 15 Feb 2015

Social comparison Most mainstream economists would argue that the best way to get consumers to regulate their use of energy is through pricing or subsidies. But less conventional behavioural economics has encouraged more psychological approaches. Opower mails a regular home-energy report (HER) to customers comparing their energy use with that of their neighbours. In this way, consumers can be goaded towards frugality. Opower now works with 93 utility partners in 35 states and eight countries around the world to reach over 32 million households and businesses. A study by ideas42, a behavioural economics consultancy, found that “the HERs programme on average reduces energy consumption by 2%”.

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Based on case studies of Kingfisher, Levi Strauss, method, Tarkett and Unilever, the chapter provides insights into how R&D and manufacturing managers can develop self-sustaining solutions that help both businesses and the environment. Shape customer behaviour. Drawing on research in psychology and behavioural economics, as well as on the pioneering work of organisations such as Barclays, IKEA, Khan Academy, Nest and Progressive, Chapter 5 shows how companies can influence consumers into behaving differently (for example, driving less or more safely) and feeling richer while consuming less. It also shows how marketing managers can improve brand loyalty and market share by tailoring frugal products and services more closely to the way customers actually think, feel and behave – and by properly positioning and communicating the aspirational value of these frugal solutions.

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Three contradictions of contemporary consumption Consumers care about the environment and yet are profligate with resources In survey after survey, Western consumers say they care about the environment and that they would like to be more prosocial (voluntary behaviour intended to benefit others). Yet data on their actual behaviour (for example, their energy and water use) suggests that these noble-minded consumers frequently allow behavioural, economic and technical barriers to get in the way. For example, in the GfK Roper Yale 2008 survey on environmental issues a majority of Americans said that “it is important that the products they purchase be environmentally friendly”. Specifically, when buying cars, laundry detergent and computer-printer paper, 66%, 62% and 51% of respondents respectively said that environmental concerns are important or essential to their decisions.

The Biology of Desire: Why Addiction Is Not a Disease
by Marc Lewis Phd
Published 13 Jul 2015

But that’s not a problem for the disease model, because it’s also true of many well-known illnesses, including heart disease, diabetes, and some forms of cancer. For those too there are treatments but not cures. The idea that addiction is a choice comes from a cognitive (rather than biological) perspective, emphasizing changes in thought processes. Researchers in behavioural economics, which blends social psychology with economic thinking, try to understand why people make the choices they make, including the choice to take addictive substances. While few people imagine that addiction is a good choice, it is often considered a rational one, at least in the short run—as when the pleasure or relief derived from one’s addiction seems to outweigh other possible choices.

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“But you see,” our typically left-leaning professor said with a grin, “one-third of the information is false!” It pays to remember that brains make decisions based on biased, convoluted, and often just-plain-mistaken input. Daniel Kahneman’s bestselling book Thinking, Fast and Slow summarizes thirty years of progress through which psychologists (and students of behavioural economics) have come to recognize how biased and irrational our thinking can be. None of this should be very surprising. After all, the brain is a body part whose concern is the slaking of desires and avoidance of risk, goals carried out by hand, tongue, teeth, feet, and genitals. Rationality is a useful tool for planning our route in rush-hour traffic, for dinner-table debates, and for getting A’s in school.

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See American Society of Addiction Medicine attention amygdala and, 80 conscious, 158–160 desire and, 174 goal-seeking behaviour and, 92 attention deficit disorder (ADD) Brian and, 72–73, 85 now appeal and, 85 avoidance, 34 Baumeister, Roy, 149 bed-wetting, 120 behavioural addictions DSM and, 165 love and, 166–168 substance addiction characteristics and, 23, 165 behavioural economics, 2 Berridge, Kent, 58–59, 147, 176 bias, 28–29 Biden, Joe, 11 binge eating, 146, 150 See also Alice Birmingham Model, 214–215 brain anatomy, 43–45, 44 (fig.) bias and, 28–29 bulimia and, 146 change, 25–26 cocaine example, 40–41 cognition linked with emotion in, 81–82 as computer, 28 design, basic, of, 27–29 disease model and, 1–2, 7, 25–26, 162–165, 168–169 dopamine and, 81 ego fatigue and, 150 emotional intensity and, 31, 39–40 evolution of, 92 experience and, 30–33 feedback and, 30–31, 34–38 fresh look at, 23–26 habit patterns and, 41–42 as habit-forming machine, 93 imaging studies, 7 irrationality and, 29 learning and, 29–30 love and, 166–168 motivated repetition and, 42 motivational core in, 126, 173 neurons, networking, and, 28, 38–42 neuroplasticity and, 29–32 NIDA on, 6 normal functioning, 81–82, 163–165 permanence and, 30–32 reptile, 29–30 reward and, 27–28 self-organization, self-perpetuation and, 34 symbols and, 144, 147 See also specific region brain stem, 29 Breakdown of Will (Ainslie), 191 Brian (methamphetamine addiction) accelerated learning and, 171, 172 accumbens and, 126 ADD and, 72–73, 85 amygdala and, 79 business plans of, 76 cocaine and, 73 cognitive mutation in, 75 compulsive habit and, 127, 181–182 contradictions and, 78–79 control loss of, 77–79 control maintenance of, 76–77 dealing and, 75 driving to visitation, 77–78 family narrative of, 89–90 gang fight with, 86–87 in garage home, 87–88 lollies and, 73–74 meaningful work of, 91–92 NA and, 88–89 new habits of, 90–91 now appeal and, 84, 85–86, 87 OFC and, 80–81 recovery of, 89–92, 200–201 reflection and, 201–202 relationship and, 74 self-medication model and, 177 sleeping in car, 71–72 sleepless nights and, 74–75 symbols and, 144 bridge metaphor, 45, 131, 137, 146, 156–157 bulimia, 146, 150 See also Alice Burkett, James, 166–167 cat (type of amphetamine), 73 Centers for Disease Control (CDC), 178–179, 180 (fig.)

Peak Car: The Future of Travel
by David Metz
Published 21 Jan 2014

We must identify and value the long‑run economic benefits, which show up in the first instance as increased land and property values, and as new developments; and subsequently as new employment opportunities and more homes. The transport economists have not yet caught up with one of the more important developments in economics in recent decades—‘behavioural economics’—which arose from the observation of a series of discrepancies between how economic theory predicts rational decision‑makers would act in their own best interests, and how people do in fact act in the real world. The message of behavioural economics, which has gained considerable traction amongst policy makers, is that if we are to influence behaviour to achieve better outcomes then we must base interventions on observations of what people actually do, rather than suppositions what they might do because the latter is easier to model.

The New Economics: A Bigger Picture
by David Boyle and Andrew Simms
Published 14 Jun 2009

It has been underpinned by a range of new disciplines and ideas that were emerging from economics itself, realizing that the classical economics of William Stanley Jevons, Leon Walras and Vilfredo Pareto were based on A BRIEF HISTORY OF THE NEW ECONOMICS 29 the assumptions of Victorian physics, borrowing from Newtonian physics long after it had been superseded by Einstein, using economic variables in their equations as if they were equations in physics. They simply replaced energy with economic concepts, when there was little evidence that energy and money or the economic concept of ‘utility’ behaved in the same way at all, as if people’s economic behaviour bore any relation to the behaviour of atoms. Behavioural economics, heterodox economics, ecological economics, neuroeconomics (scanning people’s brains while they decide), and a whole range of new mini-disciplines have emerged from inside the mainstream, trying to take account of the divorce between the old assumptions of economics and the real world. What the new economics recognized was that there was just a possibility that conventional economics could be turned on its head – that there were hidden resources among ordinary people and in impoverished communities that could be brought to bear to provide solutions.

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Some so-called ‘choices’ actually reinforce a corporate bias that turns out to be a kind of supermarket choice: a great deal of barely different options, but whole areas of real choice eliminated. Other books to read David Boyle (2003) Authenticity: Brands, Fakes, Spin and the Lust for Real Life, Harper Collins, London Neil Crofts (2003) Authentic, Capstone, London Emma Dawnay (2006) Behavioural Economics, New Economics Foundation, London Joe Dominguez and Vicki Rubin (1994) Your Money or Your Life, Penguin, New York Polly Ghazi and Judy Jones (1997) Downshifting, Coronet, London Jonathon Porritt (2005) Capitalism as if the World Matters, Earthscan, London Dorothy Rowe (1997) The Real Meaning of Money, HarperCollins, London Notes 1 2 3 4 5 6 7 8 9 10 11 12 13 The Times (1988) 5 December.

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Duane Elgin (1993) Voluntary Simplicity, William Morrow, New York. Co-operative Partnership (2004) Ethical Consumerism Report 2004, London. M. Cooper and A. Culyer (1968) The Price of Blood, Institute of Economic Affairs, London. Richard Titmuss (1970) The Gift Relationship: From Human Blood to Social Policy, New Press, London. Emma Dawnay (2006) Behavioural Economics, New Economics Foundation, London. Deborah Campbell (2004) ‘Post-autistic economics’, Adbusters, September/October. Roger Levett, Ian Christie, Michael Jacobs, R. Therival (2003) A Better Choice of Choice, Fabian Society, London. 6 Life: Why do Modern Britons Work Harder than Medieval Peasants?

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

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.

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The guinea pigs in the trial got e-mails that included extra sentences designed to act as savings cues.20 The idea was to test another big behavioral quirk: the effect that exposure to arbitrary numbers, or “anchors,” can have on people. The effect was first formally identified by Amos Tversky and Daniel Kahneman, a pair of psychologists whose studies of human decision making laid the foundations for the field of behavioral economics. In a 1974 experiment, they rigged a roulette wheel to stop at either 10 or 65 and then asked people to estimate the percentage of African countries in the United Nations. The subjects were instructed to indicate first whether the roulette-wheel number was higher or lower than their estimate for the proportion of African countries in the UN and then to give their estimate.

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. a staggering 500 percent upturn: “The Zettabyte Era: Trends and Analysis,” Cisco White Paper No. 1465272001812119, June 7, 2017, http://www.cisco.com/c/en/us/solutions/collateral/service-provider/visual-networking-index-vni/vni-hyperconnectivity-wp.html.

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But much of the efficiency gains have now been absorbed, and to reap further benefits firms will have to focus on improving information processing among a firm’s top decision makers. There, however, firms face a far more difficult challenge: constraints in human cognition. As psychologists Daniel Kahneman and Amos Tversky pointed out in their groundbreaking studies (which fueled the creation of a new academic field, behavioral economics), humans are plagued by a range of fundamental cognitive limitations that impair our general ability to decide well. We have seen this in the context of price, but the constraints are far more universal. For example, we naturally evaluate new information by comparing it to information that we can easily bring to mind.

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

She focuses on the use of threatening/reassuring messages to increase/decrease authoritarian behavior in the electorate. Stenner also publishes and consults extensively on energy consumer behavior, including around the design of messages and behavioral interventions to promote energy efficiency and the uptake of renewable energy. She previously served as Senior Research Scientist and Leader of the Behavioural Economics and Psychological Insights unit at the CSIRO (Commonwealth Scientific and Industrial Research Organisation), Australia’s national science agency. Stenner has eclectic interests across the social and behavioral sciences, and favors evidence-based interdisciplinary research that offers actual solutions to real-world problems.

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It follows from this framework that the choices people make necessarily reflect their preferences (Mayhew 1980). This notion of rationality is extremely plausible (commonsense even) and is highlighted in Freakonomics-style books that extol the power of incentives to guide and explain behavior. But as several decades of psychology and behavioral economics research has demonstrated (Ariely 2008; Gilovich, Griffin, and Kahneman 2002), it ignores what Daniel Kahneman calls “system 2” thinking (Kahneman 2011), which resides in our unconscious brains and can be influenced by, among other things, subtle details in the presentation of options (Thaler and Sunstein 2008)—e.g., default settings (Johnson and Goldstein 2003), cognitive loads imposed by background environmental stresses (Mullainathan and Shafir 2013), and implicit biases arising from cultural stereotypes and irrelevant personal experience (Banaji and Greenwald 2016).

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See Obamacare Agenda-setting, 89 Albright, Jonathan, 88 Alien Act of 1798, 430–32 Alien Registration Act, 442 Alliance for Securing Democracy, 95–96 American Civil Liberties Union (ACLU), 315, 319 American Civil War, 139, 432–33 American exceptionalism, 57–58, 142, 170–71 Amidala, Padmé, 392 Analogies, 303 Analogies at War (Khong), 303 Anarchy, 42–43 Anceau, E., 287, 296, 298, 300, 301, 303, 306–7 Andic, Suphan, 45–46 Andrew, Christopher, 84 Andropov, Yuri, 82, 85 “Another Road to Serfdom: Cascading Intolerance” (Kuran), 233–75 Antifederalists, 62–64, 66, 75–76 Arab Spring, 140, 388 Articles of Confederation, 59–61, 64 Associations, 236, 237, 263 Attack on Pearl Harbor, 318, 438, 439 Atwood, Margaret, 138–39 Austria, 177 Authoritarian dynamic, 179–81, 185–86 EuroPulse survey and analysis, 188–209 Authoritarianism civil liberties vs., 429 conservatism compared with, 181–84 impact on populism, 201–3 steps to, 365–66 what it does, 184–85 when it does this, 185–88 “Authoritarianism Is Not a Momentary Madness, but an Eternal Dynamic within Liberal Democracies” (Stenner and Haidt), 175–219 Authoritarian Personality, The (Adorno), 183 Authoritarian predisposition, 179, 180, 187, 191–94, 196, 197, 203, 215–16, 219n Authoritarian rule, and Trump, 2–16 Authorization for Use of Military Force (AUMF), 224 Authorization of Regulatory Force and Adjustment (ARFA), 136–37, 144 Autocracy, 24, 140, 154, 267 psychology of, 279–84 Availability cascade, 251 Availability chambers, 249–58, 261–62 Availability heuristic, 251–52 Background circumstances, 344, 348 Balkin, Jack M., 452 “Constitutional Rot,” 19–35 Bannon, Steve, 41 “Basket of deplorables,” 242 Bastid, P., 296, 297, 300 Beattie, James, 335–36, 338 Beaumont, Gustave de, 291–92 Beck, Glenn, 243 Behavioral economics, 341–43 Berlusconi, Silvio, 147, 277 Berton, H., 296 “Beyond Elections: Foreign Interference with American Democracy” (Power), 81–103 Biases, 341–43, 348 Bicameralism, 70, 71, 72 Biddle, Nicholas, 221, 440 Big Five personality traits, 183 Big government, 38, 47, 50–53, 268 Bill of Rights, 79 Black, Hugo, 442 Black Lives Matter, 93, 190, 258 Black sites, 115, 124 Blanc, Louis, 286 Born rulers, 280–82 Brandeis, Louis, 437, 445 Brandenburg v.

Digital Transformation at Scale: Why the Strategy Is Delivery
by Andrew Greenway,Ben Terrett,Mike Bracken,Tom Loosemore
Published 18 Jun 2018

Why try to increase organ donation using a provisional licence form used by tens of thousands a year when you can change the end pages on a car tax transaction used by 20 million people a year? Working with the Nudge team, DVLA and the Department for Health, GOV.UK tested eight different versions of calls to action on different end pages. These were based on classic behavioural economic ideas of social norms (‘people like you are donating their organs’). Some used pictures. Others drew on the old advertising trick of reciprocity (‘you might need these organs one day’). The latter won. Within a year, a few simple words increased the number of organ donors in the UK by 400,000.

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The changes had cost almost nothing to design, test, iterate and implement. The whole project was wrapped up within weeks. The organ donation project was an excellent example of what can be done by effectively combining policy, operations and digital in a single team to tackle a social conundrum. Policy or behavioural economics alone lacked the frontline knowledge to avoid the red herrings, or the levers to experiment quickly, with real-time responses. Open-minded, multidisciplinary teams can deliver a lot more than just elegant websites. The internet era has arguably created some genuinely new roles, or at least redefined existing roles to the extent that they will be taken by different people applying a new attitude.

Doing Good Better: How Effective Altruism Can Help You Make a Difference
by William MacAskill
Published 27 Jul 2015

Daniel Kahneman and Amos Tversky were psychologists who caused a revolution within economics: For an excellent overview of this pathbreaking research, see Daniel Kahneman, Thinking, Fast and Slow (New York: Farrar, Straus and Giroux, 2011). this field has improved our ability to cause desirable behavior change: For examples, see “Poor Behaviour: Behavioural Economics Meets Development Policy,” The Economist, December 6, 2014, and Dean Karlan and Jacob Appel, More Than Good Intentions: How a New Economics Is Helping to Solve Global Poverty (New York: Dutton, 2011). the distribution of book sales: Newman, “Power Laws,” 5. as is the distribution of Twitter follower counts: State of the Social Media Marketing Industry, HubSpot, January 2010, http://www.hubspot.com/Portals/53/docs/01.10.sot.report.pdf.

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There are far more combinations of fields than there are individual fields, and research tends to be influenced by traditional disciplinary distinctions, so research at the intersection of two disciplines is often particularly neglected and can for that reason be very high-impact. For example, Daniel Kahneman and Amos Tversky were psychologists who caused a revolution within economics: they applied methods developed in psychology to test assumptions about rational choice that were prevalent within economics, thereby leading to the new field of “behavioral economics.” By giving us a better understanding of human behavior, this field has improved our ability to cause desirable behavior change, including in development. Similarly, effective altruism has made the progress it has by combining concepts from moral philosophy and economics. Combining fields can be especially useful when one moves from a more theoretical area to an area with real-world applications.

The Future of Capitalism: Facing the New Anxieties
by Paul Collier
Published 4 Dec 2018

Tony Venables, whose profound influence on Chapter 7 is evident, also commented in detail on the entire manuscript. Finally, Denis Snower, President of the Kiel Institute for the World Economy, not only commented in detail on the manuscript but has been invaluable in encouraging and contributing to what we have come to regard as ‘behavioural economics, generation 2’: the attempt to bring the insights of social psychology into the economic analysis of group behaviour, as distinct from individual decision biases. Our colleagues in the network Economic Research on Identity, Narratives and Norms will in various places recognize my intellectual debt to their work.

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O. (2015), Dancing in the Dark: My Struggle (Vol. 4). London and New York: Random House. Lee Kuan Yew (2000), From Third World to First: The Singapore Story 1965–2000. Singapore: Singapore Press Holdings. Levitt, S. D., List, J. A., Neckermann, S., and Sadoff, S. (2016), The behavioralist goes to school: leveraging behavioral economics to improve educational performance’. American Economic Journal: Economic Policy, 8 (4), pp. 183–219. Lewis, M., and Baker, D. (2014), Flash Boys. New York: W. W. Norton. MacIntyre, A. (2013), After Virtue. London: A&C Black (first published 1981). Martin, M. (2018), Why We Fight. London: Hurst.

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

This book brings together the key insights I have discovered along the way – insights into ways of thinking that I wish had crossed my path at the outset of my own economics education, and that I believe should be part of every economist’s toolkit today. It draws on diverse schools of thought, such as complexity, ecological, feminist, institutional and behavioural economics. They are all rich with insight but there is still a risk that they will remain separated in silos, each school of thought nestled in its own journals, conferences, blogs, textbooks and teaching posts, cultivating its niche critique of last century’s thinking. The real breakthrough lies, of course, in combining what they each have to offer and to discover what happens when they dance on the same page, which is just what this book sets out to do.

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That much has been agreed upon since the 1950s when Herbert Simon broke rank with his fellow economists and started to study how people actually behaved, finding their rationality to be severely ‘bounded’. His findings, augmented by those of psychologists Daniel Kahneman and Amos Tversky in the 1970s, gave birth to the field now known as behavioural economics, which studies the many kinds of ‘cognitive bias’ that systematically cause humans to deviate from the ideal model of rationality. Examples abound. 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.

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Page numbers in italics denote illustrations A Aalborg, Denmark, 290 Abbott, Anthony ‘Tony’, 31 ABCD group, 148 Abramovitz, Moses, 262 absolute decoupling, 260–61 Acemoglu, Daron, 86 advertising, 58, 106–7, 112, 281 Agbodjinou, Sénamé, 231 agriculture, 5, 46, 72–3, 148, 155, 178, 181, 183 Alaska, 9 Alaska Permanent Fund, 194 Alperovitz, Gar, 177 alternative enterprise designs, 190–91 altruism, 100, 104 Amazon, 192, 196, 276 Amazon rainforest, 105–6, 253 American Economic Association, 3 American Enterprise Institute, 67 American Tobacco Corporation, 107 Andes, 54 animal spirits, 110 Anthropocene epoch, 48, 253 anthropocentrism, 115 Apertuso, 230 Apple, 85, 192 Archer Daniels Midland (ADM), 148 Arendt, Hannah, 115–16 Argentina, 55, 274 Aristotle, 32, 272 Arrow, Kenneth, 134 Articles of Association and Memoranda, 233 Arusha, Tanzania, 202 Asia Wage Floor Alliance, 177 Asian financial crisis (1997), 90 Asknature.org, 232 Athens, 57 austerity, 163 Australia, 31, 103, 177, 180, 211, 224–6, 255, 260 Austria, 263, 274 availability bias, 112 AXIOM, 230 Axtell, Robert, 150 Ayres, Robert, 263 B B Corp, 241 Babylon, 13 Baker, Josephine, 157 balancing feedback loops, 138–41, 155, 271 Ballmer, Steve, 231 Bangla Pesa, 185–6, 293 Bangladesh, 10, 226 Bank for International Settlements, 256 Bank of America, 149 Bank of England, 145, 147, 256 banking, see under finance Barnes, Peter, 201 Barroso, José Manuel, 41 Bartlett, Albert Allen ‘Al’, 247 basic income, 177, 194, 199–201 basic personal values, 107–9 Basle, Switzerland, 80 Bauwens, Michel, 197 Beckerman, Wilfred, 258 Beckham, David, 171 Beech-Nut Packing Company, 107 behavioural economics, 11, 111–14 behavioural psychology, 103, 128 Beinhocker, Eric, 158 Belgium, 236, 252 Bentham, Jeremy, 98 Benyus, Janine, 116, 218, 223–4, 227, 232, 237, 241 Berger, John, 12, 281 Berlin Wall, 141 Bermuda, 277 Bernanke, Ben, 146 Bernays, Edward, 107, 112, 281–3 Bhopal gas disaster (1984), 9 Bible, 19, 114, 151 Big Bang (1986), 87 billionaires, 171, 200, 289 biodiversity, 10, 46, 48–9, 52, 85, 115, 155, 208, 210, 242, 299 as common pool resource, 201 and land conversion, 49 and inequality, 172 and reforesting, 50 biomass, 73, 118, 210, 212, 221 biomimicry, 116, 218, 227, 229 bioplastic, 224, 293 Birmingham, West Midlands, 10 Black, Fischer, 100–101 Blair, Anthony ‘Tony’, 171 Blockchain, 187, 192 blood donation, 104, 118 Body Shop, The, 232–4 Bogotá, Colombia, 119 Bolivia, 54 Boston, Massachusetts, 3 Bowen, Alex, 261 Bowles, Sam, 104 Box, George, 22 Boyce, James, 209 Brasselberg, Jacob, 187 Brazil, 124, 226, 281, 290 bread riots, 89 Brisbane, Australia, 31 Brown, Gordon, 146 Brynjolfsson, Erik, 193, 194, 258 Buddhism, 54 buen vivir, 54 Bullitt Center, Seattle, 217 Bunge, 148 Burkina Faso, 89 Burmark, Lynell, 13 business, 36, 43, 68, 88–9 automation, 191–5, 237, 258, 278 boom and bust, 246 and circular economy, 212, 215–19, 220, 224, 227–30, 232–4, 292 and complementary currencies, 184–5, 292 and core economy, 80 and creative destruction, 142 and feedback loops, 148 and finance, 183, 184 and green growth, 261, 265, 269 and households, 63, 68 living metrics, 241 and market, 68, 88 micro-businesses, 9 and neoliberalism, 67, 87 ownership, 190–91 and political funding, 91–2, 171–2 and taxation, 23, 276–7 workers’ rights, 88, 91, 269 butterfly economy, 220–42 C C–ROADS (Climate Rapid Overview and Decision Support), 153 C40 network, 280 calculating man, 98 California, United States, 213, 224, 293 Cambodia, 254 Cameron, David, 41 Canada, 196, 255, 260, 281, 282 cancer, 124, 159, 196 Capital Institute, 236 carbon emissions, 49–50, 59, 75 and decoupling, 260, 266 and forests, 50, 52 and inequality, 58 reduction of, 184, 201, 213, 216–18, 223–7, 239–41, 260, 266 stock–flow dynamics, 152–4 taxation, 201, 213 Cargill, 148 Carney, Mark, 256 Caterpillar, 228 Catholic Church, 15, 19 Cato Institute, 67 Celts, 54 central banks, 6, 87, 145, 146, 147, 183, 184, 256 Chang, Ha-Joon, 82, 86, 90 Chaplin, Charlie, 157 Chiapas, Mexico, 121–2 Chicago Board Options Exchange (CBOE), 100–101 Chicago School, 34, 99 Chile, 7, 42 China, 1, 7, 48, 154, 289–90 automation, 193 billionaires, 200, 289 greenhouse gas emissions, 153 inequality, 164 Lake Erhai doughnut analysis, 56 open-source design, 196 poverty reduction, 151, 198 renewable energy, 239 tiered pricing, 213 Chinese Development Bank, 239 chrematistics, 32, 273 Christianity, 15, 19, 114, 151 cigarettes, 107, 124 circular economy, 220–42, 257 Circular Flow diagram, 19–20, 28, 62–7, 64, 70, 78, 87, 91, 92, 93, 262 Citigroup, 149 Citizen Reaction Study, 102 civil rights movement, 77 Cleveland, Ohio, 190 climate change, 1, 3, 5, 29, 41, 45–53, 63, 74, 75–6, 91, 141, 144, 201 circular economy, 239, 241–2 dynamics of, 152–5 and G20, 31 and GDP growth, 255, 256, 260, 280 and heuristics, 114 and human rights, 10 and values, 126 climate positive cities, 239 closed systems, 74 coffee, 221 cognitive bias, 112–14 Colander, David, 137 Colombia, 119 common-pool resources, 82–3, 181, 201–2 commons, 69, 82–4, 287 collaborative, 78, 83, 191, 195, 196, 264, 292 cultural, 83 digital, 82, 83, 192, 197, 281 and distribution, 164, 180, 181–2, 205, 267 Embedded Economy, 71, 73, 77–8, 82–4, 85, 92 knowledge, 197, 201–2, 204, 229, 231, 292 commons and money creation, see complementary currencies natural, 82, 83, 180, 181–2, 201, 265 and regeneration, 229, 242, 267, 292 and state, 85, 93, 197, 237 and systems, 160 tragedy of, 28, 62, 69, 82, 181 triumph of, 83 and values, 106, 108 Commons Trusts, 201 complementary currencies, 158, 182–8, 236, 292 complex systems, 28, 129–62 complexity science, 136–7 Consumer Reaction Study, 102 consumerism, 58, 102, 121, 280–84 cooking, 45, 80, 186 Coote, Anna, 278 Copenhagen, Denmark, 124 Copernicus, Nicolaus, 14–15 copyright, 195, 197, 204 core economy, 79–80 Corporate To Do List, 215–19 Costa Rica, 172 Council of Economic Advisers, US, 6, 37 Cox, Jo, 117 cradle to cradle, 224 creative destruction, 142 Cree, 282 Crompton, Tom, 125–6 cross-border flows, 89–90 crowdsourcing, 204 cuckoos, 32, 35, 36, 38, 40, 54, 60, 159, 244, 256, 271 currencies, 182–8, 236, 274, 292 D da Vinci, Leonardo, 13, 94–5 Dallas, Texas, 120 Daly, Herman, 74, 143, 271 Danish Nudging Network, 124 Darwin, Charles, 14 Debreu, Gerard, 134 debt, 37, 146–7, 172–3, 182–5, 247, 255, 269 decoupling, 193, 210, 258–62, 273 defeat device software, 216 deforestation, 49–50, 74, 208, 210 degenerative linear economy, 211–19, 222–3, 237 degrowth, 244 DeMartino, George, 161 democracy, 77, 171–2, 258 demurrage, 274 Denmark, 180, 275, 290 deregulation, 82, 87, 269 derivatives, 100–101, 149 Devas, Charles Stanton, 97 Dey, Suchitra, 178 Diamond, Jared, 154 diarrhoea, 5 differential calculus, 131, 132 digital revolution, 191–2, 264 diversify–select–amplify, 158 double spiral, 54 Doughnut model, 10–11, 11, 23–5, 44, 51 and aspiration, 58–9, 280–84 big picture, 28, 42, 61–93 distribution, 29, 52, 57, 58, 76, 93, 158, 163–205 ecological ceiling, 10, 11, 44, 45, 46, 49, 51, 218, 254, 295, 298 goal, 25–8, 31–60 and governance, 57, 59 growth agnosticism, 29–30, 243–85 human nature, 28–9, 94–128 and population, 57–8 regeneration, 29, 158, 206–42 social foundation, 10, 11, 44, 45, 49, 51, 58, 77, 174, 200, 254, 295–6 systems, 28, 129–62 and technology, 57, 59 Douglas, Margaret, 78–9 Dreyfus, Louis, 148 ‘Dumb and Dumber in Macroeconomics’ (Solow), 135 Durban, South Africa, 214 E Earning by Learning, 120 Earth-system science, 44–53, 115, 216, 288, 298 Easter Island, 154 Easterlin, Richard, 265–6 eBay, 105, 192 eco-literacy, 115 ecological ceiling, 10, 11, 44, 45, 46, 49, 51, 218, 254, 295, 298 Ecological Performance Standards, 241 Econ 101 course, 8, 77 Economics (Lewis), 114 Economics (Samuelson), 19–20, 63–7, 70, 74, 78, 86, 91, 92, 93, 262 Economy for the Common Good, 241 ecosystem services, 7, 116, 269 Ecuador, 54 education, 9, 43, 45, 50–52, 85, 169–70, 176, 200, 249, 279 economic, 8, 11, 18, 22, 24, 36, 287–93 environmental, 115, 239–40 girls’, 57, 124, 178, 198 online, 83, 197, 264, 290 pricing, 118–19 efficient market hypothesis, 28, 62, 68, 87 Egypt, 48, 89 Eisenstein, Charles, 116 electricity, 9, 45, 236, 240 and Bangla Pesa, 186 cars, 231 Ethereum, 187–8 and MONIAC, 75, 262 pricing, 118, 213 see also renewable energy Elizabeth II, Queen of the United Kingdom, 145 Ellen MacArthur Foundation, 220 Embedded Economy, 71–93, 263 business, 88–9 commons, 82–4 Earth, 72–6 economy, 77–8 finance, 86–8 household, 78–81 market, 81–2 power, 91–92 society, 76–7 state, 84–6 trade, 89–90 employment, 36, 37, 51, 142, 176 automation, 191–5, 237, 258, 278 labour ownership, 188–91 workers’ rights, 88, 90, 269 Empty World, 74 Engels, Friedrich, 88 environment and circular economy, 220–42, 257 conservation, 121–2 and degenerative linear economy, 211–19, 222–3 degradation, 5, 9, 10, 29, 44–53, 74, 154, 172, 196, 206–42 education on, 115, 239–40 externalities, 152 fair share, 216–17 and finance, 234–7 generosity, 218–19, 223–7 green growth, 41, 210, 243–85 nudging, 123–5 taxation and quotas, 213–14, 215 zero impact, 217–18, 238, 241 Environmental Dashboard, 240–41 environmental economics, 7, 11, 114–16 Environmental Kuznets Curve, 207–11, 241 environmental space, 54 Epstein, Joshua, 150 equilibrium theory, 134–62 Ethereum, 187–8 ethics, 160–62 Ethiopia, 9, 226, 254 Etsy, 105 Euclid, 13, 15 European Central Bank, 145, 275 European Commission, 41 European Union (EU), 92, 153, 210, 222, 255, 258 Evergreen Cooperatives, 190 Evergreen Direct Investing (EDI), 273 exogenous shocks, 141 exponential growth, 39, 246–85 externalities, 143, 152, 213 Exxon Valdez oil spill (1989), 9 F Facebook, 192 fair share, 216–17 Fama, Eugene, 68, 87 fascism, 234, 277 Federal Reserve, US, 87, 145, 146, 271, 282 feedback loops, 138–41, 143, 148, 155, 250, 271 feminist economics, 11, 78–81, 160 Ferguson, Thomas, 91–2 finance animal spirits, 110 bank runs, 139 Black–Scholes model, 100–101 boom and bust, 28–9, 110, 144–7 and Circular Flow, 63–4, 87 and complex systems, 134, 138, 139, 140, 141, 145–7 cross-border flows, 89 deregulation, 87 derivatives, 100–101, 149 and distribution, 169, 170, 173, 182–4, 198–9, 201 and efficient market hypothesis, 63, 68 and Embedded Economy, 71, 86–8 and financial-instability hypothesis, 87, 146 and GDP growth, 38 and media, 7–8 mobile banking, 199–200 and money creation, 87, 182–5 and regeneration, 227, 229, 234–7 in service to life, 159, 234–7 stakeholder finance, 190 and sustainability, 216, 235–6, 239 financial crisis (2008), 1–4, 5, 40, 63, 86, 141, 144, 278, 290 and efficient market hypothesis, 87 and equilibrium theory, 134, 145 and financial-instability hypothesis, 87 and inequality, 90, 170, 172, 175 and money creation, 182 and worker’s rights, 278 financial flows, 89 Financial Times, 183, 266, 289 financial-instability hypothesis, 87, 146 First Green Bank, 236 First World War (1914–18), 166, 170 Fisher, Irving, 183 fluid values, 102, 106–9 food, 3, 43, 45, 50, 54, 58, 59, 89, 198 food banks, 165 food price crisis (2007–8), 89, 90, 180 Ford, 277–8 foreign direct investment, 89 forest conservation, 121–2 fossil fuels, 59, 73, 75, 92, 212, 260, 263 Foundations of Economic Analysis (Samuelson), 17–18 Foxconn, 193 framing, 22–3 France, 43, 165, 196, 238, 254, 256, 281, 290 Frank, Robert, 100 free market, 33, 37, 67, 68, 70, 81–2, 86, 90 free open-source hardware (FOSH), 196–7 free open-source software (FOSS), 196 free trade, 70, 90 Freeman, Ralph, 18–19 freshwater cycle, 48–9 Freud, Sigmund, 107, 281 Friedman, Benjamin, 258 Friedman, Milton, 34, 62, 66–9, 84–5, 88, 99, 183, 232 Friends of the Earth, 54 Full World, 75 Fuller, Buckminster, 4 Fullerton, John, 234–6, 273 G G20, 31, 56, 276, 279–80 G77, 55 Gal, Orit, 141 Gandhi, Mohandas, 42, 293 Gangnam Style, 145 Gardens of Democracy, The (Liu & Hanauer), 158 gender equality, 45, 51–2, 57, 78–9, 85, 88, 118–19, 124, 171, 198 generosity, 218–19, 223–9 geometry, 13, 15 George, Henry, 149, 179 Georgescu-Roegen, Nicholas, 252 geothermal energy, 221 Gerhardt, Sue, 283 Germany, 2, 41, 100, 118, 165, 189, 211, 213, 254, 256, 260, 274 Gessel, Silvio, 274 Ghent, Belgium, 236 Gift Relationship, The (Titmuss), 118–19 Gigerenzer, Gerd, 112–14 Gintis, Herb, 104 GiveDirectly, 200 Glass–Steagall Act (1933), 87 Glennon, Roger, 214 Global Alliance for Tax Justice, 277 global material footprints, 210–11 Global Village Construction Set, 196 globalisation, 89 Goerner, Sally, 175–6 Goffmann, Erving, 22 Going for Growth, 255 golden rule, 91 Goldman Sachs, 149, 170 Gómez-Baggethun, Erik, 122 Goodall, Chris, 211 Goodwin, Neva, 79 Goody, Jade, 124 Google, 192 Gore, Albert ‘Al’, 172 Gorgons, 244, 256, 257, 266 graffiti, 15, 25, 287 Great Acceleration, 46, 253–4 Great Depression (1929–39), 37, 70, 170, 173, 183, 275, 277, 278 Great Moderation, 146 Greece, Ancient, 4, 13, 32, 48, 54, 56–7, 160, 244 green growth, 41, 210, 243–85 Greenham, Tony, 185 greenhouse gas emissions, 31, 46, 50, 75–6, 141, 152–4 and decoupling, 260, 266 and Environmental Kuznets Curve, 208, 210 and forests, 50, 52 and G20, 31 and inequality, 58 reduction of, 184, 201–2, 213, 216–18, 223–7, 239–41, 256, 259–60, 266, 298 stock–flow dynamics, 152–4 and taxation, 201, 213 Greenland, 141, 154 Greenpeace, 9 Greenspan, Alan, 87 Greenwich, London, 290 Grenoble, France, 281 Griffiths, Brian, 170 gross domestic product (GDP), 25, 31–2, 35–43, 57, 60, 84, 164 as cuckoo, 32, 35, 36, 38, 40, 54, 60, 159, 244, 256, 271 and Environmental Kuznets Curve, 207–11 and exponential growth, 39, 53, 246–85 and growth agnosticism, 29–30, 240, 243–85 and inequality, 173 and Kuznets Curve, 167, 173, 188–9 gross national product (GNP), 36–40 Gross World Product, 248 Grossman, Gene, 207–8, 210 ‘grow now, clean up later’, 207 Guatemala, 196 H Haifa, Israel, 120 Haldane, Andrew, 146 Han Dynasty, 154 Hanauer, Nick, 158 Hansen, Pelle, 124 Happy Planet Index, 280 Hardin, Garrett, 69, 83, 181 Harvard University, 2, 271, 290 von Hayek, Friedrich, 7–8, 62, 66, 67, 143, 156, 158 healthcare, 43, 50, 57, 85, 123, 125, 170, 176, 200, 269, 279 Heilbroner, Robert, 53 Henry VIII, King of England and Ireland, 180 Hepburn, Cameron, 261 Herbert Simon, 111 heuristics, 113–14, 118, 123 high-income countries growth, 30, 244–5, 254–72, 282 inequality, 165, 168, 169, 171 labour, 177, 188–9, 278 overseas development assistance (ODA), 198–9 resource intensive lifestyles, 46, 210–11 trade, 90 Hippocrates, 160 History of Economic Analysis (Schumpeter), 21 HIV/AIDS, 123 Holocene epoch, 46–8, 75, 115, 253 Homo economicus, 94–103, 109, 127–8 Homo sapiens, 38, 104, 130 Hong Kong, 180 household, 78 housing, 45, 59, 176, 182–3, 269 Howe, Geoffrey, 67 Hudson, Michael, 183 Human Development Index, 9, 279 human nature, 28 human rights, 10, 25, 45, 49, 50, 95, 214, 233 humanistic economics, 42 hydropower, 118, 260, 263 I Illinois, United States, 179–80 Imago Mundi, 13 immigration, 82, 199, 236, 266 In Defense of Economic Growth (Beckerman), 258 Inclusive Wealth Index, 280 income, 51, 79–80, 82, 88, 176–8, 188–91, 194, 199–201 India, 2, 9, 10, 42, 124, 164, 178, 196, 206–7, 242, 290 Indonesia, 90, 105–6, 164, 168, 200 Indus Valley civilisation, 48 inequality, 1, 5, 25, 41, 63, 81, 88, 91, 148–52, 209 and consumerism, 111 and democracy, 171 and digital revolution, 191–5 and distribution, 163–205 and environmental degradation, 172 and GDP growth, 173 and greenhouse gas emissions, 58 and intellectual property, 195–8 and Kuznets Curve, 29, 166–70, 173–4 and labour ownership, 188–91 and land ownership, 178–82 and money creation, 182–8 and social welfare, 171 Success to the Successful, 148, 149, 151, 166 inflation, 36, 248, 256, 275 insect pollination services, 7 Institute of Economic Affairs, 67 institutional economics, 11 intellectual property rights, 195–8, 204 interest, 36, 177, 182, 184, 275–6 Intergovernmental Panel on Climate Change, 25 International Monetary Fund (IMF), 170, 172, 173, 183, 255, 258, 271 Internet, 83–4, 89, 105, 192, 202, 264 Ireland, 277 Iroquois Onondaga Nation, 116 Israel, 100, 103, 120 Italy, 165, 196, 254 J Jackson, Tim, 58 Jakubowski, Marcin, 196 Jalisco, Mexico, 217 Japan, 168, 180, 211, 222, 254, 256, 263, 275 Jevons, William Stanley, 16, 97–8, 131, 132, 137, 142 John Lewis Partnership, 190 Johnson, Lyndon Baines, 37 Johnson, Mark, 38 Johnson, Todd, 191 JPMorgan Chase, 149, 234 K Kahneman, Daniel, 111 Kamkwamba, William, 202, 204 Kasser, Tim, 125–6 Keen, Steve, 146, 147 Kelly, Marjorie, 190–91, 233 Kennedy, John Fitzgerald, 37, 250 Kennedy, Paul, 279 Kenya, 118, 123, 180, 185–6, 199–200, 226, 292 Keynes, John Maynard, 7–8, 22, 66, 69, 134, 184, 251, 277–8, 284, 288 Kick It Over movement, 3, 289 Kingston, London, 290 Knight, Frank, 66, 99 knowledge commons, 202–4, 229, 292 Kokstad, South Africa, 56 Kondratieff waves, 246 Korzybski, Alfred, 22 Krueger, Alan, 207–8, 210 Kuhn, Thomas, 22 Kumhof, Michael, 172 Kuwait, 255 Kuznets, Simon, 29, 36, 39–40, 166–70, 173, 174, 175, 204, 207 KwaZulu Natal, South Africa, 56 L labour ownership, 188–91 Lake Erhai, Yunnan, 56 Lakoff, George, 23, 38, 276 Lamelara, Indonesia, 105–6 land conversion, 49, 52, 299 land ownership, 178–82 land-value tax, 73, 149, 180 Landesa, 178 Landlord’s Game, The, 149 law of demand, 16 laws of motion, 13, 16–17, 34, 129, 131 Lehman Brothers, 141 Leopold, Aldo, 115 Lesotho, 118, 199 leverage points, 159 Lewis, Fay, 178 Lewis, Justin, 102 Lewis, William Arthur, 114, 167 Lietaer, Bernard, 175, 236 Limits to Growth, 40, 154, 258 Linux, 231 Liu, Eric, 158 living metrics, 240–42 living purpose, 233–4 Lomé, Togo, 231 London School of Economics (LSE), 2, 34, 65, 290 London Underground, 12 loss aversion, 112 low-income countries, 90, 164–5, 168, 173, 180, 199, 201, 209, 226, 254, 259 Lucas, Robert, 171 Lula da Silva, Luiz Inácio, 124 Luxembourg, 277 Lyle, John Tillman, 214 Lyons, Oren, 116 M M–PESA, 199–200 MacDonald, Tim, 273 Machiguenga, 105–6 MacKenzie, Donald, 101 macroeconomics, 36, 62–6, 76, 80, 134–5, 145, 147, 150, 244, 280 Magie, Elizabeth, 149, 153 Malala effect, 124 malaria, 5 Malawi, 118, 202, 204 Malaysia, 168 Mali, Taylor, 243 Malthus, Thomas, 252 Mamsera Rural Cooperative, 190 Manhattan, New York, 9, 41 Mani, Muthukumara, 206 Manitoba, 282 Mankiw, Gregory, 2, 34 Mannheim, Karl, 22 Maoris, 54 market, 81–2 and business, 88 circular flow, 64 and commons, 83, 93, 181, 200–201 efficiency of, 28, 62, 68, 87, 148, 181 and equilibrium theory, 131–5, 137, 143–7, 155, 156 free market, 33, 37, 67–70, 90, 208 and households, 63, 69, 78, 79 and maxi-max rule, 161 and pricing, 117–23, 131, 160 and rational economic man, 96, 100–101, 103, 104 and reciprocity, 105, 106 reflexivity of, 144–7 and society, 69–70 and state, 84–6, 200, 281 Marshall, Alfred, 17, 98, 133, 165, 253, 282 Marx, Karl, 88, 142, 165, 272 Massachusetts Institute of Technology (MIT), 17–20, 152–5 massive open online courses (MOOCs), 290 Matthew Effect, 151 Max-Neef, Manfred, 42 maxi-max rule, 161 maximum wage, 177 Maya civilisation, 48, 154 Mazzucato, Mariana, 85, 195, 238 McAfee, Andrew, 194, 258 McDonough, William, 217 Meadows, Donella, 40, 141, 159, 271, 292 Medusa, 244, 257, 266 Merkel, Angela, 41 Messerli, Elspeth, 187 Metaphors We Live By (Lakoff & Johnson), 38 Mexico, 121–2, 217 Michaels, Flora S., 6 micro-businesses, 9, 173, 178 microeconomics, 132–4 microgrids, 187–8 Micronesia, 153 Microsoft, 231 middle class, 6, 46, 58 middle-income countries, 90, 164, 168, 173, 180, 226, 254 migration, 82, 89–90, 166, 195, 199, 236, 266, 286 Milanovic, Branko, 171 Mill, John Stuart, 33–4, 73, 97, 250, 251, 283, 284, 288 Millo, Yuval, 101 minimum wage, 82, 88, 176 Minsky, Hyman, 87, 146 Mises, Ludwig von, 66 mission zero, 217 mobile banking, 199–200 mobile phones, 222 Model T revolution, 277–8 Moldova, 199 Mombasa, Kenya, 185–6 Mona Lisa (da Vinci), 94 money creation, 87, 164, 177, 182–8, 205 MONIAC (Monetary National Income Analogue Computer), 64–5, 75, 142, 262 Monoculture (Michaels), 6 Monopoly, 149 Mont Pelerin Society, 67, 93 Moral Consequences of Economic Growth, The (Friedman), 258 moral vacancy, 41 Morgan, Mary, 99 Morogoro, Tanzania, 121 Moyo, Dambisa, 258 Muirhead, Sam, 230, 231 MultiCapital Scorecard, 241 Murphy, David, 264 Murphy, Richard, 185 musical tastes, 110 Myriad Genetics, 196 N national basic income, 177 Native Americans, 115, 116, 282 natural capital, 7, 116, 269 Natural Economic Order, The (Gessel), 274 Nedbank, 216 negative externalities, 213 negative interest rates, 275–6 neoclassical economics, 134, 135 neoliberalism, 7, 62–3, 67–70, 81, 83, 84, 88, 93, 143, 170, 176 Nepal, 181, 199 Nestlé, 217 Netherlands, 211, 235, 224, 226, 238, 277 networks, 110–11, 117, 118, 123, 124–6, 174–6 neuroscience, 12–13 New Deal, 37 New Economics Foundation, 278, 283 New Year’s Day, 124 New York, United States, 9, 41, 55 Newlight Technologies, 224, 226, 293 Newton, Isaac, 13, 15–17, 32–3, 95, 97, 129, 131, 135–7, 142, 145, 162 Nicaragua, 196 Nigeria, 164 nitrogen, 49, 52, 212–13, 216, 218, 221, 226, 298 ‘no pain, no gain’, 163, 167, 173, 204, 209 Nobel Prize, 6–7, 43, 83, 101, 167 Norway, 281 nudging, 112, 113, 114, 123–6 O Obama, Barack, 41, 92 Oberlin, Ohio, 239, 240–41 Occupy movement, 40, 91 ocean acidification, 45, 46, 52, 155, 242, 298 Ohio, United States, 190, 239 Okun, Arthur, 37 onwards and upwards, 53 Open Building Institute, 196 Open Source Circular Economy (OSCE), 229–32 open systems, 74 open-source design, 158, 196–8, 265 open-source licensing, 204 Organisation for Economic Co-operation and Development (OECD), 38, 210, 255–6, 258 Origin of Species, The (Darwin), 14 Ormerod, Paul, 110, 111 Orr, David, 239 Ostrom, Elinor, 83, 84, 158, 160, 181–2 Ostry, Jonathan, 173 OSVehicle, 231 overseas development assistance (ODA), 198–200 ownership of wealth, 177–82 Oxfam, 9, 44 Oxford University, 1, 36 ozone layer, 9, 50, 115 P Pachamama, 54, 55 Pakistan, 124 Pareto, Vilfredo, 165–6, 175 Paris, France, 290 Park 20|20, Netherlands, 224, 226 Parker Brothers, 149 Patagonia, 56 patents, 195–6, 197, 204 patient capital, 235 Paypal, 192 Pearce, Joshua, 197, 203–4 peer-to-peer networks, 187, 192, 198, 203, 292 People’s QE, 184–5 Perseus, 244 Persia, 13 Peru, 2, 105–6 Phillips, Adam, 283 Phillips, William ‘Bill’, 64–6, 75, 142, 262 phosphorus, 49, 52, 212–13, 218, 298 Physiocrats, 73 Pickett, Kate, 171 pictures, 12–25 Piketty, Thomas, 169 Playfair, William, 16 Poincaré, Henri, 109, 127–8 Polanyi, Karl, 82, 272 political economy, 33–4, 42 political funding, 91–2, 171–2 political voice, 43, 45, 51–2, 77, 117 pollution, 29, 45, 52, 85, 143, 155, 206–17, 226, 238, 242, 254, 298 population, 5, 46, 57, 155, 199, 250, 252, 254 Portugal, 211 post-growth society, 250 poverty, 5, 9, 37, 41, 50, 88, 118, 148, 151 emotional, 283 and inequality, 164–5, 168–9, 178 and overseas development assistance (ODA), 198–200 and taxation, 277 power, 91–92 pre-analytic vision, 21–2 prescription medicines, 123 price-takers, 132 prices, 81, 118–23, 131, 160 Principles of Economics (Mankiw), 34 Principles of Economics (Marshall), 17, 98 Principles of Political Economy (Mill), 288 ProComposto, 226 Propaganda (Bernays), 107 public relations, 107, 281 public spending v. investment, 276 public–private patents, 195 Putnam, Robert, 76–7 Q quantitative easing (QE), 184–5 Quebec, 281 Quesnay, François, 16, 73 R Rabot, Ghent, 236 Rancière, Romain, 172 rating and review systems, 105 rational economic man, 94–103, 109, 111, 112, 126, 282 Reagan, Ronald, 67 reciprocity, 103–6, 117, 118, 123 reflexivity of markets, 144 reinforcing feedback loops, 138–41, 148, 250, 271 relative decoupling, 259 renewable energy biomass energy, 118, 221 and circular economy, 221, 224, 226, 235, 238–9, 274 and commons, 83, 85, 185, 187–8, 192, 203, 264 geothermal energy, 221 and green growth, 257, 260, 263, 264, 267 hydropower, 118, 260, 263 pricing, 118 solar energy, see solar energy wave energy, 221 wind energy, 75, 118, 196, 202–3, 221, 233, 239, 260, 263 rentier sector, 180, 183, 184 reregulation, 82, 87, 269 resource flows, 175 resource-intensive lifestyles, 46 Rethinking Economics, 289 Reynebeau, Guy, 237 Ricardo, David, 67, 68, 73, 89, 250 Richardson, Katherine, 53 Rifkin, Jeremy, 83, 264–5 Rise and Fall of the Great Powers, The (Kennedy), 279 risk, 112, 113–14 Robbins, Lionel, 34 Robinson, James, 86 Robinson, Joan, 142 robots, 191–5, 237, 258, 278 Rockefeller Foundation, 135 Rockford, Illinois, 179–80 Rockström, Johan, 48, 55 Roddick, Anita, 232–4 Rogoff, Kenneth, 271, 280 Roman Catholic Church, 15, 19 Rombo, Tanzania, 190 Rome, Ancient, 13, 48, 154 Romney, Mitt, 92 Roosevelt, Franklin Delano, 37 rooted membership, 190 Rostow, Walt, 248–50, 254, 257, 267–70, 284 Ruddick, Will, 185 rule of thumb, 113–14 Ruskin, John, 42, 223 Russia, 200 rust belt, 90, 239 S S curve, 251–6 Sainsbury’s, 56 Samuelson, Paul, 17–21, 24–5, 38, 62–7, 70, 74, 84, 91, 92, 93, 262, 290–91 Sandel, Michael, 41, 120–21 Sanergy, 226 sanitation, 5, 51, 59 Santa Fe, California, 213 Santinagar, West Bengal, 178 São Paolo, Brazil, 281 Sarkozy, Nicolas, 43 Saumweder, Philipp, 226 Scharmer, Otto, 115 Scholes, Myron, 100–101 Schumacher, Ernst Friedrich, 42, 142 Schumpeter, Joseph, 21 Schwartz, Shalom, 107–9 Schwarzenegger, Arnold, 163, 167, 204 ‘Science and Complexity’ (Weaver), 136 Scotland, 57 Seaman, David, 187 Seattle, Washington, 217 second machine age, 258 Second World War (1939–45), 18, 37, 70, 170 secular stagnation, 256 self-interest, 28, 68, 96–7, 99–100, 102–3 Selfish Society, The (Gerhardt), 283 Sen, Amartya, 43 Shakespeare, William, 61–3, 67, 93 shale gas, 264, 269 Shang Dynasty, 48 shareholders, 82, 88, 189, 191, 227, 234, 273, 292 sharing economy, 264 Sheraton Hotel, Boston, 3 Siegen, Germany, 290 Silicon Valley, 231 Simon, Julian, 70 Sinclair, Upton, 255 Sismondi, Jean, 42 slavery, 33, 77, 161 Slovenia, 177 Small Is Beautiful (Schumacher), 42 smart phones, 85 Smith, Adam, 33, 57, 67, 68, 73, 78–9, 81, 96–7, 103–4, 128, 133, 160, 181, 250 social capital, 76–7, 122, 125, 172 social contract, 120, 125 social foundation, 10, 11, 44, 45, 49, 51, 58, 77, 174, 200, 254, 295–6 social media, 83, 281 Social Progress Index, 280 social pyramid, 166 society, 76–7 solar energy, 59, 75, 111, 118, 187–8, 190 circular economy, 221, 222, 223, 224, 226–7, 239 commons, 203 zero-energy buildings, 217 zero-marginal-cost revolution, 84 Solow, Robert, 135, 150, 262–3 Soros, George, 144 South Africa, 56, 177, 214, 216 South Korea, 90, 168 South Sea Bubble (1720), 145 Soviet Union (1922–91), 37, 67, 161, 279 Spain, 211, 238, 256 Spirit Level, The (Wilkinson & Pickett), 171 Sraffa, Piero, 148 St Gallen, Switzerland, 186 Stages of Economic Growth, The (Rostow), 248–50, 254 stakeholder finance, 190 Standish, Russell, 147 state, 28, 33, 69–70, 78, 82, 160, 176, 180, 182–4, 188 and commons, 85, 93, 197, 237 and market, 84–6, 200, 281 partner state, 197, 237–9 and robots, 195 stationary state, 250 Steffen, Will, 46, 48 Sterman, John, 66, 143, 152–4 Steuart, James, 33 Stiglitz, Joseph, 43, 111, 196 stocks and flows, 138–41, 143, 144, 152 sub-prime mortgages, 141 Success to the Successful, 148, 149, 151, 166 Sugarscape, 150–51 Summers, Larry, 256 Sumner, Andy, 165 Sundrop Farms, 224–6 Sunstein, Cass, 112 supply and demand, 28, 132–6, 143, 253 supply chains, 10 Sweden, 6, 255, 275, 281 swishing, 264 Switzerland, 42, 66, 80, 131, 186–7, 275 T Tableau économique (Quesnay), 16 tabula rasa, 20, 25, 63, 291 takarangi, 54 Tanzania, 121, 190, 202 tar sands, 264, 269 taxation, 78, 111, 165, 170, 176, 177, 237–8, 276–9 annual wealth tax, 200 environment, 213–14, 215 global carbon tax, 201 global financial transactions tax, 201, 235 land-value tax, 73, 149, 180 non-renewable resources, 193, 237–8, 278–9 People’s QE, 185 tax relief v. tax justice, 23, 276–7 TED (Technology, Entertainment, Design), 202, 258 Tempest, The (Shakespeare), 61, 63, 93 Texas, United States, 120 Thailand, 90, 200 Thaler, Richard, 112 Thatcher, Margaret, 67, 69, 76 Theory of Moral Sentiments (Smith), 96 Thompson, Edward Palmer, 180 3D printing, 83–4, 192, 198, 231, 264 thriving-in-balance, 54–7, 62 tiered pricing, 213–14 Tigray, Ethiopia, 226 time banking, 186 Titmuss, Richard, 118–19 Toffler, Alvin, 12, 80 Togo, 231, 292 Torekes, 236–7 Torras, Mariano, 209 Torvalds, Linus, 231 trade, 62, 68–9, 70, 89–90 trade unions, 82, 176, 189 trademarks, 195, 204 Transatlantic Trade and Investment Partnership (TTIP), 92 transport, 59 trickle-down economics, 111, 170 Triodos, 235 Turkey, 200 Tversky, Amos, 111 Twain, Mark, 178–9 U Uganda, 118, 125 Ulanowicz, Robert, 175 Ultimatum Game, 105, 117 unemployment, 36, 37, 276, 277–9 United Kingdom Big Bang (1986), 87 blood donation, 118 carbon dioxide emissions, 260 free trade, 90 global material footprints, 211 money creation, 182 MONIAC (Monetary National Income Analogue Computer), 64–5, 75, 142, 262 New Economics Foundation, 278, 283 poverty, 165, 166 prescription medicines, 123 wages, 188 United Nations, 55, 198, 204, 255, 258, 279 G77 bloc, 55 Human Development Index, 9, 279 Sustainable Development Goals, 24, 45 United States American Economic Association meeting (2015), 3 blood donation, 118 carbon dioxide emissions, 260 Congress, 36 Council of Economic Advisers, 6, 37 Earning by Learning, 120 Econ 101 course, 8, 77 Exxon Valdez oil spill (1989), 9 Federal Reserve, 87, 145, 146, 271, 282 free trade, 90 Glass–Steagall Act (1933), 87 greenhouse gas emissions, 153 global material footprint, 211 gross national product (GNP), 36–40 inequality, 170, 171 land-value tax, 73, 149, 180 political funding, 91–2, 171 poverty, 165, 166 productivity and employment, 193 rust belt, 90, 239 Transatlantic Trade and Investment Partnership (TTIP), 92 wages, 188 universal basic income, 200 University of Berkeley, 116 University of Denver, 160 urbanisation, 58–9 utility, 35, 98, 133 V values, 6, 23, 34, 35, 42, 117, 118, 121, 123–6 altruism, 100, 104 anthropocentric, 115 extrinsic, 115 fluid, 28, 102, 106–9 and networks, 110–11, 117, 118, 123, 124–6 and nudging, 112, 113, 114, 123–6 and pricing, 81, 120–23 Veblen, Thorstein, 82, 109, 111, 142 Venice, 195 verbal framing, 23 Verhulst, Pierre, 252 Victor, Peter, 270 Viner, Jacob, 34 virtuous cycles, 138, 148 visual framing, 23 Vitruvian Man, 13–14 Volkswagen, 215–16 W Wacharia, John, 186 Wall Street, 149, 234, 273 Wallich, Henry, 282 Walras, Léon, 131, 132, 133–4, 137 Ward, Barbara, 53 Warr, Benjamin, 263 water, 5, 9, 45, 46, 51, 54, 59, 79, 213–14 wave energy, 221 Ways of Seeing (Berger), 12, 281 Wealth of Nations, The (Smith), 74, 78, 96, 104 wealth ownership, 177–82 Weaver, Warren, 135–6 weightless economy, 261–2 WEIRD (Western, educated, industrialised, rich, democratic), 103–5, 110, 112, 115, 117, 282 West Bengal, India, 124, 178 West, Darrell, 171–2 wetlands, 7 whale hunting, 106 Wiedmann, Tommy, 210 Wikipedia, 82, 223 Wilkinson, Richard, 171 win–win trade, 62, 68, 89 wind energy, 75, 118, 196, 202–3, 221, 233, 239, 260, 263 Wizard of Oz, The, 241 Woelab, 231, 293 Wolf, Martin, 183, 266 women’s rights, 33, 57, 107, 160, 201 and core economy, 69, 79–81 education, 57, 124, 178, 198 and land ownership, 178 see also gender equality workers’ rights, 88, 91, 269 World 3 model, 154–5 World Bank, 6, 41, 119, 164, 168, 171, 206, 255, 258 World No Tobacco Day, 124 World Trade Organization, 6, 89 worldview, 22, 54, 115 X xenophobia, 266, 277, 286 Xenophon, 4, 32, 56–7, 160 Y Yandle, Bruce, 208 Yang, Yuan, 1–3, 289–90 yin yang, 54 Yousafzai, Malala, 124 YouTube, 192 Yunnan, China, 56 Z Zambia, 10 Zanzibar, 9 Zara, 276 Zeitvorsoge, 186–7 zero environmental impact, 217–18, 238, 241 zero-hour contracts, 88 zero-humans-required production, 192 zero-interest loans, 183 zero-marginal-cost revolution, 84, 191, 264 zero-waste manufacturing, 227 Zinn, Howard, 77 PICTURE ACKNOWLEDGEMENTS Illustrations are reproduced by kind permission of: archive.org

Randomistas: How Radical Researchers Changed Our World
by Andrew Leigh
Published 14 Sep 2018

The competition continues to operate through a non-profit foundation, which has announced that it will fund all proposals that receive a high rating from its review panel.8 Simplicity is at the core of the approach taken by the behavioural insights teams which are emerging in central government agencies across the globe. In 2010 the British government became the first to establish a so-called ‘Nudge Unit’, to bring the principles of psychology and behavioural economics into policymaking. The interventions were mostly low-cost – such as tweaking existing mailings – and were tested through randomised trials wherever possible. In some cases they took only a few weeks. Since its creation, the tiny Nudge Unit has carried out more randomised experiments than the British government had conducted in that country’s history.9 The Nudge Unit focused on ‘low cost, rapid’ experiments.10 It found that letters asking people to pay their car tax were 9 percentage points more effective if they included a photograph of the offending vehicle, along with the caption ‘Pay Your Tax or Lose Your Car’.11 A personally scribbled note on the envelope along the lines of ‘Andrew, you really need to open this’ increased taxpaying by 4 percentage points.

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Participants receiving the TMW intervention significantly increased their talk and interaction with their children. Publication of this study is forthcoming.’: http://thirtymillionwords.org/tmw-initiative/. 56Steven D. Levitt, John A. List, Susanne Neckermann & Sally Sadoff, ‘The behavioralist goes to school: Leveraging behavioral economics to improve educational performance’, American Economic Journal: Economic Policy, vol. 8, no. 4, 2016, pp. 183–219. 57For a discussion of the complexity challenge inherent in this program, see Roland G. Fryer, ‘Teacher incentives and student achievement: Evidence from New York City Public Schools’, Journal of Labor Economics, vol. 31, no. 2, 2013, pp. 373–407. 58J.A.

A Pelican Introduction: Basic Income
by Guy Standing
Published 3 May 2017

The Danger of Libertarian Paternalism Many libertarians reveal themselves as little more than moralistic conservatives. Thus Charles Murray sees a basic income as encouraging ‘better’ behaviour and a revival of ‘civic culture’. This is a paternalistic argument, not one about freedom. But he is not as explicit as the new breed of libertarian paternalists, who lean on ‘behavioural economics’ and ‘nudge theory’ to justify giving a very prominent role to government to steer or nudge people to make ‘the right choices’. They have been highly influential, to the extent that one of the authors of Nudge, the seminal book on the subject, became principal regulator in Barack Obama’s White House, while the other became an adviser to the British Prime Minister.11 Libertarian paternalism has become a dominant mode of policy making in the globalization era, advocated and implemented by those calling themselves liberals (as in the case of Britain’s Liberal Democrats when they were in the coalition government) and by social democrats, as well as by conservatives.

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As long as pilots are not used as an excuse for lack of political action, they should be a force for good, if only for showing or suggesting what other interventions would make a basic income optimally successful. The real challenge today is political will. Perhaps the biggest danger in this fluid phase of basic income pilots is that they will evolve into social engineering, testing out morally dubious tactics derived from behavioural economics. The term ‘basic income’ could become a cover for something close to workfare, when pilots are presented as testing ‘the incentive to work’ (sic) and varieties of conditionality. To be a proper test, any ‘basic income’ experiment must be consistent with the proper meaning of a basic income; payment must be universal, unconditional and individual (see Appendix).

A Life Less Throwaway: The Lost Art of Buying for Life
by Tara Button
Published 8 Feb 2018

‘Warren Buffet’, Forbes, 2017, https://www.forbes.com/profile/warren-buffett/ 5.‘Warren Buffet: his best quotes’, Telegraph, 14 February 2012, http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8381363/Warren-Buffett-his-best-quotes.html. 6.Morris Altman, Handbook of Contemporary Behavioural Economics: Foundations and developments (M. E. Sharpe, 2006). 7.https://www.researchgate.net/publication/236848002_The_relationship_of_materialism_to_debt_and_financial_well-being_The_case_of_Iceland’s_perceived_prosperity. 8.Global umbrella survey results, Sunnycomb Tumblr, 1 July 2014, https://sunnycomb.tumblr.com/post/90373669845/global-umbrella-survey-results. 9.http://www.huffingtonpost.com/2013/05/23/retail-therapy-shopping_n_3324972.html. 10.Viktor E.

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CONCLUSION 1.Victor Papanek, Design for the Real World: Human ecology and social change (Academy Chicago Publishers, 1971, 1985). 2.Bill Watterson, ‘Some Thoughts on the Real World Who Glimpsed It and Fled’ speech given at Kenyon College, Gambier, Ohio, 20 May 1990, http://web.mit.edu/jmorzins/www/C-H-speech.html. 3.www.footprintnetwork.org. 4.https://earthobservatory.nasa.gov/Features/WorldOfChange/decadaltemp.php. 5.Quoted in Andrew Simms, “A cat in hell’s chance” – why we’re losing the battle to keep global warming below 2C’, Guardian, 19 January 2017, https://www.theguardian.com/environment/2017/jan/19/cat-in-hells-chance-why-losing-battle-keep-global-warming-2c-climate-change. 6.http://www.nationalgeographic.com/magazine/2013/09/rising-seas-ice-melt-new-shoreline-maps/ 7.Simms, op. cit. 8.https://www.theguardian.com/environment/2015/dec/02/worlds-richest-10-produce-half-of-global-carbon-emissions-says-oxfam. Further Reading Adams, Douglas, The Hitchhiker’s Guide to the Galaxy (Pan, 1979). Altman, Morris, Handbook of Contemporary Behavioural Economics: Foundations and developments (M. E. Sharpe, 2006). Botsman, Rachel, and Rogers, Roo, What’s Mine Is Yours: The rise of collaborative consumption (HarperCollins, 2010). Brotheridge, Chloë, The Anxiety Solution: A quieter mind, a calmer you (Michael Joseph, 2017). Brown, Derren, Happy: Why more or less everything is absolutely fine (Bantam Press, 2016).

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

Why risk being humiliated online by being rigorous? Give them what they want! 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.

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One of its authors said, ‘If you are 140 THE PRECARIAT making life too comfortable at home, why would they get a job?’ At least that recognised that jobs were not attractive in themselves. But here was the state indulging in paternalistic steering while contributing to the demonisation of part of the precariat. They cannot work out how to behave themselves! One could give many examples of the use of behavioural economics and libertarian paternalism to bear on the lives of the precariat, notably through clever use of ‘opt-out’ rules, making it hard to opt out and almost obligatory to ‘opt in’. The new buzz word is ‘conditionality’. There has been a remarkable growth of conditional cash transfer schemes or CCTs.

The Intelligence Trap: Revolutionise Your Thinking and Make Wiser Decisions
by David Robson
Published 7 Mar 2019

All of the quotations have also been taken from Rowe’s translation of Plato’s Apology contained in this volume: Rowe, C. (2010), The Last Days of Socrates, London: Penguin (Kindle Edition). The parallels between Socrates’ trial and the research on the bias blind spot may not be the only instance in which Greek philosophy pre-empted behavioural economics and psychology. In an article for the online magazine Aeon, the journalist Nick Romeo finds examples of framing, confirmation bias and anchoring in Plato’s teaching. See Romeo, N. (2017), ‘Platonically Irrational’, Aeon, https://aeon.co/essays/what-plato-knew-about-behavioural-economics-a-lot. 5 Descartes, R. (1637), A Discourse on the Method, trans. Maclean, I. (2006), Oxford: Oxford University Press, p. 5. 6 Shurkin, J. (1992), Terman’s Kids: The Groundbreaking Study of How the Gifted Grow Up, Boston, MA: Little, Brown, p. 122. 7 Shurkin, Terman’s Kids, pp. 51?

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

Thus, you could have two boxes left, one with £1m inside and the other with £50,000. The banker might offer you £150,000 to walk away. Many people do take the certain £150,000 instead of risking walking away with ‘just’ £50,000. It’s emotionally very hard to risk losing a certain profit for a potentially bigger, but uncertain, profit, and most cannot do it. The behavioural economics experts Dan Ariely and Ziv Carmon undertook a fascinating study of Deal or No Deal which every investor who feels the temptation to be a Raider should read.42 “We have an irrational tendency to be less willing to gamble with profits than with losses. This means selling quickly when we earn profits but not selling if we are running losses.”43 – Lars Tvede Why you shouldn’t sell early If the example investments earlier weren’t enough to persuade you of the folly of being a stock market Raider, here are five big reasons that it makes no sense. 1.

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.

Rage Inside the Machine: The Prejudice of Algorithms, and How to Stop the Internet Making Bigots of Us All
by Robert Elliott Smith
Published 26 Jun 2019

They were discussing the ‘Linda Problem’. Dammit! The ‘Kill Decision’ session, sadly, would have to wait, as the ‘Linda Problem’ was one of my personal bug bears, and I couldn’t resist taking a chair. The ‘Linda Problem’ was introduced in 1983 by psychologists Daniel Kahneman and Amos Tversky,1 at the headwaters of the field of behavioural economics, which would eventually result in their Nobel Prize in Economics. The problem goes like this: Linda is thirty-one years old, single, outspoken and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations.

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The reason being that, according to probability theory, a conjunction of two conditions (Linda is a bank teller and is active in the feminist movement) has to be less probable than either of the conditions on its own, regardless of all those facts given before the question. The conjunction puts greater restrictions on the question, so the probability has to go down. People’s failure to see this is called the conjunction fallacy. It is one of the many ‘biases’ in human decision-making that are pointed out in behavioural economics, because they indicate that people do not reason ‘correctly’ relative to probability theory. Maybe it was the coffee (I had another cup during my session), but at that moment at SCIFOO, the ‘Linda Problem’ represented everything that I thought was going wrong with AI, and I launched in crusader style.

Reset
by Ronald J. Deibert
Published 14 Aug 2020

As the author of the book Overconnected, William Davidow, similarly put it, “Thanks to Skinner’s work, brain MRIs, and more recent research by psychologists, neuro-scientists, and behavioral economists, we now know how to design cue, activity, and reward systems to more effectively leverage our brain chemistry and program human behavior.”123 One case where these dynamics are clearly illustrated is Snapchat, the popular app in which users post and view “disappearing” images and videos.124 The fleeting nature of the content, combined with the app’s promotion of “streaks,” in which users review each other’s feeds obsessively, encourages compulsive checks of the platform amongst its users to the point where many do so for thousands of days on end.125 Similarly, many social media feeds encourage obsessive scrolling, as a result of the feeds having no defined endpoint; the apps are “designed to maximize anticipation, rather than reward,” a dynamic that is referred to in social psychology as a Zeigarnik effect.126 As with other products where addiction is a factor (e.g., tobacco, casinos), the behavioural modification parts of the story are only dimly understood by consumers, but they are studied intensively by the people who run the platforms and by the social media analytics companies, marketing firms, and PR consultants that orbit around them.127 As New York University professor Tamsin Shaw put it, “The findings of social psychology and behavioural economics are being employed to determine the news we read, the products we buy, the cultural and intellectual spheres we inhabit, and the human networks, online and in real life, of which we are a part.”128 Indeed, psychological experiments on consumers are essential to refining just about all social media and related digital applications.129 It’s not just the platforms alone that zero in on these mechanisms of addiction and compulsion; huge numbers of marketers and PR firms do so as well.

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C., Kosinski, M., Nave, G., & Stillwell, D. J. (2017). Psychological targeting as an effective approach to digital mass persuasion. Proceedings of the National Academy of Sciences, 114(48), 12714–12719. Retrieved from https://www.pnas.org/content/114/48/12714 “The findings of social psychology and behavioural economics are being employed to determine the news we read”: Shaw, T. (2017, April 20). Invisible manipulators of your mind. Retrieved from https://www.nybooks.com/articles/2017/04/20/kahneman-tversky-invisible-mind-manipulators/ Psychological experiments on consumers: Matz et al. Psychological targeting as an effective approach to digital mass persuasion; Alter, A. (2017).

Financing Basic Income: Addressing the Cost Objection
by Richard Pereira
Published 5 Jul 2017

People did tolerate much higher marginal income tax rates and a much more progressive tax rate structure than the cost objectors claim is required in their analysis. Such high marginal tax rates were synonymous with a prosperous economy. And this among possibly the most tax-averse public in the world. Employing John Rawls’ concept of a “veil of ignorance” Dan Ariely (Professor of Psychology and Behavioural Economics, Duke University) and Mike Norton surveyed Americans in a unique study and found an overwhelming preference among both Democrat and Republican supporters for the wealth distribution profile in Sweden (93.5% of Democrats and 90.2% of Republicans) with no appreciable difference based on gender and income level of those surveyed.

Human Frontiers: The Future of Big Ideas in an Age of Small Thinking
by Michael Bhaskar
Published 2 Nov 2021

We have private companies like SpaceX but precious little crewed space flight; we have the Standard Model of physics but haven't gone beyond it; we have libraries of humanities research that no one reads; we have a decades-long war on cancer, but still have cancer. Our time comes with a litany of big ideas: blockchain, mobile social networks, supermaterials like graphene, deep learning neural networks, quantum biology, massive multiplayer online games, molecular machines, behavioural economics, algorithmic trading, gravitational wave and exoplanet astronomy, parametric architecture, e-sports, the ending of taboos around gender and sexuality, to name a few. But execution and purchase are more problematic than in the past. There is more evidence of struggle, sclerosis, decay and hesitancy than one might assume given everything at humanity's disposal.

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You might equal it, which is fine; but if your business model requires something unambiguously better, carrying on as you did in the past isn't good enough. For several hundred years we've been on a great adventure of thought. But that adventure is no longer moving forwards but stuck in an endless self-aware loop. In Chapter 4 we saw how various schools of thought, from Wittgensteinian language games to deconstruction, behaviourism to behavioural economics, told us that objective categories like truth and beauty were nonsensical. That there was nothing universal and everything was relative; there was no external and absolute standard by which anything could be judged. That such fundamentals as nature and the self were flawed social constructions.

21 Lessons for the 21st Century
by Yuval Noah Harari
Published 29 Aug 2018

The better we understand the biochemical mechanisms that underpin human emotions, desires and choices, the better computers can become in analysing human behaviour, predicting human decisions, and replacing human drivers, bankers and lawyers. In the last few decades research in areas such as neuroscience and behavioural economics allowed scientists to hack humans, and in particular to gain a much better understanding of how humans make decisions. It turned out that our choices of everything from food to mates result not from some mysterious free will, but rather from billions of neurons calculating probabilities within a split second.

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Abbasid caliphs 94 Abraham, prophet 182–3, 186, 187, 274 advertising 36, 50, 53, 54, 77–8, 87, 97, 113, 114, 267 Afghanistan 101, 112, 153, 159, 172, 210 Africa 8, 13, 20, 58, 76, 79, 100, 103–4, 107, 139, 147, 150–1, 152, 168, 182, 184, 223, 226, 229, 239 see also under individual nation name African Americans 67, 150, 152, 227 agriculture 171, 185; animals and 71, 118–19, 224; automation of jobs in 19–20, 29; climate change and modern industrial 116, 117; hierarchical societies and birth of 73–4, 185, 266–7; religion and 128–30 Aisne, third Battle of the (1918) 160 Akhenaten, Pharaoh 191 Al-Aqsa mosque, Jerusalem 15 al-Baghdadi, Abu Bakr 98 Algeria 144, 145 algorithms see artificial intelligence (AI) Ali, Husayn ibn 288 Alibaba (online retailer) 50 Allah 104, 128, 130, 204, 271–2, 289 AlphaZero 31, 123 al-Qaeda 162, 168 Amazon (online retailer) 39, 40, 50, 52, 91, 267–8 Amazon rainforest 116 Amos, prophet 188 Amritsar massacre (1919) 10 Andéol, Emilie 102 animals xi, 73, 86, 98–9, 182, 190, 218, 245; distinct social behaviours 94–5; ecological collapse and 71, 116, 118–19, 224; farm animals, subjugation of 71, 118–19, 224; morality and 187–8, 200; religious sacrifice of 190 anti-Semitism 142, 143, 194, 195, 235–6 see also Jews Apple (technology company) 91, 178 Arab Spring xi, 91 Arjuna (hero of Bhagavadgita) 269–70, 271, 299 art, AI and 25–8, 55–6, 182 artificial intelligence (AI) xiii, xiv; art and 25–8, 55–6, 182; authority shift from humans to 43, 44–72, 78, 268; biochemical algorithms and 20, 21, 25–8, 47–8, 56, 59, 251, 299; cars and see cars; centaurs (human-AI teams) 29, 30–1; communism and 35, 38; consciousness and 68–72, 122, 245–6; creativity and 25–8, 32; data ownership and 77–81; dating and 263; decision-making and 36–7, 50–61; democracy and see democracy; digital dictatorships and xii, 43, 61–8, 71, 79–80, 121; discrimination and 59–60, 67–8, 75–6; education and 32, 34, 35, 38 39, 40–1, 259–68; emotional detection/manipulation 25–8, 51–2, 53, 70, 79–80, 265, 267; equality and xi, 8, 9, 13, 41, 71–2, 73–81, 246; ethics and 56–61; free will and 46–9; games and 29, 31–2, 123; globalisation and threat of 38–40; government and xii, 6, 7–9, 34–5, 37–43, 48, 53, 61–8, 71, 77–81, 87, 90, 121, 267, 268; healthcare and 22–3, 24–5, 28, 48–9, 50; intuition and 20–1, 47; liberty and 44–72; manipulation of human beings 7, 25–8, 46, 48, 50–6, 68–72, 78, 79–80, 86, 96, 245–55, 265, 267, 268; nationalism and 120–6; regulation of 6, 22, 34–5, 61, 77–81, 123; science fiction and 245–55, 268; surveillance systems and 63–5; unique non-human abilities of 21–2; war and 61–8, 123–4 see also war; weapons and see weapons; work and 8, 18, 19–43 see also work Ashoka, Emperor of India 191–2, 286 Ashura 288, 289 Asia 16, 39, 100, 103, 275 see also under individual nation name Assyrian Empire 171 Athenian democracy, ancient 95–6 attention, technology and human 71, 77–8, 87, 88–91 Australia 13, 54, 116, 145, 150, 183, 187, 232–3 Aztecs 182, 289 Babri Mosque, Ayodhya 291 Babylonian Empire 188, 189 Baidu (technology company) 23, 40, 48, 77, 267–8 Bangladesh 38–9, 273 bank loans, AI and 67 behavioural economics 20, 147, 217 Belgium 103, 165, 172 Bellaigue, Christopher de 94 Berko, Anat 233 bestiality, secular ethics and 205–6 bewilderment, age of xiii, 17, 215, 257 Bhagavadgita 269–70, 271, 299 Bhardwaj, Maharishi 181 Bible 127, 131–2, 133, 186–90, 198, 199, 200, 206, 233, 234–5, 240, 241, 272, 298 Big Data xii, 18, 25, 47, 48, 49, 53, 63, 64, 68, 71–2, 268 biometric sensors 23, 49, 50, 52, 64, 79, 92 biotechnology xii, xiv, 1, 6, 7, 8, 16, 17, 18, 21, 33–4, 41, 48, 66, 75, 80, 83, 88, 109, 121, 122, 176, 211, 251–2, 267 see also under individual area of biotechnology bioterrorism 167, 169 Bismarck, Otto von 98–9 bitcoin 6 Black Death 164 Blair, Tony 168 blockchain 6, 8 blood libel 235–6 body, human: bioengineered 41, 259, 265; body farms 34; technology and distraction from 88–92 Bolshevik Revolution (1917) 15, 248 Bonaparte, Napoleon 96, 178, 231, 284 Book of Mormon 198, 235, 240 Book of the Dead, Egyptian 235 Bouazizi, Mohamed xi brain: biochemical algorithms of 20, 21, 47, 48; brain-computer interfaces 92, 260; brainwashing 242–4, 255, 267, 295; decision-making and 50, 52; equality and 75, 79; flexibility and age of 264–5; free will and 250–2, 255; hominid 122; marketing and 267; meditation and 311, 313–14, 316, 317 Brazil 4, 7, 12, 76, 101, 103, 118, 130 Brexit referendum (2016) 5, 9, 11, 15, 45–6, 93, 99, 115 Brihadaranyaka Upanishad 283–4, 302–3 Britain 5, 9, 10, 11, 13, 15, 44–5, 94, 99, 108, 115, 139, 143, 150, 165, 172, 178, 182, 232–3, 243 Brussels bombings (March, 2016) 160 Buddha/Buddhism 58, 102, 136, 183, 184, 186, 190, 196, 278, 291, 302–6, 315 Bulgaria 169, 195, 227 Burma 304–5 Bush, George W. 4, 168, 176, 178 Caesar, Julius 96, 179 California, U.S. 8, 39, 85, 88, 148, 172, 177, 178, 200, 266 Cambridge Analytica 80, 86 Cambridge University 12, 45, 194 Cameron, David 45, 46 Canaan 189, 190, 289, 291 Canada 13, 38, 74, 107 capitalism xii, 11, 16, 35, 38, 55, 68, 76, 77, 96, 105–6, 108, 113, 130, 131, 132, 134, 135, 148, 210, 217, 245, 273, 292, 309 carbon dioxide 117 care industry 24–5 Caro, Rabbi Joseph 195 cars 133, 135; accidents and 23–4, 54, 56–7, 114, 159, 160; choosing 78; GPS/navigation and 54; self-driving 22, 23–4, 33, 41, 56–7, 58–9, 60–1, 63, 168 Catalan Independence 124, 125 Catholics 108, 132, 133, 137, 213, 292, 299 centaurs (human-AI teams) 29, 30 Chad 103, 119 Chaucer, Geoffrey: Canterbury Tales 235–6 Chemosh 191 chess 29, 31–2, 123, 180 Chigaku, Tanaka 305 child labour 33, 224 chimpanzees 94–5, 98, 122, 187–8, 200, 242 China xi, 4, 5, 8, 9, 10, 12, 13, 15, 64, 76, 100, 104, 105, 106, 107, 109, 113, 114, 115, 118, 119, 120, 121, 135, 145, 150, 151, 159, 168, 169, 171, 172–3, 175, 176, 177–8, 180, 181, 182, 183, 184, 185, 186, 193, 201, 227–8, 232, 251, 259–60, 262, 274, 284–5 Chinese Communist Party 5 Christianity 13, 55, 58, 96, 98, 126, 128–30, 131, 132, 133, 134–5, 137, 142, 143, 148, 183, 184–6, 187, 188, 189–90, 191, 192, 193, 194, 196, 199, 200, 203, 204, 208, 212–13, 233, 234–5, 236, 253, 282, 283, 288, 289, 291, 294, 296, 308; Orthodox 13, 15, 137, 138, 183, 237, 282, 308 Churchill, Winston 53, 108, 243 civilisation, single world xi, 5, 92, 95–109, 110, 138; ‘clash of civilisations’ thesis and 93–8; economics and 105–6; European civilisation and 95–6, 108–9; human tribes and 98–100; science and 107–8 ‘clash of civilisations’ 93–4 climate change x, xi, 15, 75–6, 78, 108, 109, 116–20, 121, 122–3, 124, 127, 128, 130, 133, 138, 168, 195, 219, 223, 228, 244, 265 Clinton, Bill 4, 168, 176 Clinton, Hillary 8, 97, 236 Cnut the Great, King of the Danes 105 Coca-Cola 50, 238, 267 Coldia (fictional nation) 148–50, 152–4 Cold War (1947–91) 99, 100, 113, 114, 131, 176, 180 communism xii, 3, 5, 10, 11, 14, 33, 35, 38, 74, 87, 95, 131, 132, 134, 176–7, 209–10, 251, 262, 273, 277, 279 Communities Summit (2017) 85 community 11, 37, 42, 43, 85–92, 109, 110, 135, 143–4, 201, 230, 241; breakdown of 85–7; Facebook and building of global xiii, 81, 85–91 compassion 62, 63, 71, 186; Buddhism and 305–6; religion and 186, 200, 201–2, 204, 208–9, 234, 305–6; secular commitment to 200, 201–2, 204–6, 208–9, 210 Confucius 15, 136, 181, 190, 260, 284–5 consciousness ix; AI and 36, 68–72, 122; intelligence and 68–70, 245–6; meditation and 315, 316; religion and 197 Conservative Party 45 conservatives: conservation and 219–20; embrace liberal world view 44–5 conspiracy theories 222, 229 Constantine the Great, Roman Emperor 192 Constantius II, Roman Emperor 192 cooperation 12, 29, 134; fictions and mass 134, 137, 233–42, 245; human-AI 29, 31; morality and 47, 187; nationalism and 134, 137, 236–8; religion and 134, 137, 233–6 corruption 12, 13, 15, 188–9 Council of Religion and the Homosexual (CRH) 200 creativity 25–8, 31, 32, 75, 182, 234, 262, 299 Crimea 174–5, 177, 179, 231, 238 Croats 282 Crusades 96, 165, 184, 199, 212, 213, 296 cryptocurrency 6 Cuba 9–10, 11, 114, 176 Cuban Missile Crisis (1962) 114 cultures, differences between 147–55 culturism 150–4 cyberwarfare 127, 176, 178, 179 cyborgs 8, 76–7, 212, 278 Czech Republic 200 Daisy advertisement: US presidential election (1964) and 113, 114 Darwin, Charles 194; On the Origin of Species 98–9 Darwinism 213 data: Big Data xii, 18, 25, 47, 48, 49, 53, 63, 64, 68, 71–2, 268; liberty and 44–72; ownership regulation 77–81, 86 see also artificial intelligence (AI) Davos World Economic Forum 222 Dawkins, Richard 45 Deep Blue (IBM’s chess program) 29, 31 democracies: ‘clash of civilisations’ thesis and 93–8; data processing and 65; equality and 74; individual, trust in and 217, 220; liberal democracy see liberal democracy; liberty and 44–6, 53, 55, 64, 65, 66, 67; media manipulation and 12–13; secular ethics and 204, 210 Denmark 4, 94, 105, 144, 153, 200, 210 dharma 270, 271, 286, 299, 309 Di Tzeitung 97 dictatorships 3, 5, 33, 74, 210, 305; digital xii, 43, 61–8, 71, 79–80, 121 discrimination: AI and 59–60, 67–8, 75–6; brain and structural bias 226–8; religion and 135, 191, 200, 208; racism/culturism, immigration and 147–55 disease 16, 22, 28, 49, 88, 107, 218, 289 disorientation, sense of 5, 6 DNA 49, 66, 67, 79, 98, 150, 182 doctors 22–3, 24, 28, 48–9, 106–7, 128–9, 280 dogmas, faith in 229–30 dollar, American 106 Donbas 238 Donetsk People’s Republic 232 drones 29, 30, 35, 64, 76 East Africa 239 ecological crisis, xi, xiv, 7, 109, 195, 219, 244, 265; climate change x, xi, 15, 75–6, 78, 108, 109, 116–20, 121, 122–3, 124, 127, 128, 130, 133, 138, 168, 195, 219, 223, 228, 244, 265; equality and 75–6; global solution to 115–26, 138, 155; ignorance and 219–20; justice and 223, 228, 244, 265; liberalism and 16; nationalism and 15, 115–26; religion and 127, 128, 130, 133, 138; technological breakthroughs and 118–19, 121, 122–4 economics xii, 3, 4, 7, 9, 11, 16, 68, 99, 222, 224, 225, 240, 262, 309; AI and 6, 7, 8, 9, 19–43; capitalist see capitalism; communism and see communism; data processing and 65–6; economic models 37, 105–6; equality and 9, 71, 73–7 see also equality; liberalism and 3–5, 16, 44–5; nationalism and 115, 117, 118, 120, 121, 124; religion and 130–3; war and 171–5, 177–8, 179–80; work and 19–43 education 11, 16, 66, 74, 75, 111, 112, 113, 184, 194, 259–68; AI and 32, 34, 35, 38 39, 40–1, 259–68; basic level of 40–1; future of 259–68; liberal 217, 219, 261; secular 207, 209 Egypt 63, 74, 128–9, 172, 181, 188–9, 235, 284, 291, 296 Einstein, Albert 45, 181, 193, 194, 195 El Salvador 4, 150 ‘End of History’ 11 Engels, Friedrich: The Communist Manifesto 262, 273 England 105, 139, 235–6 equality xi, 13, 41, 71–2, 73–81, 92, 95, 144, 204, 223; AI and 75–81; history of 73– 4; secularism and 206–7, 208–9 ethics: AI and 56–61, 63, 121; complex nature of modern world and 223–30; nationalism and 121–2; religion and 186–93, 199–202; secular 199–202, 203–14 Europe xi, xii, 5, 10, 11, 16, 40, 47, 79, 93–100, 103–4, 105, 106, 107, 108–9, 113, 114, 115, 124–5, 128, 135, 136, 138, 139, 140, 143–4, 145, 147, 150, 153, 154–5, 159, 160, 164, 169, 171–2, 175, 176, 186, 187, 193, 201, 207, 228, 236, 252, 294, 307 see also under individual nation name European Union xii, 47, 93, 94, 95, 99, 108, 115, 124, 169; Constitution 95, 124; crisis in 138; immigration and 138, 139, 143–4, 154–5; Russia and 177; size and wealth of 176; terrorism and 159 Evangelical Christians 133 evolution 47, 98–9, 110–11, 127, 187, 194, 205, 206, 217, 218, 223, 274, 276, 277 Ex Machina (film) 246 Facebook xiii, 27, 77, 178, 230, 301, 302, 306; community-building and xiii, 85–91, 93; equality and 77, 80; liberty and 55, 64, 65, 67, 80, 86; ownership of personal data 80, 86; post-truth and 233, 235, 238; US presidential election (2016) and 80, 86 failed states 101, 112, 210 fair game rules 187 fake news xi, 231–42 famine 16, 33, 208, 212, 238, 251, 271 farming, modern industrial 29, 116, 118, 127, 128, 129, 224, 260, 262 see also agriculture fascism xii, 3, 9, 10, 11, 33, 142, 148, 154, 237, 251, 292–5, 297, 305 feminism 87, 143, 208, 217, 246, 280 Ferdinand, Archduke Franz 9, 11, 171 Fernbach, Philip 218 financial crisis, global (2008) 4, 171 financial system, computers and complexity of 6 Finland 38, 74 First World War (1914–18) 9, 10, 11, 30, 33, 99–100, 112, 123, 124, 160, 170, 171, 172, 265 Flag Code of India 285–6 flags, national 103, 285–6 fMRI scanner 21, 240 football, power of fictions and 241 France 10, 13, 51, 63, 66, 76, 94, 96, 99, 102, 103, 104, 115, 122, 139, 144, 145, 164, 165, 172, 182, 184, 194, 204, 285, 295–6 Francis, Pope 133 Freddy (chimpanzee) 188 free-market capitalism xii, 3, 4, 11, 16, 44, 55, 217, 245 free will 20, 44, 45–6, 47–8, 250–1, 299–301 French Revolution (1789) 63, 184, 207 Freud, Sigmund 135, 185, 193, 194–5, 286 Friedman, Milton 130 Front National 13 Galilei, Galileo 193, 207 gay marriage 44, 198, 205–6 Gaza 173 genetically modified (GM) crops 219 Georgia 176, 177 Germany 13, 66, 68, 95, 96, 98–9, 108, 118, 139, 147, 148, 155, 169, 171–2, 173, 179, 182, 194, 195, 239, 251, 277; Nazi 10, 66, 96, 134, 136, 212, 213, 226, 237, 251, 279, 294, 295 Gandhi, Mahatma 132 globalisation 8, 9, 113, 139; AI/automation and 38–9; history of 99; inequality and 73, 74, 76; nationalism and 109; reversing process of xiii, 5; spread of 4, 99 global stories, disappearance of 5, 14 global warming see climate change God xi, xiii, 46, 106, 197–202; 245, 252, 254, 269, 281, 285, 287, 303, 304; Bible and see Bible; ethics and 199–202, 205, 206, 208, 209; existence of 197–9; Jewish and Christian ideas of 184–5, 189, 190; justice and 225; mass cooperation and 245; monotheism and 190–3; post-truth and 234–6, 239; sacrifice and 287, 289; state identity and 138 gods xii, 277, 281, 291; agriculture and 128, 129; humans becoming ix, 79, 86; justice and 188, 189; sacrifice and 287–9; state identity and 136, 137 Goebbels, Joseph 237 Goenka, S.

Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned?
by Steve Keen
Published 21 Sep 2011

F. (1930) ‘The representative firm and increasing returns,’ Economic Journal, 44: 93–116. Silvestre, J. (1993) ‘The market-power foundations of macroeconomic policy,’ Journal of Economic Literature, 31(1): 105–41. Simon, H. A. (1996) The Sciences of the Artificial, Cambridge, MA: MIT Press. Sippel, R. (1997) ‘An experiment on the pure theory of consumer’s behaviour,’ Economic Journal, 107(444): 1431–44. Smith, A. (1838 [1776]) An Inquiry into the Nature and Causes of the Wealth of Nations, Edinburgh: Adam and Charles Black. Solow, R. M. (1956) ‘A contribution to the theory of economic growth,’ Quarterly Journal of Economics, 70(1): 65–94. Solow, R. M. (2001) ‘From neoclassical growth theory to new classical macroeconomics,’ in J.

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My criticisms are those of someone who loves the field and has seen that affection repaid. Krugman’s observations on methodology in this speech also highlight why he was incapable of truly comprehending Minsky – because he starts from the premise that neoclassical economics itself has proved to be false, that macroeconomics must be based on individual behavior: ‘Economics is about what individuals do: not classes, not “correlations of forces,” but individual actors. This is not to deny the relevance of higher levels of analysis, but they must be grounded in individual behavior. Methodological individualism is of the essence’ (Krugman 1996; emphases added) No it’s not: methodological individualism is one of the key flaws in neoclassical macroeconomics, as the SMD conditions establish.

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In other words, you get the expected value if, and only if, you repeat the gamble numerous times. But the expected value is irrelevant to the outcome of any individual coin toss. The concept of expected value is thus not a good arbiter for rational behavior in the way it is normally presented in Behavioral Economics and Finance experiments – why, then, is it used? If you’ve read this far into this book, you won’t be surprised to learn that it’s because economists have misread the foundation research on this topic by the mathematician John von Neumann, and his economist collaborator Oskar Morgenstern, The Theory of Games and Economic Behavior (Von Neumann and Morgenstern 1953).

Fun Inc.
by Tom Chatfield
Published 13 Dec 2011

It’s almost as if a video game is not only something that delivers fun by satisfying the innate human love of learning, but also a device that trains people to work far harder than they otherwise would by turning work into a series of tangibly rewarded learning challenges. This motivational power is something Nick Yee has explored in his work, citing in particular the example of a behavioural economics study in which people were given the option of doing ‘a really boring task’ for either half an hour or an hour. They weren’t to be paid for their time as such; instead, half an hour meant earning 30 points, while an hour meant 100 points. These points could then be spent on ice cream, according to two rules: 100 points awarded pistachio flavour and 30 points awarded vanilla.

Work in the Future The Automation Revolution-Palgrave MacMillan (2019)
by Robert Skidelsky Nan Craig
Published 15 Mar 2020

Economists have tended to see humans as consumer hedonists—they have recognised work only to the extent that it offers a means to consumption and denies leisure. There has been no acknowledgement that humans have needs for creative activity and that they might be drawn to work itself as a source of fulfilment. Modern perspectives linked to the economics of happiness and behavioural economics, to be sure, address the non-pecuniary motives to work. But they do so in ways that leave broader questions unanswered. Work, following the formal method of neoclassical economics, is treated as just another variable in the individual’s utility function. The wider significance of work in human life continues to be missed.

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. So, despite all the political, economic and social changes that have occurred since the 1980s, and notwithstanding the extreme events and difficulty of predicting human sentiment and responses to conditions, there have been repeated patterns in economies and financial markets.

99%: Mass Impoverishment and How We Can End It
by Mark Thomas
Published 7 Aug 2019

Political parties would therefore need to run their own fact-checking on their policy proposals. Finally, a reform of the discipline of economics is needed to equip policymakers with models that are fit for purpose – e.g. for the purpose of ending mass impoverishment. Fortunately, this reform is to some extent underway and new schools of economic thought are already in development. Behavioural economics seeks to address the fact – known for decades in other disciplines and more recently discovered by economists – that humans are not rational, consistent beings (Homo Economicus) with perfect information about the economy, who seek to maximize the discounted value of their own cash flows. Modern Monetary Theory seeks to ensure that the realities of a fiat currency (which can be created at will by government) and of sectoral balances which sum to zero are taken into account in policy-making.

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

As Uzzi put it: ‘Many of these novel combinations are really two conventional ideas in their own domains. You’re taking well-accepted ideas, which is a wonderful foundation – you need that in science. But when you put them together: wow! That’s suddenly something really different.’11 Classic examples of recombinant science include behavioural economics, which transformed the field by bringing the concepts and insights of psychology to the domain of economics. This isn’t just about science, however. The US Patent and Trademark Office has broad categories such as utility patents (the light bulb), design patents (the Coke bottle) and plant patents (hybrid corn), with 474 technology classes and 160,000 codes.

The System: Who Owns the Internet, and How It Owns Us
by James Ball
Published 19 Aug 2020

Given that companies are worried about losses, and many have revenue targets and shareholders to satisfy, they can’t afford to leave money on the table. That’s the logic – but it’s rarely been tested. Until now. Alessandro Acquisti is professor of information technology and public policy at Carnegie Mellon University in Pittsburgh, and much of his research focuses on what he describes as the behavioural economics of privacy. Most recently, that work has looked at just how much extra revenue the privacy-invading targeted adverts that pervade the internet actually raise. It turns out to be a question with two very different answers for the networks that distribute the ads – the tech giants – and the publishers who make the content.

Escape From Model Land: How Mathematical Models Can Lead Us Astray and What We Can Do About It
by Erica Thompson
Published 6 Dec 2022

That’s why the kinds of considerations I have explored throughout this book are so important. Most people have never been to Model Land Given the importance of models to the scientific community and the ways in which models now influence so much of our daily lives, it is interesting to note that the general public also remain sceptical about Model Land. Two famous results of behavioural economics are presented as ‘paradoxes’ that show people choosing to behave irrationally, against the course of action suggested by a model of the situation. Yet I think their results can be explained much more easily by the trivial observation that real people live in the real world, not in Model Land.

The Great Fragmentation: And Why the Future of All Business Is Small
by Steve Sammartino
Published 25 Jun 2014

We’re all still playing the games right now, but like many aspects of commerce, we go deep into the wormhole before we realise it. Gamification not only becomes possible in a connected and social world, it’s inevitable. If I could draw an analogy for gamification, it would be this: Pong is to consoles, what Angry Birds is to gamification. Gamification is all about intersecting behavioural economics and game design methodology for a commercial outcome. When we think about it deeply, it’s not too far removed from commerce in general. What is business other than anthropology with a scoreboard? Gamification is much more about anthropology than it is about technology, but the two elements of anthropology and technology are starting to conspire to create new commercial platforms that, when used well, have the ability to circumvent currency while also creating purchasing power.

The Twittering Machine
by Richard Seymour
Published 20 Aug 2019

This belief was not only congruent with behaviourist ideas about conditioning, but was strongly influenced by behaviourism.49 And it was extremely useful for the pharmaceutical giants. For example, if mental states like depression or anxiety could be understood as chemical states, they could be treated with ‘happy’ pills. Behaviourism also inspired the enormously influential discipline of behavioural economics, which extends its reach into the heart of government as well into highly profitable industries such as amusement, gambling and tech. Nir Eyal, a businessman and behavioural economist, argues that successful businesses use these techniques to get customers addicted: the ‘Hook Model’ of business.50 The idea is to use ‘rewards’ to plant an ‘internal trigger’ in the customer’s mind.

The Unknowers: How Strategic Ignorance Rules the World
by Linsey McGoey
Published 14 Sep 2019

They emphasize that this finding jars with mainstream assumptions within psychology that claim the opposite: that humans tend to share a ‘general need for certainty’ and preference for ‘ambiguity aversion.’22 The design of their study was new, but their findings square with other recent experiments from game theory and behavioural economics that reach the same conclusion: people often prefer to act on the basis of ignorance rather than knowledge.23 In their article, they make a sharp distinction between the psychological realm and the social realm. ‘Agnotology looks at how external sources maintain public ignorance, even against people’s will,’ they write, ‘deliberate ignorance, in contrast, entails maintaining personal ignorance.’24 I don’t think this is the best way to look at ignorance.

Gnomon
by Nick Harkaway
Published 18 Oct 2017

You have to understand that over the course of a year, bad traffic is massively expensive in terms of lost business, public health, unnecessary consumption of resources, and that’s before you factor in the soft variables like how traffic delays influence whether people consider they have had a positive overall experience doing business here. Our performance at Tidal Flow makes a genuine difference to the figures for the capital. So we’re a hotchpotch. Behavioural economics, mathematics, of course neuroscience. Self-organising criticality. They hate us at university departments, because everything we publish is interdisciplinary and doesn’t fit their models, but it’s evidence-based so they have to pay attention. Models are never quite good enough. The territory is always new.’

…

In the midst of a perfect world, where power is in a way truly held by the people and government has almost entirely gone away, there’s a thin strand of horror, of interrogation machines mandated by the majority and algorithms that see everything you do and want to know why you did it, that understand your actions according to an actuarial chart and analyse you as an aspect of behavioural economics. The system applies numbers and probabilities to your life and knows what you will do, what you might do, even what you would-do-if-only, before it has ever occurred to you. Perhaps you have a latent streak of revolution in consequence of your unhappy upbringing. One day you do something that has just a hint of that rebellion in it – so then you’re brought in and adjusted to make you better before you can break the rules.

100 Years of Identity Crisis: Culture War Over Socialisation
by Frank Furedi
Published 6 Sep 2021

Technocrats are constantly asking the question ‘which nudging techniques can we use to further increase awareness?’764 They believe that through psychological manipulation they can create public awareness that ensures that ‘very large numbers of people form powerful groupings, like a “swarm”, to produce massive social outcomes’.765 The extensive use of nudging and behavioural economics during the coronavirus pandemic illustrates how the engineering of people’s ‘decision making’ rapidly displaced open politically informed guidance and leadership. The ethos and practice of raising awareness is based on the unstated and often unacknowledged assumption that behavioural change is important for both the individual and for society.

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

Some years ago, a consumer-goods company approached Dan Ariely, a marketing professor at Duke and MIT, for advice in running some experiments on its own customers. It was a sharp move: Ariely has since become one of the most celebrated behavioural economists after the success of his book Predictably Irrational. Ariely uses experiments all the time to develop and test ideas in psychology and behavioural economics, such as the hypothesis that ‘free’ isn’t just a price of zero; ‘Buy one get one free!’ feels different to ‘Buy two get both at half price!’, even though the offers are identical. Real-world applications of this insight were something the company might be able to use, and Ariely could use the collaboration to harvest data for his academic research.

Boom and Bust: A Global History of Financial Bubbles
by William Quinn and John D. Turner
Published 5 Aug 2020

When questioned about his losses, he is reputed to have said ‘that he could not calculate the madness of the people’.29 This madness-of-crowds hypothesis has been refined and expanded by the likes of Kindleberger, John Kenneth Galbraith and, most recently, Nobel Laureate Robert Shiller.30 Shiller and other economists argue that bubbles can largely be explained by behavioural economics, with cognitive failings and psychological biases on the part of investors causing prices to rise beyond their objective value.31 A subset of investors, for example, may suffer from an overconfidence bias, whereby they overestimate the future performance of a company stock, or they may have a representativeness bias, whereby they incorrectly extrapolate from a series of good news announcements and overreact.32 Other investors may simply follow or emulate this subset of investors simply because of herd behaviour and naivety on their part.33 The view that bubbles are largely a product of irrationality has been contradicted by economists who, like Nobel Laureate Eugene Fama, believe investors to be rational and markets to be efficient.34 Much recent research on the subject has thus focused on establishing whether a particular bubble was ‘rational’ or not.35 This is unfortunate, because the rational/irrational framework is almost useless for understanding bubbles.

How Will Capitalism End?
by Wolfgang Streeck
Published 8 Nov 2016

Its real turf, of course, are the economics and politics sections, which are undoubtedly much more influential than the science sections, and here sociology is entirely absent, with very rare exceptions. Why should this be so? Among the many reasons that come to mind is that sociology corresponds less than other disciplines to what is popularly considered science and what is found interesting about it. What fascinates a lay audience about psychology, behavioural economics, evolutionary biology and the like seems to be that they purport to identify latent causes of actions that we normally believe to be motivated by manifest reasons – causes that secretly control what we do without us knowing about them. Representative for the sort of research that has recently made waves in German science journalism are T-shirt sniffing experiments showing that women prefer the smell of men who best fit their genetic make-up, in the sense of promising more healthy offspring.

The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory
by Kariappa Bheemaiah
Published 26 Feb 2017

The latter two shared the Nobel prize in economics in 2016. 17 https://www.federalreserve.gov/econresdata/frbus/us-models-about.htm 18As per Turner, Monetary finance is defined as a fiscal deficit which is not financed by the issue of interest-bearing debt, but by an increase in the monetary base - i.e. of the irredeemable fiat non-interest-bearing monetary liabilities of the government/central bank. Eg: Helicopter Money. 19Daniel Kahneman is known for his work on the psychology of judgment and decision-making, as well as behavioural economics, for which he was awarded the 2002 Nobel Memorial Prize in Economic Sciences. 20Case in point - US investment in developing a better theoretical understanding of the economy is very small -around $50 million in annual funding from the National Science Foundation - or just 0.0005 percent of a $10 trillion crisis.

Value of Everything: An Antidote to Chaos The
by Mariana Mazzucato
Published 25 Apr 2018

The classical economists were well aware that supply and demand changed prices - for example, Marx in Part 1 of vol. 3 of Capital - but saw this as fluctuations around the price determined by labour time. 10. P. Mirowski, ‘Learning the meaning of a dollar: Conservation principles and the social theory of value in economic theory', Social Research 57(3) (1990), pp. 689-718. 11. Behavioural economics, which deploys psychology, sociology, neuroscience and other disciplines to look at how individuals really make choices, casts doubt on the simple assumptions of marginalism. See A. Tversky and D. Kahneman, ‘Advances in prospect theory: Cumulative representation of uncertainty', Journal of Risk and Uncertainty, 5 (4) (1992), pp. 297-323; doi:10.1007/BF00122574 12.

Anatomy of the Bear: Lessons From Wall Street's Four Great Bottoms
by Russell Napier
Published 18 Jan 2016

What is financial history if not such a study? The behaviouralist school of psychology, around for nearly a century, is based on observing reactions to selected stimuli. Financial history looks at market prices, which are a reflection of the behaviour of thousands of participants to certain stimuli. In behavioural economics, history is a useful tool for observing how financial markets work, rather than theorising about how they should work. Such historical studies have not yet lent themselves to the comforts of empiricism. This, in itself, may be enough of a reason for many to reject the approach. However, the inability to translate all understanding into binary code does not necessarily denude it of value and insight.

Other People's Money: Masters of the Universe or Servants of the People?
by John Kay
Published 2 Sep 2015

While the USA was the dominant economic power, Germany’s recovery would earn the description of ‘economic miracle’, and in Japan a pace of economic growth never previously experienced anywhere would turn the country into a major industrial power. France enjoyed the ‘trente glorieuses’; Britain had ‘never had it so good’.19 Financial crises are not natural disasters like hurricanes or earthquakes, which we cannot avoid and must simply learn to manage. Financial crises have their origins in human behaviour. Economic policies can increase or reduce their frequency and size. And they have. The pattern shown in Fig. 1 is striking. The nineteenth century displays a recurrent pattern of boom and bust. In the early part of the twentieth century the amplitude of crisis increases, culminating in the Wall Street Crash and Great Depression.

Bank 3.0: Why Banking Is No Longer Somewhere You Go but Something You Do
by Brett King
Published 26 Dec 2012

Ironically at the time of press HSBC still doesn’t have a mobile app for most of its customers. In the worst case, the split of this spend should look more like $250m on web and $500m on branch today, even considering the relative cost performance of the channels. Let’s not even start talking about social media. Today’s spend just doesn’t make sense given behavioural economics. Go back and look at your retail channel budget today and figure out how to put at least 30 per cent of your total channel budget into the mobile, tablet, and web. Then you might just be getting closer to an organisation chart and budget mix that is closer to what your bank needs to support customers in the near future.

The Mind in the Cave: Consciousness and the Origins of Art
by David Lewis-Williams
Published 16 Apr 2004

Consequently, they formulate lists to characterize modern human behaviour, such as the following:68 – abstract thinking, the ability to act with reference to abstract concepts not limited in time or space, – planning depth, the ability to formulate strategies based on past experience and to act upon them in a group context, – behavioural, economic and technological innovation, and – symbolic behaviour, the ability to represent objects, people and abstract concepts with arbitrary symbols, vocal or visual, and to reify such symbols in cultural practice. Given the west European evidence, this list seems reasonable enough. But, as its compilers point out, it is unreasonable to expect all early anatomically modern populations to have expressed these characteristics in exactly the same way.

Humankind: A Hopeful History
by Rutger Bregman
Published 1 Jun 2020

That happened, for example, when tulip mania hit Holland in January 1637, and a single tulip bulb briefly sold for more than ten times the annual wage of a skilled craftsman, only to become all but worthless days later. Bubbles of this kind are not isolated to the financial world. They’re everywhere. Dan Ariely, a psychologist at Duke University, once gave a brilliant demonstration during a college lecture. To explain his field of behavioural economics, he provided the class with what sounded like an extremely technical definition. Unbeknown to the students, however, all the terms he used had been generated by a computer, cobbled together in a series of random words and sentences to produce gibberish about ‘dialectic enigmatic theory’ and ‘neodeconstructive rationalism’.

Live and Let Spy: BRIXMIS - the Last Cold War Mission
by Steve Gibson
Published 2 Mar 2012

The Blair-Brown governments of the late 2000s argued that political freedom could be handed back to the people through the marketisation of all aspects of society – the conferring of monetary value and price upon all products and services in education, health and even defence. Everything could be controlled and explained through mathematical computer-based calculations and systems theory; including notions of individual freedom. Today, rather than interfering so explicitly in private life, the Cameron-Clegg coalition utilises pseudo-scientific behavioural economics, neuroscience and ‘nudge’ politics to implicitly direct individual decision-making through notions of genes and neurons trumping freewill. They want individuals to come to the correct decisions by themselves; provided, those decisions coincide with what the Government predetermines! Far from fulfilling the rhetoric of getting out of people’s lives, government continues to make itself more indispensable.

Greater: Britain After the Storm
by Penny Mordaunt and Chris Lewis
Published 19 May 2021

Many complain that it is a weak-minded government that encourages overseas aid, but government, in many instances, is just following the people’s lead. It’s not the other way round. Big ideas don’t come from the head. There are stirring, all-powerful, unstoppable, popular movements more powerful than logic. To do something for others is the antidote to so-called rational behaviour. Economic theory would have it that we behave rationally: we earn money so we can spend it – why would we give it away? That’s not logical. But truly great ideas transcend logic: we know the best course of action. Have you ever just known something to be true? Or has everything had to be proven to you?

Bad Pharma: How Medicine Is Broken, and How We Can Fix It
by Ben Goldacre
Published 1 Jan 2012

We should be clear that declaring conflicts is not a final fix, and that like any intervention it can have side effects which should at least be considered alongside the headline benefit. For example, some have argued that forced disclosure of conflict of interest leads doctors to engage in ‘strategic exaggeration’,118 knowing that their utterances will be discounted if it is believed that they are acting as shills, and there is some evidence for this in the behavioural economics literature, although only from psychology experiments conducted under laboratory conditions.119 They may also be affected by a sense of ‘moral licensing’: once you’ve declared your interest, you feel free to let rip with biased advice, because you know the recipient has been warned. These are interesting ideas: overall, I would rather have disclosure.

Ways of Being: Beyond Human Intelligence
by James Bridle
Published 6 Apr 2022

Crucially, those relationships extend to things as well as beings: ecology is just as interested in how the availability of nesting materials affects bird populations, or how urban planning shapes the spread of diseases, as it is in how honeybees pollinate marigolds and cleaner wrasses delouse surgeonfish. And that’s just biological ecology. Ecology is fundamentally different to the other sciences in that it describes a scope and an attitude of study, rather than a field. There is an ecology – and ecologists – of mathematics, behaviour, economics, physics, history, art, linguistics, psychology, warfare, and almost any other discipline that you can think of. There is also ecological politics, which has the potential not merely to describe worlds, but to change them. It was as an ecologist that the marine biologist Rachel Carson approached the environment, culminating in her immensely influential Silent Spring of 1962, her ecological understanding enabling her to link pesticides in the rivers and oceans to devastating effects on animal and human health.

Homo Deus: A Brief History of Tomorrow
by Yuval Noah Harari
Published 1 Mar 2015

For both organisational and financial reasons, the vast majority of experiments are conducted either on individuals or on small groups of participants. Yet it is risky to extrapolate from small-group behaviour to the dynamics of mass societies. A nation of 100 million people functions in a fundamentally different way to a band of a hundred individuals. Take, for example, the Ultimatum Game – one of the most famous experiments in behavioural economics. This experiment is usually conducted on two people. One of them gets $100, which he must divide between himself and the other participant in any way he wants. He may keep everything, split the money in half or give most of it away. The other player can do one of two things: accept the suggested division, or reject it outright.

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

Nor are firms, consumers and workers so economically rational as the free-market economists supposed. The supposition was that, when confronted by a tax reduction, consumers would know it was only temporary and so would rationally save to pay for the inevitable later tax rise. In fact, as behavioural economics suggests, consumers are myopic. They spend the extra cash in their pockets that results from tax cuts, just as they did when Britain lowered VAT from 17.5 per cent to 15 per cent to boost consumer spending in 2009. (This was a far more effective intervention to limit the recession than the consensus has acknowledged.)

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

Daniel Kahneman, Ed Diener & Norbert Schwarz, eds., Well-Being: The Foundations of Hedonic Psychology (New York, 1999); Richard Layard, Happiness: Lessons from a New Science (New York, 2005); and Luigino Bruni & Pier Luigi Porta, eds., Economics and Happiness: Framing the Analysis (New York, 2006). Of course, happiness extends beyond behavioural economics: for other approaches see: Dieter Thomä, Christoph Henning & Olivia Mitscherlich-Schönherr, eds., Glück: Ein interdisziplinäres Handbuch (Stuttgart, 2011). 40. Richard Easterlin, ‘Does Economic Growth Improve the Human Lot? Some Empirical Evidence’, in: Nations and Households in Economic Growth: Essays in Honor of Moses Abramovitz, eds.

…

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. Index The pagination of this electronic edition does not match the edition from which it was made. To locate a specific passage, please use the search feature on your ebook reader.

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

Econs, see also Econs hyperbolic discounting, see present bias (hyperbolic discounting) hypothetical questions, 38–39, 82 Ibrahim (game show contestant), 304–5 ice companies, 210 ideas42, 184, 344, 345 identified lives, 13 Illinois, 328 impartial spectator, 88, 103 incentive compatible situations, 60 incentives, 47–49, 50, 52 monetary, 353 incentives critique of behavioral economics, 47–49, 50, 52 India, 364 individual investment behavior, 184 Individual Retirement Accounts (IRAs), 310–11, 370 induced value methodology, 40–41, 149–53, 151 inertia, in savings plan, 313 inflation, “real” wages reduced by, 131–32 Influence (Cialdini), 335, 336 Innovations for Poverty Action, 342 inside view, 191 outside view vs., 186–87 instant endowment effect, 154 Intelligent Investor, The (Graham), 219, 220 interest rates, 77–78, 79, 350 intertemporal choice, 88–99 Into Thin Air (Krakauer), 356–57 intrauterine device (IUD), 342 “Invest Now, Drink Later, Spend Never” (Shafir and Thaler), 71 invisible hand, 52, 87 invisible handwave critique of behavioral economics, 51–53, 149, 209 iPhone, 280, 326 Iran, 130 Irrational Exuberance (Shiller), 234 irrelevance theorem and behavioral economics, 164–67 IRS, 314–15 iTunes, 135–36 Ivester, Douglas, 134–35 Iwry, Mark, 314–15, 316 Jameel Poverty Action Lab (J-PAL), 344 JC Penney, 62–63 Jensen, Michael, 51–52, 53, 105 and efficient market hypothesis, 205, 207, 208 Jevons, William Stanley, 88, 90 Joey (doll), 129 Johnson, Eric, xv, 82, 180n, 299, 300 on default organ donations, 327–28 Johnson, Ron, 62 Johnson, Steven, 39–40 Jolls, Christine, 184, 257, 258, 260, 269 Jordan, Michael, 19 Journal of Economic Behavior and Organization, 53–54 Journal of Economic Perspectives, 170–75 Journal of Finance, 243 Journal of Financial Economics, 208 judgment, 179n–80n “Judgment Under Uncertainty: Heuristics and Biases” (Kahneman and Tversky), 22–23, 24 just noticeable difference (JND), 32–33 Kahneman, Daniel, 21, 22–23, 24, 29, 36, 103n, 104, 125, 126, 140, 148, 157, 162, 176, 221, 335, 338, 353, 357 and “as if” critique of behavioral economics, 46 in behavioral economics debate, 159, 160 in Behavioral Economics Roundtable, 181, 183, 185 book edited by, 187 on changes in wealth, 30–31 endowment effect studied by, 149–55 equity premium puzzle studied by, 197–98 on extreme forecasts with flimsy data, 218, 219, 223 framing studied by, 18 hypothetical choices defended by, 38, 82 lack of incentives in experiments of, 47–48 and “learning” critique of behavioral economics, 49 on long-shot odds, 80–81 narrow framing work of, 186–87, 191 Sunstein’s collaboration with, 258 Thaler’s first meeting with, 36–37 Thaler’s laziness praised by, xv–xvi on theory-induced blindness, 93 and Tversky’s cancer, xiii–xiv two-system view of mind, 103, 109 and Ultimatum Game, 140, 141, 267 unambiguous questions studied by, 295–96 Wanner given advice by, 177 Kan, Raymond, 243 Karlan, Dean, 19 Kashyap, Anil, 272, 273 Katrina, Hurricane, 133, 327 Keynes, John Maynard, 94–95, 96 beauty contest analogy of, 210–11, 212, 214 and behavioral macroeconomics, 349 on conventional wisdom, 210, 292 decline of interest in ideas of, 209 as forerunner of behavioral finance, 209 as investor, 209, 219 on market anomalies, 209–10, 219 kidneys, auctions for, 130 Kitchen Safe, 107n Kleidon, Allan, 167–68, 232 KLM, 356 “Knee-Deep in the Big Muddy” (Staw), 65 Knetsch, Jack, 126, 127–28, 140, 148–49, 267 Kohl’s, 62 Kokonas, Nick, 138–39 Korobkin, Russell, 269 Krakauer, Jon, 356–57 Krueger, Alan B., 139n, 359, 372 Kuhn, Thomas, 167–68, 169, 171, 172, 349 Kunreuther, Howard, 25 Laboratory Experimentation in Economics: Six Points of View (Roth), 148 Labor Department, U.S., 316 Laibson, David, 110, 183, 315n, 353 Lamont, Owen, 244, 250 law and economics, 257–69 law of large numbers, 194–95 law of one price, 237–39, 244, 247, 248, 250, 348 learning critique of behavioral economics, 49–51, 153 Leclerc, France, 257 Lee, Charles, 239 closed-end fund paper of, 240–43, 244 Leno, Jay, 134 Lester, Richard, 44–45 Letwin, Oliver, 331 Levitt, Steven, 354 Lewin, Kurt, 338, 340 liar loans, 252 Liberal Democrats, U.K., 332 libertarian paternalism, 322, 323–25 “Libertarian Paternalism Is Not an Oxymoron” (Sunstein and Thaler), 323–25 Lichtenstein, Sarah, 36, 48 life, value of, see value of a life life-cycle hypothesis, 95–96, 97, 98, 106, 164 “Life You Save May Be Your Own, The” (Schelling), 12–13, 14 limits of arbitrage, 249, 288, 349 Lintner, John, 166, 226, 229 Liquid Assets (Ashenfelter), 68 List, The, 10, 20–21, 24, 25, 31, 33, 36, 39, 43, 58, 68, 303, 347 List, John, 354 lives, statistical vs. identified, 13 loans, for automobiles, 121–23 Loewenstein, George, 88, 111, 176, 180–81, 362 in Behavioral Economics Roundtable, 181 effort project of, 199–201 paternalism and, 323 London, 248 Long Term Capital Management (LTCM), 249, 251 loss aversion, 33–34, 52, 58–59, 154, 261 dividends and, 166 of managers, 187–89, 190 myopic, 195, 198 Lott, John, 265–66 Lovallo, Dan, 186, 187 Lowenstein, Roger, xv–xvi, 12 LSV Asset Management, 228 Lucas, Robert, 159 Luck, Andrew, 289 MacArthur Foundation, 184 Machiguenga people, 364 Machlup, Fritz, 45 macroeconomics: behavioral, 349–52 rational expectations in, 209 Macy’s, 62, 63 Madrian, Brigitte, 315–17 Magliozzi, Ray, 32 Magliozzi, Tom, 32–33 Major League Baseball, 282 “make it easy” mantra, 337–38, 339–40 Malkiel, Burton, 242 managers: growth, 214–15 gut instinct and, 293 loss aversion of, 187–89, 190 risk aversion of, 190–91 value, 214–15 mandated choice, 328–29 marginal, definition of, 27 marginal analysis, 44 marginal propensity to consume (MPC), 94–95, 98 markets, in equilibrium, 44, 131, 150, 207 Markowitz, Harry, 208 marshmallow experiment, 100–101, 102n, 178, 314 Marwell, Gerald, 145 Mas, Alexandre, 372 Massey, Cade, 194, 278–79, 282, 289 Matthew effect, 296n McCoy, Mike, 281–82 McDonald’s, 312 McIntosh, Donald, 103 mean reversion, 222–23 Mechanical Turk (Amazon), 127 Meckling, William, 41, 105 Mehra, Raj, 191 mental accounting, 54, 55, 98, 115, 116, 118, 257 bargains and rip-offs, 57–63 budgeting, 74–79 and equity premium puzzle, 198 on game show, 296–301, 297 getting behind in, 80–84 house money effect, 81–82, 83–84, 193n of savings, 310 sunk costs, 21, 52, 64–73 “two-pocket,” 81–82 Merton, Robert K., 296n “Methodology of Positive Economics, The” (Friedman), 45–46 Mian, Atif, 78 Miljoenenjacht, see Deal or No Deal Miller, Merton, 159, 167–68, 206, 208 annoyed at closed-end fund paper, 242–43, 244, 259 irrelevance theorem of, 164–65, 166–67 Nobel Prize won by, 164 Thaler’s appointment at University of Chicago, reaction to, 255, 256 Minnesota, 335 Mischel, Walter, 100–101, 102, 103, 178, 314 mispricing, 225 models: beta–delta, 110 of homo economicus, 4–5, 6–7, 8–9, 23–24, 180 imprecision of, 23–24 optimization-based, 5–6, 8, 27, 43, 207 Modigliani, Franco: consumption function of, 94, 95–96, 97, 98, 309 irrelevance theorem of, 164–65 Nobel Prize won by, 163–64 Moore, Michael, 122 More Guns, Less Crime (Lott), 265 Morgenstern, Oskar, 29 mortgage brokers, 77–78 mortgages, 7, 77–79, 252, 345 mugs, 153, 155, 263, 264–66, 264 Mullainathan, Sendhil, 58n, 183–84, 366 Mulligan, Casey, 321–22 Murray, Bill, 49–50 mutual fund portfolios, 84 mutual funds, 242 myopic loss aversion, 195, 198 Nagel, Rosemarie, 212 naïve agents, 110–11 Nalebuff, Barry, 170 narrow framing, 185–91 and effort project, 201 NASDAQ, 250, 252 Nash, John, 212 Nash equilibrium, 212, 213n, 367 National Bureau of Economic Research (NBER), 35, 236, 244, 349 National Football League, 139n draft in, 11, 277–91, 281, 283, 285, 286 rookie salaries in, 283 salary cap in, 282–83 surplus value of players in, 285–86, 285, 286, 288 National Public Radio, 32, 305 naturally occurring experiments, 8 NESTA, 343 Net Asset Value (NAV) fund, 238–39, 241 Netherlands, 248, 296–301 neuro-economics, 177, 182 New Contrarian Investment Strategy, The (Dreman), 221–22 New Orleans Saints, 279 New York, 137 New Yorker, 90–91, 91, 92 New York Stock Exchange, 223, 226, 232, 248 New York Times, 292, 327, 328 New York Times Magazine, xv–xvi, 12 Next Restaurant, 138–39 NFL draft, 11, 277–91, 281, 283, 285, 286, 295 Nick (game show contestant), 304–5 Nielsen SoundScan, 135 Nixon, Richard, 363 Nobel, Alfred, 23n Nobel Prize, 23, 40, 207 no free lunch principle, 206, 207, 222, 225, 226n, 227, 230, 233–36, 234, 236, 251, 255 noise traders, 240–42, 247, 251 nomenclature, importance of, 328–29 Norman, Don, 326 normative theories, 25–27 “Note on the Measurement of Utility, A” (Samuelson), 89–94 no trade theorem, 217 Nudge (Thaler and Sunstein), 325–26, 330, 331–32, 333, 335, 345 nudges, nudging, 325–29, 359 number game, 211–14, 213 Obama, Barack, 22 occupations, dangerous, 14–15 Odean, Terry, 184 O’Donnell, Gus, 332–33 O’Donoghue, Ted, 110, 323 Odysseus, 99–100, 101 Office of Information and Regulatory Affairs (OIRA), 343–44 Office of Management and Budget, 343 offices, 270–76, 278 “one-click” interventions, 341–42 open-end funds, 238 opportunity costs, 17, 18, 57–58, 59, 73 of poor people, 58n optimal paternalism, 323 optimization, 5–6, 8, 27, 43, 161, 207, 365 Oreo experiment, 100–101, 102n, 178, 314 organizations, theory of, 105, 109 organs: donations of, 327–28 markets for, 130 Osborne, George, 331 Oullier, Olivier, 333 outside view, inside view vs., 186–87 overconfidence, 6, 52, 124, 355 and high trading volume in finance markets, 217–18 in NFL draft, 280, 295 overreaction: in financial markets, 219–20, 222–24, 225–29 generalized, 223–24 to sense of humor, 218, 219, 223 value stocks and, 225–29 Oxford Handbook of Behavioral Economics and the Law, 269 Palm and 3Com, 244–49, 246, 250, 348 paradigms, 167–68, 169–70 Pareto, Vilfredo, 93 parking tickets, 260 passions, 7, 88, 103 paternalism, 269, 322 dislike of term, 324 libertarian, 322, 323–25 path dependence, 298–300 “pay as you earn” system, 335 payment depreciation, 67 Pearl Harbor, Japanese bombing of, 232 P/E effect, 219–20, 222–23, 233, 235 pensions, 9, 198, 241, 320, 357–58 permanent income hypothesis, 95 Peter Principle, 293 pharmaceutical companies, 189–90 Pigou, Arthur, 88, 90 plane tickets, 138 planner-doer model, 104–10 Plott, Charlie, 40, 41, 48, 49, 148, 149, 177, 181 poker, 80, 81–82, 99 poor, 58n Posner, Richard, 259–61, 266 Post, Thierry, 296 poverty, decision making and, 371 Power, Samantha, 330 “Power of Suggestion, The” (Madrian and Shea), 315 practice, 50 predictable errors, 23–24 preferences: change in, 102–3 revealed, 86 well-defined, 48–49 pregnancy, teenage, 342 Prelec, Drazen, 179 Prescott, Edward, 191, 192 present bias (hyperbolic discounting), 91–92, 110, 227n and NFL draft, 280, 287 savings and, 314 presumed consent, in organ donations, 328–29 price controls, 363 price/earnings ratio (P/E), 219–20, 222–23, 233, 235 prices: buying vs. selling, 17, 18–19, 20, 21 rationality of, 206, 222, 230–33, 231, 237, 251–52 variability of stock, 230–33, 231, 367 price-to-rental ratios, 252 principal-agent model, 105–9, 291 Prisoner’s Dilemma, 143–44, 145, 301–5, 302 “Problem of Social Cost, The” (Coase), 263–64 profit maximization, 27, 30 promotional pricing strategy, 62n prompted choice (in organ donation), 327–29 prospect theory, 25–28, 295, 353 acceptance of, 38–39 and “as if” critique of behavioral economics, 46 and consumer choice, 55 and equity premium puzzle, 198 expected utility theory vs., 29 surveys used in experiments of, 38 psychological accounting, see mental accounting “Psychology and Economics Conference Handbook,” 163 “Psychology and Savings Policies” (Thaler), 310–13 Ptolemaic astronomy, 169–70 public goods, 144–45 Public Goods Game, 144–46 Punishment Game, 141–43, 146 Pythagorean theorem, 25–27 qualified default investment alternatives, 316 quantitative analysis, 293 Quarterly Journal of Economics, 197, 201 quasi-hyperbolic discounting, 91–92 quilt, 57, 59, 61, 65 Rabin, Matthew, 110, 181–83, 353 paternalism and, 323 racetracks, 80–81, 174–75 Radiolab, 305 randomized control trials (RCTs), 8, 338–43, 344, 371 in education, 353–54 Random Walk Down Walk Street, A (Malkiel), 242 rational expectations, 98, 191 in macroeconomics, 209 rational forecasts, 230–31 rationality: bounded, 23–24, 29, 162 Chicago debate on, 159–63, 167–68, 169, 170, 205 READY4K!

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“Toward a Positive Theory of Consumer Choice” (Thaler), 46–47, 53–54, 104 transaction costs, 261, 262–63, 265, 266 endowment effect as, 266 transaction utility, 59–63, 66, 118 transparency, 337 Treasury Department, U.S., 311, 314–15, 343 Treisman, Anne, 36, 185 Tversky, Amos, 21, 22–23, 24, 29, 103n, 104, 105n, 125, 157, 162, 176, 201, 221, 261, 353, 357 and “as if” critique of behavioral economics, 46 in behavioral economics debate, 159–60 in Behavioral Economics Roundtable, 181 on changes in wealth, 30–31 equity premium puzzle studied by, 197–98 on extreme forecasts with flimsy data, 218, 219, 223 hypothetical choices defended by, 38, 82 illness and death of, xiii–xv, 187 on importance of stories, xiv–xv, 10 and “invisible handwave” argument, 51 lack of incentives in experiments of, 47–48 and “learning” critique of behavioral economics, 49 on long-shot odds, 80–81 Thaler’s first meeting with, 36–37 unambiguous questions studied by, 295–96 Wanner given advice by, 177 Tversky, Barbara, 36 Tversky, Oren, xiv–xv Tversky, Tal, xv Twain, Mark, 355 “two-pocket” mental accounting, 81–82 two-system view of mind, 103, 109 Uber, 136–38, 200n Ultimatum Game, 140–41, 142, 160, 182, 261, 301 revised version of, 266–67 unemployment rate, 47 United Kingdom, 10, 11, 330–45 tax revenue in, 334–35 university endowment, 197–98 urinals, 326 USA Today, 328 utility, 28–29, 28 acquisition, 59–63, 66 transaction, 59–63, 66, 118 utility functions, 161 value function, 30–32, 31, 34, 58–59, 85 value managers, value investing, 214–15, 220–21, 222, 227–28 “Value of a Life, The” (Thaler), 12, 14–15 value of a life, 12–15, 21, 35 “Value of Saving a Life, The” (Thaler and Rosen), 15, 42 van den Assem, Martijn, 296, 300, 301 van Dolder, Dennie, 300, 301 variability of stock prices, 230–33, 231, 367 Varian, Hal, 170 Viñoly, Rafael, 270, 276 Vishny, Robert, on limits of arbitrage, 249 von Neumann, John, 29 wages, sticky, 131–32 Waldmann, Robert, 240 Wall Street Journal, 121–22, 135, 232 Walmart, 62n, 63 Wanner, Eric, 177–78, 181, 184 as founding funder of behavioral economics, 184 Washington Redskins, 279, 288–90 Washington Wizards, 19 Wason problem, 171–72 “Watching Scotty Die” (song), 177 wealth: fungibility of, 98, 193n levels of vs. changes in, 30–31 mental accounting of, 76–79 Wealth of Nations, The (Smith), 7, 87 Weber-Fechner Law, 32–33 Weil, Roman, 70 well-defined preferences, 48–49 What Works Network, 341 White, Jesse, 328–29 White House Social and Behavioral Sciences Team (SBST), 344 Williams, Ricky, 279, 280, 282–83 willow tree, and Coase theorem, 268 willpower, 87–99, 258, 363 effort required by, 108 Wilson, Russell, 290 windfalls, 311 wine, 17, 34, 46, 68–71, 72–73, 257 winner’s curse, in NFL draft, 280, 295 Winner’s Curse, The (Thaler), 175 World Cup, 326 Wright, Frank Lloyd, 270 Yahoo, 248n Yao Ming, 271n Zamir, Eyal, 269 Zeckhauser, Richard, 13–14, 178 in behavioral economics debate, 159 Zingales, Luigi, 274 ALSO BY RICHARD H.

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But thanks to an influx of creative young economists who have been willing take some risks and break with the traditional ways of doing economics, the dream of an enriched version of economic theory is being realized. The field has become known as “behavioral economics.” It is not a different discipline: it is still economics, but it is economics done with strong injections of good psychology and other social sciences. The primary reason for adding Humans to economic theories is to improve the accuracy of the predictions made with those theories. But there is another benefit that comes with including real people in the mix. Behavioral economics is more interesting and more fun than regular economics. It is the un-dismal science. Behavioral economics is now a growing branch of economics, and its practitioners can be found in most of the best universities around the world.

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

The discipline that allows me to play with this subject matter is called behavioral economics, or judgment and decision making (JDM). Behavioral economics is a relatively new field, one that draws on aspects of both psychology and economics. It has led me to study everything from our reluctance to save for retirement to our inability to think clearly during sexual arousal. It’s not just the behavior that I have tried to understand, though, but also the decision-making processes behind such behavior—yours, mine, and everybody else’s. Before I go on, let me try to explain, briefly, what behavioral economics is all about and how it is different from standard economics.

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Of course, I ran into the biggest difficulties when arguing for irrationality with card-carrying rational economists, whose disregard of my experimental data was almost as intense as their nearly religious belief in rationality (if Adam Smith’s “invisible hand” doesn’t sound like God, I don’t know what does). This basic sentiment was expressed succinctly by two fabulous Chicago economists, Steven Levitt and John List, suggesting that the practical usefulness of behavioral economics has been shown to be marginal at best: Perhaps the greatest challenge facing behavioral economics is demonstrating its applicability in the real world. In nearly every instance, the strongest empirical evidence in favor of behavioral anomalies emerges from the lab. Yet there are many reasons to suspect that these laboratory findings might fail to generalize to real markets….

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While this is a very depressing time for the economy as a whole, and for all of us individually, the turnabout on Greenspan’s part has created new opportunities for behavioral economics, and for those willing to learn and alter the way they think and behave. From crisis comes opportunity, and perhaps this tragedy will cause us to finally accommodate new ideas, and—I hope—begin to rebuild. WRITING A BOOK in the age of blogging and e-mail is an absolute treat because I get continuous feedback from readers, which causes me to learn about, reconsider, and rethink different aspects of human behavior. I’ve also had some very interesting discussions with readers about the links between behavioral economics and what’s happening in the financial markets, and about random topics relating to everyday irrationalities.

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

Conventional thinking offers a palliative: behavioral economics. Behavioral economics has extended rational choice to account for biases and heuristics. A person acting with a behavioral bias also tries to satisfy her desires but routinely misses the mark. Behavioral economists hope that identifying biases will help people mend their ways and act in conformity with economic models. If rational choice theory conceives of people as robots whose behavior is determined by their preferences, then behavioral economists believe that those robots are badly programmed. Both rational choice and behavioral economics assume that action is purposeful, that people seek the outcomes that best gratify their preexisting desires.

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If this were the case, all we had to do was document biases through experiments, like the one on gain-loss asymmetry, and adjust our models accordingly. Rational choice, with all its insights into markets and many other aspects of human behavior, could largely be preserved. But in the end, behavioral economics did not seem to be the solution to what we thought neoclassical theory was lacking. Usually, when behavioral economics offered a psychological solution for some ostensible puzzle, we could explain the data with rational choice if we worked hard enough. With the gain-loss asymmetry experiment, what about the cost of collecting the debt from the professor running the experiment?

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I don’t believe myself to be particularly afflicted with behavioral biases, the place to turn nowadays when we’re not living up to a high standard of rationality. Well, maybe I do fall into traps from time to time, like the “endowment effect” (overvaluing things I already own) or the “Lake Wobegon effect” (rating myself a better-than-average driver, for example, along with 93 percent of Americans). It’s hard to be certain—after all, behavioral economics deals with blind spots. But I don’t think that biases are the cause of my pig­headedness, aversion to leisure, letting problems build up even though I know by now that an ounce of prevention is worth a pound of cure, sloppiness with personal finances, random displays of altruism, or other seemingly nonrational behavior.

The Irrational Bundle
by Dan Ariely
Published 3 Apr 2013

The discipline that allows me to play with this subject matter is called behavioral economics, or judgment and decision making (JDM). Behavioral economics is a relatively new field, one that draws on aspects of both psychology and economics. It has led me to study everything from our reluctance to save for retirement to our inability to think clearly during sexual arousal. It’s not just the behavior that I have tried to understand, though, but also the decision-making processes behind such behavior—yours, mine, and everybody else’s. Before I go on, let me try to explain, briefly, what behavioral economics is all about and how it is different from standard economics.

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Wouldn’t economics make a lot more sense if it were based on how people actually behave, instead of how they should behave? As I said in the Introduction, that simple idea is the basis of behavioral economics, an emerging field focused on the (quite intuitive) idea that people do not always behave rationally and that they often make mistakes in their decisions. In many ways, the standard economic and Shakespearean views are more optimistic about human nature, since they assume that our capacity for reasoning is limitless. By the same token the behavioral economics view, which acknowledges human deficiencies, is more depressing, because it demonstrates the many ways in which we fall short of our ideals.

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Behavioral economists, on the other hand, believe that people are susceptible to irrelevant influences from their immediate environment (which we call context effects), irrelevant emotions, shortsightedness, and other forms of irrationality (see any chapter in this book or any research paper in behavioral economics for more examples). What good news can accompany this realization? The good news is that these mistakes also provide opportunities for improvement. If we all make systematic mistakes in our decisions, then why not develop new strategies, tools, and methods to help us make better decisions and improve our overall well-being? That’s exactly the meaning of free lunches from the perspective of behavioral economics—the idea that there are tools, methods, and policies that can help all of us make better decisions and as a consequence achieve what we desire.

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

willpower Windows software word searches work hours working memory World War II worry, and scarcity Wright, Steven YouTube Zinman, Jonathan ABOUT THE AUTHORS SENDHIL MULLAINATHAN, a professor of economics at Harvard University, is a recipient of a MacArthur Foundation “genius grant” and conducts research in behavioral economics and development economics. He lives in Cambridge, Massachusetts. ELDAR SHAFIR is the William Stewart Tod Professor of Psychology and Public Affairs at Princeton University. He conducts research in cognitive science, judgment and decision making, and behavioral economics. He lives in Princeton, New Jersey. Mullainathan and Shafir are co-founders of ideas42, a nonprofit that designs behavioral economics solutions to social problems. Times Books Henry Holt and Company, LLC Publishers since 1866 175 Fifth Avenue New York, New York 10010 Henry Holt® is a registered trademark of Henry Holt and Company, LLC.

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Think of how striking this is. The poor in these studies behave more “rationally.” They are closer in this case to the rational economic ideal, closer to homo economicus. This not only tells us something about poverty; it also tells us something about behavioral economics. That money is valued in relative terms is considered a classic finding in behavioral economics: presumably something that characterizes everyone’s thinking. Yet here we see that scarcity overturns—or at the very least waters down—this classic finding. In fact, scarcity alters many other findings as well. WHAT IS THIS REALLY COSTING ME?

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These findings are important because they demonstrate how people routinely violate economists’ standard “rational” models of human behavior. If the value that a person attaches to a dollar changes so easily, traditional analyses of economic behavior are severely stretched. These and related findings have fueled the rise of “behavioral economics,” the attempt to incorporate psychology into economic models. Their impact has been large because the results are broadly applicable. They describe not only Alex’s curious behavior in India but also the behavior of college students, MBAs, professional gamblers, and executives of all stripes.

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

The Difference If so much has been written about the naïve and the uninformed in behavioral economics and finance, there remains the question regarding where we come in. Perhaps there is nothing new here. Even if that is the case, we hope that you have enjoyed this book, and its stories. But we are also hopeful we have added a new perspective. We will now describe three ways in which this book presents a perspective that is, quite possibly, novel relative to current economics. The Role of Equilibrium in Competitive Markets The first of these perspectives concerns the place of behavioral economics within economics. The fundamental thinking of economists, as we indicated back in the introduction, and also discussed at the beginning of this chapter, emanates from Adam Smith.

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In terms of our images, if there were no stall selling Cinnabons®, or the like, at the airport or at the mall, one would open soon. This general way of thinking, with its insistence of general equilibrium, has been the central nervous system for economic thinking for almost two and a half centuries. Yet behavioral economics (we will come to finance in short order) seems oddly divorced from it. Our two examples from behavioral economics, of DellaVigna-Malmendier and Gabaix-Laibson, illustrate. In the style required now for a journal article, their modeling and examples are very special. In the DellaVigna-Malmendier description of health clubs, the budding jocks all have the special weakness of present bias.

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This assumption even has a fancy name, “revealed preferences”: that people reveal what makes them better off by their choices.20 Such an assumption, of course, is exactly at odds with our concept of the difference between what people really want (what is good for them) and what they think they want (their monkey-on-the-shoulder tastes). The particularity of behavioral economics—both its basis on particular psychological biases (such as present bias) and the embedding of those biases in special market situations (such as monopolistic competition)—have reinforced the notion that differences between what people want and their monkey-on-the-shoulder tastes are not the norm. They are to be considered, perhaps, on a case-by-case basis—but just as rare exceptions. This message is not intended, but the presentation of behavioral economics, perhaps unconsciously, yields this implication. Most economists therefore feel they can be comfortable with thinking that people’s choices do reflect what they really want, with the further view that the number and consequences of dysfunctional decisions is small.

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

It’s becoming clear that behavioral economics is being asked to solve problems it wasn’t meant to address . . . Behavioral economics should complement, not substitute for, more substantive economic interventions [of] traditional economics.54 Ultimately, the more perceptive journalists acknowledged this: “While behaviorists and other critics poked a lot of holes in the edifice of rational market finance, they haven’t been willing to abandon that edifice.”55 It’s not even clear they have been all that willing to bring themselves to look out the window. The primary benefit of behavioral economics was conjuration of the warm glow that came from feeling like you had changed your economic stripes without having to change your mind, or even your models.

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For instance, Quiggin argues at one point, “The appealing idea that macroeconomics should develop naturally from standard microeconomic foundations has turned out to be a distraction”; but it is a distraction he himself cannot resist, relying as he does on neoclassical notions of “market failure,” natural monopoly, absence of Arrow-Debreu contingent commodities, information as a public good, and conventional definitions of risk to motivate his version of “real-world” economics. At another juncture, he admits that a relevant macroeconomics “is not simply a matter of modifying the way we model individual behavior,” but as he repeatedly conjures “behavioral economics” as the font of deliverance, he has nothing else on offer. In chapter 5 we suggest that behavioral economics has been a sink of despair. Quiggin frequently wishes for a “newer Keynesianism,” but has to concede that the neoclassical synthesis was “not particularly satisfactory at a theoretical level, but it had the huge practical merit that it worked.”28 Time and again he signals that he is aware that neoclassical economics frustrates and confounds intellectual deliverance from the morass of zombie ideas; but nevertheless, he cannot seriously countenance the possibility that the solution to logical incoherence involves its repudiation.

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That is because there are very few behavioral economists who even specialized in macroeconomics, and so virtually none was willing to take the risk of making any definitive forecast.44 The plea that in the eventuality behavioral economics had more adherents, it would have done more of the things Akerlof promised, is hardly a compelling reason to get enthused about that line of research. Akerlof and Shiller were loathe to admit that they had not proffered any good conceptual reasons to believe behavioral economics was even particularly relevant to the crisis. What this literature had to do with the genesis of credit default swaps, the rise of the shadow banking sector, and the collapse of the manufacturing sector was entirely opaque.

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

Another way we can observe the transformation of the discipline is by looking at the new areas of research that have flourished in recent decades. Three of these are particularly noteworthy: behavioral economics, randomized controlled trials (RCTs), and institutions. What’s striking is that all these areas have been greatly influenced, and in fact stimulated, by fields from outside economics—psychology, medicine, and history, respectively. Their growth disproves the claim that economics is insular and ignores the contributions of other cognate disciplines. In some ways, the rise of behavioral economics marks the greatest departure for standard economics because it undercuts the benchmark, almost canonical assumption of economic models: that individuals are rational.

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As a result, we understand much better the workings of credit and insurance markets, where information asymmetries are rife.†† Today, economists are increasingly turning their attention to markets in which consumers do not behave fully rationally. This reorientation has produced a new field called behavioral economics, which attempts to integrate the insights of psychology with the formal modeling approaches of economics. These new frameworks hold great promise when consumers behave in ways that cannot be explained by extant models—when, for example, they walk half a mile to get to another store where a soccer ball sells for $2 less but would not do the same to save $100 on an expensive stereo.

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The irrelevance of sunk costs (payments already made that cannot be recouped) and the equivalence between financial costs and opportunity costs (the value of choices not exercised) do not hold under less than full rationality, to cite but two examples. Although grossly simplified, this telescopic account should give a sense of the expanding diversity of the profession’s explanatory models. We have moved beyond competitive models to imperfect competition, asymmetric information, and behavioral economics. Idealized, flawless markets have given way to markets that can fail in all sorts of ways. Rational behavior is being overlaid with findings from psychology. Typically, the expansion has its roots in empirical observations that seem to contradict existing models. Why, for example, were many firms paying their workers wages that were substantially higher than the going market wage for apparently similar workers?

Whiteshift: Populism, Immigration and the Future of White Majorities
by Eric Kaufmann
Published 24 Oct 2018

This is justified on the grounds that ‘affirmation and uplift are more important to a group that has been oppressed and discriminated against than they are to the dominant majority’.11 This is flawed in two respects. First, it assumes clubs exist only for political or economic rather than cultural reasons. This materialistic view of the world is hopelessly outdated after the behavioural-economics and evolutionary-psychology revolutions; it is ignorant of the history of ethnic revival in the world, which is often led by romantic intellectuals in search of meaning and authenticity.12 It is unclear to me why no members of a dominant group would be interested in their cultural traditions, ethno-history and memories.

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

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.

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In the behavioral view we are ruled by emotions and often we use dysfunctional decision-making procedures and rules. However reasonable we may claim to be, so often reason just doesn’t stick. Behavioral economics has made economics more realistic and arguably it is the single most influential trend in the economics profession today. I’m all for behavioral economics and if you wish, you can think of this book as a study in behavioral economics. Nonetheless I am going beyond standard behavioral approaches in at least four ways. First, I emphasize neurodiversity—in this case the autism spectrum—as an important feature of human diversity.

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Tyler’s contributions to public knowledge are many. One of the most impressive things about Tyler is his ability to speak intelligently on a wide variety of topics. This is probably due in part to his well-known ability to read and process information unusually quickly.” —Wehr in the World “In this provocative study of behavioral economics, Cowen reveals that autistic tendencies toward classification, categorization, and specialization can be used as a vehicle for understanding how people use information…. Cowen’s illustration of our neurological filing system may help readers understand the mass consumption of information and just about everything else.”

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

Mental accounting and loss-aversion explanations for tax filers’ preference for overwithholding are less likely to explain the patterns in the data. Dynamic inconsistency among LMI tax filers has important implications for saving policies and for tax administration generally. Chapter 11 explains how insights from behavioral economics can improve our understanding of consumers’ financial services behavior, market responses to that behavior, and different approaches to regulation. Policymakers typically approach human behavior through the perspective of the “rational-agent” model, which relies on normative, a priori analyses.

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Such cross-sector disclosures could improve the ability of consumers to comparison-shop across functionally similar credit products. Tailored disclosures regarding the consequences of certain borrower behaviors, such as making only the minimum payment on credit cards, might also help consumers make better choices (Barr 2007). Moreover, policymakers ought to consider how advances in behavioral economics, which have improved retirement savings outcomes, could be applied in the credit arena (Barr, Mullainathan, and Shafir 2008). While market forces in these two financial areas are quite different, the fundamental mistake that individuals make in not understanding the power of compound interest is strikingly similar.

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Barr, Michael S., and Rebecca M. Blank. 2009. Introduction to Insufficient Funds: Savings, Assets, Credit, and Banking among Low-Income Households, edited by Rebecca M. Blank and Michael S. Barr, 1–24. New York: Russell Sage Foundation. Bertrand, Marianne, Sendhil Mullainathan, and Eldar Shafir. 2006. “Behavioral Economics and Marketing in Aid of Decision Making among the Poor.” Journal of Public Policy and Marketing 25:8–23. Beshouri, Christopher, and others. 2010. “Mobile Money for the Unbanked: Unlocking the Potential in Emerging Markets.” McKinsey on Payments, June (www.mckinsey.com/ clientservice/Financial_Services/Knowledge_Highlights/Recent_Reports/~/media/ Reports/Financial_Services/MoP8_Mobile_money_for_the_unbanked.ashx).

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

Sure, it would be nice if we were more rational and clearheaded about our “should”s. Unfortunately, we’re not. How else do you explain why millions of gym memberships go unused or why people risk their own and others’ lives to write a text message while they’re driving or why . . . (put your favorite example here)? THIS IS WHERE behavioral economics enters the picture. In this field, we don’t assume that people are perfectly sensible, calculating machines. Instead, we observe how people actually behave, and quite often our observations lead us to the conclusion that human beings are irrational. To be sure, there is a great deal to be learned from rational economics, but some of its assumptions—that people always make the best decisions, that mistakes are less likely when the decisions involve a lot of money, and that the market is self-correcting—can clearly lead to disastrous consequences.

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As we gain some understanding about what really drives our behaviors and what steers us astray—from business decisions about bonuses and motivation to the most personal aspects of life such as dating and happiness—we can gain control over our money, relationships, resources, safety, and health, both as individuals and as a society. This is the real goal of behavioral economics: to try to understand the way we really operate so that we can more readily observe our biases, be more aware of their influences on us, and hopefully make better decisions. Although I can’t imagine that we will ever become perfect decision makers, I do believe that an improved understanding of the multiple irrational forces that influence us could be a useful first step toward making better decisions.

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Although I can’t imagine that we will ever become perfect decision makers, I do believe that an improved understanding of the multiple irrational forces that influence us could be a useful first step toward making better decisions. And we don’t have to stop there. Inventors, companies, and policy makers can take the additional steps to redesign our working and living environments in ways that are naturally more compatible with what we can and cannot do. In the end, this is what behavioral economics is about—figuring out the hidden forces that shape our decisions, across many different domains, and finding solutions to common problems that affect our personal, business, and public lives. AS YOU WILL see in the pages ahead, each chapter in this book is based on experiments I carried out over the years with some terrific colleagues (at the end of the book, I have included short biographies of my wonderful collaborators).

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

In the heyday of mail order, it was common to print up multiple versions of a catalog or flyer in order to test the effect of pricing strategies. These findings must have dispelled any illusions about the fixity of prices. Marketers and salespeople knew too well that what a customer was willing to pay was changeable and that there was money to be made from that fact. 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.

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It is tempting to draw a parallel between the physicists’ “ether” and economists’ utility. Both were invisible, impalpable, tasteless somethings that “existed” because everyone assumed they had to exist. By showing that there are no invisible valuations dictating all economic decisions, Lichtenstein and Slovic heralded the relativity of prices—a keystone of what would be called behavioral economics. Lichtenstein and Slovic proposed a simple explanation for preference reversals: anchoring. When asked to price bets, players direct their attention to the prize amounts. The most likely or biggest prize amount becomes a starting point or anchor. The players knew they had to adjust from the anchor to take into account the probabilities and any other prizes or penalties.

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Sage’s foundation, still handsomely endowed, has been a principal financial backer of behavioral research in economics. One of the first Sage grants under Wanner’s tenure allowed Thaler to spend the 1984–85 academic year working with Kahneman at the University of British Columbia. As Kahneman put it, “That was the year that behavioral economics began.” Thaler, then a Cornell associate professor, was just shy of forty, personable and witty. He joined Kahneman and another economist collaborator, Jack Knetsch of nearby Simon Fraser University. There was then a Canadian public works project that paid unemployed university graduates to conduct nationwide telephone surveys on public issues.

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

Shiller, Phishing for Phools: The Economics of Manipulation and Deception (Princeton, NJ: Princeton University Press, 2015), xii. 7.Huck et al., “Consumer Behavioural Biases in Competition,” ¶¶ 3.31, 3.37, 3.43; Matthew Bennett et al., “What Does Behavioral Economics Mean for Competition Policy?,” Competition Policy International 6, no. 1 (Spring 2010): 111, 118, https://www.competitionpolicyinternational.com/what-does-behavioral-economics-mean-for-competition-policy/; Eliana Garcés, “The Impact of Behavioral Economics on Consumer and Competition Policies,” Competition Policy International 6, no. 1 (Spring 2010): 145, 150, https://www.competitionpolicyinternational.com/the-impact-of-behavioral-economics-on-consumer-and-competition-policies/; Max Huffman, “Marrying Neo-Chicago with Behavioral Antitrust,” Antitrust Law Journal 78, no. 1 (Spring 2012): 105, 134, https://ssrn.com/abstract=2079329 (“consciously parallel behavioral exploitation is the nearly industry-wide policy of unbundling charges for checked bags in airline travel”). 8.Anthony Giorgianni, “Earn More on Your Savings Account at an Online Bank,” Consumer Reports, February 16, 2018, https://www.consumerreports.org/banking/earn-more-on-savings-account-at-online-bank/ (noting how online banks in 2018, for example, were in an “arms race” to get us to save more). 9.

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post_type=post&p=1087191; Nick Whigham, “Leaked Document Reveals Facebook Conducted Research to Target Emotionally Vulnerable and Insecure Youth,” news.com.au, May 1, 2017, http://www.news.com.au/technology/online/social/leaked-document-reveals-facebook-conducted-research-to-target-emotionally-vulnerable-and-insecure-youth/news-story/d256f850be6b1c8a21aec6e32dae16fd. 70.Facebook, “Comments on Research and Ad Targeting,” April 30, 2017, https://newsroom.fb.com/news/h/comments-on-research-and-ad-targeting/. 71.Sahil Chinoy, “What 7 Creepy Patents Reveal About Facebook,” New York Times, June 21, 2018, https://nyti.ms/2MGqm7T. 72.As an executive of DraftFCB, one of the leaders in thinking about how to incorporate the discipline of behavioral economics with the practice and business of modern advertising and marketing, observed: “You can’t understand the success of digital platforms like Amazon, Facebook, Farmville, Nike Plus, and Groupon if you don’t understand behavioral economic principles like social proof, the impact of variable intermittent social rewards, feedback loops, and scarcity. Behavioral economics will increasingly be providing the behavioral insight that drives digital strategy.” John Kenny, interview with Nudge Blog, “Where Is Behavioral Economics Headed in the World of Marketing?

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It turns out that this is not a competition to find ever more ways to please us, the customers, the supposed sovereigns of the marketplace, in order to win our business. No, here the competition is all about funneling the companies’ ingenuity into finding better ways to trick us into paying more for less, with highly sophisticated behavioral economics shaping the effort to exploit our weaknesses. After you’ve read that, you may find that getting picked up at the Las Vegas airport by the casino’s limo isn’t as wonderful as you initially thought. But if competition does not always deliver on price, safety, or quality, at least it delivers on providing us with one of the things we most want from the marketplace: choice.

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

“It’s going to be a big mess,” Thaler agreed. “Because human nature is a mess…It’s a choice between being precisely wrong or vaguely right.” I followed Thaler to a lunchtime behavioral economics seminar. A Ph.D. student was trying to explain several aspects of the Shanghai apartment market in terms of Kahneman and Tversky’s prospect theory. At one point, Thaler interrupted him. Maybe it’s just supply and demand, he said. His behavioral economics was an addition to the economics of Adam Smith and Irving Fisher. It wasn’t a replacement. I WENT BACK TO NEW York and wrote my article. (“Is the market rational?”

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It was an awkward coexistence, and it was probably inevitable that one day a mathematically inclined graduate student in economics would apply the elegant formulas he was learning in micro class to the inelegant problems of the business cycle. It was also perhaps inevitable that this would happen at Carnegie Tech’s Graduate School of Industrial Administration, that pioneer in imposing the scientific method on matters of money and human behavior. Economics maverick Herbert Simon was the instigator, in a backward sort of way. He had argued, decades before Kahneman and Tversky, that because people don’t have unlimited time and brain-power to devote to decision making they take shortcuts and follow rules of thumb. Humans don’t “optimize,” as the mathematical economists of the day theorized, but “satisfice” (a blending of “satisfy” and “suffice”).

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Thaler and Shefrin used a mathematical framework borrowed from agency theory to describe how these conflicting internal priorities interacted, and they described a real-world institution—the “Christmas club” stashes that people set up to deduct a preset amount from their bank accounts every month to save up for end-of-the-year shopping—that seemed to flow from it.19 Thaler began to find others interested in this new approach, which came to be called behavioral economics despite its roots in cognitive—not behavioral—psychology. Shefrin was the first convert and, like Thaler, soon left Rochester for a friendlier environment. In Shefrin’s case it was Santa Clara University in California, where he and colleague Meir Statman began a productive collaboration examining the psychology of investor behavior.

How to Speak Money: What the Money People Say--And What It Really Means
by John Lanchester
Published 5 Oct 2014

The idea is that the “cure” for single motherhood is economic stringency on the part of the state. But what if this entire way of thinking is nonsense? The field of behavioral economics shows us that we simply aren’t economically rational. It does that not through argument but through experiments that demonstrate failures in our ability to calculate accurately. We’re hardwired not to be right about all sorts of calculations, including those of our own self-interest. Rational choice theory and utility maximization run headlong into behavioral economics and crashes. Or at least, it crashes if we think of it as something that is written on stone tablets, maxims that are true always and everywhere.

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beggar thy neighbor In addition to a children’s card game that reliably causes arguments (though that’s more often called beggar my neighbor), an economic policy in which a country lowers the value of its own currency to make its exports cheaper, and at the same time follows policies that make it difficult for other countries to export to it. Beggar thy neighbor is a form of mercantilism. behavioral economics The study of the way people make decisions and calculations, using experiments and real-life data. Instead of the big broad models used in economics, in which “rational actors” behave in ways designed to “maximize their utility,” behavioral economics studies the kinds of calculations people make in real life, with a particular emphasis on things we do that are demonstrably not rational in the strict economic sense.

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The fact that people don’t always behave rationally may not come as news in the wider world, but the intellectual challenge provided to conventional economics by behavioral economics is big and important. It’s also a field that offers useful takeaways for the ordinary person, because you can catch yourself doing some of the things described by behavioral economists, such as loss aversion and “hindsight bias,” i.e., the tendency to explain things that happened in terms of how they turned out, rather than how they seemed at the time. Some practical applications of behavioral economics are in fields such as the “nudge,” which involves prompting individuals to behave in a certain way.

Currency Wars: The Making of the Next Gobal Crisis
by James Rickards
Published 10 Nov 2011

The complexity of human nature sits like a turbocharger on top of the complexity of markets. Human nature, markets and civilization more broadly are all complex systems nested inside one another like so many Russian matryoshka dolls. An introduction to behavioral economics will provide a bridge to a broader consideration of complexity theory and how underlying dynamics may determine the fate of the dollar and the endgame in the currency wars. Behavioral Economics and Complexity Contemporary behavioral economics has its roots in mid-twentieth-century social science. Pioneering sociologists such as Stanley Milgram and Robert K. Merton conducted wide-ranging experiments and analyzed data to develop new insights into human behavior.

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Once the framing card has been played enough times without results, citizens will reflexively disbelieve everything officials say on the subject of economic growth even to the point of remaining cautious if things actually do improve. This does not represent a failure of behavioral economics so much as its misuse by policy makers. Behavioral economics possesses powerful tools and can offer superb insights despite occasional misuse. It is at its best when used to answer questions rather than force results. Exploration of the paradox of Keynesianism is one possibly fruitful area of behavioral economic research with potential to mitigate the currency wars. Keynesianism was proposed in part to overcome the paradox of thrift. Keynes pointed out that in times of economic distress an individual may respond by reducing spending and increasing savings.

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When growth falters, taking growth from other countries through currency devaluation is irresistible. Far better solutions are needed. Fortunately, economic science has not stood entirely still. A new paradigm has emerged in the past twenty years from several schools of thought, including behavioral economics and complexity theory, among others. This new thinking comes with a healthy dose of humility—practitioners in many cases acknowledge the limitations of what is possible with the tools at hand. The new schools avoid the triumphalism of Keynes’s claim to a “general theory” and Friedman’s dictum that inflation is “always and everywhere” monetary.

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

“The idea is that System 1 is really the one that is the more influential; it is guiding System 2, it is steering System 2 to a very large extent,” Kahneman says.3 In other words, our System 1 part of the brain is the impulsive, paranoid survivalist, and our System 2 part of the brain is the responsible, measured decision-maker. 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).

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•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? While there are mountains of information about behavioral economics (see the highly recommended reading list above), we want to get going right away. The SCARF model was first published by Dr. David Rock, a neuroscientist, in 2008.4 It provides five key behavioral considerations he identified from his research that are handy for us to be aware of right out the gate: 1.

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As one example, if we are mindful of the Ikea Effect, we can design peer review in communities to be more objective and avoid the risk of people getting frustrated because other people don’t share their (overstated) feeling of value for their work. This study of irrationality and how we make decisions is known as behavioral economics. It provides a valuable scaffolding we can use to ensure our communities are based on real, psychological human patterns and behavior. If we understand these principles, we can harness them. A Tale of Two Brains This may all seem wildly unintuitive to many of you. Why on earth does this happen?

The Physics of Wall Street: A Brief History of Predicting the Unpredictable
by James Owen Weatherall
Published 2 Jan 2013

This kind of criticism draws heavily on ideas from a field known as behavioral economics, which attempts to understand economics by drawing on psychology and sociology. From this point of view, markets are all about the foibles of human beings — they cannot be reduced to the formulas of physics and mathematics. There is nothing wrong with behavioral economics — it is clear that a deeper understanding of how individuals interact with one another and with markets is essential to understanding how an economy works. But a criticism of mathematical modeling based on behavioral economics trades on a misunderstanding. Using physics as a springboard for new ideas in finance does not involve describing people as though they were quarks or pendulums.

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“. . . an argument from psychology and human behavior”: For a sample of this view, see Brooks (2010). It is closely related to arguments concerning behavioral economics, as seen (for instance) in Ariely (2008), Akerlof (2009), or Shiller (2005). For more scholarly work on behavioral finance, one might start with Thaler (1993, 2005). However, as should be clear in the text, I want to distinguish between behavioral economics as a discipline — which has clearly made enormous progress in understanding the psychology and sociology of economic decision making — and a specific argument based on some results of behavioral economics to the effect that mathematical modeling in finance is impossible, or that, as Brooks puts it, economics should be “an art, not a science.”

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None of the popular accounts of the meltdown had much to say about why physics and physicists had become so important to the world economy, or why anyone would have thought that ideas from physics would have any bearing on markets at all. If anything, the current wisdom — promoted by Nassim Taleb, author of the best-selling book The Black Swan, as well as some proponents of behavioral economics — was that using sophisticated models to predict the market was foolish. After all, people were not quarks. But this just left me more confused. Had Wall Street banks like Morgan Stanley and Goldman Sachs been bamboozled by a thousand calculator-wielding con men? The trouble was supposed to be that physicists and other quants were running failing funds worth billions of dollars.

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

Human strengths and weaknesses are surprisingly regular and predictable. 2. Be skeptical of the elegant and intuitive theory. 3. It’s harder to get outside your own head than you think. 4. Revel in messiness. 5. We can learn. The cognitive flaws illuminated by computer chess are not the flaws usually stressed by behavioral economics. First, as I mentioned earlier, behavioral economics doesn’t always have a good standard for judging our rationality. Second, the behavioral economists themselves suffer from a lot of the same flaws that plagued the pre-computer grandmasters. They are looking for behavioral theories that are too elegant, too simple, or too intuitive, such as the abstract strictures of mathematical decision theory.

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Risk-taking in humans, especially when engaged in intense competition and challenged to the limits of their abilities, tends to bring out sweat and emotion. This kind of chess is called Freestyle chess, and when you see the people engaged in it, a rather new, passionate physicality in the future of chess is revealed. The late Herbert Simon, a Nobel laureate in economics, a major force behind computational models, and the father of modern behavioral economics, felt strongly about the importance of games. According to his collaborator Fernand Gobet, Simon would start their weekly meetings by asking, “What new data do we have about chess today?” The latest data is from Freestyle chess. And it is the model to consider if you wish to be among the high earners of the very near future. 5 Our Freestyle Future In traditional chess tournaments, great care is taken to make sure competitors cannot consult computers or otherwise engage in cheating.

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Why are so many pieces left under threat of immediate capture at the same time? Aren’t these players out of control? Are they from New Jersey or something? I just do not do things that way! Biases, such as toward the familiar, are something we have long tried to overcome. In the growing field of behavioral economics, researchers measure the biases behind individual choices as judged by some external standard. We’ve learned—or we think we’ve learned—that individuals overestimate their degree of influence over events, and anchor too much on one piece of information when making decisions, among many other human errors and biases.

Thinking in Bets
by Annie Duke
Published 6 Feb 2018

For a treatment that more fully explores the differences between skill and luck, I recommend Michael Mauboussin’s The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing, along with other sources cited in the Selected Bibliography and Recommendations for Further Reading. * Ariely, a professor of psychology and behavioral economics at Duke University, is simultaneously a leading researcher in the discipline of behavioral economics and responsible for introducing millions of people to the practical aspects of behavioral economics through popular TED Talks, best-selling books, a blog, a card game, and even an app. His most popular book is titled Predictably Irrational. * I lifted these from an article by Robert MacCoun (described in the following paragraph) and repeat them without guilt.

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He changed his behavior based on the quality of the result rather than the quality of the decision-making process. He decided he drove better when he was drunk. Quick or dead: our brains weren’t built for rationality The irrationality displayed by Pete Carroll’s critics and the CEO should come as no surprise to anyone familiar with behavioral economics. Thanks to the work of many brilliant psychologists, economists, cognitive researchers, and neuroscientists, there are a number of excellent books that explain why humans are plagued by certain kinds of irrationality in decision-making. (If you are unaware of these books, see the Selected Bibliography and Recommendations for Further Reading.)

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The differences between the systems are more than just labels. Automatic processing originates in the evolutionarily older parts of the brain, including the cerebellum, basal ganglia, and amygdala. Our deliberative mind operates out of the prefrontal cortex. Colin Camerer, a professor of behavioral economics at Caltech and leading speaker and researcher on the intersection of game theory and neuroscience, explained to me the practical folly of imagining that we could just get our deliberative minds to do more of the decision-making work. “We have this thin layer of prefrontal cortex made just for us, sitting on top of this big animal brain.

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

These differences in what people think about predicts what they choose, explaining, in this study, how defaults change choices.24 There are many who argue that defaults are an important part of changing people’s environmental behavior.25 For example, in a study at Rutgers University, researchers changed the default for printing from single-sided to double-sided and reduced the amount of paper used by 44 percent, a total of 55 million sheets of paper a year.26 Changing how you assemble preferences also happens in a well-known behavioral economics demonstration called the endowment effect. Every semester, I do this demonstration in the first class in behavioral economics. I feel a little like a magician: the trick never fails, and the results always surprise my students. You walk into a room and randomly give half the people in the room a mug, making it really clear that you are choosing who gets the mug at random.

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I saw, in the years that followed, that the choice of what to consider in large part determined their future. Being lucky (and foolish) enough to talk my way into places where pathbreaking work in decision-making was done, I found myself in graduate school at Carnegie Mellon, and a postdoc at Stanford, places central to the beginning of a revolution in decision research and behavioral economics. This revolution was based on the idea that people use simplified rules of thumb, or heuristics, to make decisions. The classic demonstration involved people making inconsistent choices, caused by things that should not matter. Describing the same options as gains or losses can change choices.

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We cannot say which flight is a mistake, but we can say that a mistake is being made, even if we do not know what it is. Clearly something about the choice architecture of one of the sites led you astray. Demonstrating inconsistency has been at the heart of decision research for the last forty years and has been a major driving force in behavioral economics. One of the first and most influential demonstrations that people have inconsistent preferences involves evaluating gambles. Imagine you were given the choice between playing one of these two gambles: Gamble A: A 75 percent chance of winning $14 Gamble B: A 25 percent chance of winning $41 Which did you select?

The (Honest) Truth About Dishonesty: How We Lie to Everyone, Especially Ourselves
by Dan Ariely
Published 27 Jun 2012

And to all the participants who took part in our experiments over the years—you are the engine of this research, and I am deeply grateful for all your help. Contents Title Page Dedication Introduction Why Is Dishonesty So Interesting? From Enron to our own misbehaviors … A fascination with cheating … Becker’s parking problem and the birth of rational crime … Elderly volunteers and petty thieves … Why behavioral economics and dishonesty? Chapter 1 Testing the Simple Model of Rational Crime (SMORC) Get rich cheating … Tempting people to cheat, the measure of dishonesty … What we know versus what we think we know about dishonesty … Cheating when we can’t get caught … Market vendors, cab drivers, and cheating the blind … Fishing and tall tales … Striking a balance between truth and cheating.

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Ultimately, we will attempt to understand how dishonesty works, how it depends on the structure of our daily environment, and under what conditions we are likely to be more and less dishonest. In addition to exploring the forces that shape dishonesty, one of the main practical benefits of the behavioral economics approach is that it shows us the internal and environmental influences on our behavior. Once we more clearly understand the forces that really drive us, we discover that we are not helpless in the face of our human follies (dishonesty included), that we can restructure our environment, and that by doing so we can achieve better behaviors and outcomes.

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To this end, I occasionally invite interesting guest speakers to class, which is also a nice way to reduce the time I spend on preparation. Basically, it’s a win-win-win situation for the guest speaker, the class, and, of course, me. For one of these “get out of teaching free” lectures, I invited a special guest to my behavioral economics class. This clever, well-established man has a fine pedigree: before becoming a legendary business consultant to prominent banks and CEOs, he had earned his juris doctor and, before that, a bachelor’s at Princeton. “Over the past few years,” I told the class, “our distinguished guest has been helping business elites achieve their dreams!”

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

Admittedly, one could get this prediction from an economic model, but only if scarce attention is built in, along with some facts about what kinds of tasks “spend” attention, whether attention can be consciously directed, and so forth. These details are best supplied by cognitive neuroscience rather than by casual intuition. Behavioral economics is the use of psychological methods and constructs to introduce limits on computation, willpower, and self-interest into economic analysis. Neuroeconomics extends upon behavioral economics by including neural data for the purpose of creating a mathematical approach to the micro-foundation of economics that is neurally measurable (Rangel, Camerer, and Montague, 2008). The types of models that are likely to emerge from neuroeconomics will be computational models that are very much in keeping with famous American psychologist Herbert Simon’s idea of using algorithms to express cognitive processes.

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Today, young scholars, and even those not so young, have become convinced that the secret to improving economic decision making lies in the careful empirical study of how we actually make decisions. New multidisciplinary fields have now emerged—many represented in this book by those who pioneered them—including behavioral economics, economic psychology, behavioral finance, decision sciences, and neuroeconomics, to integrate theories and results from economics, psychology, sociology, anthropology, biology, and brain sciences. Applied fields such as management, marketing, finance, public policy, and risk management and insurance are using this new knowledge today in significant ways.

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Third, the expected consequence of an event represents a combination of its likelihood and its severity. The floods in 1993 were much more severe than anything previously experienced. There should have been an update in the belief of residents there about the severity of future floods, a factor that would certainly affect housing values.5 Two subject areas in behavioral economics, prospect theory and the availability heuristic, help explain the over-updating of virgin risks and the under-updating of experienced risks after an extreme event. A finding of prospect theory is that individuals place excess weight on zero. The Russian Roulette problem illustrates this phenomenon.

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

It will mean that they truly consider themselves part of modern nancial capitalism, and not the victims of the aggressive and sel sh acts of a cynical nancial establishment. It will mean designing new nancial inventions that take account of the most up-to-date nancial theory, as well as the research revolution in behavioral economics and behavioral nance that has explored the real human limitations that inhibit rational and humane decision making. Creating and implementing such inventions will be the best tactic to deal with economic inequality. This future is in the hands of the people, old as well as young, who might read this book.

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Regarding the second point, designing nancial institutions around real human quirks will make it easier for people to adapt nancial innovations to their lives and for the nancial system as a whole to function more smoothly. This means that psychologists have to be on the nancial team, and we must also take account of the revolution in behavioral economics and behavioral nance that has occurred in the past few decades.9 It means that we must smooth the rough edges o our nancial system— those aspects that can cause trouble when people make mistakes. It means that people have to be told the truth about the nancial contracts into which they enter, and about the ways in which those contracts could be hurtful in the future, so that they can take full account of their emotions and wants before they sign a contract.

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In the future, the structure of our nonpro ts might be improved to help deal better with the problems discussed in this chapter, including loss of focus among trustees and trapped capital in nonpro t entities. I discuss some specific remedies later in this book. That structure can and should be improved, to allow trustees and nonprofit managers to be more e ective in achieving their ultimate goals. As our understanding of human psychology and of behavioral economics improves, we can expect to see further refinements in the structure and management of nonprofit institutions. But even as they stand today, trusts and nonpro ts have emerged as important vehicles that allow many to ful ll the purposes that give meaning to—and in some cases transcend—their lives. 

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

If people were really just passively responding to lines of genetic or cultural code, then why not be the ones writing that code and capitalizing off it? Over the next decade, an increasing number of seminars and retreats organized by Brockman’s Epstein-funded Edge Founda tion were dedicated to behavioral economics—the study of why people make the sorts of financial decisions they do. Behavioral economics is really just a euphemism for marketing psychology, from an even more programmatic perspective. So it’s not surprising that attendees of these master classes in behavioral economics included Amazon founder Jeff Bezos, Google’s Larry Page, Microsoft CTO Nathan Myhrvold, and Tesla’s Elon Musk, soaking up actionable wisdom from the authors of books with titles like Nudge and Misbehaving .

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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.

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Loyalty schemes such as credit card points and airline miles encourage mental accounting, leading people to spend more of those assets than they would otherwise. “Anchoring bias” refers to our tendency to rely on the first information we hear. Marketers exploit this by telling us an “original price” before the “sale price,” making consumers believe they are getting a bargain. Behavioral economics is just another form of binding nature—in this case, human nature—to one’s service by treating people like programmable machines. Just as science’s seventeenth-century champions self-interestedly gave lip service to the values of the church, those promoting applied science of this kind are selling out to the values of the market.

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

Conventional indifference maps and Bernoulli’s representation of outcomes as states of wealth share a mistaken assumption: that your utility for a state of affairs depends only on that state and is not affected by your history. Correcting that mistake has been one of the achievements of behavioral economics. The Endowment Effect The question of when an approach or a movement got its start is often difficult to answer, but the origin of what is now known as behavioral economics can be specified precisely. In the early 1970s, Richard Thaler, then a graduate student in the very conservative economics department of the University of Rochester, began having heretical thoughts. Thaler always had a sharp wit and an ironic bent, and as a student he amused himself by collecting observations of behavior that the model of rational economic behavior could not explain.

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And the first application of prospect theory to an economic puzzle now appears to have been a significant milestone in the development of behavioral economics. Thaler arranged to spend a year at Stanford when he knew that Amos and I would be there. During this productive period, we learned much from each other and became friends. Seven years later, he and I had another opportunity to spend a year together and to continue the conversation between psychology and economics. The Russell Sage Foundation, which was for a long time the main sponsor of behavioral economics, gave one of its first grants to Thaler for the purpose of spending a year with me in Vancouver.

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Here again, as in judgment, we observed systematic biases in our own decisions, intuitive preferences that consistently violated the rules of rational choice. Five years after the Science article, we published “Prospect Theory: An Analysis of Decision Under Risk,” a theory of choice that is by some counts more influential than our work on judgment, and is one of the foundations of behavioral economics. Until geographical separation made it too difficult to go on, Amos and I enjoyed the extraordinary good fortune of a shared mind that was superior to our individual minds and of a relationship that made our work fun as well as productive. Our collaboration on judgment and decision making was the reason for the Nobel Prize that I received in 2002, which Amos would have shared had he not died, aged fifty-nine, in 1996.

Culture and Prosperity: The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor
by John Kay
Published 24 May 2004

Economic research since Arrow and Debreu has drawn game theory, transactions costs, and most recently behavioral economics into the mainstream of economic theory. In the Arrow-Debreu framework, interactions are anonymous and every market has many buyers and sellers. In game theory, the players are few and not anonymous. In the Arrow-Debreu framework, institutions do not exist or are dealt with in a reductionist way. Institutional, or transactions costs, economics recognizes that economic lives are lived in and through economic institutions. Behavioral economics contemplates alternative assumptions about motives and the nature of economic behavior.

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Behavioral economics contemplates alternative assumptions about motives and the nature of economic behavior. I will introduce game theory and institutional economics in the present chapter and take up behavioral economics in the chapter that follows. Economic Theory After Arrow and Debreu eeeeeeeee&ee&oeeeeeeoeeeoeeoeeooeeeoe In 1944,John von Neumann and Oskar Morgenstern published The Theory ofGames and Economic Behavior. This approach was, after an interval, to revolutionize economic theory. The analysis of competitive markets supposes anonymous interactions among many buyers and many sellers. The fragmentation and impersonality of these markets leads to incentive compatibility-there is no need to consider the behavior and responses of other market participants.

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If we knew enough to be boundedly rational, we would know enough to be completely rational. The best answer is an evolutionary one, but such an answer leads us to adaptive, instinctive responses-such as those of the bear. And that is our behavior too. When a bear approaches-we turn and run. Behavioral Economics But this response is wrong. The instinct to flee from danger is powerful, and adaptive. It is wise to turn and run when faced with fire, flood, muggers, and dangerous machinery. But not when you encounter a bear. (This is probably not what you expected to learn when you bought this book, but may be the most valuable information in it.)

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

And we are greatly influenced by the actions of others. When the findings of Tversky, Kahneman, and other psychologists crossed over into economics, the two strands of thought came together under the rubric of “behavioral economics,” which seeks to combine the rigor of economics with the realism of psychology. In Part II, I devote a chapter to Kahneman and Tversky, but this book shouldn’t be mistaken for another text on behavioral economics. Reality-based economics is a much broader field, a good part of which makes no departure from the axioms of rationality, and it is also considerably older. I trace its development back to Arthur C.

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Perhaps the word “failure” has such negative connotations that it offends the American psyche. For whatever reason, “market failure economics” never took off as a catchphrase. Some textbooks refer to the “economics of information,” or the “economics of incomplete markets.” Recently, the term “behavioral economics” has come into vogue. For myself, I prefer the phrase “reality-based economics,” which is the title of Part II. Reality-based economics is less unified than utopian economics: because the modern economy is labyrinthine and complicated, it encompasses many different theories, each applying to a particular market failure.

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By working longer hours in response to a general inflation, or working shorter hours in response to a fall in inflation, they could temporarily move the economy away from its equilibrium. That was the only source of economic volatility in Lucas’s model. There was no place for stupidity, ignorance, or herd behavior. Economic slumps and mass joblessness were ruled out by assumption. In a Lucasian economy, unemployment is a matter of choice. If a quarter of the labor force were jobless during the Great Depression, then most of them must have been unwilling to work at the prevailing wages and chosen to stay at home.

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

The focus is quite different. In reality, Gamification is a combination of Game Design, Game Dynamics, Motivational Psychology, Behavioral Economics, UX/UI, Neurobiology, Technology Platforms, and Business Systems that drive an ROI. Interestingly, games have all of the above besides the last part: business systems that drive an ROI (or Return on Investment). In order to make a great game, one needs to have great game dynamics, great UX/UI, have an understanding of Behavioral Economics through its virtual economy, motivational psychology and reward schedules, as well as the intricate relationships between hitting Win-States and dopamine firing.

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It is a deep exploration into what makes a game fun and how to apply those fun and engaging elements in real-life productive activities. It is about how you can use gamification and scientifically proven methods to improve your company, your life, and the lives of those around you. Effective gamification is a combination of game design, game dynamics, behavioral economics, motivational psychology, UX/UI (User Experience and User Interface), neurobiology, technology platforms, as well as ROI-driving business implementations. This book explores the interplay between these disciplines to capture the core principles that contribute to good gamification design. I will be sharing my observations in multiple industries and sectors based on my 12-year journey of passionately and relentlessly pursuing the craft of Gamification.

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On a similar note, I also dislike the term “serious games,” as it implies that pure games are not serious – something that millions of serious gamers out there would heavily disagree with. Think how many sports athletes would be offended if they played basketball for a charitable cause, and people called that the “Serious Sports” industry. Then there are the more “corporate-appealing” terms like Motivational Design, Behavioral Economics, or Loyalty Programs, which have many blends and overlaps with the vague term “gamification.” Many out there claim that Loyalty Programs are not considered gamification but would then argue that airline reward miles are one of the best examples of gamification. Further following the battle semantics, many game-based solution enthusiasts like Sebastian Deterding and Jane McGonigal disagree with so many principles from most of the “mainstream” gamification experts and platforms, that they came out and expressed that, if that was gamification, they wanted nothing to do with it.

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

leads to fewer failures: For an analysis of these two choices by economists, see Sah and Stiglitz; Csaszar. 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.

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Bring in a specialist in the subtleties of the art—a chief incentives officer. •  Fine-tune the spans: Widen management spans in loonshot groups (but not in franchise groups) to encourage looser controls, more experiments, and peer-to-peer problem solving. POSTSCRIPT FROM NOBELS AND NUDGES TO NURTURING LOONSHOTS A rapidly growing field called behavioral economics specializes in how incentives and environmental cues influence behavior. The influences studied by behavioral economists are often subtle, either because they are hidden or because they are based on quirks of psychology called cognitive biases. An example of a cognitive bias: In one study, experienced judges were asked to roll dice before sentencing.

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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. For his work in bringing the psychology of individual decision-making—the study of cognitive biases—into economics, which inspired Thaler’s work, Daniel Kahneman was awarded the 2002 Nobel Prize. So what’s the connection between these Nobels and nudges and the ideas of the previous chapters for nurturing loonshots more effectively?

Portfolios of the poor: how the world's poor live on $2 a day
by Daryl Collins , Jonathan Morduch and Stuart Rutherford
Published 15 Jan 2009

Grameen Bank has long offered a multiyear housing loan, usually used for home expansion and repairs, and some of the Bangladeshi diary households described in chapter 6 hold them—or have held them in the past. 2. Behavioral economics combines perspectives from psychology and economics. Among the lessons are that assuming the ability to act with perfect foresight and rationality, a staple of twentieth-century economics, ignores the self-discipline problems that challenge rich and poor alike. Another lesson is that the way contracts and financial mechanisms are presented can affect their take-up and usage. See Thaler and Sunstein 2008 for an accessible overview of new thinking in behavioral economics. 3. See Banerjee and Duflo 2007. They find that by households living under one dollar per day per person spend, on average, from 56 to 78 percent of household income on food, with slightly less being spent in urban areas. 4.

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New financial services may not be able to address low 97 CHAPTER FOUR incomes, but they can do a lot by ensuring access to financial tools that provide the right doses of discipline, security, flexibility, and incentives. In this, the age-old strategies employed by the diary households anticipate solutions to the blend of economic, psychological, and social constraints that are explored in the new field of behavioral economics.2 The Poor Can Save—Substantially It’s surprising that there is room in the household budgets of those living on small incomes to set aside substantial amounts to save and repay loans. It’s hard to imagine that households can maintain the discipline needed to save regularly and to ensure that loans get repaid on time.

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Bauer, Chytilova and Morduch (2008) take a close look at this pattern using data collected in villages in the South Indian state of Karnataka. As a first step, surveys were used to determine households particularly likely to have selfdiscipline problems that could correlate to difficulties saving (i.e., evidence of “hyperbolic” preferences in the language of behavioral economics). They showed that households with signs of self-discipline problems were more likely than others to borrow through microfinance institutions featuring enforced, regular weekly payments. Though taking the loans was costlier than saving, it provided the households with an effective way to accumulate. 11.

Finding Alphas: A Quantitative Approach to Building Trading Strategies
by Igor Tulchinsky
Published 30 Sep 2019

Shaw & Co. 8 design 25–30 automated searches 111–120 backtesting 33–41 case study 31–41 core concepts 3–6 data inputs 4, 25–26, 43–47 evaluation 28–29 expressions 4 flow chart 41 future performance 29–30 horizons 4–50 intraday alphas 219–221 machine learning 121–126 noise reduction 26 optimization 29–30 prediction frequency 27 quality 5 risk-on/risk off alphas 246–247 robustness 89–93 smoothing 54–55, 59–60 triple-axis plan 83–88 universe 26 value 27–30 digital filters 127–128 digitization 7–9 dimensionality 129–132 disclosures 192 distressed assets 202–203 diversification automated searches 118–119 exchange-traded funds 233 portfolios 83–88, 108 DL see deep learning dot (inner) product 63–64 Dow, Charles 7 DPIN see dynamic measure of the probability of informed trading drawdowns 106–107 dual timestamping 78 dynamic measure of the probability of informed trading (DPIN) 214–215 dynamic parameterization 132 early-exercise premium 174 earnings calls 181, 187–188 earnings estimates 184–185 earnings surprises 185–186 efficiency, automated searches 111–113 Index295 efficient markets hypothesis (EMH) 11, 135 ego 19 elegance of models 75 EMH see efficient markets hypothesis emotions 19 ensemble methods 124–125 ensemble performance 117–118 estimation of risk 102–106 historical 103–106 position-based 102–103 shrinkage 131 ETFs see exchange-traded funds Euclidean space 64–66 evaluation 13–14, 28–29 backtesting 13–14, 33–41, 69–76 bias 77–82 bootstrapping 107 correlation 28–29 cutting losses 20–21 data selection 74–75 drawdowns 107 information ratio 28 margin 28 overfitting 72–75 risk 101–110 robustness 89–93 turnover 49–60 see also validation event-driven strategies 195–205 business cycle 196 capital structure arbitrage 204–205 distressed assets 202–203 index-rebalancing arbitrage 203–204 mergers 196–199 spin-offs, split-offs & carve-outs 200–202 exchange-traded funds (ETFs) 223–240 average daily trading volume 239 challenges 239–240 merits 232–233 momentum alphas 235–237 opportunities 235–238 research 231–240 risks 233–235 seasonality 237–238 see also index alphas exit costs 19, 21 expectedness of news 164 exponential moving averages 54 expressions, simple 4 extreme alpha values 104 extrinsic risk 101, 106, 108–109 factor risk heterogeneity 234 factors financial statements 147 to alphas 148 failure modes 84 fair disclosures 192 fair value of futures 223 Fama–French three-factor model 96 familiarity bias 81 feature extraction 130–131 filters 127–128 finance blogs 181–182 finance portals 180–181, 192 financial statement analysis 141–154 balance sheets 143 basics 142 cash flow statements 144– 145, 150–152 corporate governance 146 factors 147–148 fundamental analysis 149–154 growth 145–146 income statements 144 negative factors 146–147 special considerations 147 finite impulse response (FIR) filters 127–128 296Index FIR filters see finite impulse response filters Fisher Transform 91 five-day reversion alpha 55–59 Float Boost 125 forecasting behavioral economics 11–12 computer adoption 7–9 frequencies 27 horizons 49–50 statistical arbitrage 10–11 UnRule 17–21 see also predictions formation of the industry 8–9 formulation bias 80 forward-looking bias 72 forwards 241–249 checklist 243–244 Commitments of Traders report 244–245 instrument groupings 242–243 seasonality 245–246 underlying assets 241–242 frequencies 27 full text analysis 164 fundamental analysis 149–154 future performance 29–30 futures 241–249 checklist 243–244 Commitments of Traders report 244–245 fair value 223 instrument groupings 242–243 seasonality 245–246 underlying assets 241–242 fuzzy logic 126 General Electric 200 generalized correlation 64–66 groupings, futures and forwards 242–243 group momentum 157–158 growth analysis 145–146 habits, successful 265–271 hard neutralization 108 headlines 164 hedge fund betas see risk factors hedge funds, initial 8–9 hedging 108–109 herding 81–82, 190–191 high-pass filters 128 historical risk measures 103–106 horizons 49–50 horizontal mergers 197 Huber loss function 129 humps 54 hypotheses 4 ideas 85–86 identity matrices 65 IIR filters see infinite impulse response filters illiquidity premium 208–211 implementation core concepts 12–13 triple-axis plan 86–88 inaccuracy of models 10–11 income statements 144 index alphas 223–240 index changes 225–228 new entrants 227–228 principles 223–225 value distortion 228–230 see also exchange-traded funds index-rebalancing arbitrage 203–204 industry formation 8–9 industry-specific factors 188–190 infinite impulse response (IIR) filters 127–128 information ratio (IR) 28, 35–36, 74–75 initial hedge funds 8–9 inner product see dot product inputs, for design 25–26 integer effect 138 intermediate variables 115 Index297 intraday data 207–216 expected returns 211–215 illiquidity premium 208–211 market microstructures 208 probability of informed trading 213–215 intraday trading 217–222 alpha design 219–221 liquidity 218–219 vs. daily trading 218–219 intrinsic risk 102–103, 105–106, 109 invariance 89 inverse exchange-traded funds 234 IR see information ratio iterative searches 115 Jensen’s alpha 3 L1 norm 128–129 L2 norm 128–129 latency 46–47, 128, 155–156 lead-lag effects 158 length of testing 75 Level 1/2 tick data 46 leverage 14–15 leveraged exchange-traded funds 234 limiting methods 92–93 liquidity effect 96 intraday data 208–211 intraday trading 218–219 and spreads 51 literature, as a data source 44 look-ahead bias 78–79 lookback days, WebSim 257–258 looking back see backtesting Lo’s hypothesis 97 losses cutting 17–21, 109 drawdowns 106–107 loss functions 128–129 low-pass filters 128 M&A see mergers and acquisitions MAC clause see material adverse change clause MACD see moving average convergence-divergence machine learning 121–126 deep learning 125–126 ensemble methods 124–125 fuzzy logic 126 look-ahead bias 79 neural networks 124 statistical models 123 supervised/unsupervised 122 support vector machines (SVM) 122, 123–124 macroeconomic correlations 153 manual searches, pre-automation 119 margin 28 market commentary sites 181–182 market effects index changes 225–228 see also price changes market microstructure 207–216 expected returns 211–215 illiquidity premium 208–211 probability of informed trading 213–215 types of 208 material adverse change (MAC) clause 198–199 max drawdown 35 max stock weight, WebSim 257 mean-reversion rule 70 mean-squared error minimization 11 media 159–167 academic research 160 categorization 163 expectedness 164 finance information 181–182, 192 momentum 165 novelty 161–162 298Index sentiment 160–161 social 165–166 mergers and acquisitions (M&A) 196–199 models backtesting 69–76 elegance 75 inaccuracy of 10–11 see also algorithms; design; evaluation; machine learning; optimization momentum alphas 155–158, 165, 235–237 momentum effect 96 momentum-reversion 136–137 morning sunshine 46 moving average convergencedivergence (MACD) 136 multiple hypothesistesting 13, 20–21 narrow framing 81 natural gas reserves 246 negative factors, financial statements 146–147 neocognitron models 126 neural networks (NNs) 124 neutralization 108 WebSim 257 newly indexed companies 227–228 news 159–167 academic research 160 categories 163 expectedness 164 finance information 181–182, 192 momentum 165 novelty 161–162 relevance 162 sentiment 160–161 volatility 164–165 NNs see neural networks noise automated searches 113 differentiation 72–75 reduction 26 nonlinear transformations 64–66 normal distribution, approximation to 91 novelty of news 161–162 open interest 177–178 opportunities 14–15 optimization 29–30 automated searches 112, 115–116 loss functions 128–129 of parameter 131–132 options 169–178 concepts 169 open interest 177–178 popularity 170 trading volume 174–177 volatility skew 171–173 volatility spread 174 option to stock volume ratio (O/S) 174–177 order-driven markets 208 ordering methods 90–92 O/S see option to stock volume ratio outliers 13, 54, 92–93 out-of-sample testing 13, 74 overfitting 72–75 data mining 79–80 reduction 74–75, 269–270 overnight-0 alphas 219–221 overnight-1 alphas 219 parameter minimization 75 parameter optimization 131–132 PCA see principal component analysis Pearson correlation coefficients 62–64, 90 peer pressure 156 percent profitable days 35 performance parameters 85–86 Index299 PH see probability of heuristicdriven trading PIN see probability of informed trading PnL see profit and loss pools see portfolios Popper, Karl 17 popularity of options 170 portfolios correlation 61–62, 66 diversification 83–88, 108 position-based risk measures 102–103 positive bias 190 predictions 4 frequency 27 horizons 49–50 see also forecasting price changes analyst reports 190 behavioral economics 11–12 efficient markets hypothesis 11 expressions 4 index changes 225–228 news effects 159–167 relative 12–13, 26 price targets 184 price-volume strategies 135–139 pride 19 principal component analysis (PCA) 130–131 probability of heuristic-driven trading (PH) 214 probability of informed trading (PIN) 213–215 profit and loss (PnL) correlation 61–62 drawdowns 106–107 see also losses profit per dollar traded 35 programming languages 12 psychological factors see behavioral economics put-call parity relation 174 Python 12 quality 5 quantiles approximation 91 quintile distributions 104–105 quote-driven markets 208 random forest algorithm 124–125 random walks 11 ranking 90 RBM see restricted Boltzmann machine real estate investment trusts (REITs) 227 recommendations by analysts 182–183 recurrent neural networks (RNNs) 125 reduction of dimensionality 130–131 of noise 26 of overfitting 74–75, 269–270 of risk 108–109 Reg FD see Regulation Fair Disclosure region, WebSim 256 regions 85–86 regression models 10–11 regression problems 121 regularization 129 Regulation Fair Disclosure (Reg FD) 192 REITs see real estate investment trusts relationship models 26 relative prices 12–13, 26 relevance, of news 162 Renaissance Technologies 8 research 7–15 analyst reports 179–193 automated searches 111–120 backtesting 13–14 300Index behavioral economics 11–12 computer adoption 7–9 evaluation 13–14 exchange-traded funds 231–240 implementation 12–13 intraday data 207–216 machine learning 121–126 opportunities 14–15 perspectives 7–15 statistical arbitrage 10–11 triple-axis plan 83–88 restricted Boltzmann machine (RBM) 125 Reuleaux triangle 70 reversion alphas, five-day 55–59 risk 101–110 arbitrage 196–199 control 108–109 drawdowns 106–107 estimation 102–106 extrinsic 101, 106, 108–109 intrinsic 102–103, 105–106, 109 risk factors 26, 95–100 risk-on/risk off alphas 246–247 risk-reward matrix 267–268 RNNs see recurrent neural networks robustness 89–93, 103–106 rules 17–18 evaluation 20–21 see also algorithms; UnRule Russell 2000 IWM fund 225–226 SAD see seasonal affective disorder scale of automated searches 111–113 search engines, analyst reports 180–181 search spaces, automated searches 114–116 seasonality exchange-traded funds 237–238 futures and forwards 245–246 momentum strategies 157 and sunshine 46 selection bias 77–79, 117–118 sell-side analysts 179–180 see also analyst reports sensitivity tests 119 sentiment analysis 160–161, 188 shareholder’s equity 151 Sharpe ratios 71, 73, 74–75, 221, 260 annualized 97 Shaw, David 8 shrinkage estimators 131 signals analysts report 190, 191–192 cutting losses 20–21 data sources 25–26 definition 73 earnings calls 187–188 expressions 4 noise reduction 26, 72–75 options trading volume 174–177 smoothing 54–55, 59–60 volatility skew 171–173 volatility spread 174 sign correlation 65 significance tests 119 Simons, James 8 simple moving averages 55 simulation backtesting 71–72 WebSim settings 256–258 see also backtesting size factor 96 smoothing 54–55, 59–60 social media 165–166 sources of data 25–26, 43–44, 74–75 automated searches 113–114 see also data sparse principal component analysis (sPCA) 131 Spearman’s rank correlation 90 Index301 special considerations, financial statements 147 spin-offs 200–202 split-offs 200–202 spreads and liquidity 51 and volatility 51–52 stat arb see statistical arbitrage statistical arbitrage (stat arb) 10–11, 69–70 statistical models, machine learning 123 step-by-step construction 5, 41 storage costs 247–248 storytelling 80 subjectivity 17 sunshine 46 supervised machine learning 122 support vector machines (SVM) 122, 123–124 systemic bias 77–80 TAP see triple-axis plan tax efficiency, exchange-traded funds 233 teams 270–271 temporal-based correlation 63–64, 65 theory-fitting 80 thought processes of analysts 186–187 tick data 46 timestamping and bias 78–79 tracking errors 233–234 trades cost of 50–52 crossing effect 52–53 latency 46–47 trend following 18 trimming 92 triple-axis plan (TAP) 83–88 concepts 83–86 implementation 86–88 tuning of turnover 59–60 see also smoothing turnover 49–60 backtesting 35 control 53–55, 59–60 costs 50–52 crossing 52–53 examples 55–59 horizons 49–50 smoothing 54–55, 59–60 WebSim 260 uncertainty 17–18 underlying principles 72–73 changes in 109 understanding data 46 unexpected news 164 universes 26, 85–86, 239–240, 256 UnRule 17–18, 20–21 unsupervised machine learning 122 validation, data 45–46 valuation methodologies 189 value of alphas 27–30 value distortion, indices 228–230 value factors 96 value investing 96, 141 variance and bias 129–130 vendors as a data source 44 vertical mergers 197 volatility and news 164–165 and spreads 51–52 volatility skew 171–173 volatility spread 174 volume of options trading 174–177 price-volume strategies 135–139 volume-synchronized probability of informed trading (VPIN) 215 302Index VPIN see volume-synchronized probability of informed trading weather effects 46 WebSim 253–261 analysis 258–260 backtesting 33–41 data types 255 example 260–261 settings 256–258 weekly goals 266–267 weighted moving averages 55 Winsorization 92–93 Yahoo finance 180 Z-scoring 92 

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The theory also implies that looking for exploitable patterns in prices, and in other forms of publicly available data, will not lead to strategies in which investors can have confidence, from a statistical perspective. An implication of the EMH is that prices will evolve in a process indistinguishable from a random walk. However, another branch of financial economics has sought to disprove the EMH. Behavioral economics studies market imperfections resulting from investor psychological traits or cognitive biases. Imperfections in the financial markets may be due to overconfidence, overreaction, or other defects in how humans process information. Empirical studies may have had mixed results in aiming to disprove the EMH, but if no investors made any 12 Finding Alphas effort to acquire and analyze information, then prices would not reflect all available information and the market would not be efficient.

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For practitioners, it may be more important to know whether these factors’ risk premiums will persist in the future. Unfortunately, this is also hard to predict, but we might get some insights from the adaptive market hypothesis (AMH), which was proposed by Andrew Lo (2004) to reconcile financial theories based on the efficient market hypothesis with behavioral economics. AMH does not view the market as being in equilibrium. Instead, it tries to explain market dynamics by evolutionary processes. It compares profit opportunities in the market to food and water in a local ecology, for which different species compete. Drawing insights from evolutionary processes, AMH predicts that the risks and rewards of market opportunities are unlikely to be stable over time and that investment strategies may wax and wane.

Hive Mind: How Your Nation’s IQ Matters So Much More Than Your Own
by Garett Jones
Published 15 Feb 2015

I’ve never seen much evidence that good economists really believed in the caricatures of super-rational homo economicus—Keynes, father of macroeconomics, placed a lot of weight on psychology, self-delusion, and human irrationality—but it’s one thing to say “people aren’t super-rational” and quite another to say “people are irrational in this particular way.” And the latter is what behavioral economics has allowed us to do. One of the big, robust results of behavioral economics is that many people are extremely impulsive in the very short run. They treat the difference between a dollar today and a dollar tomorrow as a massive deal, even though they treat the difference between a dollar in a week and a dollar in eight days as no big deal.

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Speculation about the why is interesting, and perhaps soon we’ll have answers to this question. But the what, the link between IQ and patience, is already there for all to see. Economists tended to ignore this fact until a few years ago, when mainstream economists became much more interested in psychology. The new field of behavioral economics, at the intersection of psychology and economics, has drawn economists’ attention to the obvious truth that people aren’t the robotic, rational decision makers that textbook economic theory sometimes assumes. I’ve never seen much evidence that good economists really believed in the caricatures of super-rational homo economicus—Keynes, father of macroeconomics, placed a lot of weight on psychology, self-delusion, and human irrationality—but it’s one thing to say “people aren’t super-rational” and quite another to say “people are irrational in this particular way.”

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Instead, the brain’s energy is being spent in the cool, rational prefrontal cortex. That’s homo economicus at her best: weighing the benefits against the costs, thinking through her options. She’ll almost surely wait the extra day for the extra fifty cents. So far, so good: sometimes people act rationally, sometimes they act impulsively. Behavioral economics matters. But economists Benjamin, Brown, and Shapiro went one step further.3 The title of their paper asks a provocative question: “Who Is Behavioral?” They asked high school students in Chile to decide between money right now and money later, they gave them all IQ-type tests, and they found out that the students with lower IQs tended to take the money sooner.

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

And 7 times 7 is 48.”1 Mauboussin’s lottery player doesn’t summon images of the disciplined, rational actors who populate traditional economic models. Those models have enhanced our understanding of human behavior and social institutions, to be sure, but they also fail to capture much of the craziness we see around us. That’s why behavioral economics—a cross-disciplinary effort that draws insights from economics, psychology, biology, and other fields—has been the most vibrant and rapidly growing specialty in economics for the past three decades. Inspired by the pioneering work of the psychologists Daniel Kahneman and the late Amos Tversky, this field has cataloged a large inventory of behavioral anomalies in which people clearly violate the predictions and prescriptions of standard economic models.2 It is common, for example, for someone to be willing to drive across town to save $10 on a $20 clock radio, but unwilling to do so to save $10 on a $1,000 television set.

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People often explain their reluctance to make the drive for the television by saying the $10 savings is such a small percentage of its price. But a rational person reckons benefits and costs in absolute terms, not as percentages. As Tversky, then a professor of psychology at Stanford University, was said to have quipped, “My colleagues, they study artificial intelligence. Me? I study natural stupidity.” Much of the work in behavioral economics rests on people’s tendency to rely on mental shortcuts or rules of thumb. These rules are largely adaptive in the sense that the time and effort they save more than compensate for the possibility that they’re somewhat less accurate than more detailed calculations. Although heuristics work reasonably well much of the time, they also produce systematic errors in judgment and attribution in some contexts.

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The labour of his body, and the work of his hands, we may say, are properly his.”8 With these words, Locke became the patron saint of tax resisters around the world. This sense of entitlement to the fruits of one’s labors may owe much to the phenomenon known as loss aversion. One of the most reliable findings in behavioral economics, loss aversion refers to the fact that people will fight much harder to avoid a loss than they would to achieve a gain of the same amount.9 Since most successful people work extremely hard for the money they earn, it feels like they own it, and that makes taxation feel like theft. But equating taxation and theft is difficult to defend.

Numbers Rule Your World: The Hidden Influence of Probability and Statistics on Everything You Do
by Kaiser Fung
Published 25 Jan 2010

Two books in the finance area also fit the bill: in The Black Swan, Nassim Taleb harangues theoreticians of financial mathematics (and other related fields) on their failure in statistical thinking, while in My Life as a Quant, Emanuel Derman offers many valuable lessons for financial engineers, the most important of which is that modelers in the social sciences—unlike physicists—should not seek the truth. Daniel Kahneman summarized his Nobel-prize-winning research on the psychology of judgment, including the distinction between intuition and reasoning, in “Maps of Bounded Rationality: Psychology for Behavioral Economics,” published in American Economic Review. This body of work has tremendous influence on the development of behavioral economics. The psychologist Richard Nisbett and his cohorts investigated the conditions under which people switch to statistical thinking; see, for example, “The Use of Statistical Heuristics in Everyday Inductive Reasoning,” published in Psychological Review.

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As the professors showed us, a few well-chosen numbers paint a far richer picture than hundreds of thousands of disorganized data. Conclusion Statistical thinking is hard,” the Nobel prize winner Daniel Kahneman told a gathering of mathematicians in New York City in 2009. A revered figure in the world of behavioral economics, Professor Kahneman spoke about his renewed interest in this topic, which he first broached in the 1970s with his frequent collaborator Amos Tversky. The subject matter is not inherently difficult, but our brains are wired in such a way that it requires a conscious effort to switch away from the default mode of reasoning, which is not statistical.

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For example, in putting up signs showing inflated estimates of waiting time, the Disney engineers counted on irrationality, and customer surveys consistently confirmed their judgment. For further exploration of the irrational mind, see the seminal work of Daniel Kahneman, starting with his 2003 overview article “Maps of Bounded Rationality: Psychology for Behavioral Economics” in American Economic Review, and Predictably Irrational by Dan Ariely. Political considerations often intrude on the work of applied scientists. For instance, Minnesota state senator Dick Day seized upon the highway congestion issue to score easy points with his constituents, some of whom blamed the ramp-metering policy for prolonging their commute times.

What They Do With Your Money: How the Financial System Fails Us, and How to Fix It
by Stephen Davis , Jon Lukomnik and David Pitt-Watson
Published 30 Apr 2016

In most Western countries, the ultimate shareholders, depositors, and customers of our banks, insurers, and investment management companies are millions of citizen savers, through their pensions and other investments. The question for the regulator is how to create a framework in which these shareholders, lenders, and customers are well served. How do we create an effective constitution for capitalism? One place to look for an answer is in the combination of psychology and finance called behavioral economics. BEHAVIORAL ECONOMICS If the purpose of regulation is to create better behavior, another discipline also needs to be considered: the relationship between written regulations and actual practice. For example, we know that posting speed limits does not prevent people from driving faster than the regulations permit.

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• Regulators have written thousands of rules covering the minutiae of financial practice, but they have not stepped back and asked, “How do we create a finance industry that fulfills its purpose?” • Our regulations have been atomistic, not systemic. • The law could make suppliers responsible, promote institutions with better checks and balances, and employ lessons from behavioral economics to get agents to act in our best interest. • No regulator has ever proposed, let alone implemented, such a plan. • New approaches could improve the financial sector’s productivity, resiliency, and the benefit it provides to society. 6 The Queen’s Question On November 4, 2008, a short, eighty-two-year-old woman in a cream-colored suit found herself in the same room as some of the world’s top economic thinkers.

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See Advance Voting Instructions (AVI) AXA, 18, 82 Bank of Amsterdam, 211 Bank of England, 66, 68 Banks, 19 adequate equity and, 213, 214–16 as safe place for money, 20, 22, 211, 212, 216 characteristics needed in, 212–13 collapse of, 254n2 (See also Global financial crisis (2008)) commonsense, 211–12 costs of, 213 diversification and, 46–48 fees, 216 financing, 227 governance of, 216–17 growth for, 73–74 lending and, 17, 20–21, 22, 47, 74, 211–15, 267n31 payment system and, 16–17, 20, 22, 211–12 predicting bank failure, 125 purposes of, 211–12 regulation of, 128–29, 175, 259n47 services offered by, 20–21, 22 Basel rules, 152 Basel I, 125, 254n1 Basel II, 43 Basel III, 43, 125, 175, 254n1, 254n2 Bear Stearns, 44 Bebchuk, Lucian, 72–73 Becker, Gary, 257n28 Behavior, human motivation and, 182–83, 185–86 Behavioral economics, 142–45 Beihoffer, Eric, 180–81 Benchmarking executive compensation, 85–86 Benchmarks, institutional investor, 113–14 Bentham, Jeremy, 257n28 Berkshire Hathaway, 64 Beta, 49–50, 57, 242n57 smart, 241n36 Blackrock, 18, 77 Board of directors. See Corporate boards Bogle, John C., 6–7, 139, 221, 235n24 Borrowers, financial system as intermediator between lenders and, 17, 19–22, 47, 74, 128–29, 211–13 “Brand Tracker” survey, 206 Brandeis, Louis, 92 Breakout Performance social media campaign, 115 Brealey, R.

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

While I’m sure many people would agree, he was the only person who ever said it to my face! If you don’t know the name, Daniel Kahneman is the non-economist who has had the greatest influence on economics of any non-economist who ever lived. A psychologist, he’s the only non-economist to win the Nobel Prize in Economics for his pioneering work in behavioral economics. I don’t think it would be an exaggeration to say that he is among the fifty most influential economic thinkers of all time, and among the ten most influential living economic thinkers. In the years since that dinner, I’ve gotten to know Danny quite well. Every time I am with him, he teaches me something.

…

His particular brilliance, I have decided, is being able to see what should be totally obvious, but somehow no one else manages to notice until he points it out. Now he has written a fantastic book aimed at a popular audience: Thinking, Fast and Slow. It is a wonderfully engaging stroll through the world of behavioral economics—the kind of book that people are going to be talking about for a long, long time. Danny has generously agreed to answer questions from Freakonomics blog readers, which are paraphrased below. Here are his replies. Q. A lot of research by you and others in the field proves that we often make irrational decisions—but what about research finding ways to be more rational?

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I don’t believe that you can expect the choices of patients and providers to change without changing the situation in which they operate. The incentives of fee-for-service are powerful, and so is the social norm that health is priceless (especially when paid for by a third party). Where the psychology of behavior change and the nudges of behavioral economics come into play is in planning for a transition to a better system. The question that must be asked is “How can we make it easy for physicians and patients to change in the desired direction?,” which is closely related to, “Why don’t they already want the change?” Quite often, when you raise this question, you may discover that some inexpensive tweaks in the context will substantially change behavior.

Cognitive Surplus: Creativity and Generosity in a Connected Age
by Clay Shirky
Published 9 Jun 2010

That simplifying notion is at odds with much of real life. It is also at odds with a large and increasingly important body of social science. The vast and still-growing body of experimental cognitive science called behavioral economics is demonstrating that humans don’t always act in self-interested ways, and that transactions themselves have an emotional component. Behavioral economics often tests ideas by involving subjects in games. By creating a simple set of rules, experimenters can observe human behavior under relatively controlled conditions. The trick is to create an experiment that will cleanly illuminate the part of human behavior the researcher is interested in.

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Social production was not included in the heated political debates of the twentieth century, because the things people could produce for one another using their free time and working without markets or managers were limited. Two things happened to end that consensus. First, behavioral economics upended the idea that humans always determine value rationally, the way competitive markets do. In fact, we aren’t rational, we are “predictably irrational” (to use the title of Dan Ariely’s wonderful 2008 book on behavioral economics), and markets turn out to be a special case, effective only under tightly controlled conditions. As with the Ultimatum Game, the default human behavior relies on mutual regard for other participants, even when there’s money to be made.

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See generational difference; senior citizens; young people aggregation of cognitive surplus collaborative participation and coordination and creation and sharing and of free time value and alchemy ALS altruistic punishment amateurs connectedness and coordination and motivation and as producers professionals versus satisfaction and societal cynicism and website design and America Online Amtrak Anderson, Chris Anderson, Philip anime Apache webserver Ariely, Dan Association of Pub-going, Loose and Forward Women audiences autonomy, as personal intrinsic motivation Avenir, Christopher Bacca, Pippa Backflip Ballmer, Steve basic groups BeExtra.org behavior cognitive surplus and deterrence and effects of new media tools and inconvenience and internalized standards and norms of opportunity and satisfaction and self-governance and social networks and technology and value and behavioral economics Behlendorf, Brian Benesch, Christine Benkler, Yochai Berstell, Gerald Bibles Bion, Wilfred Blair, Ian Bokardo weblog Bonaventure, Saint books Boyle, Robert Brides on Tour Bruni, Luigino bulletin boards Burning Man festival Cameron, Judy Care2.com carpooling Carr, Nicholas Cassiopeia Catholic church chaos cheating chemistry Christakis, Nicholas civic engagement civic sharing civic value Clarke, Julie CNN.com cognitive surplus aggregation of civic value and communal versus civic value and connectedness and experimentation and free time and generous, public, and social behaviors and harnessing with new media tools market experience and participation and PickupPal and programmers’ use of public and civic value and scale and voluntary contributions and collaborative participation Apache software and competition and development of ideas and Invisible College and passive participation versus social production and collective action combinability common resource management commons-based peer production communal sharing communal value communications revolutions community advertising and combinability and communities of practice creating culture and of shared interest commuting competency, as personal intrinsic motivation competition complacency connectedness amateurs and cognitive surplus and media and social media and as social motivation value and Consumer Product Safety Improvement Act of 2008 (CPSIA) consumption assumed preference for consumers’ media production making and sharing versus participation versus television and coordination amateurs versus professionals and social media and transportation and Copernicus copies costs of Bibles of books of coordination of copying discovery costs experimentation and of public address of sharing spite and of television viewing CouchSurfing.org creativity aggregation and amateurs versus professionals communally created projects fan fiction and governance of groups and reduced television consumption and satisfaction and social production and See also making and sharing Cross, Penny crowding-out effect culture behavioral norms and community and creation of diversity in groups creating public value and growth phase of social media and Invisible College and Napster and new media tools and norms of online study groups and open source software and participation and participatory culture sharing and social media and social production and Ultimatum Game and value and customer versus product research Dahl, Roald David Foster Foundation day-care centers Deci, Edward defaults Delicious.com democracies Derrick, Jaye deterrence de Tocqueville, Alexis Dictator Game digital folk art digital media coordination and copies and economics of as part of real world sharing and symmetry of digital sharecropping Dong Bang Shin Ki (DBSK) DonorsChoose.org eBay education Eisenstein, Elizabeth e-mail emotions Encyclopedia Britannica Etsy experimentation collaborative participation and falling costs and publication and value and external threats extrinsic motivation Facebook amateurs versus professionals and Association of Pub-going, Loose and Forward Women audience-and-cluster spectrum and Causes application cost of social coordination and creation of online study groups and PickupPal and Responsible Citizens face-to-face contact fairness falsifiability fan fiction FanFiction.net Fanning, Shawn fansubbing networks Farrell, Michael feedback FictionAlley.org fines Firstgiving.com Flickr.com Foray, Dominique Fowler, James Fowles, Jib freedom freeloading free time aggregation of cognitive surplus and creating culture and Deci’s Soma experiment and industrialization and making and sharing and opportunities for combining as social asset television viewing and French Impressionist painters Frey, Bruno Friendster fundamental attribution error Gabriel, Shira garbage pick-up generational difference generosity See also sharing Geocities Gleyre, Charles global availability of information global organization Gneezy, Uri Goette, Lorenz governance collaborative participation and of groups power imbalances and value and Gowing, Nik Granovetter, Mark gratitude Groban, Josh Grobanites Grobanites for Africa Grobanites for Charity groups collaborative participation and creation of civic value and emotional components of external threats and governance of group/individual desires internal threats and postpartum support groups study groups Groznic, Larry Gui, Marco Gutenberg, Johannes Gutenberg economics Güth, Werner Haifa, Israel Hallisey, Kelly Hank, the Angry Drunken Dwarf happiness HarryPotterFanFiction.com health-care system Here Comes Everybody (Shirky) Hersman, Erik Hickey, Dave Hill, Dan hobbies Hugenberg, Kurt IBM ICanHasCheezburger.com Idealist.org incomplete contracts inconvenience indulgences industrialization internalized standards internal threats internet accessibility and aggregation and opportunities and post-Gutenberg economics and See also digital media; new media tools; social media intimacy intrinsic motivation amateurism and autonomy as competency as connectedness as creating culture and Deci’s Soma puzzle experiment and extrinsic motivation versus generosity as gratitude as launching new social media and membership as opportunity and payment and private action and public action and social media and Invisible College Ito, Mimi JavaRanch JoshGroban.com Josh Groban Foundation Kahle, Brewster Kahneman, Daniel Kamen, Dean Kamiya, Gary Karatas, Murat Keen, Andrew Kelly, Kevin Kenya Kenyan Pundit blog Kingston, Maxine Hong Kiva.org KOAM.com Kobia, David Lahore, Pakistan Leadbeater, Charlie Lee Myung-bak Lenin, Vladimir Linux operating system lolcats London, England looky-loos Lou Gehrig’s disease Luther, Martin mailing lists making and sharing broadcast media versus social media consumption versus free time and lolcat images and motivation for wider distribution of See also social production Mangalore, India markets communal sharing versus crash of 1987, emotional components of transactions motivation and selfishness and Ultimatum Game and value and Markus, Megan McEwan, Melissa McHenry, Robert McWilliams, Andrew media balanced versus unbalanced changes in landscape of connectedness and cultural diversity and definitions of fluidity of fusion of public/personal media interactivity versus consumption as means of sharing South Korean beef protests and stability of See also digital media; new media tools; professional media makers; social media; television medical information Meetup.com membership amateur design and PatientsLikeMe.com and as social motivation Ultimatum Game and value and Merton, Georgia Microsoft Minow, Newton Mirzoeff, Nicholas misogyny mobile phones Amtrak’s quiet cars and cameras and global interconnection and memorizing phone numbers and Twitter Ushahidi and morality Moro, Silvia motivations amateurs and authority and creating public value and crowding-out effect fan fiction and focus groups and surveys and making and sharing and market alterations of personal motivations social media and for using free time using new social tools and working for free and See also extrinsic motivation; intrinsic motivation; social motivation music, sharing mutual obligation Napster Nasiff, Henry Joseph Jr.

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

Friedman, Emmanuel Saez, Nicholas Turner, and Danny Yagan, ”Mobility Report Cards: The Role of Colleges in Intergenerational Mobility,” NBER Working Paper No. w23618, July 2017, https://www.nber.org/papers/w23618.pdf. 4.Modern behavioral economics has gone some ways in rectifying these problems. But much of current economic policy in the US and other advanced countries is based not on the insights of behavioral economics but on the prescriptions of standard economics based on unrealistic conceptions of individuals as fully rational, informed, and selfish. 5.The former attitude is reflected in the accolades given to political leaders advocating “reform,” even when the reform simply means changing the rules of the game to favor one group at the expense of another or even of the whole economy.

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Such attacks, and an attempt to create another reality, have long been part of fascism, from Goebbels’s Big Lie onwards.35 Rather than adapting his views to make them consonant with reality (say, about climate change), Trump would rather attack those who work to uncover the truth. That these attacks have such resonance is testimony in part to the failure of our education system. But we cannot blame what is going on solely on that. We know through advances in behavioral economics and marketing that one can manipulate perceptions and beliefs. Cigarette companies succeeded in using these methods to cast doubt on scientific findings that smoking was bad for health; and firms of all kinds succeed in persuading individuals to buy products that they might not otherwise have bought, that upon deeper reflection, they neither need nor want.

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As parents, we try to shape our children, and though we are not always fully successful we believe that, at least some of the time, we are. The marketing profession tries to shape what we buy. We are shaped by—and shape—our society and culture. And how we structure our economy plays a central role in this shaping, because so much of our relations with others are about economics. Research in behavioral economics has confirmed this. It is not an accident that the bankers exhibited the extent of moral turpitude that has been shown: experiments show that bankers—especially when they are reminded that they are bankers—act in a more dishonest and selfish way.50 They are shaped by their profession. So too for economists; while those who choose to study economics may be more selfish than others, the longer they study economics, the more selfish they become.51 The kind of market economy that America has created has resulted in selfish and materialistic individuals—individuals who often differ from the kinds of ideals we hold up for ourselves and for others.

Walk Away
by Douglas E. French
Published 1 Mar 2011

Research has shown that investment decisions are driven by biases locked in the human brain and humans are especially loss-averse and tend to rationalize bad investment decisions. David Genesove and Christopher Mayer write in a chapter entitled “Loss-Aversion and Seller Behavior: Evidence from the Housing Market” from Advances In Behavioral Economics, “housing professionals are not surprised that many sellers are reluctant to realize a loss on their house.” These authors found that during the boom and bust in the Boston downtown real estate market of 1990–97, sellers subject to losses set higher asking prices of 25–35% of the difference between the expected selling price of a property and their original purchase price.

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The linkages tying together specific acts of consumption with specific payments “generates pleasure or pain depending on whether the accounts are in the red or in the black.” In an article entitled “The Red and the Black: Mental Accounting of Savings and Debt” which appeared as a chapter in Exotic Preferences: Behavioral Economics and Human Motivation, the authors’ modeling predicts that most people are debt averse and show “that people generally like sequences of events that improve over time and dislike sequences that deteriorate.” Prelec and Lowenstein’s work reflects a preference for prepayment, making the enjoyment of the purchased product unencumbered.

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Just as capital itself became internationalized several decades ago, with great gains for freedom and prosperity, we might all follow that trend today, walking away from the mess that the state has made and creating a new life for ourselves that defies the impulse to control. Index A | B | C | D | E F | G | H | I | J K | L | M | N | O P | R | S | T | U V | W | Z 13 Bankers, 51 60 Minutes, 1 A Acorn, 33 Advances In Behavioral Economics, 69 American Individualism, 20 Architect’s Small House Service Bureau, 20 Are Home Prices The Next Bubble, 36 Ariely, Dan, 72 Aristotle, 46 Assets and the Poor, 32 Atlantic, The, 50 Austrian Business Cycle Theory, 66 Austrian Economics: An Anthology, 6 B Babcock, Fredrick, 26 George Babbitt, 26 Bank of America, 11, 16, 17, 49, 56 Barnes, Alyson, 8 Barron’s, 42 Bernanke, Ben, 36, 39 Better Homes in America Movement, 20 Beyond Greed and Fear, 71 Blackstone Group, 8 Bloomberg News, 8 Bourgeois Utopias, 298 Building for Babbitt, 20 Building Suburbia, 11 Building the Dream, 21 Bureaucracy, 75 Bush, George W., 36 C Caldwell, Phyllis, 50 Carmon, Ziv, 72 Casey, Doug, 60 CBS, 1 Cisneros, Henry, 33 CNBC, 3, 16 congressional loan conduit, 31 chart Conquer the Crash, 60 Courson, John, 10 Cutaia, Susan and Anthony, 39, 41 D De Coster, Karen, 5 Discriminating Risk, 31, 54 Duebel, Achim, 22 E Edelman, Ric, 42 Einhorn, David, 56 Elliott Wave Theorist, 60 Empowerment Network, The, 32 Ethics of liberty, The, 46, 54 Ethics of Money Production, The, 61 Exotic Preferences, 70 Expanding the Opportunities, 32 Equity Office Properties, 8 F Fannie Mae Bank of America, 16–17 CEO James Johnson, 37 conventional mortgages, 31 expanded government role, 52 FDR created, 28 HUD, 30 industry centralization, 34 locking out borrowers, 59 loosened loan criteria, 33 losses, 13 no incentive to negotiate, 49 Rothbard view, 48 underwater houses, 76–77 Fair Housing Act, 30 FDIC, 35, 39, 48 Federal Home Loan Banking System, 22 Federal Housing Administration, 22, 23, 29 Federal Reserve, 4, 5, 35, 36, 39, 42 Financial Times, 53 FIREA, 32 First American Core Logic, 3 Fishman, Robert, 28, 29 For a New Liberty, 54 Freddie Mac bond losses, 17 congressional authorization, 31 entrepreneurial risk, 56 expanded government role, 52 industry centralization, 34 loosened loan criteria, 33 Mortgage Electronic Registration System, 13 mortgages back to tenders, 16 Rothbard view, 48 G Geithner, Tim, 53, 57 Genesove, David, 69 Ginnie Mae, 30–31 Goodman, Laurie, 49 Goodman, Peter S., 36, 37, 39 Government National Mortgage Asssociation, 3, 52 Grant’s Interest Rate Observer, 46 Great Depression, 4, 26, 52 Greenspan, Alan, 35 Gross, Bill, 52 Guiso, Luigi, 45 H Hagerty, James R., 49 Hayden, Dolores, 22, 28 history of home values, 2 chart Home Depot, 5 Home Modernization Bureau, 20 Hoover, Herbert, 4, 20, 21, 36 HOPE, 32 Housing Advisory Council, 26 Hudson, Kris, 9 Hülsmann, Jörg Guido, 61, 62 Hutchinson, Janet, 20, 27–28 I Indiviglio, Daniel, 50 J Johnson, James, 37 Johnston, Joseph F., 8 journal, Association for Financial Counseling, 41 journal of Financial Planning, 41, 42 journal of Markets & Morality, 8 K Kemp, Jack, 32–33 Kudlow, Larry, 16 Kwak, James, 52 L La Valle, Nye, 14 Langone, Ken, 5 Las Vegas, 3, 49, 50, 57, 71, 79 Las Vegas Review journal, 50 Legal Studies Discussion Paper, 1 Levitin, Adam, 12 Levitt, William, 20 Lewis, Sinclair, 26 LewRockwell.com, 5 Lira, Gonzalo, 12–14 Lowenstein, George, 70 Lowenstein, Roger, 11, 62 Luth, Don, 62 M Macerich Co., 9 Market For Liberty, The, 56 Marketing and Financing Home Ownership, 19 Mauldin, John, 14 Mayer, Christopher, 69 McCarthy, Jonathan, 36 Miami Beach, 3 Mind of the Market, The, 71 Mises, Ludwig von, 6, 75 Moffett, James, 26 Morgan Stanley, 8, 9 Morgenson, Gretchen, 16 MSNBC, 16 Murin, Joseph, 3, 5 Murphy, Larry, 50 N Naked Capitalism, 14 National Association of Real Estate Boards, 20 National Association of Realtors, 31 National Homeownership Strategy, 33–34 Natural law and the fiduciary duties, 8 New Deal, 23 New York Times, iv, 16, 51 O Obama, Barack Hussein, 14 OFHEO, 32 Otis, James, iii Own Your Own Home, 4, 19, 20 P Past Due, 36 Paulson Jr., Henry M., 10 Peach, Richard W., 36 Phoenix, 3, 51 PIMCO, 52, 53 Pines, Michael, 16 Pinto, Edward, 33 Powell, Michael, 51 Power and Market, 57 Prechter, Robert, 60 Predictably Irrational, 72 Prelec, Dražen, 70 private property, iii, 24–25, 27–28, 47 Pruitt, A.

The End of Money: Counterfeiters, Preachers, Techies, Dreamers--And the Coming Cashless Society
by David Wolman
Published 14 Feb 2012

I get some “free” trips out of it, so there is some value in there, even if it’s not as much as I’m led to believe. Unfortunately, while the need to borrow is the true cause of debt—to cover payments that are absolutely necessary or otherwise—debt is often exacerbated by credit cards. Why? A generation of behavioral economics research has demonstrated that standard predictions of how we treat and handle our money have woefully misread Homo sapiens. We aren’t perfectly self-interested. We don’t hold consistent preferences. A tax incorporated into a price tag on supermarket shelves makes us more frugal, whereas an equivalent tax added at checkout is virtually ignored.

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Cash and electronic money may both be liquid, but they differ in their degree of slipperiness, and the fact that we’re more spendthrift when using plastic reinforces the opinion that cash is less complicated, safer, and somehow more upstanding. It might make us more honest, too. Dan Ariely, a professor of psychology and behavioral economics at Duke and the author of the bestseller Predictably Irrational, ran a set of experiments showing that people are apparently more ethical when dealing with paper money as compared with other objects that have the same dollar value. In one experiment, he covertly placed six-packs of Coca-Cola in refrigerators located in the common area of college dorms.

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By 2014, transactions conducted via wireless connections from our phones are expected to total $1.13 trillion.23 Initially, most of these new technologies will only provide alternative ways to make a credit card charge, but that too is changing, as users turn to person-to-person methods that cut out the middlemen, the cumulative effect of which is fewer tack-on fees and less friction in our economic lives. But one worry with new digital tools is that they will further separate us from the act of spending, pushing us in the direction of less responsible financial decisions, if that’s even possible. I don’t buy that fatalistic view because we can use findings from behavioral economics to better ourselves. As disheartening as it can be to learn about how irrationally we treat money, the upside is that these insights can guide the development of future forms of money and financial devices. We can design systems that coax us into making wiser choices. This isn’t Huxleyian enemy-state social engineering—it’s just smarter tools, like automobiles that adjust to icy driving conditions, or coffee pots that shut off after a certain amount of time so that you don’t set fire to the kitchen.

Rapt: Attention and the Focused Life
by Winifred Gallagher
Published 9 Mar 2009

Recently, however, a rare convergence of insights from both neuroscience and psychology suggests a paradigm shift in how to think about this cranial laser and its role in behavior: thoughts, feelings, and actions. Like fingers pointing to the moon, other diverse disciplines from anthropology to education, behavioral economics to family counseling, similarly suggest that the skillful management of attention is the sine qua non of the good life and the key to improving virtually every aspect of your experience, from mood to productivity to relationships. If you could look backward at your years thus far, you’d see that your life has been fashioned from what you’ve paid attention to and what you haven’t.

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If most of the time you’re not particularly concerned about whether what you’re doing is work or play, or even whether you’re happy or not, you know you’re living the focused life. CHAPTER 8 Decisions: Focusing Illusions Sometimes, really bright people make really foolish choices, from relocating to a beautiful place that will bore them stiff to involving a nation in a needless war. Research in the burgeoning field of behavioral economics shows that such disasters, large and small, are often rooted in an all-too-human tendency to pay attention to the wrong things during the decision-making process. Looking back, Shannon Howell sees that her transfer from the University of Michigan to Brown University, long her dream destination, was based on her single-minded focus on Ivy League prestige rather than on what kind of college experience would best meet her needs.

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All the measures were supposedly standard and utterly familiar, yet medical professionals often succumbed to the temptation to skip them until Pronovost developed a way for team members to enforce one another’s motivation. SOME INTRIGUING NEW RESEARCH on the old-fashioned quality of willpower, conducted by the research psychiatrist George Ainslie, who studies behavioral economics at the Veterans Affairs Medical Center in Coatesville, Pennsylvania, highlights an important reason why we act impulsively or inexplicably and also points to a strategy for staying focused on the right motivation. From his perspective, your life is run not by the highly structured, unified Cranial Central Command that you like to imagine but by a group of bickering agents with different motives.

Drive: The Surprising Truth About What Motivates Us
by Daniel H. Pink
Published 1 Jan 2008

Daniel Kahneman, an American psychologist who won the Nobel Prize in economics that year for work he'd done with Israeli Amos Tversky, helped force a change in how we think about what we do. And one of the implications of this new way of thinking is that it calls into question many of the assumptions of Motivation 2.0. Kahneman and others in the field of behavioral economics agreed with my professor that economics was the study of human economic behavior. They just believed that we'd placed too much emphasis on the economic and not enough on the human . That hyperrational calculator-brained person wasn't real. He was a convenient fiction. Play a game with me and I'll try to illustrate the point.

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We hang on to bad investments longer than we should, because we feel far sharper pain from losing money than we do from gaining the exact same amount. Give us a choice of two television sets, we'll pick one; toss in an irrelevant third choice, and we'll pick the other. In short, we are irrational and predictably so, says economist Dan Ariely, author of Predictably Irrational , a book that offers an entertaining and engaging overview of behavioral economics. The trouble for our purposes is that Motivation 2.0 assumes we're the same robotic wealth-maximizers I was taught we were a couple of decades ago. Indeed, the very premise of extrinsic incentives is that we'll always respond rationally to them. But even most economists don't believe that anymore.

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We work to master the clarinet on weekends although we have little hope of making a dime (Motivation 2.0) or acquiring a mate (Motivation 1.0) from doing so. We play with puzzles even when we don't get a few raisins or dollars for solving them. Some scholars are already widening the reach of behavioral economics to encompass these ideas. The most prominent is Bruno Frey, an economist at the University of Zurich. Like the behavioral economists, he has argued that we need to move beyond the idea of Homo Oeconomicus (Economic Man, that fictional wealth-maximizing robot). But his extension goes in a slightly different direction to what he calls Homo Oeconomicus Maturus (or Mature Economic Man).

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

In addition, economists long assumed that people are consistent optimizers of a sensible utility function using all available information, with rational expectations. As we’ve noted, this theory omits some clearly important phenomena. Fortunately, the behavioral economics revolution of the last few decades has brought economic research closer to that of other social sciences. No longer do economists routinely assume that people always behave rationally. 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.

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Did Monetary Forces Cause the Great Depression? New York: W. W. Norton. ________. 1989. Lessons from the Great Depression. Cambridge, MA: MIT Press. Terkel, Studs. 1970. Hard Times: An Oral History of the Great Depression. New York: Random House. Thaler, Richard. 2015. Misbehaving: The Making of Behavioral Economics. New York: W. W. Norton. ________. 2016. “Behavioral Economics: Past, Present, and Future” (AEA Presidential Address). American Economic Review 106(7):1577–1600. Thaler, Richard, and Cass Sunstein. 2008. Nudge: Improving Decisions about Health, Wealth, and Happiness. New Haven, CT: Yale University Press. Theobald, Robert. 1963.

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Framing is related to the Daniel Kahneman and Amos Tversky representativeness heuristic (1973), whereby people form their expectations based on some idealized story or model, judging these expectations based on the prominence of the idealized story rather than estimated probabilities. For example, we may judge the danger of an emerging economic crisis by its similarity to a remembered story of a previous crisis, rather than by any logic. George Katona, one of the founders of behavioral economics and author of the 1975 book Psychological Economics, noted an odd phenomenon: when he interviewed common people and asked them about their expectations of key economic variables, he had the feeling that they had no clear expectations, and that they made up numbers on the spot to please him.

The Economics of Enough: How to Run the Economy as if the Future Matters
by Diane Coyle
Published 21 Feb 2011

The trend toward greater inequality is, if not yet unsustainable, well on its way to being so. THE FAIRNESS INSTINCT The evidence for the existence of a fairness instinct in humans comes from psychological experiments, evolutionary psychology, and primatology. Some of the experimental results have become well known, thanks to the fashion for behavioral economics. One example is the “ultimatum game.” One of two players is given some cash to divide between the two of them. The second player can take or leave the offer, but if he rejects it, neither of them gets any money. Typically, offers that are too low are rejected, with the threshold being about a quarter or a third, even though the second player punishes themselves as well as the insufficiently generous first player.

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Much has been made of the fact that this contradicts the assumption in economics of rational self-interest—taken to its logical conclusion, this would suggest the second player should accept even a cent as better than nothing. This experiment and others indicate that a sense of fairness, and unfairness, trumps this strong version of the rational self-interest assumption.2 Too much weight is placed on this experimental psychological evidence, however. Behavioral economics has become so fashionable partly because the experimental results are fascinating but also partly because so many of its new aficionados are delighted that it seems to overturn a key assumption in economics. Their delight is misplaced. For one thing, other experimental evidence indicates that humans behave selfishly in other contexts.

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The mathematics of modeling the behavior of many individuals and working out the collective result was much easier if people could be assumed to make their decisions independently of each other and according to the rules of logic and algebra. Figure 7. Social animals. However, the assumption of narrow individualism in economics has been in retreat for the past twenty years or so (there is much more on this in my book The Soulful Science [2008]). Not only in behavioral economics but also in the study of growth, economic institutions, social capital, innovation, and other economic topics, not to mention in the widespread use of game theory as a tool, there is a richer version of how people behave and what motivates them. In fact, the parallels and crossovers between economics and evolutionary science are becoming ever more apparent.

Happy City: Transforming Our Lives Through Urban Design
by Charles Montgomery
Published 12 Nov 2013

* * * The cheers in that Vancouver ballroom echoed in my ears for the five years I spent charting the intersection of urban design and the so-called science of happiness. The quest led me to some of the world’s greatest and most miserable streets. It led me through the labyrinths of neuroscience and behavioral economics. I found clues in paving stones, on rail lines, and on roller coasters, in architecture, in the stories of strangers who shared their lives with me, and in my own urban experiments. I will share that search with you, and its hopeful message, in the rest of this book. One memory from early in the journey has stuck with me, perhaps because it carries both the sweetness and the subjective slipperiness of the happiness we sometimes find in cities.

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John’s, a rocky outpost and the capital of perennially poor Newfoundland, was near the top of trust and happiness lists. Meanwhile, citizens of the country where people trust their neighbors, strangers, and even their government the most—the Danes—consistently come out on or near the top of happiness polls. A similar lesson appears over and over again in psychology, behavioral economics, and public health. Happiness is a house with many rooms, but at its core is a hearth around which we gather with family, friends, the community, and sometimes even strangers to find the best part of ourselves. As it happens, we are hardwired to trust one another, in spite of our natural wariness of strangers.

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The discipline’s proverbial “economic man” has access to every piece of relevant information, doesn’t forget a thing, evaluates his choices soberly, and makes the best possible decision based on his options. But the more psychologists and economists examine the relationship between decision making and happiness, the more they realize that this is simply not true. We make bad choices all the time. In fact we screw up so systematically that you might as well call behavioral economics the science of getting it wrong. Even when we do get complete information, which is rare, we are prone to a barrage of predictable errors of bias and miscalculation. Our flawed choices have helped shape the modern city—and consequently, the shape of our lives. Take the simple act of choosing how far to travel to work.

User Friendly: How the Hidden Rules of Design Are Changing the Way We Live, Work & Play
by Cliff Kuang and Robert Fabricant
Published 7 Nov 2019

Instead, our culture came to view the mind as a contraption, whose inner workings we often misapprehended, when we appreciated them at all. It’s not an accident that the same era that begat the first mentions of user-friendliness also birthed behavioral economics. By the 1970s, the latter had just begun to produce a series of startling studies that revealed just how shortsighted our minds could be, and how many shortcuts we took to make sense of the world. What both user-friendliness and behavioral economics shared was an overriding sense that our minds could never be perfected, and that our imperfections made us who we are. This embrace of human limitation was nursemaid to the idea that machines had to be bent around humans.

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This embrace of human limitation was nursemaid to the idea that machines had to be bent around humans. Don Norman’s early papers are larded with references to the pathbreaking work of Amos Tversky and Daniel Kahneman, in which they laid the foundations of behavioral economics. Meanwhile, modern neuroscience was also beginning to discover that our brain wasn’t built like a clock either, with neatly functioning units. Rather, it was composed of many separate evolutionary adaptations kludged together. By the 1980s, it wasn’t a surprise that humans could be viewed as the sum of their foibles. User-friendliness is simply the fit between the objects around us and the ways we behave.

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It shouldn’t be surprising that our psychological quirks necessarily lie at the core of every app or product that takes hold in the market. A striking example comes from Uber. After a lengthy investigation, the New York Times journalist Noam Scheiber discovered that the company was using insights from behavioral economics to get its drivers to work longer hours.25 One trick capitalized on the human preoccupation with goals. Drivers would be prompted with messages such as “You’re $10 away from making $330 in net earnings. Are you sure you want to go offline?” The number was arbitrary, and the goal essentially meaningless.

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

But as Keynes’ legacy and the role of government have been challenged, the system of safeguards developed from the experience of the Great Depression has been eroded. It is therefore necessary for us to renew our understanding of how capitalist economies— in which people have not only rational economic motives but also all kinds of animal spirits—really work. This book, which draws on an emerging field called behavioral economics, describes how the economy really works. It accounts for how it works when people really are human, that is, possessed of all-too-human animal spirits. And it explains why ignorance of how the economy really works has led to the current state of the world economy, with the breakdown of credit markets and threat of collapse of the real economy in train.

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We are especially grateful to those economists who have participated in the Behavioral Macroeconomics workshops (later called the Macroeconomics and Individual Decision Making workshops) that the two of us have been organizing at the National Bureau of Economic Research since 1994. These took place with the support of the behavioral economics program of the Russell Sage Foundation until 2004, and since then they have been supported by the Federal Reserve Bank of Boston. This book incorporates ideas first published in our separate journal articles with various co-authors. Those co-authors include John Campbell on asset price volatility; Karl Case and Allan Weiss on housing; William Dickens and George Perry on inflation-unemployment tradeoffs; Rachel Kranton on minority poverty; Paul Romer on bankruptcy and looting; and Janet Yellen on fairness in wages and unemployment.

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In contrast, uncertainty refers to something that cannot be measured because there are no objective standards to express probabilities. Theoretical economists have been struggling ever since to make sense of how people handle such true uncertainty.32 As time goes by, their efforts seem to be converging more and more on behavioral economics. Jack Welch’s phrase “straight from the gut” sums it up: decisions that matter for investment are intuitive rather than analytical. That intuition is a social process that follows the laws of psychology—and in particular, since group decisions are being made, social psychology. Business—at least successful business—thrives on the excitement of creating the future.

Sickening: How Big Pharma Broke American Health Care and How We Can Repair It
by John Abramson
Published 15 Dec 2022

Instead of serving the interests of a broad range of stakeholders, they pivoted to serving the narrow financial interests of investors and executives. The following chapters will show how Big Pharma took advantage of this trend by gaining control of most of the scientific evidence that doctors rely on to determine optimal care of their patients. I’ll use the principles of behavioral economics to explain why pharmaceutical marketing works so well, even on an audience of highly trained health-care professionals. And the final chapter of part II will show how American health care’s unique reliance on the market is extremely advantageous to powerful corporations, institutions, and investors but turns physicians into their unwitting agents and leaves the public with a critically dysfunctional health-care system.

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Part of the answer, discussed in the previous chapter, lies in the false premise that the discipline of evidence-based medicine ensures that doctors will rely on the most valid medical science. The rest of the answer can be found in Big Pharma’s marketing toolbox. Therein lie selling tactics rooted in behavioral economics designed to exploit consumers’ (including doctors’) vulnerability to commercial marketing ploys. Therein also lie the twin tactics of delivering commercially favorable but not necessarily scientifically accurate key messages to health-care providers and creating branding campaigns directed at both consumers and prescribers that are carefully designed to establish an emotional connection to specific products.

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Hence my purpose in writing this book: to show how, by the skillful use of the tactics already listed and to be discussed in the next three sections of this chapter, pharmaceutical firms influence the behavior of health-care professionals. No longer the learned intermediaries our patients expect us to be, we have unwittingly become “unlearned” intermediaries, serving the drug companies’ financial interests rather than our patients’ medical needs. BEHAVIORAL ECONOMICS AND DOCTORS To understand why doctors are such easy marks, we need to take a closer look at their vulnerabilities as consumers of commercially produced scientific information. This requires going beyond the paradigm of evidence-based medicine to the psychology that lies behind doctors’ processing of new medical information.

Plenitude: The New Economics of True Wealth
by Juliet B. Schor
Published 12 May 2010

In response to a query from Queen Elizabeth about why economists failed to see what was happening, a group of U.K. economists attributed the failure to the “feel-good” factor and a failure of the “collective imagination.” See Stewart (2009). 11 body of research that attests to human adaptability: See the section on the relation between income and happiness in chapter 5. 11 behavioral economics, cultural evolution, and social networking: An introduction to behavioral economics is Kahneman and Tversky (2000). For cultural evolution, see Bowles and Gintis (2004). On social networking, see Christakis and Fowler (2007). 11 human evolution . . . more compressed: Hawks et al. (2007), or for a summary see Keim (2007). 12 Some of the most important economic research . . . shows that a single intervention: See the literature on natural assets, including Boyce and Pastor (2001), Harper and Rajan (2004), Stanton and Boyce (2005), Agarwal and Narain (2000), and Boyce and Shelley (2003). 15 fossil fuels will be smaller and less profitable: Of course, the profitability of the oil industry has long been associated with high degrees of market concentration (monopoly power) and government protection and subsidies.

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But there are no feedback loops from today’s choices to tomorrow’s desires. This accords with an old formulation of human nature as fixed, and this view still dominates the policy conversation. However, there’s a growing body of research that attests to human adaptability. Newer thinking in behavioral economics, cultural evolution, and social networking that has developed as a result of interdisciplinary work in psychology, biology, and sociology yields a view of humans as far more malleable. It’s the economic analogue to recent findings in neuroscience that the brain is more plastic than previously understood, or in biology that human evolution is happening on a time scale more compressed than scientists originally thought.

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See Schnaiberg (1980) and Gould, Pellow, and Schnaiberg (2008). 69 resulted in a literal externalization: Environmental economics has suffered from its relative isolation in that it has been slow to incorporate theoretical innovations from other parts of the discipline and outside, most notably the shift to evidence-driven models of decision-making pioneered by behavioral economics, and new research on the relation between well-being and income. 69 Environmental economics has also been closely intertwined with energy economics: The National Bureau of Economic Research has a joint environmental and energy-economics program. 71 “most of my economist colleagues have always known . . .”: Beckerman (1972), p. 327. 71 discipline has historically tended to optimism: Partha Dasgupta, one of the world’s top environmental economists, makes this point in Dasgupta (2005), p. 106. 71 a sixth of the world’s population . . . already hungry: Food and Agriculture Organization of the United Nations (2009). 1.4 billion people living on less than $1.25 per day is from World Bank (2009b). 71 Nordhaus said climate change might even end up improving well-being: Nordhaus (1982); his on-balance positive conclusion is from Nordhaus (1991).

Makers and Takers: The Rise of Finance and the Fall of American Business
by Rana Foroohar
Published 16 May 2016

Yet new research shows just how much of what happens in our economy and society is irrational, unpredictable, and better thought of in terms of fluid human experience than rigid mathematical modeling. Indeed, the most vibrant area of study today is behavioral economics, a field that takes all of this into account, and for which Shiller won his Nobel. He points out that while behavioral economics is often thought of as “soft” science, in comparison to classical thinking, it’s behaviorists who actually go out into the field and collect real data about what’s happening on Main Street. Despite all the complex financial modeling done by neoliberal economists, “a lot of [economics and business school professors] don’t collect and plot real data from the real world and look at it as part of their research,” says Shiller.

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36 The idea that what happens on Main Street isn’t worthy of the attention of “real economists” will eventually change—many of the top talents in economics and business education are being drawn into behavioral work. But change in academia moves at a snail’s pace. And back in the late 1970s, behavioral economics was a nascent idea, while efficient-markets theory ruled. Its ascension eventually led another pair of Chicago-educated academics, Michael Jensen and William Meckling, to develop a management framework that would further reshape both business education and the corporate landscape: agency theory, or the notion that managers should be treated like owners, and paid in stock, to boost corporate performance.

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And I invested in…[a] management company.”23 In lieu of pouring all your money into Fidelity or BlackRock, there are any number of studies that tell us how much better off we are investing the Vanguard way, in low- or no-fee index funds. The world’s smartest investors buy it—Warren Buffett recently told me that upon his death, his wife’s inheritance would be invested 90 percent in Vanguard’s S&P 500 equity index funds.24 So why don’t we all follow that wisdom? The answer has its roots in behavioral economics, which tells us that the “rational man” is more than capable of making irrational decisions. As The Economist put it recently, “everyone knows that if you go to a casino, the odds are rigged in favour of the house. But people still dream of making a killing. The same psychology seems to apply to fund management, where investors flock to high-cost mutual funds even though the odds are against them.”25 Most of us simply don’t trust ourselves about investing, and it’s in the interests of the industry to make it seem much more confusing than it is.

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

A Sampling of the Things to Come The first section of the book deals with thinking about the world and ourselves—how we do it, how we flub it, how to fix it, and how we can make far better use than we do of the dark matter of the mind, namely the unconscious. The second section is about choices—how classical economists think choices are made and how they think they ought to be made, and why modern behavioral economics provides both descriptions of actual choice behavior and prescriptions for it that are better and more useful in some ways than those of classical economics. The section provides suggestions for how to structure your life in order to avoid a wide range of choice pitfalls. The third section is about how to make categorizations of the world more accurately, how to detect relationships among events, and just as important, how to avoid seeing relationships when they aren’t there.

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Over the last hundred years or so, many different descriptive theories of choice and many prescriptive theories of choice have been proposed. The field has been near agreement on these matters from time to time, but then someone comes along with a new paradigm and battles begin anew. The most recent microeconomic warfare has resulted from cognitive psychologists and social psychologists entering the fray. The field of behavioral economics is an amalgam of psychological theories and research and novel economic perspectives. This hybrid seeks to overturn traditional descriptive and prescriptive theories of choice. And behavioral economists are beginning to move into the business of helping people to make choices. They’re not only telling you how to make choices, they’re engineering the world so that you make choices they believe to be optimal.

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Most of the material there is accepted by most economists, including those of the maverick behavioral sort. Chapter 5 shows the kinds of errors that people can make across the entire spectrum of daily choices. Knowing about those errors will improve how you approach the innumerable choices you face every day. Chapter 6 presents the behavioral economic view of how we make choices, how we should make choices, and why it’s a good idea for experts to nudge you in the direction of superior choices. 4. Should You Think Like an Economist? When difficult cases [decisions] occur, they are difficult chiefly because while we have them under consideration, all the reasons pro and con are not present to the mind at the same time … To get over this, my way is to divide half a sheet of paper by a line into two columns; writing over the one “Pro,” and the other “Con.”

Unsustainable Inequalities: Social Justice and the Environment
by Lucas Chancel
Published 15 Jan 2020

International Monetary Fund (IMF) economists have recently shown that, in almost all cases, policies aimed at reducing inequality have not adversely affected growth over the past three decades—invalidating the leaky-bucket thesis.31 A number of other recent studies have arrived at the same conclusion.32 Let us briefly consider several examples involving labor productivity. INEQUALITY REDUCES LABOR PRODUCTIVITY Recent research in behavioral economics, conducted in countries that are culturally very different, supports the conclusion that income inequality affects workers’ motivation. In an experiment designed to measure the effect of wage differentials on effort in the workplace, the economist Alain Cohn and his colleagues studied a Swiss firm that hired employees on a temporary basis to sell promotional cards permitting entry to certain nightclubs and bars on specific dates.33 In the first phase of the experiment, the employees, who worked in teams of two, were paid the same hourly wage.

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Very comparable results have been obtained by a similar experiment in India, suggesting that this aversion to inequality extends across cultures.34 Another study of the same type was made by economists at the University of California, Berkeley, showing that job satisfaction is partly determined by relative wages (rather than the level of pay).35 They too found that earning more than the baseline wage for a given job does not increase workers’ satisfaction, whereas earning less has a negative effect, prompting underpaid workers to change employers. We are therefore far from Okun’s hypothetical world in which inequality stimulates innovation and encourages workers to work harder. These results will seem self-evident to many readers. Studies of this kind in behavioral economics are vulnerable to the objection that they prove the obvious or else set out to disprove what noneconomists, at least, consider to be implausible. But many unrealistic assumptions (that individuals are all rational, for example, or that they do not care about inequalities, or that they are purely selfish) nonetheless continue to enjoy considerable influence in the world of economic research and among some decision makers.

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My thanks, finally, to my family and friends, to Alexandra for her endless patience, and to Kevin Jamey and Simon Ilse for their inexhaustible energy. INDEX agriculture, 75–77, 86–87 air pollution. See pollution air travel, 98, 136, 165n13 Anthropocene, 90–91 anxiety, 20–21 aquaculture, 76–77 baby boomers, 98–101 behavioral economics, 26–28 border carbon adjustment (BCA), 146 Brazil, 14, 43, 93, 97, 103, 117. See also Rio + 20 summit (2012) BRICS effect, 103 cancer, 78–79, 83 carbon tax, 3; debates on, 33–34, 126–127, 167n19; examples of, 6, 34, 113, 127–129; lack of support for, 146, 156n44, 169n14; progressive forms of, 134–136, 146–147.

What's Mine Is Yours: How Collaborative Consumption Is Changing the Way We Live
by Rachel Botsman and Roo Rogers
Published 2 Jan 2010

Douglas Rushkoff comments in Life Inc., “It was less important for this life to provide actual satisfaction as for it to produce a class of people who behaved as if they were satisfied.”12 This desire created a relentless pressure to buy more stuff. Now the barrier that companies needed to overcome was giving people an easy way to pay for it. Buy Now, Pay Later Richard Feinberg, a consumer psychology professor at Purdue University and a pioneer in consumer behavioral economics, has long studied the influence of credit cards on our spending decisions. One of the first experiments he conducted, with the help of a local restaurant, involved recording the check amount, the size of the tip, and the method of payment—cash or credit card—for 135 customers. He found that people who paid by credit card left tips 2 percent higher than those who paid by cash.

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For decades behavioral economists wondered whether our sense of fairness is as much a part of human nature as is our obvious sense of competition. The answer to this question is critical to redistribution markets. People’s ability to determine what is fair and what is not plays a big role in making these peer-to-peer reuse systems work. In the “ultimatum game,” the classic experiment in behavioral economics that attempts to understand how fairness works, two people are paired together. Player A, randomly assigned, is known as the proposer. He or she is handed a sum of ten $1 bills (the total amount is irrelevant). The proposer’s job is to decide how the $10 should be split and to make an offer.

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Dilip Soman, “Effects of Payment Mechanism on Spending Behavior: The Role of Rehearsal and Immediacy of Payments,” Journal of Consumer Research 27 (March 2001). 17. In The Decisive Moment, Jonah Lehrer made a similar observation: “When we pay for something with cash, the purchase involves an actual loss—our wallet is literally lighter” (Canongate Books, 2009), 89. 18. Mickey Butts talks about this idea in “Why We Charge: What Behavioral Economics Can Tell Us” (August 19, 2003). This is a working article written by Butts while on the Knight-Bagehot fellowship for business journalists at Columbia Journalism School and Columbia Business School, http://www.mickeybutts.com/wj_business.html. 19. Ibid. 20. Joe Nocera, A Piece of the Action: How the Middle Class Joined the Money Class, as quoted in Vanity Fair, “Rethinking the American Dream,” www.vanityfair.com/culture/features/2009/04/american-dream200904. 21.

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

The United States would lead the way, a light unto the nations, relying proudly on our innate altruism to procure enough donated kidneys to save tens of thousands of lives every year. The Ultimatum and Dictator games inspired a boom in experimental economics, which in turn inspired a new subfield called behavioral economics. A blend of traditional economics and psychology, it sought to capture the elusive and often puzzling human motivations Gary Becker had been thinking about for decades. With their experiments, behavioral economists continued to sully the reputation of Homo economicus. He was starting to look less self-interested every day—and if you had a problem with that conclusion, well, just look at the latest lab results on altruism, cooperation, and fairness.

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While teaching there, he also served on the President’s Council of Economic Advisors; List was the lone economist on a forty-two-person U.S. delegation to India to help negotiate the Kyoto Protocol. He was by now firmly at the center of experimental economics, a field that had never been hotter. In 2002, the Nobel Prize for economics was shared by Vernon Smith and Daniel Kahneman, a psychologist whose research on decision-making laid the groundwork for behavioral economics. These men and others of their generation had built a canon of research that fundamentally challenged the status quo of classical economics, and List was following firmly in their footsteps, running variants of Dictator and other behavioralist lab games. But since his days at Stevens Point, he had also been conducting quirky field experiments—studies where the participants didn’t know an experiment was going on—and found that the lab findings didn’t always hold up in the real world.

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. / 169 A Stern warning: see Nicholas Herbert Stern, The Economics of Climate Change: The Stern Review (Cambridge University Press, 2007). / 169 There is much to be read about the influence of uncertainty, especially as it compares with its cousin risk. The Israeli psychologists Amos Tversky and Daniel Kahneman, whose work is generally credited with giving ultimate birth to behavioral economics, conducted pioneering research on how people make decisions under pressure and found that uncertainty leads to “severe and systematic errors” in judgment. (See “Judgment Under Uncertainty: Heuristics and Biases,” from Judgment Under Uncertainty: Heuristics and Biases, ed. Daniel Kahneman, Paul Slovic, and Amos Tversky [Cambridge University Press, 1982].)

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

Although Obama resisted this batty construal, there was an impatience with democracy in the air. Nudge and behavioral economics The fallibility of human decision-making had lately preoccupied social scientists. They were out to show that Homo economicus, the reliably rational calculator of his own advantage who inhabits the works of Adam Smith and Alfred Marshall, did not exist. In 2002 the Israeli psychologist Daniel Kahneman of Princeton had won the Nobel Prize in economics for work done with his late compatriot Amos Tversky of Stanford. Their work in so-called behavioral economics described people’s tendency to mis-predict and mis-assess.

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This meant that conflict, when it eventually came, would be constitutional conflict, with all the gravity that the adjective “constitutional” implies. 7 Winners Outsourcing and global value chains—Politicized lending and the finance crisis—Civil rights as a ruling-class cause—Google and Amazon as governments in embryo—Eliot Spitzer, Edward Snowden, and surveillance—The culture of internet moguls—The affinity between high tech and civil rights—The rise of philanthropy—Obama: governing without government—Nudge and behavioral economics—From gay rights to gay marriage—Windsor: the convergence of elites—Obergefell: triumph of the de facto constitution It took a long time for Americans to realize that the New Economy was a new economy. They were accustomed to marketing hype. When politicians used the term “New Economy,” it was easy for voters to assume it was only a jazzed-up way of describing the process, familiar for centuries, by which mechanization was introduced into certain industrial tasks, creating limited short-term sectorial disruptions but offering rewards to those trained in the new technology.

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For a generation, every imputation of bias in public life had required the ransacking of institutions and the shredding of reputations. Now the word “bias,” which had once carried overtones of bigotry and evil, had come to mean something like “human nature.” 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.

The Tyranny of Metrics
by Jerry Z. Muller
Published 23 Jan 2018

Frey, whose works include Not Just for the Money: An Economic Theory of Human Motivation (Cheltenham, England, 1997). For a review of the relevant literature with a focus on behavioral economics, which concludes that “behavioral economics clearly shows that the universal application of pay-for-performance as practiced today is not warranted by scientific facts,” see Antoinette Weibel, Meike Wiemann, and Margit Osterloh, “A Behavioral Economics Perspective on the Overjustification Effect: Crowding-In and Crowding-Out of Intrinsic Motivation,” in Marylène Gagné (ed.), The Oxford Handbook of Work Engagement, Motivation, and Self-Determination Theory (New York, 2014). 9.

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

School asks students to be good at a range of subjects, but life asks people to find one passion that they will follow forever. Behavioral Economics Erica figured she needed to find some field of expertise she could bring to her client’s problems. She needed some body of knowledge that related to her interest in culture and deep decision making, but which also was palatable in the marketplace. She had to find a language to describe consumer psychology that businesspeople could understand—something familiar and scientific. And that’s how she came upon behavioral economics. Over the previous decade a group of economists had worked to apply the insights of the cognitive revolution to their own field.

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Or, to look at it another way, it is the human brain plus these chunks of external scaffolding that finally constitutes the smart, rational inference engine we call mind. Looked at that way, we are smart after all—but our boundaries extend further out into the world than we might have initially supposed.” Cultures That Work Erica took courses in sociology, psychology, history, literature, marketing, and behavioral economics—anything she thought might help her understand the shared scaffolding of the human mind. All cultures share certain commonalities, stored in our genetic inheritance. Anthropologists tell us that all cultures distinguish colors. When they do, all cultures begin with words for white and black.

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Classical economists often believe that economies as a whole tend toward equilibrium, but behavioral economists are more likely to analyze the way shifts in the animal spirits—in confidence, trust, fear, and greed—can lead to bubbles, crashes, and global crises. If the fathers of classical economics knew what we know now about the inner workings of the human mind, some behavioral economists argue, there is no way they would have structured the field as it is. Behavioral economics came much closer to explaining the reality Erica saw around her every day. She also recognized immediately that this field offered her a way to describe the mind’s hidden processes in a language that would be familiar to MBA grads in corporations across America. Deep in her heart, Erica did not think the way the behavioral economists did.

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

The next step is turning that awareness into an effective plan, into concrete steps, into change. Now that we’ve studied the many things we do badly, we can begin to examine the nuances of our behavior in order to find tools that will help us to build a better future. One of the main lessons of behavioral economics is that small changes to the environment we live in matter. Following this approach, we believe that a detailed understanding of human frailty is the best first step toward improving the ways we make decisions in general and financial decisions in particular. Let’s start by considering what we can do, individually, to avoid, correct, or mitigate each of the valuation mistakes we make.

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Yes, we should pay our future selves first, but we can shave off a little for our present selves, too. 18 STOP AND THINK The last few chapters provided just a few examples of designing environments to turn our mental shortcomings into tools that work in the service of our financial success. We could go on and on, picking out experiments and efforts from around the globe, but the point is this: Work has started in an attempt to use our human quirks—as revealed by financial psychology and behavioral economics—to improve the outcomes of our flawed thinking, as opposed to just taking advantage of it. Given what we see out in the real world, however, it is clear that much more needs to be done. It would be fantastic if we were able to design more systems like these to improve our financial environments, reduce the impact of our mental money mistakes, and weaken the outside forces that lead us astray.

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Aylin Aydinli (Vrije Universiteit, Amsterdam), Marco Bertini (Escola Superior d’Administració i Direcció d’Empreses [ESADE]), and Anja Lambrecht (London Business School), “Price Promotion for Emotional Impact,” Journal of Marketing 78, no. 4 (2014). CHAPTER 5: WE COMPARTMENTALIZE 1. Gary Belsky 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 & Schuster, 2000). 2. Jonathan Levav (Columbia) and A. Peter McGraw (University of Colorado), “Emotional Accounting: How Feelings About Money Influence Consumer Choice,” Journal of Marketing Research 46, no. 1 (2009): 66–80. 3. Ibid. 4. Amar Cheema (Washington University, St.

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

In its standard version, Dictator involves two players, one of whom is given a fixed amount of cash. The sole action of the game occurs when that person is offered the chance to give away all, some, or none of it as she pleases to the other player. In its simplicity and ubiquity, Dictator is the tic-tac-toe of behavioral economics. Repeated experiments show that most people in the dictator role prefer to keep a majority of the cash for themselves but still give a portion to the other player. In other words, as dictators, most people aren’t self-sacrificing saints, but neither are they total misers. The question, though, is how much they keep.

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No such single study is a problem in itself – the problem is that such studies are increasingly prioritized (because they’re easier and cheaper to run) over studies of slower-changing, internal traits and are becoming disproportionately influential in policy. 16.For the canonical exposition of behavioral economics’ “nudges,” see Thaler and Sunstein (2008), who popularized the term. Their notion of “libertarian paternalism” is among the gentlest conceptions of manipulation, and most of their ideas are undoubtedly worth implementing. But is that all we’re going to ask of ourselves? Can’t we go beyond nudging one another?

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See also Caste system Bahrain: Arab Spring, 34, 37 Bain Capital, 85–86 Bales, Kevin, 166–167 Banerjee, Abhijit, 68, 236–237(n14) Banking sector. See Microcredit Barnes & Noble, 75–77 Bauerlein, Mark, 10 Baumeister, Roy, 132, 251–252(n15) Behar, Anurag, 8 Behavior change, manipulative nature of, 161, 197 Behavioral economics, 144–145, 258(n2) Beneficiaries of packaged interventions, 26, 61, 66–69, 111–112 Bentham, Jeremy, 88 Berlin Wall, 36 The Better Angels of Our Nature (Pinker), 191, 270(n48) Bhutan, 87–88 Blagsvedt, Sean, 122 Blake, William, 174 Blaming victims, 170, 172–174, 202, 256(n42) Book industry, 74–77, 240(n1), 246(n67) Bookshops, 74–75 Bornstein, David, 190 Bottom of the pyramid.

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.

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It means there’s greater value in the nicotine or sugars that are now in front of you. A pressing desire to have the reward in front of us In these ways, people tend to overestimate the rewards in front of them and underestimate the rewards and punishments that exist in the future. In behavioral economics, this is called “hyperbolic discounting.” People can’t rationally evaluate value like a computer. We want to eat an apple that’s set in front of us right now, and we want $10 now rather than $12.50 three days from now. We can’t wait. And when the reward is a great distance away, we can’t get in the mood to do something.

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Because the text editor launched quickly and worked well, I didn’t quit while I waited for it to open. Logging the date was easy; I could just type “today” or “tomorrow,” and Google Japanese Input would convert it to the correct date. People’s motivation will easily go away when faced with a simple hurdle. Deciding to operate or donate an organ is also a hurdle An example that behavioral economics researcher Dan Ariely introduces is pretty shocking. When presented with a hypothetical case, in which they were considering whether to go forward with a planned surgery for a difficult case, many doctors decided not to operate after all when told that there was actually still one type of drug that had yet to be tested.

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

SOME BASICS OF MODERN PSYCHOLOGY AND ECONOMICS Understanding how people actually behave—rather than how they would behave if, for instance, they had access to perfect information and made efficient use of it in their attempts to reach their goals, which they themselves understood well—is the subject of an important branch of modern economics called behavioral economics. This school holds that even if behavior is not consistent with the standard tenets of rationality, it still may be predictable. And if we can understand what determines behavior, we can shape it.9 Work in modern psychology and behavioral economics has observed that, in certain arenas, there are systematic misperceptions. There are consistent biases in judgments. And the work has set out to explain what determines those biases and misperceptions.

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This turns out to raise theoretical issues that are closely akin to the measurement of risk, and my early work, four decades ago, was done jointly with Michael Rothschild. Subsequently, I began work with a former student, Ravi Kanbur, on the measurement of socioeconomic mobility. The influence of behavioral economics on my thinking should be evident in this work. I was first introduced to these ideas some forty years ago by the late Amos Tversky, a pioneer in this field, and subsequently Richard Thaler and Danny Kahneman have greatly influenced my thinking. (When I founded the Journal of Economic Perspectives in the mid-1980s, I asked Richard to do a regular column on the subject.)

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Information that is inconsistent is more likely to be ignored, discounted, or forgotten. This distortion is called “confirmatory bias.”14 The “equilibrium fictions” that can result from this process are beliefs that are maintained strongly because the evidence that people see—as they perceive and process it—is fully consistent with those beliefs.15 Behavioral economics and modern marketing Shaping behavior is a central goal of marketing. Over the years, firms have worked hard to understand what determines consumers’ buying decisions; for if they understand that, they can induce people to buy more of their products. Thus, the major objective of advertising is not to convey information, but to shape perceptions.

Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets
by Nassim Nicholas Taleb
Published 1 Jan 2001

It is a platitude that children learn only from their own mistakes; they will cease to touch a burning stove only when they are themselves burned; no possible warning by others can lead to developing the smallest form of cautiousness. Adults, too, suffer from such a condition. This point has been examined by behavioral economics pioneers Daniel Kahneman and Amos Tversky with regard to the choices people make in selecting risky medical treatments—I myself have seen it in my being extremely lax in the area of detection and prevention (i.e., I refuse to derive my risks from the probabilities computed on others, feeling that I am somewhat special) yet extremely aggressive in the treatment of medical conditions (I overreact when I am burned), which is not coherent with rational behavior under uncertainty.

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While this caused a fierce scientific dispute, I will have to say that they agree on the significant part as far as this book is concerned: (1) We do not think when making choices but use heuristics; (2) We make serious probabilistic mistakes in today’s world—whatever the true reason. Note that the split even covers the new economics: Just as we have a scientific branch of economics coming out of the Kahneman and Tversky tradition (behavioral economics), there is another scientific branch of economics coming out of evolutionary psychology, with the caveman economics approach followed by such researchers as the economist-biologist Terry Burnham, coauthor of the very readable Mean Genes. Our Natural Habitat I will not delve too deeply into amateur evolutionary theory to probe at the reasons (besides, in spite of having spent some time in libraries I feel that I am truly an amateur in the subject matter).

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Simon, Herbert A., 1955, “A Behavioral Model of Rational Choice.” Quarterly Journal of Economics, 69, 99–118. ———, 1956, “Rational Choice and the Structure of the Environment.” Psychological Review, 63, 129–138. ———, 1957, Models of Man. New York: Wiley. ———, 1983, Reason in Human Affairs. Stanford, Calif.: Stanford University Press. ———, 1987, “Behavioral Economics.” In Eatwell, J., Milgate, M., and Newman, P.,eds.,1987, The New Palgrave: A Dictionary of Economics. London: Macmillan. ———,1987, “Bounded Rationality.”In Eatwell, J., Milgate, M., and Newman, P., eds., 1987, The New Palgrave: A Dictionary of Economics. London: Macmillan. Skinner, B. F., 1948, “Superstition in the Pigeon.”

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

As always, our toughest and wisest advice came from France Leclerc and Martha Nussbaum. Vicki Drozd helped out with everything, as she always does, and made sure that all the research assistants got paid, which they appreciated. Thanks too to Ellyn Ruddick-Sunstein, for helpful discussion, patience, both sense and amusement about behavioral economics, and good cheer. We also owe a special thanks to all the staff at Noodles restaurant on 57th Street. They have fed us and listened to us planning and discussing this book, among other things, for several years now. We’ll be back next week. INTRODUCTION The Cafeteria A friend of yours, Carolyn, is the director of food services for a large city school system.

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Kahneman, Knetsch, and Thaler (1991). 14. Tversky and Kahneman (1981). 2. Resisting Temptation The Planner/Doer model is developed in Thaler and Shefrin (1981). For a review of recent research on self-control and intertemporal choice see Frederick, Loewenstein, and O’Donoghue (2002). Modern behavioral economics treatments include Laibson (1997) and O’Donoghue and Rabin (1999). 1. See Camerer (2007), McClure et al. (2004). 2. See Wansink (2006) for a summary. 3. See Gruber (2002). 4. Thaler and Johnson (1990). 3. Following the Herd We have drawn for part of this chapter on Sunstein (2003).

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Camerer, Colin F., and Robin M. Hogarth. “The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework.” Journal of Risk and Uncertainty 19 (1999): 7–42. Camerer, Colin F., Samuel Issacharoff, George Loewenstein, Ted O’Donoghue, and Matthew Rabin. “Regulation for Conservatives: Behavioral Economics and the Case for ‘Asymmetric Paternalism.’” University of Pennsylvania Law Review 151 (2003): 1211–54. Caplin, Andrew. “Fear as a Policy Instrument.” In Time and Decision: Economic and Psychological Perspectives on Intertemporal Choice, ed. George Loewenstein, Daniel Read, and Roy Baumeister, 441–58.

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

On this first view, what is at stake in our cultural moment would seem to be the conditions for the possibility of achieving a coherent self. But there is another position, or family of positions, that would regard this concern with a certain bemusement, because it is convinced that rational agency is an illusion. This stance is evident in a few different departments of the human sciences. Behavioral economics is impressed with psychological findings that suggest that the reasons for our actions are generally opaque to us, not objects of rational scrutiny. Whatever reason-giving we engage in tends to be a post hoc story that we tell ourselves, and is therefore beside the point if we are trying to understand human behavior.

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The assumption was that we are able to do this because we know what we want, and the calculation will be simple because our interests are not in conflict with one another; each can be located on the same “utility” scale, which has only one dimension. This “rational optimizer” view has come in for thorough revision with the advent of the more psychologically informed school of “behavioral economics.” There is a large literature that shows that, for example, we consistently underestimate how long it will take us to get things done, no matter how many times we have been surprised by this same fact in the past (the so-called planning fallacy). We give undue weight to the most recent events when trying to grasp a larger pattern and predict the future.

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If you shop at the supermarket (because you aren’t Amish), the alternative to being nudged by the choice architects of a central political authority isn’t to inhabit some well-ordered local community. It is to be manipulated by other choice architects, equally distant, who act on behalf of their shareholders without any accountability to the common good. Two cheers for the nudge, then. A third cheer would have to be somewhat ironic. The studies that inform behavioral economics investigate an individual in the artificial setting of a university psychology lab, where the whole point is to isolate and control every variable. But this means she has been denuded of any environmental props she may rely on in everyday life. From the perspective of the extended-mind literature, it is not surprising that these studies show that we are poor reasoners in isolation.

The Big Nine: How the Tech Titans and Their Thinking Machines Could Warp Humanity
by Amy Webb
Published 5 Mar 2019

That’s because the Big Nine uses AI-powered software to sift through resumes, and it’s trained to look for specific keywords describing hard skills. A portfolio of coursework outside the standard subjects would either be an anomaly or would render the applicant as invisible. The AI scanning through resumes proves that bias isn’t just about race and gender. There’s even a bias against philosophy, literature, theoretical physics, and behavioral economics, since candidates with lots of elective courses outside the traditional scope of AI tend to get deprioritized. The tribe’s hiring system, designed to automate the cumbersome task of doing a first pass through thousands of resumes, would potentially leave these candidates, who have a more diverse and desirable academic background, out of consideration.

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There were 23 of us, seated boardroom-style, and our agenda was to debate and discuss some of the most pressing social and economic impacts of AI facing humanity, with a particular focus on gender, race, and AI systems that were being built for health care. However, the very people about whom we were having the discussion got overlooked on the invite list. There were two people of color in the room and four women—two were from the organization hosting us. No one invited had a professional or academic background in ethics, philosophy, or behavioral economics. It wasn’t intentional, I was told by the organizers, and I believe them. It just didn’t occur to anyone that the committee had invited a mostly all-male, nearly all-white group of experts. We were the usual suspects, and we either knew each other personally or by reputation. We were a group of prominent computer science and neuroscience researchers, senior policy advisors from the White House, and senior executives from the tech industry.

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The Royal Dutch Shell company popularized scenario planning when it revealed that scenarios had led managers to anticipate the global energy crisis (1973 and 1979) and the collapse of the market in 1986 and to mitigate risk in advance of their competition.8 Scenarios are such a powerful tool that Shell still, 45 years later, employs a large, dedicated team to researching and writing them. I’ve prepared risk and opportunity scenarios for the future of AI across many industries and fields and for a varied group of organizations. Scenarios are a tool to help us cope with a cognitive bias behavioral economics and legal scholar Cass Sunstein calls “probability neglect.”9 Our human brains are bad at assessing risk and peril. We assume that common activities are safer than novel or uncommon activities. For example, most of us feel completely safe driving our cars compared to flying on a commercial airline, yet air travel is the safest mode of transportation.

Advances in Financial Machine Learning
by Marcos Lopez de Prado
Published 2 Feb 2018

ACM. pp. 23–30. Bloom, J. S. et al. (2012): “Automating discovery and classification of transients and variable stars in the synoptic survey era.” Publications of the Astronomical Society of the Pacific, Vol. 124, No. 921, p. 1175. Camerer, C.F. and G. Loewenstein (2011): “Behavioral economics: Past, present, future.” In Advances in Behavioral Economics, pp. 1–52. Chen, L. et al. (2015): “Profiling and understanding virtualization overhead in cloud.” Parallel Processing (ICPP), 2015 44th International Conference. IEEE. Choi, J.Y. et al. (2013): ICEE: “Wide-area in transit data processing framework for near real-time scientific applications.” 4th SC Workshop on Petascale (Big) Data Analytics: Challenges and Opportunities in Conjunction with SC13.

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One of the motivations of the CIFT project is to seek a way to transfer the above tools to the computing environments of the future. 22.6 Use Cases Data processing is such an important part of modern scientific research that some researchers are calling it the fourth paradigm of science (Hey, Tansley, and Tolle [2009]). In economics, the same data-driven research activities have led to the wildly popular behavioral economics (Camerer and Loewenstein [2011]). Much of the recent advances in data-driven research are based on machine learning applications (Qiu et al. [2016], Rudin and Wagstaff [2014]). Their successes in a wide variety of fields, such as planetary science and bioinformatics, have generated considerable interest among researchers from diverse domains.

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The conventional wisdom is that the HPC approach occupies a small niche of little consequence. This is not true. HPC systems are essential to the progress of scientific research. They played important roles in exciting new scientific discoveries including the Higgs particle and gravitational waves. They have spurred the development of new subjects of study, such as behavioral economics, and new ways of conducting commerce through the Internet. The usefulness of extremely large HPC systems has led to the 2015 National Strategic Computing Initiative.3 There are efforts to make HPC tools even more useful by accelerating their adoption in business applications. The HPC4Manufacturing4 effort is pioneering this knowledge transfer to the U.S. manufacturing industry, and has attracted considerable attention.

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

The second school concentrates on “negative heuristics,” defined as heuristics that trip up people, violating basic laws of rationality and logic; e.g., the availability heuristic and the anchoring heuristic; see Amos Tversky and Daniel Kahneman, “Availability: A Heuristic for Judging Frequency and Probability,” Cognitive Psychology 5, no. 2 (September 1973): 207–32; Daniel Kahneman, “Reference Points, Anchors, Norms, and Mixed Feelings,” Organizational Behavior and Human Decision Processes 51, no. 2 (1992): 296–312. Daniel Kahneman and Amos Tversky are the leading exponents of this school. Both schools have demonstrated their relevance in impressive detail. Important disagreements exist between the two, to be sure; see Gerd Gigerenzer, “The Bias Bias in Behavioral Economics,” Review of Behavioral Economics 5, nos. 3–4 (December 2018): 303–36; Daniel Kahneman and Gary Klein, “Conditions for Intuitive Expertise: A Failure to Disagree,” American Psychologist 64, no. 6 (2009): 515–26. But they are best understood as complementary models for understanding different aspects of heuristics, not as competing models for explaining the same thing.

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International Journal of Project Management 30 (7): 781–90. Gigerenzer, Gerd. 2002. “Models of Ecological Rationality: The Recognition Heuristic.” Psychological Review 109 (1): 75–90. Gigerenzer, Gerd. 2014. Risk Savvy: How to Make Good Decisions. London: Allen Lane. Gigerenzer, Gerd. 2018. “The Bias Bias in Behavioral Economics.” Review of Behavioral Economics 5 (3–4): 303–36. Gigerenzer, Gerd. 2021. “Embodied Heuristics.” Frontiers in Psychology 12 (September): 1–12. Gigerenzer, Gerd, and Henry Brighton. 2011. “Homo Heuristicus: Why Biased Minds Make Better Inferences.” In Heuristics: The Foundations of Adaptive Behavior, eds.

The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay
by Emmanuel Saez and Gabriel Zucman
Published 14 Oct 2019

After the 1980s, by contrast, student loans boomed as public funding for higher education retreated. Financial deregulation made it easier for people to get into debt, for example by facilitating the perpetual rollover of mortgage debt through refinancing, or by boosting the supply of consumer credit. This is perhaps the main lesson of behavioral economics, the fast-growing field of research that strives to take a more realistic view of human behavior than the standard, hyper-rational economic model: when it comes to influencing the saving rate, nontax policies swamp tax incentives.17 Take default options, for example. Newly hired workers are four times more likely to enroll in a 401(k) retirement savings account—the now dominant form of retirement saving in the United States—when that’s the default option offered to them (80%, in that case, do enroll) than when they have to voluntarily opt in (20%).18 Default options not only boost retirement saving, they increase the overall saving rate of workers: the money put in retirement saving accounts does not crowd out other forms of wealth accumulation (such as the reimbursement of housing debt).

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In more realistic settings, capital taxes are actually desirable (see, e.g., Piketty, and Saez, 2013, and Saez and Stantcheva, 2018). 15. Piketty and Zucman (2014). 16. See Saez and Zucman (2016) for a detailed description of the evolution of bottom 90% savings and wealth over the last century. 17. Two broad-audience books provide overviews of the behavioral economics literature and summarize its implications for public policies: Thaler and Sunstein (2008) and Thaler (2015). 18. This result was first established by Madrian and Shea (2001). It has been replicated in many subsequent studies (see, e.g., Beshears et al., 2009). 19. Chetty et al. (2014). 20.

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Spahr, Charles. An Essay on the Present Distribution of Wealth in the United States. New York: TY Crowell, 1896. Teles, Steven. The Rise of the Conservative Legal Movement: The Battle for Control of the Law. Princeton, NJ: Princeton University Press, 2012. Thaler, Richard H. Misbehaving: The Making of Behavioral Economics. New York: W. W. Norton, 2015. ———, and Cass R. Sunstein. Nudge: Improving Decisions about Health, Wealth, and Happiness. New Haven, CT: Yale University Press, 2008. Thorndike, Joseph J. “Historical Perspective: Pecora Hearings Spark Tax Morality, Tax Reform Debate.” Tax Notes 101, November 10, 2003.

Irrationally Yours: On Missing Socks, Pickup Lines, and Other Existential Puzzles
by Dan Ariely and William Haefeli
Published 18 May 2015

However, when we’re at a restaurant and the waiter places the dessert menu (or even worse, the dessert tray) in front of us and we see our favorite dessert listed as an option, we get a very different idea about the importance of having dessert right now. We see the triple chocolate cake, and our priorities change. In behavioral economics, we call this “present-focus bias.” On top of that, a diet is really a difficult thing to stick to—much more difficult than quitting smoking, for example. Why? Because with smoking, we are either smokers or nonsmokers. With dieting, we can’t easily separate ourselves into eaters and noneaters.

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Adaptation 181 Aging 104, 151 Appreciation 55, 57, 124, 165, 207 Attention 34, 49, 99 Cars 60, 104, 124, 127 Communication 40, 83, 91, 165 Commuting 181 Comparison 186 Coordination 75, 112, 133, 167 Decisions 4, 30, 39, 79, 93, 97, 121, 129, 137, 138, 165, 167, 174, 183, 204 Dieting 9, 164 Education 136, 161 Effort 47, 57 Emotions 15, 28, 30, 83, 109, 129, 141, 144, 178, 183, 188, 211 Entertainment 6, 82, 154 Exercise 149 Expectations 1, 13, 82, 158 Experiences 18, 25, 44, 88, 112, 151, 161, 170 Experimenting 64, 66, 97, 115, 193 External Perspective 30 Family 23, 37, 51, 86, 95, 115, 173 Fashion 62, 202 Food and Drinks 18, 31, 53, 73, 88, 109, 121, 144, 158, 164, 170 Forgiveness 37 Friends 1, 11, 91, 144, 167 Fun 200 Giving 11, 34, 73, 86, 102 Goals 47, 186 Habits 47, 79, 134, 175 Happiness 1, 43, 62, 64, 66, 69, 82, 88, 102, 115, 181, 193, 200 Health 31, 134, 138 Helping 124 Honesty 107, 139, 141, 146, 199, 201 Language 154, 195, 207, 208 Long-Term Thinking 4, 43, 69, 79, 136, 138, 170, 174 Loss Aversion 6, 178, 211 Luck 97, 129, 139 Memory 37, 99, 151 Misery 44, 58, 91, 208 Mistakes 99, 137, 174 Money 11, 71, 118, 146 Morality 73, 95, 199 Motivation 161 Opinions 173 Other People 31, 39, 40, 83, 93, 133, 188, 195, 204 Political Correctness 62 Predictions 13, 39, 55, 77, 183, 195 Procrastination 95, 149 Regret 109, 137, 156 Relationships 13, 21, 28, 43, 55, 66, 69, 77, 86, 107, 112, 118, 173, 197 Religion 156 Rules 9, 23, 102 Self-Control 9, 134, 164, 175, 200 Self-Deception 197, 201 Self-Image 104 Sex 28, 53, 197, 201, 202 Signaling 21, 60, 202, 204 Social Media 15, 75 Social Norms 15, 40, 53, 118, 133 Spending 60, 71, 121, 144, 207 Sports 211 Stock Market 178, 199 Technology 49, 75, 107, 154 Time 25, 51, 127, 167 Travel 25, 51, 58, 64, 183, 188 Value 6, 18, 34, 71, 93, 121, 139, 156, 158 Waiting 58, 127 Wishful Thinking 175 Workplace 4, 23, 44, 49, 57, 77, 136, 146, 149, 186, 193, 208 About the Authors DAN ARIELY is the James B. Duke Professor of Psychology and Behavioral Economics at Duke University, and is the founder of the Center for Advanced Hindsight. He is the author of three New York Times bestsellers: Predictably Irrational, The Upside of Irrationality, and The Honest Truth About Dishonesty. He lives in Durham, North Carolina, with his wife, Sumi, and their two adorable and well-behaved children, Amit and Neta.

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

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. His article, “Toward a Positive Theory of Consumer Choice,” published in 1980 in the Journal of Economic Behavior and Organization, is a guiding text in what was to become the field of behavioral economics. In it Thaler pointed out that economic theories based on a “rational maximizing model” describe how consumers should choose but not how they do choose. He argued that in certain well-defined situations many consumers act in a manner that is inconsistent with prevailing economic theory, concluding that “in these situations economic theory will make systematic errors in predicting behavior.”

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Eamon is the sort of editor all authors dream of but few are lucky enough to know in their waking life. Among the hundreds of experts and colleagues who helped shape my thinking on this project, a few stand out as being particularly influential. I am deeply grateful for the great generosity of Daniel Ariely, James B. Duke Professor of Behavioral Economics at Duke University; Mark Barenberg, professor of law at Columbia University; Jared Bernstein, chief economic advisor to Vice President Joseph Biden; Robert Bruno, associate professor of labor and industrial relations at the University of Illinois Urbana-Champaign; Peter Cappelli, George W.

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Ross is a sociologist at Clark University. 118 a combined savings of $3 billion: “Rebates, Coupons and Discounts,” NPD Insights, no. 2 (May 2005), available at http://www.npdinsights.com/corp/enewsletter/html.archives/May2005/index.html. 118 nearly half of all computer sales—involved them: Matthew A. Edwards, “The Law, Marketing and Behavioral Economics of Consumer Rebates,” Stanford Journal of Law, Business & Finance 12, (2007), 362. 119 redemption rate data:: Redemption rates are equal to the number of successful redemptions divided by the number of units sold. 119 make public this side of their business: See Tim Silk and Chris Janiszewski, “Managing Mail-In Rebate Promotions: An Empirical Analysis of Purchase and Redemption,” Sauder School of Business, University of British Columbia, working paper, 24. 119 “what the manufacturer had in mind”: Catherine Greenman, “The Trouble with Rebates,” New York Times, September 16, 1999, G1. 119 consider their time too valuable: Widespread speculation that a subgroup of consumers choose not to bother because they don’t want to take the time doesn’t qualify as an explanation. 120 is considered an abject failure: Timothy Guy Silk, “Examining Purchase and Non-Redemption of Mail-In Rebates: The Impact of Offer Variables on Consumers’ Objective and Subjective Probabilities of Redeeming,” dissertation, University of Florida, 2004, 6. 120 “without encouraging redemptions”: Ibid., 7. 122 to buy the product: Carrie Heilman, Kyryl Lakishyk, Sonja Radas, “The Effectiveness of In-Store Free Samples on Sample Takers,” 2006, available online at http://www.commerce.virginia.edu/faculty__research/Research/Papers/FreeSa- mples__July26__2006.pdf. 123 “five shillings besides”: From the essay “Advice to a Young Tradesman Written in the Year 1748,” in Autobiography of Benjamin Franklin (New York: Macmillan Company, 1921), 188. 123 “an opportunity cost”: Diip Soman, “The Mental Accounting of Sunk Time Costs: Why Time Is Not Like Money,” Journal of Behavioral Decision Making 14, no 3 (2001), 169-85. 123 we tend to underestimate its value: Richard Thaler, “Mental Accounting Matters,” Journal of Behavioral Decision Making 12 (1999), 183-206.

Humans Are Underrated: What High Achievers Know That Brilliant Machines Never Will
by Geoff Colvin
Published 3 Aug 2015

It does not fit the model of homo economicus—the rational, knowledgeable, wealth-maximizing person who forms the basis of neoclassical economics. That concept has been pretty well demolished by forty years of behavioral economics research that shows in a hundred ways how crazy our decisions often are. In explaining effective groups, though, we’re looking at a slightly different type of irrational behavior. Behavioral economics focuses on our predictably faulty cognitive behavior. (Example: A pad and pencil together cost $1.10. The pad costs a dollar more than the pencil. What does the pencil cost? Almost everybody will immediately say ten cents, which of course is wrong.)

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Almost everybody will immediately say ten cents, which of course is wrong.) That’s why Daniel Kahneman called his monumental book on the subject Thinking, Fast and Slow—it’s about thinking. Here, we’re looking instead at social behavior. It’s irrational in that it’s a clear affront to economic man. But unlike the foibles revealed by behavioral economics, it doesn’t lead us into error. On the contrary, our irrational social behavior leads us to great performance, to producing megahit movies and winning international golf tournaments and achieving undreamed-of efficiencies. How perfectly, essentially human: irrational behavior that somehow makes sense.

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

He declares that market imperfections and market failures are so pervasive and so serious that the market is always inefficient and requires government correction. Imperfect information exists in labor, products, money, trade, and capital markets.1 Serious unemployment 1. 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).

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The End of Prosperity. New York: Monthly Review. Tarshis, Lorie. 1947. The Elements of Economics. Boston: Houghton Mifflin. Terborgh, George. 1945. The Bogey of Economic Maturity. Chicago: Machinery and Allied Products Institute. Thaler, Richard and Shlomo Benartzi. 2004. "Saving More Tomorrow: Using Behavioral Economics to Increase Employment Savings." Journal of Political Economy 112:S 1 (February), 164-187. Tobin, James. 1965. "The Monetary Interpretation of History: A Review Article." American Economic Review 55 (June): 466-85. . 1992. "The Invisible Hand in Modern Macroeconomics." In Adam Smith's Legacy, ed.

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Index Abstinence theory of interest, 110 Callaghan, James, 198 Aggregate demand, 153, 154f, 188-189 Cambridge school, 115 Aggregate demand management, 136, Cannan, Edwin, 15 137, 150 Cantillon, Richard, 42-43 Aggregate effective demand, 158-159 Capital Aggregate supply, 153, 154f, 188-189 accumulation and falling profits, 85-86 Agriculture, 42, 43, 49 forms of, 84-85 Ahenation, 97 marginal productivity theory, 120 Alliance for Progress, 201 Capital and Interest (Bohm-Bawerk), 110 Aim, Richard, 33-34 Capital development, positive theory of, Anti-American attitudes, 86 112 Anti-Samuelson, 170 Capital investment, 11 Anti-Semitism, Marx and, 68-69 Capital (Marx), 68, 80-81 Antisaving proponents, 157-158 money, 99-100 Apostles, 139 transformation problem, 92-93 Aristotle, 38-39 Capitalism Arrow, Kenneth J., 20 benefits, 32-34, 98 AS-AD diagram, 188-189 collapse predictions, 90-91, 101, 102 Associations, establishment of, 113 crisis of, 86 Austrian economists, 128-132 degrees of faith in, 26-27 evolutionary role of, 99-100 Balanced budget multiplier, 172, 176 Friedman's view of, 196 Banker to the Poor (Yunus), 204 Heilbroner's view of, 202 Banking, free, 36 Keynes' view of, 135-136, 149, 153 Bastiat, l^ieric, 47, 74, 151, 216 Marxist view of, 83, 85-87 Bauer, P.T., 202, 204 modern day, 97-98 Behavioral economics, 214«1 Protestantism and, 123-124 Berman, Marshall, 67 threats to, 135, 138 Birthrate, 52-53 unstability of, 153, 172, 196 Black, Joseph, 17 Veblen's view of, 121-123 Blackboard economics, 55 Weber's view of, 123 Blaug, Mark, 55, 105^, 125, 167 See also Economic freedom Blinder, Alan, 20, 188-189 Capitalism and Freedom (Friedman), 192, Block, Walter, 31 197 Bohm-Bawerk, Eugen, 93, 110-112, Capitalist-entrepreneur, 111 180 Capitalists Boulding, Kenneth E., 208 Bohm-Bawerk's view of, 110-111 Bourgeoisie, 76 Marxist view of, 93 Bretton Woods agreement, 152 risk taker. 111 Brown, William Montgomery, 67 workers and, 93-94, 111-112 Buchanan, James, 209-210 Carlyle, Thomas, 63 Buckle, Henry Thomas, 12 Carnegie, Andrew, 33 Burning incidents.

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

We hope this kaleidoscope of information and opinion will create a triangulated perspective that will allow our readers to formulate their own version of “What’s Next?” As the global financial crisis became a juggernaut, the public appropriately raised the question, why didn’t anyone, economists in particular, see this coming? What is the value of economic research? Two new closely allied fields, behavioral economics and neuroeconomics, have attempted to bring the human factor to bear on neoclassical theories. Nobel Prize winner Paul Krugman has also blamed a reliance on what he calls mathematical elegance in economics. Doubts about statistics, once largely confined to third world countries, and in particular China, have surfaced in first world countries.

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Kahneman and Tversky investigated the apparent anomalies in human behavior that lead to asymmetries in the choices we make. In particular, they investigated how the framing of an identical issue can lead to either risk-averse or risk-seeking behavior. In a nutshell, this is the greatest insight of behavioral economics: all the decisions we make can be greatly influenced by small changes in the context. However, neuroeconomics has put to rest the notion entrenched in classical economic and financial theory that we systematically apply rational calculations to all the investment decisions we make. Now that we can observe neural activity in the brain through imaging as well as other techniques, we know that each time we make an investment decision (or a decision of any kind), emotions, feelings, habits, and instincts interfere with our attempt to make a rational choice.

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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. Soon, some of their ideas on how to nudge made their way into policy-making. Today, for example, many governments try to harness some of their insights for specific policy purposes.

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

One was the idea of information asymmetry: markets could not price everything perfectly if all participants did not have equal access to accurate information. The other was behavioral economics, which focused on the many ways the human mind was naturally prone to misperceive reality and how that would affect people’s interactions with economic markets. 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.

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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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Absentee Ownership (Veblen) Addams, Jane advertising African Americans, see black Americans Agenda, The (Woodward) Airbnb airline regulation Allen & Company Alliance, The (Hoffman) alpha, as economic term Alphabet; see also Google Alsop, Joseph Aluminum Co. of America Amazon American Can Company American Capitalism (Galbraith) American Dream, An (Mailer) American Finance Association American Nazi Party American Telephone and Telegraph, see AT&T angel investors; see also venture capital Antitrust Paradox, The (Bork) antitrust suits, see trustbusting Apple Computer; funding of Arab Americans Arnold, Thurman Arrow, Kenneth artificial intelligence AT&T; job cuts at; research at auto dealers; associations of; franchise agreements of; online; see also General Motors automatic teller machines Automobile Dealer Economic Rights Restoration Act Baker, Kevin Baldwin, Robert Hayes Burns; changes made by; compensation of Bankers Trust banking; in auto industry; during Depression; deregulation of, see deregulation; local; regulation of; see also investment banking; Morgan Stanley; savings and loans Bank of America bankruptcy bank trust departments Barr, Michael Bartow, Jeff Bay of Pigs invasion Beard, Anson Beard, Charles and Mary Beard, Patricia Beard, Peter Bear Stearns Beck, Glenn behavioral economics “Being a Leader” (Jensen and Erhard) Bell, Daniel Bennington College Bentley, Arthur; on pluralism Berkshires Berle, Adolf Augustus, Jr.; airline regulation and; background of; at Columbia; corporations embraced by; critiques of; death of; ego of; on financial markets; marriage of; Modern Corporation by; pluralism and; post–Roosevelt administration career of; revival of ideas of; in Roosevelt campaign; as Roosevelt’s assistant secretary of state; in Roosevelt’s Brain Trust Berle, Adolf Augustus, Sr.

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

Why should you never give money to organized charities unless they operate in a highly distributive manner (what is called Uberized in modern lingo)? Why do genes and languages spread differently? Why does the scale of communities matter (a community of fishermen turns from collaborative to adversarial once one moves the scale, that is the number of people involved, a notch)? Why does behavioral economics have nothing to do with the study of the behavior of individuals—and markets have little to do with the biases of participants? How is rationality survival and survival only? What is the foundational logic of risk bearing? But, to this author, skin in the game is mostly about justice, honor, and sacrifice, things that are existential for humans.

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Taleb, N. N., and R. Douady, 2015. “On the Super-Additivity and Estimation Biases of Quantile Contributions.” Physica A: Statistical Mechanics and Its Applications 429: 252–260. Taleb, N. N., and C. Sandis, 2013. “The Skin in the Game Heuristic for Protection Against Tail Events.” Review of Behavioral Economics 1(1). Teugels, J. L., 1975. “The Class of Subexponential Distributions.” The Annals of Probability, vol. 3, no. 6, pp. 1000–1011. Thompson, D. F., 1983. “Ascribing Responsibility to Advisers in Government.” Ethics 93(3): 5466–0. Thorp, Edward O., 2006. “The Kelly Criterion in Blackjack, Sports Betting and the Stock Market.”

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I grew up in Lebanon at the time when the population was about half Christian: people greeted one another in the Roman pagan way of sharing one another’s holidays. Today Shiites (and some Sunnis not yet brainwashed by Saudi Arabia) would wish a Christian “Merry Christmas.” APPENDIX TO BOOK 3 A FEW MORE COUNTERINTUITIVE THINGS ABOUT THE COLLECTIVE fn1 What I just said explains the failure of the so-called field of behavioral economics to give us any more information than orthodox economics (itself rather poor) on how to play the market or understand the economy, or generate policy. fn2 It is worth mentioning names here as these people acted as attack dogs against those who discounted the selfish-gene theory, without addressing the mathematics provided (they can’t), yet kept barking.

The Missing Billionaires: A Guide to Better Financial Decisions
by Victor Haghani and James White
Published 27 Aug 2023

It is possible that some of these subjects questioned whether the coin truly had a 60% bias toward heads—but that hypothesis is not supported by the fact that, within the subset of 13 subjects who bet on tails more than 25% of the time, we found they were more likely to make that bet right after the arrival of a string of heads. Victor's mom played the game just for fun and when asked why she bet on tails on a few occasions, she said, “I knew I shouldn't, but I just couldn't help myself. It just felt like tails was due to come up.” In the behavioral economics literature, this is referred to as the “gambler's fallacy” or the “illusion of control bias.” In addition to giving you some practice in practical bet‐sizing, we encourage you to play our coin‐flip game several times as it may also give you a better appreciation for just how “un‐random” randomness can feel sometimes.

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Rational, consistent decision‐making is a valuable goal worth striving for, even if it can never be fully realized. We recognize it often makes sense to act as satisficersa when it comes to the low‐impact decisions we face day to day, but when we make financial decisions of high consequence, it pays to carefully weigh our decisions and behave as rationally as possible. The field of behavioral economics pioneered by Kahneman and Tversky provides an extensive catalog of all the ways we make strange and often inconsistent decisions. These are cognitive foibles. It has been the hope of economists and psychologists to help people make better decisions by making them aware of their biases. Far from denigrating Expected Utility as an old‐fashioned idea disproven by his work, in 2011 Kahneman declared von Neuman's Expected Utility hypothesis as: “To this day the most important theory in the social sciences.”1 It's no surprise that even exceptionally smart people need help with good decision‐making.

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The implication of the kink, and of the convexity in the region of losses, is that people behave as if they have negative risk‐aversion over lower levels of wealth. This implies they are very sensitive to small losses and only slightly more sensitive to large losses. We are big fans of Kahneman and Tversky and their work in behavioral economics, for which Kahneman won the 2002 Nobel Prize in Economics.f They made enormous contributions to formalizing our understanding of how people actually behave, and convincingly demonstrated that prospect theory is a much better predictor of behavior in many circumstances than classical utility theory.

Why Stock Markets Crash: Critical Events in Complex Financial Systems
by Didier Sornette
Published 18 Nov 2002

financial crashes are “outliers” 49 51 51 54 Drawdowns (Runs) Definition of Drawdowns Drawdowns and the Detection of “Outliers” Expected Distribution of “Normal” Drawdowns 56 60 60 62 65 69 70 73 75 Chapter 4 positive feedbacks 81 Drawdown Distributions of Stock Market Indices The Dow Jones Industrial Average The Nasdaq Composite Index Further Tests The Presence of Outliers Is a General Phenomenon Main Stock Market Indices, Currencies, and Gold Largest U.S. Companies Synthesis 76 Symmetry-Breaking on Crash and Rally Days 77 Implications for Safety Regulations of Stock Markets 82 Feedbacks and Self-Organization in Economics 89 Hedging Derivatives, Insurance Portfolios, and Rational Panics 91 91 “Herd” Behavior and “Crowd” Effect Behavioral Economics vii c ont ents 94 96 99 99 104 106 108 111 112 114 114 115 117 118 121 122 130 Chapter 5 134 modeling financial 135 bubbles and market crashes 135 134 136 137 139 140 Herding Empirical Evidence of Financial Analysts’ Herding Forces of Imitation It Is Optimal to Imitate When Lacking Information Mimetic Contagion and the Urn Models Imitation from Evolutionary Psychology Rumors The Survival of the Fittest Idea Gambling Spirits “Anti-Imitation” and Self-Organization Why It May Pay to Be in the Minority El-Farol’s Bar Problem Minority Games Imitation versus Contrarian Behavior Cooperative Behaviors Resulting from Imitation The Ising Model of Cooperative Behavior Complex Evolutionary Adaptive Systems of Boundedly Rational Agents What Is a Model?

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Recent works, for instance, Barlevy and Veronesi [28], show that uninformed traders can behave as insurance portfolios and precipitate a price crash because, as price declines, they reasonably surmise that better informed traders could have received negative information which leads them to reduce their own demand for assets, driving the price of stocks even lower. positi ve feedback s 91 “HERD” BEHAVIOR AND “CROWD” EFFECT Behavioral Economics In debates and research on the social sciences, the sciences dealing with human societies, it is customary to oppose two approaches, the first striving for objectivism, the second being more interpretative.  The first approach attempts to view “social facts” as “material things,” looking for examples where human groups appear to behave as much as possible as inanimate matter, such as in crowds, queues, traffic jams, competition, attraction, perturbations, and markets

…

Assumptions about the frailty of human rationality and the acceptance of 92 chapter 4 such drives as fear and greed are underlying the recipes developed over decades by so-called technical analysts. Prof. Thaler, now at the University of Chicago, was one of the earliest and strongest proponents of behavioral economics [424] and has made a career developing a taxonomy of anomalies that embarrass the standard view from neoclassical economics that markets are efficient and people are rational. According to accepted economic theory, for instance, a person is always better off with more rather than fewer choices.

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

I began documenting my observations of hundreds of companies to uncover patterns in user-experience designs and functionality. Although every business had its unique flavor, I sought to identify the commonalities behind the winners and understand what was missing among the losers. I looked for insights from academia, drawing upon consumer psychology, human-computer interaction, and behavioral economics research. In 2011 I began sharing what I learned and started working as a consultant to a host of Silicon Valley companies, from small start-ups to Fortune 500 enterprises. Each client provided an opportunity to test my theories, draw new insights, and refine my thinking. I began blogging about what I learned at NirAndFar.com, and my essays were syndicated to other sites.

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For example, every Economics 101 student learns that as prices decrease, consumers purchase more—in Fogg’s terms, an example of increasing ability by decreasing price. However, although the principle seems elementary, the law, like many other theories of human behavior, has exceptions. The field of behavioral economics, as studied by luminaries such as Nobel Prize winner Daniel Kahneman, exposed exceptions to the rational model of human behavior. Even the notion that people always consume more if something costs less is a tendency, not an absolute. There are many counterintuitive and surprising ways companies can boost users’ motivation or increase their ability by understanding heuristics—the mental shortcuts we take to make decisions and form opinions.

Crisis Economics: A Crash Course in the Future of Finance
by Nouriel Roubini and Stephen Mihm
Published 10 May 2010

It is is an admittedly selective history of economic theory, but its ambition is straightforward: to highlight what’s useful. As always, pragmatism informs our choices. Keynes is here, as is his most radical interpreter, Hyman Minsky, but so are economists from other camps: Robert Shiller, one of the most visible proponents of behavioral economics; Joseph Schumpeter, the grand theorist of capitalist “creative destruction”; and economists of a historical bent, from Charles Kindleberger to Carmen Reinhart and Kenneth Rogoff. Their disparate strands of thought inform our idiosyncratic approach to understanding crises. When Markets Behave Badly Crisis economics is the study of how and why markets fail.

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Or as Shiller observed, “While markets are not totally crazy, they contain quite substantial noise, so substantial that it dominates the movements in the aggregate market.” Questioning the myth of the efficient market was one thing; explaining precisely why markets are inefficient was another. That job fell to the practitioners of a new field, behavioral economics and behavioral finance. Researchers in these fields, Shiller later explained, develop “models of human psychology as it relates to financial markets.” In recent years these twin fields have attracted countless economists. Many researchers have conducted real-time experiments to determine how, exactly, participants in the stock market can behave in ways that contribute to disruptions like asset bubbles and financial panics.

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Though only partially concerned with economic crises (and chock-full of inaccuracies), Mackay’s book may have been the first attempt to draw lessons from the history of economic crises. His main conclusion—that human beings are an irrational lot, prone to fits of economic exuberance and euphoria—anticipated both behavioral economics and the thrust of much historical writing on crises. Several professional historians and economists followed in Mackay’s footsteps, but not until the economist Charles P. Kindleberger wrote Manias, Panics, and Crashes in 1978 did someone try to articulate an overarching historical theory of crises.

The Bogleheads' Guide to Investing
by Taylor Larimore , Michael Leboeuf and Mel Lindauer
Published 1 Jan 2006

Playing your hunches, blindly following the crowd or an investment guru, trying too hard, acting on a hot tip, relying on supreme self-confidence, going for it to make a quick killing, playing it ultra-safe, and a multitude of other emotionally based investment decisions will almost always leave you poorer. The paradox of money is while most people are very emotional about acquiring it, behaving emotionally about money is a recipe for losing it. WELCOME TO THE FIELD OF BEHAVIORAL ECONOMICS Classical economics assumes that human beings make conscious, rational choices about how to allocate their dollars to maximize their total satisfaction. Effective advertisers and good salespeople know that, in the short term, that assumption is about as realistic as the tooth fairy. From years of hands-on experience, they understand that people usually buy emotionally and justify with logic.

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Although the customers or investors may be able to give you a sound, logical reason why they buy or invest in a certain way, more often than not, it's not the real reason. Moreover, many times they aren't even aware of the real reason. While many economists were busily assuming away the real world, a couple of psychologists working in Israel pioneered a field that became known as behavioral economics. In the late 1960s, Amos Tversky and Daniel Kahneman were at Hebrew University in Jerusalem performing psychological experiments to determine how people go about making economic choices. It didn't take Tversky and Kahneman long to realize that people don't always make rational choices in their own best interest.

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Have you ever looked at your investment decisions in hindsight, slapped your forehead, and thought, "What on earth was I thinking?" Rest assured, most of us have. Chances are that you made a poor investment decision using one or more of the following judgmental heuristics that have been identified by researchers in behavioral economics. When we blindly assume that today's happenings will be tomorrow's results we are practicing recency bias (see Chapter 18). If the market is down, we assume it's going down further and we sell. If the market is up, we assume it's going to continue going up and we buy more. The result is that we sell our stocks at bargain-basement prices, buy somebody else's stocks at high prices, and lose money in the process.

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

“I was a sports card dealer”: Telephone interview with John List, January 2007. That’s why Professor List: John A. List, “Does Market Experience Eliminate Anomalies?” Quarterly Journal of Economics, February 2003. On another occasion: Uri Gneezy and John List, “Putting Behavioral Economics to Work: Testing for Gift Exchange in Labor Markets Using Field Experiments,” Econometrica 74, no. 5(September 2006): 1365–84, rady.ucsd.edu/faculty/directory/gneezy/docs/behavioral-economics.pdf. (I am oversimplifying here): For an economic model in which it is rational to pay an excess wage, see C. Shapiro and J. Stiglitz, “Equilibrium Unemployment as a Worker Discipline Device,” American Economic Review (June 1984).

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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.

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

Page 76—“The Forest Game”: Crelley, D., S. Lea, and P. Fisher. “Ego Depletion and the Tragedy of the Commons: Self Regulation Fatigue in Public Goods Games.” Presented at the 2008 World Meeting of the International Association for Research in Economic Psychology and the Society for Advancement of Behavioral Economics, Rome. Page 77—For a dramatic telling of the Easter Island tragedy, see Diamond, J. Collapse: How Societies Choose to Fail or Succeed. New York: Viking, 2004. For an economic model, see Bologna, M., and J. C. Flores. “A Simple Mathematical Model of Society Collapse Applied to Easter Island.”

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EPL (Europhysics Letters) 81 (2008): 480–86. Page 78—“Choice architecture”: Thaler, R. H., and C. R. Sunstein. Nudge: Improving Decisions About Health, Wealth, and Happiness. New York: Knopf, 2008. Page 79—Placement increases purchases: Just, D. R., and B. Wansink. “Smarter Lunchrooms: Using Behavioral Economics to Improve Meal Selection.” Choices 24 (2009). Chapter 4. License to Sin: Why Being Good Gives Us Permission to Be Bad Pages 82–83—Sexist survey and moral licensing: Monin, B., and D. T. Miller. “Moral Credentials and the Expression of Prejudice.” Journal of Personality and Social Psychology 81 (2001)33–43.

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Page 157—Only humans think about future: Gilbert, D. Stumbling on Happiness. New York: Knopf, 2006. Page 158—Reversal of preferences: Ainslie, G. “Specious Reward: A Behavioral Theory of Impulsiveness and Impulse Control.” Psychological Bulletin 82 (1975): 463–96. Page 159—“Bounded rationality”: Mullainathan, S., and R. H. Thaler. “Behavioral Economics.” Working Paper No. 00-27 (2000). www.ssrn.com/abstract=245828. Pages 159–160—Brain responds to immediate rewards: Cohen, J. D. “The Vulcanization of the Human Brain: A Neural Perspective on Interactions between Cognition and Emotion.” Journal of Economic Perspectives 19 (2005): 3–24. Page 160—Future versus immediate rewards: McClure, S.

The End of Theory: Financial Crises, the Failure of Economics, and the Sweep of Human Interaction
by Richard Bookstaber
Published 1 May 2017

“We don’t know how people really think (and we don’t care to know) but we will adjust our axioms to assume that they act as if they are optimizing. So if we solve the problem, we will understand the way people behave, even if we don’t know how people’s mental processes operate in generating their behavior.” Behavioral economics 1.0 does not fully get away from the gravitational pull of this mathematical paradigm. Decision making is compared with the constrained optimization, but then the deviations are deemed to be anomalies. Perhaps this was a necessity at the time, given the dominance of today’s standard neoclassical paradigm.

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Much of economic analysis is pegged to the time frame of our day-to-day world, where people do not change much. But with a crisis, the effects are manifest to a degree that these limits and failures come to the fore, are laid bare, and the failure of economics becomes evident, as opposed to other times, when it is cloaked by ordinariness. Or the failures can be cast off using behavioral economics and irrationality, chalking things up to market anomalies, as a foil. In a perfect vacuum a feather and a cannon ball fall at the same rate because the key force that is operating is gravity. But there are always atmospheric conditions and wind resistance in practical applications. With economics, perhaps in general the same can be said.

…

See bank/dealer bank/dealer, 135; derivatives desk of, 135–136; during crises, 187; failure of, 135; and funding, 135–136; and heuristics, 135–136; market making by, 135–136; prime broker of, 135; structure of, 131; trading desk of, 135–136 Basel Committee on Banking Supervision, 156 Bear Stearns, 10, 160; Goldman Sachs and the failure of, 167; market’s loss of confidence in, 167; use of repo for funding, 166 Bear Stearns Asset Management (BSAM), 161; collateral seized by Merrill Lynch, 162–163; Enhanced Leverage Fund, 162–163; hedge funds’ bankruptcy, 166–167 Becker, Gary, 81, 182 behavioral economics, 42, 102 Beinhocker, Eric, 89–90, 114, 175 Bentham, Jeremy, 6 Bernanke, Ben, 10–11 Big Short, The, 185 boids, 104 Borges, Jorge Luis, 182; The Art of Cartography, 25; Funes, the Memorious, 75 (see also Funes, the Memorious); The Library of Babel, 61–63 (see also Library of Babel); and example of Suarez Miranda, 25; Tlön, Uqbar, Orbis Tertius, 92–93 Bousquet, Antoine, 174 Boyd, John, 173–174; at the Air War College, 173; and ambiguity in warfare, 174; and Boyd Cycle, 119 (see also OODA loop); F-86 sabre strategy and, 119; at Fighter Weapons School, 119; and development of the OODA loop, 119, 179 (see also Boyd Cycle); and the Strategic Game of ?

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

Scholars in this area work largely at the intersection of economics and psychology. Much of their attention has focused on systematic biases in people’s judgments and decisions. As the late Amos Tversky, a Stanford University psychologist and a founding father of behavioral economics, liked to say, “My colleagues, they study artificial intelligence. Me? I study natural stupidity.” In the early 1980s, I taught one of the first undergraduate courses in behavioral economics. Because few students had heard of this nascent field, my first challenge was to come up with a course title that might lure some to enroll. In the end, I decided to call it “Departures from Rational Choice.”

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Standard rational choice models predict that the first subject will make a one-sided proposal—such as $99 for himself and $1 for the second subject— since he knows that it would be in the second subject’s interest to accept rather than get nothing. But such offers are rarely proposed, and when they are, they are almost invariably rejected. Subjects who reject one-sided offers seldom voice regret about having done so. From the beginning, most of the work in behavioral economics has focused on departures from rational choice with regret—those caused by cognitive errors. My former Cornell colleague Dick Thaler collaborated with Cass Sunstein to write Nudge, a marvelous 2008 book summarizing the myriad ways in which such errors lead people astray and how policy makers might restructure environments to facilitate better choices.

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

Just how much it rises or falls depends on how “elastic” demand is for the product. One that responds less to price, like medicine or a snow shovel, is said to be inelastic. You would have to raise the price of such items by a lot to affect our consumption of them while cutting their price wouldn’t convince people to buy much more. But the newer field of behavioral economics has modified some of those theories because people aren’t the rational economic beings economists once assumed. The zero-price effect says that demand for some products rises a lot more if the price goes from a dollar to zero instead of, say, two dollars to one dollar, even though the change is the same.

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Risky investments are more volatile and exciting and can develop exaggerated and self-fulfilling momentum in a sustained bull market. Add to that the magnifying effect of borrowed money, whether through margin debt or the ability to buy long-shot options contracts. Stimulus checks, meanwhile, gave young investors more than just starting capital. Behavioral economics tells us that people are more pained by losing money than they are pleased by making it. When people are playing with “house money,” though, in the form of government cash in this case, then they tend to roll the dice more readily. The world also looks different for a twenty-five-year-old with negative net worth because of student loans and poor prospects for homeownership than it does for middle-aged or retired, upper-middle-class people who have more stock market wealth.

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A B C D E F G H I J K L M N O P Q R S T U V W X Y Z A Ackman, William, 56, 116–17, 253 addictive behavior, 31 see also gambling Ailes, Roger, 156 All of Us Financial, 209 Alphacution Research Conservatory, 202 Alphaville, 78 Amazon, 26, 52, 89, 98, 133, 160 AMC, 39, 93, 125, 127, 132, 169, 188, 220–21, 224–26 Americans for Tax Fairness, 72 Andreessen, Marc, 24, 161 Animal House, xv Apes Together Strong, 142, 230 Apple, 25, 46, 52, 98, 133, 178 apps, 26 see also smartphone trading apps arbitrage, 84 Aron, Adam, 225 Attack of the Clones, xiv, 262 Attal, Alan, 114 Atwater, Peter, 59, 101, 123, 214 Axonic Capital, 103 B baby boomers, 71 Bale, Christian, 88 Bank of America, 56, 59 Barber, Brad, 235, 238, 243 Barnes & Noble, 26 Barron’s, 128, 254 Barstool Sports, 57 Bartiromo, Cole, 163 baseball playoffs, 19 BB Liquidating Inc., 133 bear markets, 52, 59, 69, 70, 72, 255 Bear Traps Report, The, 99 Bed Bath & Beyond, 115, 133, 188 behavioral economics, 51, 62, 255 Belfort, Jordan, 118, 148, 217 Benchmark Company, 128 Berkshire Hathaway, 240, 259 Bernanke, Ben, 10 Bessembinder, Hendrik, 243 Best Buy, 130 Betterment, 27, 54, 183, 193, 242, 257, 258, 261 Bezos, Jeff, 89, 160 Bhagavad Gita, 83 Bhatt, Baiju, 23–25, 49, 90, 219 Biden, Joe, 192 big banks, 202, 219–20 Big Money Thinks Small (Tillinghast), 222 Big Short, The (Lewis), 16, 88 Billions, 218 Black, Fischer, 101, 102, 108 BlackBerry, 93, 115, 133, 169, 178, 188, 224 black swan events, 5 blank check firms (SPACs; special purpose acquisition companies), 64–65, 155, 158, 164, 178, 194, 246, 247 Blankfein, Lloyd, 9 Block, Carson, 158 Blockbuster Video, x–xi, 15, 93, 133, 178 Blodget, Henry, 90, 156 Bloomberg, 126, 181 Bloomberg Intelligence, 159 Bloomberg News, 208 Bogle, John, 4, 37, 254 Bolton, Michael, 196, 207 bonds, 58 bots, 163–66, 229–30 Box, 26 Broderick, John, 223 Bronte Capital, 181 Buckingham Strategic Wealth, 62 Buffet, Warren, x, 52–53, 57, 88, 96, 174–75, 183, 236, 240–41, 245, 259 bull markets, 27, 28, 41, 52, 59, 62, 156, 159, 175, 179, 183, 185, 217, 234, 252, 256 Burry, Michael, 16–17, 52, 88–89, 91, 93, 153, 185, 222 Business Insider, 220 ByteDance, 162 C call options, 15–16, 43–44, 68, 99–101, 104–8, 138, 147, 169–70, 216, 227–28 covered calls, 102 Robinhood and, 97–98 Tesla, 103 Carlson, Tucker, 189 Cashin, Art, 240 Casten, Sean, 5, 6 Cato Institute, 14 CBS News, 165 Cecchini, Peter, 103, 228 Center for Monetary and Financial Alternatives, 14 Center for Responsive Politics, 239 Change.org, 120 Chanos, Jim, 77, 84–86, 105, 119, 125, 148, 186, 236 Charles Schwab, 24, 25, 33–35, 49, 50, 59, 66, 70, 139, 200, 202, 234, 236, 245, 257, 259 Charlotte Hornets, 8, 111, 246 Chartered Financial Analyst designation, 18 Chen, Steve, 162 Chewy, 89, 114, 128 Chu, Sandra, 37, 165, 166 Chukumba, Anthony, 128, 147 Churchill Capital IV, 164 Ciara, 64 Cihlar, Rachael, 142–43 Citadel, 8–11, 33, 35, 49, 55, 104, 106–8, 140–41, 146, 178, 189, 198, 202, 206–8, 218, 231 Citron Research, 118, 120, 121, 123, 124 clearinghouses, 187, 203–5 Clubhouse (app), 60, 161–62 Clubhouse Media Group, 60, 161–62 CNBC, 98, 111, 117, 119, 128, 152, 156, 157, 170, 180, 191–92, 240 CNN, 104 Coates, Ta-Nehisi, 160 Code, The (O’Mara), 38 Cohen, Abby Joseph, 254 Cohen, Ryan, 89–90, 154, 221, 222 GameStop and, 90–95, 112–14, 128, 130, 133, 148, 154, 223–24 Cohen, Steven A., 7–9, 110, 146, 161, 197, 218 Cohen, Ted, 89 Colbert, Stephen, 197 college endowments, 77, 245 Comeau, F.

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

In the next chapter, you’re going to discover how little money it takes to have a half million to one million dollars or more in retirement that requires almost no time to manage. So let’s turn to behavioral economics and see if we can’t find some little tricks that could make the difference between poverty and wealth. Behavioral economists try to figure out why we make the financial mistakes we do and how to correct them without even our conscious awareness. Pretty cool, huh? Dan Ariely, renowned professor of behavioral economics at Duke University, studies how our brains fool us regularly. Human beings evolved to depend on our sight, and a huge part of our brain is dedicated to vision.

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It’s a sanctuary of safe investments that you lock up tight—and then hide the key. I don’t gamble, because winning a hundred dollars doesn’t give me great pleasure. But losing a hundred dollars pisses me off. —ALEX TREBEK, host of Jeopardy! Taking a financial hit not only lightens our wallets but also can steal the joy from our lives. Remember that behavioral economics study with the monkeys and the apples? A monkey was happy if he was given an apple. But if he was given two apples, and then one was taken away, he freaked out—even though, in the end, he still had an apple. Humans are the same way. Research on human emotion shows that the majority of people around the world underestimate how badly they feel when they lose.

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But if you did dollar-cost averaging, you made money during that same period. What would you do? Would you plunk down the whole ten grand as soon as you got it? Or would you keep it in a more secure place and invest $1,000 a month over ten months? Or $50,000 over two years? If the market keeps going up and up, you might lose out on some gains. But behavioral economics tells us you won’t have as much regret as you would if the market crashed two days after you’d invested it all! So it’s totally up to you. Once again, I’m not here to give you my opinion, just the best insights available from the best experts. For most people, lump-sum investing is not an issue because they don’t have a significant sum to invest!

Everything Is Obvious: *Once You Know the Answer
by Duncan J. Watts
Published 28 Mar 2011

Burson-Marsteller. 2001. “The E-fluentials.” New York: Burson-Marsteller. Cairns, Huntington. 1945. “Sociology and the Social Science.” In Twentieth-Century Sociology, ed. G. Gurvitch and W. E. Moore. New York: Philosophical Library. Camerer, Colin F., George Loewenstein, and Matthew Rabin. 2003. Advances in Behavioral Economics. Princeton, NJ: Princeton University Press. Carlson, Jean M., and John Doyle. 2002. “Complexity and Robustness.” Proceedings of the National Academy of Sciences 99:2538. Carter, Bill. 2006. Desperate Networks. New York: Doubleday. Cassidy, John. 2009. How Markets Fail: The Logic of Economic Calamities.

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See Leonhardt (2009) for a discussion of incentives in the medical profession. 9. See Goldstein et al. (2008) and Thaler and Sunstein (2008) for more discussion and examples of defaults. 10. For details of the major results of the psychology literature, see Gilovich, Griffin, and Kahneman (2002) and Gigerenzer et al., (1999). For the more recently established behavioral economics see Camerer, Loewenstein, and Rabin (2003). In addition to these academic contributions, a number of popular books have been published recently that cover much of the same ground. See, for example, Gilbert (2006), Ariely (2008), Marcus (2008), and Gigerenzer (2007). 11. See North et al. (1997) for details on the wine study, Berger and Fitzsimons (2008) for the study on Gatorade, and Mandel and Johnson (2002) for the online shopping study.

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Experiments, it should be noted, are not entirely foreign to sociology. For example, the field of “network exchange” is one area of sociology in which it is common to run lab experiments, but these networks generally comprise only four or five individuals (Cook et al. 1983; Cook et al. 1993). Cooperation studies in behavioral economics, political science, and sociology also use experiments, but once again the groups involved are small (Fehr and Fischbacher 2003). 16. See Salganik, Dodds, and Watts (2006) for a detailed description of the original Music Lab experiment. 17. See Salganik and Watts (2009b; 2009a) for more background on Music Lab, and details of follow-up experiments.

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

We gorge on chocolate despite knowing it will make us unhappy ten pounds down the road. Almost two thirds of Americans say they are overweight, according to a recent Gallup poll. But only a quarter say they are seriously trying to lose weight. In the 1980s a new discipline called Prospect Theory—also known as behavioral economics—deployed the tools of psychology to analyze economic behavior. It found all sorts of peculiar behaviors that don’t fit economics’ standard understanding of what makes us happy. For instance, losing something reduces our happiness more than winning the same thing increases it—a quirk known as loss aversion.

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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. Sharpe Publishers, 2006), pp. 626-643. 173-177 The Price of Repugnance: Discussion on different attitudes about eating horse fillet are drawn from Alvin Roth, “Repugnance as a Constraint on Markets,” Journal of Economic Perspectives, Vol. 21, No. 3, Summer 2007, pp. 37-58; maville.com, Caen et ça region (at www.caen.maville.com/actu/actudet_-Cyril-ouvre-une-boucherie-chevaline-boulevard-Leroy-_loc-822159_actu.htm, accessed 07/18/2010); and Tara Burghart, “Last US Horse Slaughterhouse to Close,” Huffington Post, June 29, 2007 (www.huffingtonpost.com/huff-wires/20070629/horse-slaughter/#, accessed 07/18/2010).

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airlines air pollution airports, Hare Krishna in Aktion T-4 alcohol altruism Amazon.com American Airlines American Association of Retired People American Indians American Society for Reproductive Medicine Amway Anabaptists Anderson, Chris anemia animal welfare movements apes, bonobo Apple Aquinas, Thomas Archimedes of Syracuse Argentina Ariely, Dan aristocracy Aristotle Arno River Asia financial crisis in AT&T auctions Augustine, Saint Australia auto industry Babylonian code Badalone, Il (barge) Bangladesh banks, bankers earnings of regulation of Bardot, Brigitte BarranquillasBest.com Barton, Joe baseball basketball games beauty, wages and Becker, Gary Beckham, David Beecher, Thomas K. behavioral economics Belgium, Belgians Benedict, Pope benefits Benny, Jack Berlioz, Hector Bernanke, Ben Betzig, Laura Bhutan Bible bicycles BigChampagne bike helmets birds birth-control pills Black Death blacks, workplace fatalities of Blinder, Alan body Book-of-the-Month Club books Borgerhoff Mulder, Monique Bourdieu, Pierre BP Bracero program Brand, Stewart Brazil culture in Pelé in bride prices Brooklyn Brown, Dan Brunelleschi, Filippo bubbles Buffett, Warren Burkina Faso Burundi, happiness in Bush, George W.

The New Science of Asset Allocation: Risk Management in a Multi-Asset World
by Thomas Schneeweis , Garry B. Crowder and Hossein Kazemi
Published 8 Mar 2010

Concerns over the deviations from the strict CAPM process led to new research focused on issues that have been expanded under the topic “behavioral economics,” which offers for some a more plausible picture of investor behavior. As these alternative models became popular, alternative views as to the underlying process by which excess return was determined evolved. Fama and French (1992, 1995) and others developed a series of empirical models that indicated that sources of returns could be related to firm size as well as style (growth and value). Although behavioral economics and other expanded models of return to risk models dominated the market, the challenge remained on how to hang on to the baby as the bathwater is thrown out.

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Commodities, Real estate commodity indices, 184 defined, 134 groupings of, 115 modern, 65 myths about, 223 sources of risk and return, 134–166 and spot market prices, 217 and TAA modeling, 101–102 traditional, 65 Alternative REIT investments, 179, 181 Angel investors, 151, 153 Arbitrage, 10–11, 40 Arbitrage pricing model, 214 ARCH models, 95 Asset allocation: academic discussions, 228 benefits of, 58 core quantitative tools, 62–63 defined, 20 determining optimal, 100 fundamental directives, 3 future of, 239–248 history of, 1–19 importance of discretion in decisionmaking, 226–239 in the modern world, 14–15 myths of, 212–225 optimization models, 92–98 overview and limitations, 59–61 preliminary steps, 60 and risk budgeting, 195–211 and risk tolerance, 117 theory and implementation of, 226–230 traditional and alternative investments, 61–66 traditional stock/bond vs. multi-asset, 70–71 types of, 91–109 what it is, 1 Asset classes, 58–90 benchmarks, 194, 271–277 core, 114 determining number of, 112 performance, 135–139 primary, 66 return and risk among similar benchmarks, 167–194 risk and return through business cycles, 251–270 traditional and alternative breakdown, 65 Assets: alternative, 219–221 illiquid, 63, 98, 217 marginal risks, 17 287 288 Assets (Continued) myths about value, 213–214 pricing, 6–11, 46 return distribution, 29 traditional, 66 Attribution analysis, 34 Averages, historical, 94 Bache Commodity Index (BCI), 182 Backfill bias, 192, 194 Banks, investment, 227–228 Barclays Capital U.S. Aggregate, 36, 37, 141, 147, 156, 185, 258, 259, 267, 268 benchmark returns ranking, 80 portfolio returns ranking, 83 and Treasuries, 267, 268 Bear market, 111 Behavioral economics, 13 Benchmark returns, 136 aggressive and conservative portfolio management, 77 and beta, 64 commodities, 162, 165 and CTAs, 147 differences among similar asset classes, 167–194 performance in alternative investment periods, 75 private equity, 152 ranked by BarCap US Aggregate, 80 ranked on change in VIX, 121 real estate, 157 and S&P 500, 79, 138, 165 and standard deviation, 64, 76 Benchmarks, 48–49, 56–57.

The Uninhabitable Earth: Life After Warming
by David Wallace-Wells
Published 19 Feb 2019

In the case of climate, this has meant trusting that economic systems unencumbered by regulation or restriction would solve the problem of global warming as naturally, as surely as they had solved the problems of pollution, inequality, justice, and conflict. These biases are drawn only from the A volume of the literature—and are just a sampling of that volume. Among the most destructive effects that appear later in the behavioral economics library are these: the bystander effect, or our tendency to wait for others to act rather than acting ourselves; confirmation bias, by which we seek evidence for what we already understand to be true, such as the promise that human life will endure, rather than endure the cognitive pain of reconceptualizing our world; the default effect, or tendency to choose the present option over alternatives, which is related to the status quo bias, or preference for things as they are, however bad that is, and to the endowment effect, or instinct to demand more to give up something we have than we actually value it (or had paid to acquire or establish it).

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The opposite of a cognitive bias, in other words, is not clear thinking but another cognitive bias. We can’t see anything but through cataracts of self-deception. Many of these insights may feel as intuitive and familiar as folk wisdom, which in some cases they are, dressed up in academic language. Behavioral economics is unusual as a contrarian intellectual movement in that it overturns beliefs—namely, in the perfectly rational human actor—that perhaps only its proponents ever truly believed, and maybe even only as economics undergraduates. But altogether the field is not merely a revision to existing economics.

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IPCC released a dramatic, alarmist report: IPCC, Global Warming of 1.5°C: An IPCC Special Report on the Impacts of Global Warming of 1.5°C Above Pre-Industrial Levels and Related Global Greenhouse Gas Emission Pathways, in the Context of Strengthening the Global Response to the Threat of Climate Change, Sustainable Development, and Efforts to Eradicate Poverty (Incheon, Korea, 2018), www.ipcc.ch/report/sr15. Crisis Capitalism The scroll of cognitive biases: The single best primer on what behavioral economics has to teach us about these biases is by the Nobel laureate Daniel Kahneman, Thinking, Fast and Slow (New York: Farrar, Straus & Giroux, 2013). the scope of the climate threat: This is why the theorist Timothy Morton refers to climate change as a “hyperobject.” But while the term is useful in suggesting just how large climate change is, and just how poorly we’ve been able to perceive that scale to date, the deeper you get into Morton’s analysis, the less illuminating it becomes.

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

The force of these economic ideas can be seen in the pricing of concert tickets, the supply of musical talent to the industry, the way bands and record labels are organized, the nature of collaborations among artists, the structure of streaming contracts, and nearly every other aspect of the industry. The music business also reveals the pervasive role of emotions in decision-making and economic outcomes, a field that economists call behavioral economics. Music is inherently the art of eliciting emotions in listeners, the ultimate consumers. Performers pour their emotions into their work. As Lady Gaga has said, “You have to go to that broken place of your heart to write songs.”7 Economists have a great deal to learn from observing how musicians strive to develop an emotional bond with their audiences, often at the expense of short-term profits, and how emotions guide their work and shape their economic decisions.

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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.

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Economists have long been skeptical that researchers can take at face value what people say about what makes them happy or sad. My profession prefers to infer people’s preferences from the choices they make, rather than rely on what they tell us about what they like or dislike. Although this predilection for “revealed preference” is slowly fading with the emergence of behavioral economics, there are good reasons to focus on objective data over subjective reports, when possible. In this regard, the fact that many people choose to devote a large amount of leisure and work time to listening to music is a strong indication that they find the experience satisfying, consistent with what psychological studies tell us.

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

Few holders of Palm stock were willing to loan their shares out, and they had come to expect quite a premium for doing so: an interest rate of well over 100 percent per year.82 This pattern was common during the dot-com bubble:83 shorting dot-com stocks was prohibitively expensive when it wasn’t literally impossible. I met with Thaler after we both spoke at a conference in Las Vegas, where we ate an overpriced sushi dinner and observed the action on the Strip. Thaler, although a friend and colleague of Fama’s, has been at the forefront of a discipline called behavioral economics that has been a thorn in the side of efficient-market hypothesis. Behavioral economics points out all the ways in which traders in the real-world are not as well-behaved as in the model. “Efficient-market hypothesis has two components,” Thaler told me between bites of toro. “One I call the No Free Lunch component, which is that you can’t beat the market.

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These are the sorts of questions that a traditional model can’t even hope to address, and where agent-based models can at least offer the chance of more accurate predictions. But the variables that the Pittsburgh and Chicago teams must account for are vast and wide-ranging—as will necessarily be the case when you’re trying to simulate the behavior of every individual in an entire population. Their work often takes detours into cognitive psychology, behavioral economics, ethnography, and even anthropology: agent-based models are used to study HIV infection in communities as diverse as the jungles of Papua New Guinea85 and the gay bars of Amsterdam.86 They require extensive knowledge of local customs and surroundings. Agent-based modeling is therefore an exceptionally ambitious undertaking, and the groups working in the field are often multidisciplinary All-Star teams composed of some of the best and brightest individuals in their respective professions.

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If they decide a stock is substantially undervalued when their peers disagree, most of the time it will be because they’ve placed too much confidence in their forecasting abilities and mistaken the noise in their model for a signal. There is reason to suspect that of the various cognitive biases that investors suffer from, overconfidence is the most pernicious. Perhaps the central finding of behavioral economics is that most of us are overconfident when we make predictions. The stock market is no exception; a Duke University survey of corporate CFOs,78 whom you might expect to be fairly sophisticated investors, found that they radically overestimated their ability to forecast the price of the S&P 500.

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

They represent a way of rephrasing the question I started with earlier: do we want to harness finance’s creative energies, or do we think finance is so dangerous that most people should not have access to it and it should be stuffed back in the box it came from? Society’s attitude toward financial reform hinges on whether it believes people and firms, by and large, can be trusted to make sensible financial decisions when given the means to do so. The academic debate on this question is not conclusive. Even as research in behavioral economics tells us that some people make consistent mistakes in their financial decisions, it also tells us that a lot of behavior is rational and sensible. Indeed, as I argue throughout this book, it is typically not the rationality of the decision makers that is a problem. Rather, it is whether the apparent payoffs from decisions fully reflect the costs and benefits to society.

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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.

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See mortgage-backed securities asset prices: departures from fundamentals increases in See also housing market Australia, economic growth of automobile industry: government bailouts of in India Bagehot, Walter bailouts: of AIG of automobile industry of banks of Fannie Mae and Freddie Mac political consequences of shortcomings of Bank of America Bank of Japan Bank of North Dakota bankruptcies banks: bailouts of boards of CEOs of compensation in competition among debt of deposit insurance for deposits in in developing countries failures of financial system roles of lending standards of loans to developing countries by mortgage-backed securities held by mortgage lending process of off–balance sheet assets of organizational complexity of performance measurement in power of proprietary trading by regional revolving door with government risk exposures of risk managers in rural shareholders of short-term debt of state-owned stock prices of, too systemic to fail transparent structures of See also central banks; financialsystems; investment banks; regulationbanking Barofsky, Neil Bear Stearns behavioral economics Benartzi, Shlomo benchmarking Bernanke, Ben Bloomberg, Michael bond holders bonds: covered insurers of See also government bonds; interest rates Brandeis, Louis Brazil: economic reforms in exchange-rate policies of financial crisis in interest spreads in brokers, mortgage Brown, Gordon bubbles: development of dot-com Federal Reserve policies and in Japan, See also housing market budget deficits, federal buffers, capital bureaucracies Bush, George H.

The Wisdom of Crowds
by James Surowiecki
Published 1 Jan 2004

But with the possible exception of business columnists, no one who expressed outrage over how much Dick Grasso made reaped any concrete benefits from their actions, making it irrational to invest time and energy complaining about him. And yet that’s exactly what people did. So the question again is: Why? The explanation for people’s behavior might have something to do with an experiment called the “ultimatum game,” which is perhaps the most-well-known experiment in behavioral economics. The rules of the game are simple. The experimenter pairs two people. (They can communicate with each other, but otherwise they’re anonymous to each other.) They’re given $10 to divide between them, according to this rule: One person (the proposer) decides, on his own, what the split should be (fifty-fifty, seventy-thirty, or whatever).

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But even if you find the history unconvincing, there is this to consider: in the late 1990s, under the supervision of Bowles, twelve field researchers—including eleven anthropologists and one economist—went into fifteen “small-scale” societies (essentially small tribes that were, to varying degrees, self-contained) and got people to play the kinds of games in which experimental economics specializes. The societies included three that depended on foraging for survival, six that used slash-and-burn techniques, four nomadic herding groups, and two small agricultural societies. The three games the people were asked to play were the three standards of behavioral economics: the ultimatum game (which you just read about), the public-goods game (in which if everyone contributes, everyone goes away significantly better off, while if only a few people contribute, then the others can free ride off their effort), and the dictator game, which is similar to the ultimatum game except that the responder can’t say no to the proposer’s offer.

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What makes these solutions so powerful is that instead of imposing top-down requirements or mandates, they try to harness people’s preferences in a productive way by offering them more options and by shifting the frames through which people see their own financial lives. By creating the right market structures, they allow collectively more rational behavior to emerge. New structures, as we’ve seen, are not always necessary. Some individual irrationalities matter more than others. The task that remains for behavioral economics is figuring out which is which. III At the heart of the argument over whether investors are rational or irrational, of course, is a more basic question: Can the stock market do a good job of predicting the future? The question is rarely phrased that bluntly, and people will sometimes try to evade it by arguing that the real measure of the stock market’s performance is how quickly it reacts to information.

The Road to Ruin: The Global Elites' Secret Plan for the Next Financial Crisis
by James Rickards
Published 15 Nov 2016

He lived through the demise of the classical gold standard, the currency chaos of the interwar period, and the new Bretton Woods system. He died in 1956 before the Bretton Woods era came to an end. Somary’s success at forecasting extreme events was based on analytic methods similar to ones used in this book. He did not use the same names we use today; complexity theory and behavioral economics were still far in the future when he was engaged with markets. Still, his methods are visible from his writings. A vivid example is a chapter in his memoir called “The Sanjak Railway,” which describes an episode that occurred in 1908 involving Somary’s efforts to syndicate a commercial loan.

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I knew enough about statistics to realize this was the language of normally distributed risk and mean reversion—the language of random walks and efficient markets. My intuition said there was something rotten at the heart of modern financial economics. In the years following the LTCM collapse, I studied physics, applied mathematics, network theory, behavioral economics, and complexity. After 9/11, I was recruited by the CIA to assist on a counterterrorism project involving identification of anomalies in stock markets. Today, the capabilities our team developed allow the intelligence community to foresee a terrorist attack based on insider trading by terrorist associates.

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The point is not to ridicule Fisher—he was one of the twentieth century’s most brilliant economists—but rather to make the point that economists, especially those at the Fed, simply don’t see bubbles. There are models that do a good job identifying bubbles using complexity theory, causal inference, and behavioral economics, although the exact timing of collapse remains difficult to predict due to the minuteness of catalysts, and the stochastics of path dependence. Jeremy Stein and former Fed governor Rick Mishkin have made the most progress in the use of recursive functions to grasp these risks. Still, Faust’s reply put a spike in my hope that this thinking was more than a novelty at the Fed.

The Penguin and the Leviathan: How Cooperation Triumphs Over Self-Interest
by Yochai Benkler
Published 8 Aug 2011

We See the World Through a Frame This brings us to the second strength of psychology: its attention to situational framing. Framing, quite simply, refers to our interpretation of a situation, relationship, context, or event. Anytime we make a decision to act, we have to first interpret the situation we’re in. Even economists have grudgingly admitted this; behavioral economics describes it as the framing effect. Amos Tversky and Daniel Kahneman, the fathers of behavioral economics, explain that people will make different decisions depending on how a situation is presented. For example, when making a bet, people will risk different amounts depending on whether the bet is described as risking a loss or aiming for a gain (behavioral economists have found that people display what is often called “loss aversion”: they will reject bets framed as potential losses, but accept that same bet when it is framed as potential gains).

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

In 2001, it earned him a Nobel Prize. In the paper, Akerlof identified a weakness in traditional economic reasoning. Most analyses in economics began by assuming that the parties to any transaction were fully informed actors making rational decisions in their own self-interest. The burgeoning field of behavioral economics has since called into question the second part of that assumption—that we’re all making rational decisions in our own self-interest. Akerlof took aim at the first part—that we’re fully informed. And he enlisted the used-car market for what he called “a finger exercise to illustrate and develop”2 his ideas.

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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. But there’s a reason the little people are constantly asking that question.

Meet the Frugalwoods: Achieving Financial Independence Through Simple Living
by Elizabeth Willard Thames
Published 6 Mar 2018

Plus, all of our savings were stacked one on top of the other, which is how you create an extremely frugal lifestyle. We weren’t saving just $470 on seltzer per year, we were saving $470 plus the $3,456 on yoga plus $1,008 on haircuts . . . and on and on and on until we were saving thousands upon thousands of dollars every single year. Forever. There’s a theory in behavioral economics related to loss aversion positing that once we acclimate to a certain level of luxury or ownership in our lives—be it seltzer or expensive yoga classes—we find it nearly impossible to then live without this luxury. Giving these things up feels like deprivation because we’ve acclimated ourselves to their presence in our lives.

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I know that arrangements like this exist in cities, in suburbs, and everywhere else, but for me, this type of deep connection didn’t happen before our Vermont life. Not many people live out here, so those that do tend to forge relationships that defy market forces and social norms. There’s documented research in behavioral economics that people don’t respond well to being paid for what they consider favors to friends, and I find that rings particularly true in our rural community. Not much money changes hands, but a great deal of work gets shared around, which is how Nate found himself helping to fix the well at the town community center one Tuesday.

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

Financial Corporation, 83 CNBC, 219, 224 Coca-Cola, 166 Cohen, Abby Joseph, 169 Coke, 151 College, saving for, 240 Commercial paper, 260 Commissions brokers, 195–202 financial advisors, 293–294 impact on investment, 4, 5 mutual fund costs, 94–95 Common Sense on Mutual Funds (Bogle), 224 Common Stocks as Long Term Investments (Smith), 65 Company characteristics cyclical companies and risk, 64, 277-278 default and bankruptcy, 69–70 great company/great stock fallacy, 173–175 quality and returns, 34–38 size and returns, 32–34 stock buy-backs, 55, 60 Compound interest, 4 “Consols,” Bank of England, 14–16, 17, 19 Contrarian Market Strategy: The Psychology of Market Success (Dreman), 87 Cooley, Philip L., 231 Corporate bonds, high-quality, 260 Country club syndrome, 178–179, 187 Cowles, Alfred III, 76-78, 87 Cowles Foundation, 77 Crash, stock market, benefits of, 61–62, 62, 145–148, 160–161 Credit market, historical perspective, 6–7 Credit Mobilier scandal, 145 Credit risk, 13, 69–70 CRSP 9-10 Decile index, 248 CRSP (Center for Research in Security Prices), 88 Cubes ETF, 217, 254 Currency gold vs. paper, 16–18 volatility of, 71 Cyclical companies and risk, 64 DaimlerChrysler, 150 Dallas Morning News, 222 Danko, William, 239 DCA (dollar cost averaging), 282–283 “Death of Equities,” Business Week, 154–157 Death on (amortized) schedule, 230–231, 235 Default rate, companies, 69-70, 150n1 “Defined benefit” plan, 212 Defoe, Daniel, 135 Deutsche Bank, 210 Devil Take the Hindmost (Chancellor), 224 DFA (Dimensional Fund Advisors), 81, 103, 123, 216, 257 Digital Equipment, 151 Dimensional Fund Advisors (DFA), 81, 103, 123, 216, 257 Discount brokerage, 199 Discount rate (DR) and Dow Jones Industrial Average, 48-54 explained, 46–47 Gordon Equation, 53–62 vs. present value, 46–48 stock price, 62–63 “true value” of Dow, 51–53 Discounted dividend model (DDM) Dow Jones Industrial Average, 48–54, 49–50 explained, 43–48 real returns and, 68–69 Disney, 158, 166 Displacement, Minsky’s, 136, 140, 144, 145, 148, 149, 152 Diversification and rebalancing, 287–288 Diversified individual stock portfolio, 99-102 Dividend multiple, 57–58, 60–61 Dividends of Dow, 48-51 Gordon Equation, 54–55 growth and retained earnings, 59–60 and real returns, 67–72 stock market crash, as future possibility, 61–62 Diving engines, mania, 134–135 Dollar cost averaging (DCA), 282–283 Dot-com (See Internet/dot-com) Double dipping (broker), 196 Dow 36,000 (Glassman and Hassett), 53, 264 Dow Jones Industrial Average and discounted dividend model (DDM), 48–54, 49–50 DR [See Discount rate (DR)] Dreman, David, 87 Duke of Bridgewater, 141 Dulles, John Foster, 148 Dunn’s Law, 97–98, 102, 215 Durant, William Crapo, 148 Duration of returns, and retirement planning, 237–239 EAFE (Morgan Stanley Capital Index Europe, Australia, and Far East), 33, 109, 117–119 Earnings expectations of growth stocks, 173–175 retained, 59–60 without dividends, 55 East India Company, 142–143 Easy credit, and bubbles, 136 Econometric Society, 77 Econometrica, 77 Edison, Thomas, 132–133 Edison Electric, 133 Edleson, Michael, 283, 285 Education of brokers, 192, 194–195, 200–201 Efficient market hypothesis, 88 Efficient Solutions (software), 235 Ellis, Charles, 61, 96, 214, 225, 244 EMC Inc., 57 Emergencies, saving for, 240 Emerging markets, 31, 37, 38, 72, 94, 95, 124, 125, 156, 188, 255, 257, 268, 272, 274, 276, 283 England (See Britain) Enron, 161 Entertainment, investment as, 171–172, 183-184 Equities (See Stocks) ETFs (exchange-traded funds), 216, 217, 254, 255 eToys, 57 Euphoria, and bubbles, 136 European interest rates, historical perspective, 8–13 Exchange-traded funds (ETFs), 216, 217, 254, 255 Expected returns growth stocks, 173–175 long-term, 55, 70, 71 myopic risk aversion, 172-173, 184-185 overconfidence, 167–169, 181–183 vs. real returns, 68–69 Expense ratio (ER) in mutual fund costs, 94–95 Expenses (See Fees and expenses) Extraordinary Popular Delusions and the Madness of Crowds (Mackay), 151 Fair value of stock market, 47-53 Fama, Eugene, 37, 88-89, 120-121, 186, 257 Federal Reserve Bank, 146, 152, 159, 176 Fee-only financial advisors, 294 Fees and expenses, 401(k), 211–213 Fees and expenses, mutual funds differences in funds, 209–211 Forbes Honor Roll, 222 front load, 207 index funds, 245, 250, 254 load, 79, 203–205, 216 management fees, 206 no-load, 205–206, 215 Fidelity Capital Fund, 83 Fidelity Dividend Growth Fund, 207 Fidelity Magellan, 91–93, 97 Fidelity mutual funds, 205, 207–209, 210 Fidelity Select Technology Fund, 207–209 Fidelity Spartan funds, 216 Fiduciary responsibility of broker (lack of), 192 Financial Analysts Journal, 244 Financial calculator, 230, 237 Financial goals, 229, 239–240 First Quadrant, 88 Fisher, Irving, 43–48, 56, 229 Folios, 102 A Fool and His Money (Rothchild), 224 Forbes, Malcolm, 87–88 Forbes Honor Roll, 222 Forecasting Cowles and, 76-79, 87 investment newsletters and, 77, 78, 86, 87 Foreign stocks and returns asset allocation in portfolios, 116–120, 255–257, 256 growth vs. value stocks, 36–37 stability, societal, 29–32 tax efficiency of, 264 Fortune, 213, 221 Fouse, William, 95-97 French, Kenneth, 33–34, 35–37, 120 Fuller, Russell, 174 Galbraith, John Kenneth, 148 Gambling, 171–172 Garzarelli, Elaine, 169 GDP (gross domestic product) and technological diffusion, 132-133 GE (General Electric), 33, 244 General Electric (GE), 33, 244 General Motors, 65 Gibson, Roger, 225 Gillette, 151 Glass-Stegall Act, 193 Glassman, James, 53, 264 Global Investing (Brinson and Ibbotson), 225 Global stocks (See Foreign stocks) GNMA fund, Vanguard, 216 Go-Go years (1960-1970), 83, 148–151 Goetzmann, William, 30 Gold, (precious metals stocks), 123–124, 155 Gold mining, 69 Gold standard, 16–18, 145–146 Goldman Sachs Corporation, 147–148, 169 Goldman Sachs Trading Corporation, 148 Gordon Equation, 53–62, 192 Government securities, 259–260 Graham, Benjamin Depression-era mortgage bonds, 185 Hollerith Corporation, later IBM, 78 on income production, 44 on investor’s chief problem, 165 pre-1929 stock bubble, 57 Security Analysis, 157–158 Graham, John, 87 Grant, James, 224–225 Great company/great stock fallacy, 173–175, 185 Great Depression fear of short-term losses, 172–173 Fisher’s gaffe, 43 Graham on, 157–158 impact of, 5–6 manias, history of, 145–148 societal stability and DR, 64–65 Great Man theory, 95–96 Greenspan, Alan, 246 Gross domestic product (GDP) and technological diffusion, 132–134 Growth stocks (“good” companies) asset allocation, 247, 248–255, 251–253 earnings expectations of, 173–175 Graham on, 158 returns of, 34-38 “Gunning the Fund,” 207-209 Halley, Edmund, 138 Hammurabi, 7 Hard currency (gold), 16-20 Harrison, John, 142–143 Harvey, Campbell, 87 Hassett, Kevin, 53, 264 Hedge funds, 178–179 Herd mentality and overconfidence, 166-176, 181, 182 Hewlett-Packard, 158 High-quality corporate bonds, 260 High Yield bonds, 69–70 “Hindsight bias,” 8 History of investing and returns (Pillar 2), 127–162 about, xi, 296 ancient, 6–9 bonds, 13–22 European, middle ages to present, 9–13 on risk, 11-13, 22-29, 38-39 stocks investing in U.S., 4–6 outside U.S., 29–32 prior to twentieth century, 20 twentieth century, 20–22 summary on risk and return, 38-39 Treasury bills in twentieth century, 20–22, 23 Hollerith Inc., later IBM, 78 House, saving for, 240 Hubbard, Carl M., 231 IAI, 211 Ibbotson, Roger, 225 IBM (International Business Machines), 78, 83, 150, 151 Immediate past as predictive, behavioral economics, 170–171 “Impact cost,” mutual funds, 84, 85, 92, 94, 208, 211 Impatience, societal, and discounted dividend model (DDM), 46 “In-Between Ida,” asset allocation example, 269-271 Income production and discounted dividend model [discounted dividend model (DDM)], 43–73 Index fund advantages of, 95-105 bonds, 257–263, 258–259 defined, 97 exchange-traded funds (ETFs), 216, 217, 254, 255 performance and efficient market hypothesis, 95–98, 102–104 vs. performance of top 10% funds, 81 sectors in portfolio building, 122–124, 250, 251–253 tax efficient, 99 INEPT (investment entertainment pricing theory), 172 Inflation bond performance, 16-20 and gold standard, 16–18 government response to, 19–20 inflation risk, 13 and stocks, 20, 24 Inflation-adjusted returns earnings growth, 60 stocks, bonds and bills, 19, 20–22 young savers, 237–239 Inflation risk, 13 Information speed of transmission, 131 and stock prices, 89–90 Initial public offering (IPO), 134, 172 In Search of Excellence (Peters), 64 Instant gratification and discounted dividend model (DDM), 46 The Intelligent Asset Allocator (Bernstein, W.), vii, 110 Interest-rate risk, 13 Interest rates in ancient world, 6-8 annuity pricing, 10-12, 13 and bond yields, 10, 16-20 bonds and currency, changes from gold to paper (1900-2000), 17–19 as cultural stability barometer, 8–9 European, 8-13 Fisher’s discount rate (DR), 46–47 historic perspective on bills and bonds, 9-15 risk, 13 International Business Machines (IBM), 78, 83, 150, 151 Internet Capital Group, 152 Internet/dot-com as bubble, 151–152, 153, new investment paradigm, 56–58 Invesco mutual funds, 205 Investment vs. purchase, 45 vs. saving, 134, vs. speculation, 44, 157 Investment advisors (See Advisors, investment) Investment and Speculation (Chamberlain), 157 Investment Company Act of 1940, 161, 203, 213, 217 Investment entertainment pricing theory (INEPT), 172 Investment newsletters, 77, 78, 87 Ip, Greg, 167 IPO (initial public offering), 134, 172 iShares, 251-253, 257 Japan dominance in late 1970s, 66–67, 181–182 technical progress and diffusion, 132 Jensen, Michael, 78–80, 214 Johnson, Edward Crosby, II, 83, 91 Johnson, Edward Crosby, III (“Ned”), 194, 207, 208, 210 Jorion, Phillippe, 30 Journal of Finance, 80, 225 Journalist coverage, 219–225 JTS (junk-treasury spread), 70 Junk bonds, 69–70, 150n1, 260, 263, 283, 288-289 Junk-treasury spread (JTS), 70 Kahneman, Daniel, 166 Karr, Alphonse, 162 Kassen, Michael, 207, 219 Kelly, Walt, 179 Kemble, Fanny, 143 Kemper Annuities and Life, 205, 210 Kemper Gateway Incentive Variable Annuity, 205 Kennedy, Joseph P., Sr., 147 Keynes, John Maynard, 41-42, 18, 221 Kindleberger, Charles, 136–137 Kmart, 34–35 Ladies Home Journal, 65 Large company stocks asset allocation, 244–255, and Fidelity Magellan Fund, 92 rebalancing, 289–290 returns, 32-34, 38, 72 Law, John, 137–138 Leinweber, David, 88 Leveraged buyouts, 150n1 Leveraged trusts, 147–148 Lipper, Arthur, 83 Litton, 149–150 Load funds fees, mutual funds, 79, 196, 203–205, 216 Long Term Capital Management, 129, 179 Long-term credit (See Bonds) Long-term returns asset classes, 16-39 bonds, in asset allocation, 113–114 expected, in asset classes, 70, 71 Gordon Equation, 53–62, 192 stocks, 20-39 LTV Inc., 83 Lumpers vs. splitters in asset mix, 247, 248–255, 251–253 Lynch, Peter, 91–93 Mackay, Charles, 151 Malkiel, Burton, 55, 224 Management fees, mutual funds, 206, 209-211 Manhattan Fund, 83–84 Manias, 129–152 about, 129–130 bubbles (See Bubbles) identification, 153 Internet, 151–152, 153 Minsky’s theory of, 136, 140 new technology, impact of, 130–134 1960-1970 (Go-Go years), 148–151 railroads, 143-145, 158, 159–160 Roaring Twenties, 145–148, 153 space race, 149–150 Margin purchases, 147–148 Market bottom, 153–162 about, 153–154 as best time to invest, 66 buying at, 283 “Death of Equities,” 154–157 Graham on Great Depression, 157–161 panic, 161–162 Market capitalization, 33, 123, 245 Market impact, mutual fund costs, 82, 94–95, 208 Market strategists, 87, 169, 176, 186, 219 Market timing, 87–88, 108, 220 Market value formula, 52 McDonald’s, 150, 158 Mean reversion, 170 Mean variance optimizer (MVO), 108 Media, 219–225 Mellon Bank, 96 Mental accounting, 177, 186 Merrill, Charles Edward, 193–194, 213 Merrill Lynch, 88, 193–194, 200 Microsoft, 59, 166, 185 Miller, Merton, 7 “Millionaire,” origin of term, 138 The Millionaire Next Door (Stanley and Danko), 239 Minding Mr.

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“bad” companies, 34-38, 64, 158 indexing, 95–98, 102–104 individual investor investment, 99–102 investment newsletters, dismal quality of predictions, 77-78, 86-87 Lynch, Peter, 90–93 pension/retirement fund impact, 85–86 taxes, 98–99 Peters, Tom, 64 Phillip Morris, 151 Phipps, William, 134–135 Picking stocks, 77–78, 93, 108, 168, 220 Piscataqua Research, 85 Platt, Doug, 211 Polaroid, 83, 150, 151, 158 Portfolio construction, 107–126 about, 107–108 duration of, 237 examples, 124–126 global stock mix, 116–120 Graham’s recommendations, 158 risk and returns, 110–116, 111–112 sectors, 122–124 size and value, 120–122 PPCA Inc., 100 Precious metals stocks, 123–124, 155 Present value vs. discount rate, discounted dividend model (DDM), 46–48 Press coverage, 219–225 Prestiti, Venetian, 10–13 Price, annuity, 9–13 Price-to-earnings (P/E) ratio, 58, 68–69, 150, 174-175 Prices, stock (See Stock prices) Primerica, 83 Principal transaction, 196 Principia Pro software, Morningstar Inc., 98, 152, 205 Prudential-Bache, 200 Psychology of investing (Pillar 3) (See Behavioral economics) Purchase vs. investment, 45 Quinn, Jane Bryant, 220, 221 Radio Corporation of America, 132, 147 Railroad bubble, 143-145, 158, 159–160 “Railway time,” 144 “Random walk,” 25 A Random Walk Down Wall Street (Malkiel), 224 Randomness in market, 25, 175–177, 186 (See also Performance) Raskob, John J., 65, 147, 148 RCA, 132, 147 Real Estate Investment Trusts (REITs), 69, 72, 109, 123, 124, 250, 254, 263, 296 Real (inflation-adjusted) returns bonds, twentieth century, 19 discounted dividend model (DDM) for different instruments, 68–69 establishment of, 7 future outlook, 67–71 retirement investments, 230 retirement withdrawal strategies, 231–234 stock, 26 and young savers, 238–239 Realized returns, 71–73 Rebalancing, 286-292 Regan, Donald, 194 Regret avoidance, 177 Reinvesting income (benefits of), 61 REITs (Real Estate Investment Trusts), 69, 72, 109, 123, 124, 250, 254, 263, 296 Retained earnings and dividends paid, 59–60 Retirement planning, 229–241 end-period wealth, 26–27 immortality assumption, 229–235 impact of crash in stock market, 61-62 portfolio rebalancing, 276, 282, 285, 286-293 vs. young savers, 236–239 Returns in brokerage accounts, 198–199, 200 calculation of, 186–187n1 expected (See Expected returns) and market capitalization, 32–34 mutual funds, 203-208 rebalanced, 286-293 Risk bond prices, 11-20 company quality, 34–38 cyclical companies, 64 defined, 11 discounted dividend model (DDM), 41-42 historic record as gauge of, 32 interest rates, 13, 260 long-term, 22-29 and market capitalization, 34 and measurement, 22–29 Risk-return relationship diversification and rebalancing, 286-291 historical perspective, 6–13, 22-29, 38 retirement years, 231–236 short- vs. long-term risk and behavioral economics, 172–173, 184-185 summary, by investment type, 38–39 Risk premium, 184 Riskless assets, 110, 114, 260, 264 Rockefeller, Percy, 147 Rocket (Stephenson), 143 Roman Empire, interest rates in, 8–9 Russell 2000, 248 Russell 3000, 245, 246 Safety penalty, 184 Sales training for brokers, 200 Samuelson, Paul, 214 Sanborn, Robert, 84–85 Santayana, George, 6, 129 Sarnoff, Mrs.

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“bad” companies, 34-38, 64, 158 indexing, 95–98, 102–104 individual investor investment, 99–102 investment newsletters, dismal quality of predictions, 77-78, 86-87 Lynch, Peter, 90–93 pension/retirement fund impact, 85–86 taxes, 98–99 Peters, Tom, 64 Phillip Morris, 151 Phipps, William, 134–135 Picking stocks, 77–78, 93, 108, 168, 220 Piscataqua Research, 85 Platt, Doug, 211 Polaroid, 83, 150, 151, 158 Portfolio construction, 107–126 about, 107–108 duration of, 237 examples, 124–126 global stock mix, 116–120 Graham’s recommendations, 158 risk and returns, 110–116, 111–112 sectors, 122–124 size and value, 120–122 PPCA Inc., 100 Precious metals stocks, 123–124, 155 Present value vs. discount rate, discounted dividend model (DDM), 46–48 Press coverage, 219–225 Prestiti, Venetian, 10–13 Price, annuity, 9–13 Price-to-earnings (P/E) ratio, 58, 68–69, 150, 174-175 Prices, stock (See Stock prices) Primerica, 83 Principal transaction, 196 Principia Pro software, Morningstar Inc., 98, 152, 205 Prudential-Bache, 200 Psychology of investing (Pillar 3) (See Behavioral economics) Purchase vs. investment, 45 Quinn, Jane Bryant, 220, 221 Radio Corporation of America, 132, 147 Railroad bubble, 143-145, 158, 159–160 “Railway time,” 144 “Random walk,” 25 A Random Walk Down Wall Street (Malkiel), 224 Randomness in market, 25, 175–177, 186 (See also Performance) Raskob, John J., 65, 147, 148 RCA, 132, 147 Real Estate Investment Trusts (REITs), 69, 72, 109, 123, 124, 250, 254, 263, 296 Real (inflation-adjusted) returns bonds, twentieth century, 19 discounted dividend model (DDM) for different instruments, 68–69 establishment of, 7 future outlook, 67–71 retirement investments, 230 retirement withdrawal strategies, 231–234 stock, 26 and young savers, 238–239 Realized returns, 71–73 Rebalancing, 286-292 Regan, Donald, 194 Regret avoidance, 177 Reinvesting income (benefits of), 61 REITs (Real Estate Investment Trusts), 69, 72, 109, 123, 124, 250, 254, 263, 296 Retained earnings and dividends paid, 59–60 Retirement planning, 229–241 end-period wealth, 26–27 immortality assumption, 229–235 impact of crash in stock market, 61-62 portfolio rebalancing, 276, 282, 285, 286-293 vs. young savers, 236–239 Returns in brokerage accounts, 198–199, 200 calculation of, 186–187n1 expected (See Expected returns) and market capitalization, 32–34 mutual funds, 203-208 rebalanced, 286-293 Risk bond prices, 11-20 company quality, 34–38 cyclical companies, 64 defined, 11 discounted dividend model (DDM), 41-42 historic record as gauge of, 32 interest rates, 13, 260 long-term, 22-29 and market capitalization, 34 and measurement, 22–29 Risk-return relationship diversification and rebalancing, 286-291 historical perspective, 6–13, 22-29, 38 retirement years, 231–236 short- vs. long-term risk and behavioral economics, 172–173, 184-185 summary, by investment type, 38–39 Risk premium, 184 Riskless assets, 110, 114, 260, 264 Rockefeller, Percy, 147 Rocket (Stephenson), 143 Roman Empire, interest rates in, 8–9 Russell 2000, 248 Russell 3000, 245, 246 Safety penalty, 184 Sales training for brokers, 200 Samuelson, Paul, 214 Sanborn, Robert, 84–85 Santayana, George, 6, 129 Sarnoff, Mrs.

The Open Organization: Igniting Passion and Performance
by Jim Whitehurst
Published 1 Jun 2015

Management theorists had to make certain simplifying assumptions in which they stripped any kind of emotion or irrationality from the equation in order to make their models work. They needed people to act like cogs in a wheel, simply as inputs to a system that would create outputs. But, as we know, people don’t easily fit such models, mostly because we don’t act in the rational ways economists or management theorists think we should. A whole field of study, behavioral economics, has emerged to tackle this issue in the field of economics. We need the same in business. Inspiration, enthusiasm, motivation, excitement—those are emotions, too. Aren’t they generally considered to be positive things? Don’t you want your workers to be inspired and engaged in what they’re doing?

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A Company of Citizens (Manville and Ober), 85, 87 accountability conventional model of, 65–66 of leaders, 69–70 of managers, 66–67 openness to feedback and, 67–69 owning mistakes and, 70–72 to peers, 63–64 Airbnb, 188 Alexander, DeLisa, 90, 147–149 Amazon, 188 announce-list at Red Hat, 74 Ansari XPRIZE, 4 authenticity, 36, 93–94 aviation industry, 183–186 BarCamp, 158 Behar, Howard, 57 behavioral economics, 33 “Billion Dollar Celebration” at Red Hat, 147–149 Bill-Peter, Marco, 129, 171, 172 Blaylock, Leigh, 158, 159 Boston Consulting Group (BCG), 11, 67, 89, 110, 154, 156 Boyd, John, 61 brainstorming, 112–114 Bristol, Scott, 139 Brown, John Seely, 115 Cameron, Thomas, 41, 65, 94 Catmull, Ed, 115, 130 Ceylon, 98 Chairman’s Award at Red Hat, 96–97 change management, 136–137, 140, 145, 153–154 Chernoff, Melanie, 49–50, 148 Chesbrough, Henry, 3 Collective Genius (Hill, Brandeau, Truelove, and Lineback), 27, 30, 114, 141–142 Connor, Jason, 77 Conscious Capitalism (Mackey and Sisodia), 27, 122 context creation employee engagement and, 57, 60, 62–63, 71–72, 81, 156 igniting passion and, 38–40 leader’s role in, 18, 40, 46, 57–58, 66, 72, 166, 171 conventional organizations accountability in, 65–66 avoidance of debate in, 109–110, 119, 130, 180 decision making in, 16–17, 135, 146, 150 directed team approach in, 170–171 focus on career advancement in, 95, 128 functions in, 20f leader’s avoidance of feedback in, 68, 124, 141 limitations of, 11, 62 mind-set of leaders in, 190 reliance on rules in, 75 conventional business management.

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

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. This is true of much of what is said in the “pop economics” business. Cite a study to prove some bizarre point, and then ignore all other studies or counterexamples that would easily disprove the point while looking down at anyone who argues with you, standing behind “the literature.”

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INDEX Abundance and scarcity abundance, recognizing cheap versus expensive and cost cutting economic principles main scarcities tech examples of waste, benefits of and wealth creation Activision Advertising Google sales and scarcity Airports, global comparisons Ajax Alinsky, Saul Amazon, recommendations to customers America Online (AOL), instant messaging virtual pipe Anderson, Chris Apache Apple and cloud computing Stores and vertical integration virtual pipe of See also specific products Application, versus features, businesses Applied Semantics Arkwright, Richard Artificial intelligence AT&T Bell Labs vertical integration Wireless Baby boomers Bach, David Back to basics Banking FDIC Federal Reserve, roles of fractional reserve banking money supply as Thieves Behavioral economics Bell Labs Bennett Mechanical Comprehension Test Bernanke, Ben Bessemer, Henry Bezos, Jeff Bionetworks Biotech industry, personalized medicine Birdseye, Clarence BitTorrent Blink (Gladwell) Books, digital Boulton, Matthew Brain and original thought Stroud number Brenner, Reuven Brin, Sergey Broadcasters, as Thieves Brotherhood Brown, Charles Buffett, Warren Burger, Warren Businesses FAB (Feature, Application, Business) with highest returns profitability.

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

The topic remains of massive importance right now as the 77 million members of America’s most celebrated demographic group—the Baby Boomers—are commencing retirement.1 For the most part, the same behavior that created the challenges in the first place is continuing or accelerating. This painful conclusion led me to the second topic. There is a relatively new field of work developing around psychology and finance, known alternatively as behavioral economics or behavioral finance. It focuses on how investor psychology—attitudes, biases, and emotions—impacts financial decisions and behavior. Behavioral finance researchers ask questions like: Why will people drive 45 minutes to use a $2.00 coupon? Why will people wash their own car on a Saturday morning to save 10 bucks, but would scoff at the idea of washing their neighbor’s car for $10?

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The Public Makes a U-Turn,” April 23, 2009. 35 CreditCards.com, “Implantable credit card RFID chips: convenient, but creepy,” August 5, 2009. 36 Notable Quotes, Quotes on Las Vegas, from The Joker Is Wild, 1957. 37 Encyclopedia definition of Ruml, Beardsley, 2009. 38 Thaler, Richard, and Shlomo Benartzi, “Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving,” November 2000. 39 WebCPA, “Automatic 401(k) Enrollment Is Not for Everyone,” October 27, 2009. 40 The New York Times, “Target-Date Funds: Seven Questions to Ask Before Jumping In,” June 29, 2009. 41 Pensions & Investments, “Special Report: The Looming Retirement Disaster,” April 18, 2005. 42 Hewitt, “Hewitt Study Shows Nearly Half of U.S.

Machine, Platform, Crowd: Harnessing Our Digital Future
by Andrew McAfee and Erik Brynjolfsson
Published 26 Jun 2017

But almost all of us also believe that we’re capable of delivering a great deal more than digital technologies can, even as they continue to profit from Moore’s law—the remarkably steady, remarkably fast growth over time in the amount of computing hardware available for the same dollar of spending—and become exponentially more powerful. Decades of research confirm the idea that we do, in fact, reason in two different ways. This groundbreaking work resulted in a Nobel prize for Daniel Kahneman who, alongside collaborator Amos Tversky, pioneered the field that has come to be called behavioral economics.§ The work of Kahneman and his colleagues showed that we all have two modes of thinking, which he labeled System 1 and System 2.¶ System 1 is fast, automatic, evolutionarily ancient, and requires little effort; it’s closely associated with what we call intuition. System 2 is the opposite: slow, conscious, evolutionarily recent, and a lot of work.

…

Biases cannot always be avoided, because System 2 may have no clue to the error. System 1 is amazing, in short, but it’s also really buggy. It often takes shortcuts instead of reasoning something through thoroughly. It also contains a surprisingly large set of biases. Researchers working within psychology and behavioral economics, the discipline Kahneman helped to found, have identified and named a great many System 1 glitches. A complete list of them would both bore and depress you; there are 99 chapters in Rolf Dobelli’s book on the subject, The Art of Thinking Clearly, and 175 entries (at last count) in Wikipedia’s “list of cognitive biases.”

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Acton, Brian, 140 additive manufacturing, 107; See also 3D printing Adore Me, 62 adults, language learning by, 68–69 advertising content platforms and, 139 data-driven decision making for, 48, 50–51 Facebook and, 8–9 radio airplay as, 148 advertising agencies, 48 advertising revenue Android as means of increasing, 166 Craigslist’s effect on, 139 free apps and, 162 print media and, 130, 132, 139 African Americans identifying gifted students, 40 and search engine bias, 51–52 aggregators, 139–40 AGI (artificial general intelligence), 71 agriculture automated milking systems, 101 drones and, 99–100 “food computers,” 272 machine learning and, 79–80 robotics and, 101–2 Airbnb future of, 319–20 hotel experience vs., 222–23 lack of assets owned by, 6–7 limits to effects on hotel industry, 221–23 network effects, 193 as O2O platform, 186 peer reviews, 209–10 rapid growth of, 9 as two-sided network, 214 value proposition compared to Uber, 222 Airline Deregulation Act, 181n airlines, revenue management by, 181–82 air travel, virtualization in, 89 Akerlof, George, 207, 210 albums, recorded music, 145 algorithms; See also data-driven decision making bias in systems, 51–53 and Cambrian Explosion of robotics, 95–96 comparing human decisions to, 56 O2O platforms and, 193 Quantopian and, 267–70 superiority to System 1 reasoning, 38–41 “algo traders,” 268; See also automated investing Alibaba, 6–8 Alipay, 174 AlphaGo, 4–6, 14, 74, 80 Alter, Lloyd, 90 Amazon automatic price changes, 47 bar code reader app, 162 data-driven product recommendations, 47 development of Web Services, 142–43 Mechanical Turk, 260 as stack, 295 warehouse robotics, 103 Amazon EC2, 143 Amazon Go, 90–91 Amazon S3, 143 Amazon Web Services (AWS), 75, 142–43 American Airlines (AA), 182 amino acid creation, 271–72 analog copies, digital copies vs., 136 “Anatomy of a Large-Scale Hypertextual Web Search Engine, The” (Page and Brin), 233 Anderson, Chris, 98–100 Anderson, Tim, 94 Andreessen, Marc on crowdfunding, 262–63 and Netscape, 34 as self-described “solutionist,” 297 on Teespring, 263–64 Android Blackberry vs., 168 contribution to Google revenue/profits, 204 iOS vs., 166–67 Angry Birds, 159–61 anonymity, digital currency and, 279–80 Antikythera mechanism, 66 APIs (application programming interfaces), 79 apophenia, 44n apparel, 186–88 Apple; See also iPhone acquiring innovation by acquiring companies, 265 and industrywide smartphone profits, 204 leveraging of platforms by, 331 Postmates and, 173, 185 profitability (2015), 204 revenue from paid apps, 164 “Rip, Mix, Burn” slogan, 144n as stack, 295 application programming interfaces (APIs), 79 AppNexus, 139 apps; See also platforms for banking, 89–90 demand curve and, 157–61 iPhone, 151–53 App Store, 158 Apter, Zach, 183 Aral, Sinan, 33 Archilochus, 60–61 architecture, computer-designed, 118 Aristophanes, 200 Arnaout, Ramy, 253 Arthur, Brian, 47–48 artificial general intelligence (AGI), 71 artificial hands, 272–75 artificial intelligence; See also machine learning current state of, 74–76 defined, 67 early attempts, 67–74 implications for future, 329–30 rule-based, 69–72 statistical pattern recognition and, 72–74 Art of Thinking Clearly, The (Dobelli), 43 arts, digital creativity in, 117–18 Ashenfelter, Orley, 38–39 ASICs (application-specific integrated circuits), 287 assets and incentives, 316 leveraging with O2O platforms, 196–97 replacement by platforms, 6–10 asymmetries of information, 206–10 asymptoting, 96 Atkeson, Andrew, 21 ATMs, 89 AT&T, 96, 130 August (smart door lock), 163 Austin, Texas, 223 Australia, 100 Authorize.Net, 171 Autodesk, 114–16, 119, 120 automated investing, 266–70 automation, effect on employment/wages, 332–33 automobiles, See cars Autor, David, 72, 101 background checks, 208, 209 back-office work, 82–83 BackRub, 233 Baidu, 192 Bakos, Yannis, 147n Bakunin, Mikhail, 278 Ballmer, Steve, 151–52 bandwagon effect, 217 banking, virtualization and, 89–90, 92 Bank of England, 280n bank tellers, 92 Barksdale, Jim, 145–46 barriers to entry, 96, 220 Bass, Carl, 106–7, 119–20 B2B (business-to-business) services, 188–90 Beastmode 2.0 Royale Chukkah, 290 Behance, 261 behavioral economics, 35, 43 Bell, Kristen, 261, 262 Benioff, Mark, 84–85 Benjamin, Robert, 311 Benson, Buster, 43–44 Berlin, Isiah, 60n Berners-Lee, Tim, 33, 34n, 138, 233 Bernstein, Michael, 260 Bertsimas, Dimitris, 39 Bezos, Jeff, 132, 142 bias of Airbnb hosts, 209–10 in algorithmic systems, 51–53 digital design’s freedom from, 116 management’s need to acknowledge, 323–24 and second-machine-age companies, 325 big data and Cambrian Explosion of robotics, 95 and credit scores, 46 and machine learning, 75–76 biology, computational, 116–17 Bird, Andrew, 121 Bitcoin, 279–88 China’s dominance of mining, 306–7 failure mode of, 317 fluctuation of value, 288 ledger for, 280–87 as model for larger economy, 296–97 recent troubles with, 305–7 and solutionism, 297 “Bitcoin: A Peer-to-Peer Electronic Cash System” (Nakamoto), 279 BlaBlaCar, 190–91, 197, 208 BlackBerry, 168, 203 Blitstein, Ryan, 117 blockchain as challenge to stacks, 298 and contracts, 291–95 development and deployment, 283–87 failure of, 317 and solutionism, 297 value as ledger beyond Bitcoin, 288–91 Blockchain Revolution (Tapscott and Tapscott), 298 Bloomberg Markets, 267 BMO Capital Markets, 204n Bobadilla-Suarez, Sebastian, 58n–59n Bock, Laszlo, 56–58 bonds, 131, 134 bonuses, credit card, 216 Bordeaux wines, 38–39 Boudreau, Kevin, 252–54 Bowie, David, 131, 134, 148 Bowie bonds, 131, 134 brand building, 210–11 Brat, Ilan, 12 Bredeche, Jean, 267 Brin, Sergey, 233 Broward County, Florida, 40 Brown, Joshua, 81–82 Brusson, Nicolas, 190 Burr, Donald, 177 Bush, Vannevar, 33 business conference venues, 189 Business Insider, 179 business processes, robotics and, 88–89 business process reengineering, 32–35 business travelers, lodging needs of, 222–23 Busque, Leah, 265 Buterin, Vitalik, 304–5 Byrne, Patrick, 290 Cairncross, Francis, 137 California, 208; See also specific cities Calo, Ryan, 52 Cambrian Explosion, 94–98 Cameron, Oliver, 324 Camp, Garrett, 200 capacity, perishing inventory and, 181 Card, David, 40 Care.com, 261 cars automated race car design, 114–16 autonomous, 17, 81–82 decline in ownership of, 197 cash, Bitcoin as equivalent to, 279 Casio QV-10 digital camera, 131 Caves, Richard, 23 Caviar, 186 CDs (compact discs), 145 cell phones, 129–30, 134–35; See also iPhone; smartphones Census Bureau, US, 42 central bankers, 305 centrally planned economies, 235–37 Chabris, Chris, 3 Chambers, Ephraim, 246 Champy, James, 32, 34–35, 37, 59 Chandler, Alfred, 309n Chase, 162 Chase Paymentech, 171 check-deposit app, 162 children, language learning by, 67–69 China Alibaba in, 7–8 concentration of Bitcoin wealth in, 306–7 and failure mode of Bitcoin, 317 mobile O2O platforms, 191–92 online payment service problems, 172 robotics in restaurants, 93 Shanghai Tower design, 118 Xiaomi, 203 Chipotle, 185 Choudary, Sangeet, 148 Christensen, Clay, 22, 264 Churchill, Winston, 301 Civil Aeronautics Board, US, 181n Civis Analytics, 50–51 Clash of Clans, 218 classified advertising revenue, 130, 132, 139 ClassPass, 205, 210 and economics of perishing inventory, 180–81 future of, 319–20 and problems with Unlimited offerings, 178–80, 184 and revenue management, 181–84 user experience, 211 ClassPass Unlimited, 178–79 Clear Channel, 135 clinical prediction, 41 Clinton, Hillary, 51 clothing, 186–88 cloud computing AI research, 75 APIs and, 79 Cambrian Explosion of robotics, 96–97 platform business, 195–96 coaches, 122–23, 334 Coase, Ronald, 309–13 cognitive biases, 43–46; See also bias Cohen, Steven, 270 Coles, John, 273–74 Collison, John, 171 Collison, Patrick, 171–74 Colton, Simon, 117 Columbia Record Club, 131 commoditization, 220–21 common sense, 54–55, 71, 81 companies continued dominance of, 311–12 continued relevance of, 301–27 DAO as alternative to, 301–5 decreasing life spans of, 330 economics of, 309–12 future of, 319–26 leading past the standard partnership, 323–26 management’s importance in, 320–23 markets vs., 310–11 as response to inherent incompleteness of contracts, 314–17 solutionism’s alternatives to, 297–99 TCE and, 312–15 and technologies of disruption, 307–9 Compass Fund, 267 complements (complementary goods) defined, 156 effect on supply/demand curves, 157–60 free, perfect, instant, 160–63 as key to successful platforms, 169 and open platforms, 164 platforms and, 151–68 and revenue management, 183–84 Stripe and, 173 complexity theory, 237 Composite Fund (D.

Innovation and Its Enemies
by Calestous Juma
Published 20 Mar 2017

Instead, decisions are made in the face of uncertainty with the help of mental shortcuts or established routines.87 The biases that result from these shortcuts often give rise to decisions that are considered irrational in hindsight. Decisions about whether or not to adopt new technologies that are often associated with risks and uncertainty are subject to these biases. Research into the psychology of decisionmaking and behavioral economics has identified three main factors that drive psychological challenge to innovation: people’s reluctance to break out of existing habits or routines; the perceived risks associated with innovation; and public attitudes toward the technology in question. Humans are creatures of habit. Most everyday decisions are based on habits that are sustained without being consciously noticed.

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These decisions are not solely based on expected value calculations for each outcome but on losses and gains that are triggered by different expression of outcomes.92 These insights into people’s failure to make decisions in accordance with classical economic models of expected utility form one of the foundations for the field of behavioral economics. Risks and potential losses associated with new technologies often loom much larger than the potential benefits, leading to challenges to innovation. The tendency to place more weight on potential losses than potential gains leads to two common behavioral biases that explain the frequent failure to adopt new technologies.

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See also Regulation on coffee, 45, 49–53, 62, 63 hidden sources of, 65 on Koran printing, 83 legitimacy of rulers and, 53 on margarine, 105 on new technologies, 9 on recorded music, 202–204, 213–215, 217, 299 as stimuli for technological diversification, 223 Barriers to innovation, 33–34, 36–37 Bartlett, Albert A., 316 BASF, 232–233 Bathhouses, as social venues, 53 Battlefields, impact of automation on, 13 Battle of the currents (AC vs. DC), 157, 168 Battle of Yamamah (632), 72 Bayer company, 244 Bayezid II, Sultan, 68 Beef, frozen, tariffs on, 186 Beer industry, 61, 178 Behavior, 24, 29, 99, 158, 273 Behavioral economics, 33, 36 behavioral change, 33–34 foundations for, 35 Belfield, Reginald, 155 Belgium dioxin-contaminated animal feed in, 240 disease-resistant wheat cultivars in, 228 Beliefs, 25, 301, 312 Belighi (poet), 54 Bell, Alexander Graham, 257 Belli, Onorio, 55 Bell Labs, 41–42 Ben & Jerry’s, 270 Berliner, Ernst, 231 Berners-Lee, Tim, 3 Biases.

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

And when forecasters are asked to make longer-run projections on such subjects as global warming, their range of forecasts makes economic forecasts appear precise by comparison. Economics is more difficult than the physical sciences because we cannot usually run controlled laboratory experiments and because people do not always behave predictably. A whole new branch of behavioral economics has attracted considerable attention by combining the insights of psychologists and economists, but we still are unable to predict individual behavior with any precision. But that we are far from understanding everything does not mean that we understand nothing. We do know that individual behavior is strongly influenced by incentives.

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And it can be explained best by incorporating psychology into economics, namely the tendency of individuals to believe that whatever is happening now is what’s most likely to happen in the future. Economics is evolving, like every discipline. One of the most interesting and productive areas of inquiry is the field of behavioral economics, which explores how individuals make decisions—sometimes in ways that aren’t as rational as economists have traditionally theorized. We humans underestimate some risks (obesity) and overestimate others (flying); we let emotion cloud our judgment; we overreact to both good news and bad news (rising home prices and then falling home prices).

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For example, if humans lack the self-discipline to do things that they know will make themselves better off in the long run (e.g., lose weight, stop smoking, or save for retirement), then society could conceivably make them better off by helping (or coercing) them to do things they otherwise would not or could not do—the public policy equivalent of taking the cashew bowl away. The field of behavioral economics has evolved as a marriage between psychology and economics that offers sophisticated insight into how humans really make decisions. Daniel Kahneman, a professor in both psychology and public affairs at Princeton, was awarded the Nobel Prize in Economics in 2002 for his studies of decision making under uncertainty, and, in particular, “how human decisions may systematically depart from those predicted by standard economic theory.”13 Kahneman and others have advanced the concept of “bounded rationality,” which suggests that most of us make decisions using intuition or rules of thumb, kind of like looking at the sky to determine if it will rain, rather than spending hours poring over weather forecasts.

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

Breast cancer screening pamphlets mislead women. BMJ, 348, g2636. https://doi.org/10.1136/bmj.g2636. Gigerenzer, G. 2015. On the supposed evidence for libertarian paternalism. Review of Philosophy and Psychology, 6, 361–83. https://doi.org/10.1007/s13164-015-0248-1. Gigerenzer, G. 2018a. The Bias Bias in behavioral economics. Review of Behavioral Economics, 5, 303–36. https://doi.org/10.1561/105.00000092. Gigerenzer, G. 2018b. Statistical rituals: The replication delusion and how we got there. Advances in Methods and Practices in Psychological Science, 1, 198–218. https://doi.org/10.1177/2515245918771329. Gigerenzer, G., & Garcia-Retamero, R. 2017.

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That is also why people can violate yet another axiom, Interchangeability. If I prefer a beer to a dollar, and a dollar to death, that does not mean that, with the right odds, I’d pay a dollar to bet my life for a beer. Or does it? Rational Choices after All? In cognitive science and behavioral economics, showing all the ways in which people flout the axioms of rational choice has become something of a sport. (And not just a sport: five Nobel Prizes have gone to discoverers of the violations.)37 Part of the fun comes from showing how irrational humans are, the rest from showing what bad psychologists the classical economists and decision theorists are.

Adaptive Markets: Financial Evolution at the Speed of Thought
by Andrew W. Lo
Published 3 Apr 2017

Even when Tversky and Kahneman proposed their prospect theory as a serious challenger to the standard economic theory of expected utility, economists found it a little too ad hoc.29 Why are people risk averse toward profit, but risk-seeking in the face of loss? What’s the underlying cause of this behavior? This isn’t meant as a criticism of behavioral economics or psychology. Far from it. Thanks to Kahneman and Tversky, the important “what” of rogue trading and regulatory forbearance is now well understood—but the “how” and the “why” of it are harder and more important questions. For example, how does human behavior predispose us to go rogue, and why does one person become a rogue trader, while another becomes a successful hedge fund manager?

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See Becker (1976), Hirshleifer (1977), and Tullock (1979) for economic extensions of sociobiology; Maynard Smith (1982; 1984) and Weibull (1995) for evolutionary game theory; Nelson and Winter (1982) and Andersen (1994) for an evolutionary interpretation of economic change; Anderson, Arrow, and Pines (1988) for economies as complex adaptive systems; Arrow and Levin (2009) for the impact of uncertainty regarding the number of offspring on current consumption patterns; and Burnham (2013) for an evolutionary synthesis of neoclassical and behavioral economics. Hodgson (1995) contains additional examples of studies at the intersection of economics and biology, and publications like the Journal of Evolutionary Economics and Electronic Journal of Evolutionary Modeling and Economic Dynamics now provide a home for this growing literature. 34. For example, DeLong et al. (1991) and Blume and Easley (1992) explore the long-run survival of rational and irrational traders, and show that irrationality can persist; Waldman (1994) shows that natural selection and sexual reproduction can often yield behaviors that are suboptimal or “second-best”; Luo (1995; 1998; 1999; 2001; 2003) explores the implications of natural selection for futures markets and money as a medium of exchange; the literature on agent-based modeling pioneered by Arthur et al. (1997), in which interactions among software agents programmed with simple heuristics are simulated, relies heavily on evolutionary dynamics; Hirshleifer and Luo (2001) consider the long-run prospects of overconfident traders in a competitive securities market; and Kogan et al. (2006) show that irrational traders can influence market prices even when their wealth becomes negligible; Lensberg and Schenk-Hoppé (2007) derive the asymptotic properties of investment strategies that follow the Kelly criterion; and Hens et al. (2011) derive an evolutionary explanation of the value premium puzzle. 35.

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“Targeted Investigation of the Neandertal Genome by Array-Based Sequence Capture.” Science 328: 723–725. Burnham, Terence C. 2007. “High-Testosterone Men Reject Low Ultimatum Game Offers.” Proceedings of the Royal Society B: Biological Sciences 274: 2327–2330. ___. 2013. “Toward a Neo-Darwinian Synthesis of Neoclassical and Behavioral Economics.” Journal of Economic Behavior and Organization 90: S113–S127. Carlsson, Arvid, Margit Lindqvist, and Tor Magnusson. 1957. “3,4-Dihydroxyphenylalanine and 5-Hydroxytryptophan As Reserpine Antagonists.” Nature 180: 1200. Casey, B. J., Leah H. Somerville, Ian H. Gotlib, Ozlem Ayduk, Nicholas T.

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

The individualistic category was the one closest to the view assumed by the normative role of the state. The paternalistic view would have more in common with what could be called a tutorial role of the state, which is a role now pushed by various economists associated with experimental or behavioral economics that uses nudges to help individuals make better decisions (see Thaler and Sunstein, 2008). All of those categories, to some extent, rejected the laissez-faire view of the government role that, in some not always correct interpretations, implied that the government should minimize its role in the economy and just let the “invisible hand” do its miraculous work.

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Essential regulations, for example, are those connected with the traffic, with the disposal of garbage and toxic material, with the safety of buildings and drugs, and similar ones. 123 124 Termites of the State The need for and the number of regulations cannot be stable over time in dynamic economies and in changing societies, because circumstances, needs, and perceptions keep changing. Some regulations are the direct consequence of lack of full information and of limited rationality on the part of some individuals, as some exponents of behavioral economics would argue. Asymmetry in information, on the part of individuals engaged in exchanges, may justify the use of particular regulations by governments. If individuals had full knowledge of risks, and if they always acted rationally, a libertarian argument could be made that there would be less need, or no need, for regulations.

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Traditionally, it had been used by mothers and grandmothers to promote good behavior on the part of children, and it had been used occasionally in the past by governments, especially in war periods, to induce citizens to do certain things, such as buy government bonds, donate gold for financing wars, or enlist in the army. Recent behavioral economics research has been suggesting new ways of influencing individual behavior in desirable directions, e.g., inducing people to save more, to smoke less, to eat less bad food and more vegetables, or to sign up to insurance schemes. Nudging or cajolement represents a tutorial approach through which governments now can try, more systematically than in the past, to influence the decisions of citizens about health, happiness, wealth accumulation, moral codes, and other areas, without seeming to force them.

Ctrl Alt Delete: Reboot Your Business. Reboot Your Life. Your Future Depends on It.
by Mitch Joel
Published 20 May 2013

I know it’s very difficult when you’re stuck or transitioning into a new career, but network for the sake of networking. Network to be helpful to others first. LESSONS FROM THE FRONT LINES OF THE NEW WORK WORLD… Lesson #1—Mindshift. If you have never taken the opportunity to look at what is being done in the field of behavioral economics, you really should. A great primer on this is Dan Ariely’s bestselling business book Predictably Irrational. What we learn by looking at behavioral economics is that human beings are very complex and irrational decision makers. Most of the bigger business decisions that are made are influenced more by our emotions and our gut than anything else. It’s not as scientific as we may think—and in fact, the science behind our decisions validates a lot of this.

The Behavioral Investor
by Daniel Crosby
Published 15 Feb 2018

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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Only as career incentives align with best practices and a deep understanding of human behavior will we get the kind of active asset managers that we truly deserve. Procrastinate (a little bit) One of the most surprising cures for excessive conservatism is something you may already be doing at work: procrastinating. Research conducted at the Tilburg Institute for Behavioral Economics Research found that subjects chose the default option 82% of the time when asked to decide in an instant, but only 56% of time after being given a short delay. Speed tends to be the enemy of good decision-making and immediacy nudges us to rely on biased thinking and over rely on the status quo.90 So, when tasked with making an important investing decision, take time to reconsider your immediate choice and see if you still think the same after more thought.

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

A nonprofit organization called GiveDirectly randomly chose households in sixty poor Kenyan villages to receive a no-strings-attached, one-time grant of either about $400 or $1,500. Either sum was a large windfall; these were places where the typical household’s wealth was under $400. Analyzing the results, Johannes Haushofer and James Reisinger of Princeton University, along with Jeremy Shapiro of the Busara Center for Behavioral Economics in Nairobi, found that the life satisfaction of grantees increased, as one would certainly hope. The rub was that the increased life satisfaction of those who did receive windfalls was more than offset by a large decrease in life satisfaction on the part of those who did not receive windfalls.

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See also optimism bias endowment big data biology happiness and of wisdom Birren, James Blanchflower, David age studies by Oswald and on British life satisfaction survey economics career path fifties turnaround experience of midlife crisis of Oswald and Blankenhorn, David Blazer, Dan G. Bluck, Susan brain source of fear and anxiety in wisdom regions of Brassen, Stefanie Britain age and life satisfaction studies in middle-aged happiness in 2014 unemployment debate of economists in Broderick, Joan E. Brookings Institution Buddha burnout Busara Center for Behavioral Economics cancer Cantril, Hadley Cantril Ladder quiz Caribbean countries, life satisfaction levels in Carstensen, Laura accident and career path of married couples studied by on paradox of aging personal happiness curve of positivity effect and selectivity theory and social connections study of Center on Longevity Centre College Charles, Susan T.

The Heart of Business: Leadership Principles for the Next Era of Capitalism
by Hubert Joly
Published 14 Jun 2021

The overwhelming majority of zookeepers were found to be willing to sacrifice pay, free time, advancement, and comfort—not that purpose should become an excuse for overwork and underpay. Even a small dose of meaning makes a difference to engagement. Dan Ariely, professor of psychology and behavioral economics at Duke University, conducted an experiment with Legos. Two groups were asked to build a Lego toy for three dollars, then build another one for thirty cents less, and then another one for still less money. And so on. The Lego constructions of each individual in the first group were placed under the table.

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If, however, you define your noble purpose as helping people live healthier lives, then the strategy changes, radically. This is how Discovery, a global financial services company from South Africa, has defined its purpose. Because of that, its strategy has produced Vitality, a business model that turns traditional insurance on its head. Using behavioral economics and clinical science, the company partners with tech companies, grocery and retail stores, gyms, and more to offer a wide range of incentives, games, and events that nudge Vitality members to exercise, eat well, and get their health checked regularly. The business model also allows for a dynamic pricing of risk.

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

The only defense is a rational understanding of what trust in society is, how it works, and why it succeeds or fails. This book is divided into four parts. In Part I, I'll explore the background sciences of the book. Several fields of research—some closely related—will help us understand these topics: experimental psychology, evolutionary psychology, sociology, economics, behavioral economics, evolutionary biology, neuroscience, game theory, systems dynamics, anthropology, archaeology, history, political science, law, philosophy, theology, cognitive science, and computer security. All these fields have something to teach us about trust and security.7 There's a lot here, and delving into any of these areas of research could easily fill several books.

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(5) There's also the unfortunately named Battle of the Sexes. He wants to do a stereotypically male thing on Saturday night. She wants to do a stereotypically female thing. The dilemma comes from the fact that each would rather do either of the two things with the other than do the stereotypical thing alone. (6) In behavioral economics,Prospect Theory has tried to capture these complexities. Daniel Kahneman is the only psychologist to ever win a Nobel Prize, and he won it in economics. (7) Many of the criticisms of Hardin's original paper on the Tragedy of the Commons pointed out that, in the real world,systems of regulation were commonly established by users of commons

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Rational Choice Theory Gary S. Becker (1976), The Economic Approach to Human Behavior, University of Chicago Press. Bounded Rationality Bryan D. Jones (1999), “Bounded Rationality,” Annual Review of Political Science, 2:297–321. Daniel Kahneman (2003), “Maps of Bounded Rationality: Psychology for Behavioral Economics,” The American Economic Review, 93:1449–75. Gerd Gigerenzer (2007), Gut Feelings: The Intelligence of the Unconscious, Viking Adult. Dan Ariely (2008), Predictably Irrational: The Hidden Forces that Shape our Decisions, Harper Perennial. Ori Brafman and Rom Brafman (2008), Sway: The Irresistible Pull of Irrational Behavior, Crown Business.

The Euro: How a Common Currency Threatens the Future of Europe
by Joseph E. Stiglitz and Alex Hyde-White
Published 24 Oct 2016

It is thus natural to ask, what is going on? IDEOLOGY—ONCE AGAIN One possibility—a real one—is that the architects of austerity truly believed in the economic doctrines that they espoused, in spite of the overwhelming evidence against them accumulated over more than three-quarters of a century. Advances in behavioral economics and psychology provide some explanation for the persistence of such beliefs—the theory of confirmation bias holds that individuals discount information that is not consistent with their prior beliefs. And in our complex world, it is easy to do so. It is hard, of course, to deny the decrease in Greece’s GDP.

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Guy Chazan, “Frustrated Iraqis Head Home as German Services Struggle,” Financial Times, February 7, 2016, p. 4. 28 There are many variants of the European social model. Some involve unions and employers working with government (the social partners) to solve societal problems. Some have country-wide labor bargaining; others, sectoral bargaining. Some have stronger systems of social protection than others. 29 There is, however, a large literature in behavioral economics suggesting that individuals do not exhibit this kind of rationality. 30 This is called confirmatory bias. There is a large literature showing the importance of this phenomenon. 31 Bonds are the way that countries, companies, and other institutions borrow through capital markets, rather than through banks.

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Africa, 10, 95, 381 globalization and, 51 aggregate demand, 98, 107, 111, 118–19, 189, 367 deflation and, 290 lowered by inequality, 212 surpluses and, 187, 253 tech bubble slump in, 250 as weakened by imports, 111 aggregate supply, 99, 104, 189 agricultural subsidies, 45, 197 agriculture, 89, 224, 346 airlines, 259 Akerlof, George, 132 American Express, 287 Apple, 81, 376 Argentina, 18, 100, 110, 117, 371 bailout of, 113 debt restructuring by, 205–6, 266, 267 Arrow-Debreu competitive equilibrium theory, 303 Asia, globalization and, 51 asset price bubbles, 172 Athens airport, 191, 367–68 austerity, xvi–xvii, 9, 18–19, 20, 21, 28–29, 54, 69–70, 95, 96, 98, 97, 103, 106, 140, 150, 178, 185–88, 206, 211, 235, 316–17 academics for, 208–13 debt restructuring and, 203–6 design of programs of, 188–90 Germany’s push for, 186, 232 government investment curtailed by, 217 opposition to, 59–62, 69–70, 207–8, 315, 332, 392 private, 126–27, 241–42 reform of, 263–65 Austria, 331, 343 automatic destabilizers, see built-in destabilizers automatic stabilizers, 142, 244, 247–48, 357 flexible exchange rate as, 248 bail-ins, 113 bailouts, 91–92, 111, 112–13, 201–3, 354, 362–63, 370 of banks, 127–28, 196, 279, 362–63 of East Asia, 202 of Latin America, 202 of Mexico, 202 of Portugal, 178–79 of Spanish banks, 179, 199–200, 206 see also programs balanced-budget multiplier, 188–90, 265 Balkans, 320 bank capital, 284–85 banking system, in US, 91 banking union, 129–30, 241–42, 248, 263 and common regulations, 241 and deposit insurance, 241, 242, 246 Bank of England, 359 inflation target of, 157 Bank of Italy, 158 bankruptcies, 77, 94, 102, 104, 346, 390 super–chapter 11 for, 259–60 banks, 198–201 bailouts of, 127–28, 196, 279, 362–63 capital requirements of, 152, 249 closing of, 378 credit creation by, 280–82 development, 137–38 evolution of, 386–87 forbearance of regulations on, 130–31 Greek, 200–201, 228–29, 231, 270, 276, 367, 368 lending contracted by, 126–27, 246, 282–84 money supply increased by, 277 restructuring of, 113 small, 171 in Spain, 23, 186, 199, 200, 242, 270, 354 too-big-to-fail, 360 bank transfers, 49 Barclays, 131 behavioral economics, 335 Belgium, 6, 331, 343 belief systems, 53 Berlin Wall, 6 Bernanke, Ben, 251, 351, 363, 381 bilateral investment agreement, 369 Bill of Rights, 319 bimetallic standard, 275, 277 Blanchard, Olivier, 211 bonds, 4, 114, 150, 363 confidence in, 127, 145 Draghi’s promise to support, 127, 200, 201 GDP-indexed, 267 inflation and, 161 long-term, 94 restructuring of, 159 bonds, corporate, ECB’s purchase of, 141 borrowing, excessive, 243 Brazil, 138, 370 bailout of, 113 bread, 218, 230 Bretton Woods monetary system, 32, 325 Brunnermeier, Markus K., 361 Bryan, William Jennings, xii bubbles, 249, 381 credit, 122–123 real estate, see real estate bubble stability threatened by, 264 stock market, 200–201 tech, 250 tools for controlling, 250 budget, capital, 245 Buffett, Warren, 287, 290 built-in destabilizers, 96, 142, 188, 244, 248, 357–58 common regulatory framework as, 241 Bulgaria, 46, 331 Bundesbank, 42 Bush, George W., 266 Camdessus, Michel, 314 campaign contributions, 195, 355 Canada, 96 early 1990s expansion of, 209 in NAFTA, xiv railroad privatization in, 55 tax system in, 191 US’s free trade with, 45–46, 47 capital, 76–77 bank, 284–85 human, 78, 137 return to, 388 societal vs. physical, 77–78 tax on, 356 unemployment increased by, 264 capital adequacy standards, 152 capital budget, 245 capital controls, 389–90 capital flight, 126–34, 217, 354, 359 austerity and, 140 and labor flows, 135 capital flows, 14, 15, 25, 26, 27–28, 40, 116, 125, 128, 131, 351 economic volatility exacerbated by, 28, 274 and foreign ownership, 195 and technology, 139 capital inflows, 110–11 capitalism: crises in, xviii, 148–49 inclusive, 317 capital requirements, 152, 249, 378 Caprio, Gerry, 387 capture, 158–60 carbon price, 230, 260, 265, 368 cash, 39 cash flow, 194 Catalonia, xi CDU party, 314 central banks, 59, 354, 387–88 balance sheets of, 386 capture of, 158–59 credit auctions by, 282–84 credit creation by, 277–78 expertise of, 363 independence of, 157–63 inequality created by, 154 inflation and, 153, 166–67 as lender of last resort, 85, 362 as political institutions, 160–62 regulations and, 153 stability and, 8 unemployment and, 8, 94, 97, 106, 147, 153 CEO compensation, 383 Chapter 11, 259–60, 291 childhood poverty, 72 Chile, 55, 152–53 China, 81, 98, 164, 319, 352 exchange-rate policy of, 251, 254, 350–51 global integration of, 49–50 low prices of, 251 rise of, 75 savings in, 257 trade surplus of, 118, 121, 350–52 wages controlled in, 254 as world’s largest economy, 318, 327 chits, 287–88, 290, 299–300, 387, 388–389 Citigroup, 355 climate change, 229–30, 251, 282, 319 Clinton, Bill, xiv, xv, 187 closing hours, 220 cloves, 230 cognitive capture, 159 Cohesion Fund, 243 Cold War, 6 collateral, 364 collective action, 41–44, 51–52 and inequality, 338 and stabilization, 246 collective bargaining, 221 collective goods, 40 Common Agricultural Policy, 338 common regulatory framework, 241 communism, 10 Community Reinvestment Act (CRA), 360, 382 comparative advantage, 12, 171 competition, 12 competitive devaluation, 104–6, 254 compromise, 22–23 confidence, 95, 200–201, 384 in banks, 127 in bonds, 145 and structural reforms, 232 and 2008 crisis, 280 confirmation bias, 309, 335 Congress, US, 319, 355 connected lending, 280 connectedness, 68–69 Connecticut, GDP of, 92 Constitutional Court, Greek, 198 consumption, 94, 278 consumption tax, 193–94 contract enforcement, 24 convergence, 13, 92–93, 124, 125, 139, 254, 300–301 convergence criteria, 15, 87, 89, 96–97, 99, 123, 244 copper mines, 55 corporate income tax, 189–90, 227 corporate taxes, 189–90, 227, 251 corporations, 323 regulations opposed by, xvi and shutdown of Greek banks, 229 corruption, 74, 112 privatization and, 194–95 Costa, António, 332 Council of Economic Advisers, 358 Council of State, Greek, 198 countercyclical fiscal policy, 244 counterfactuals, 80 Countrywide Financial, 91 credit, 276–85 “divorce”’s effect on, 278–79 excessive, 250, 274 credit auctions, 282–84 credit bubbles, 122–123 credit cards, 39, 49, 153 credit creation, 248–50, 277–78, 386 by banks, 280–82 domestic control over, 279–82 regulation of, 277–78 credit default swaps (CDSs), 159–60 crisis policy reforms, 262–67 austerity to growth, 263–65 debt restructuring and, 265–67 Croatia, 46, 331, 338 currency crises, 349 currency pegs, xii current account, 333–34 current account deficits, 19, 88, 108, 110, 120–121, 221, 294 and exit from euro, 273, 285–89 see also trade deficit Cyprus, 16, 30, 140, 177, 331, 386 capital controls in, 390 debt-to-GDP ratio of, 231 “haircut” of, 350, 367 Czech Republic, 46, 331 debit cards, 39, 49 debtors’ prison, 204 debt restructuring, 201, 203–6, 265–67, 290–92, 372, 390 of private debt, 291 debts, xx, 15, 93, 96, 183 corporate, 93–94 crisis in, 110–18 in deflation, xii and exit from eurozone, 273 with foreign currency, 115–18 household, 93–94 increase in, 18 inherited, 134 limits of, 42, 87, 122, 141, 346, 367 monetization of, 42 mutualization of, 242–43, 263 place-based, 134, 242 reprofiling of, 32 restructuring of, 259 debt-to-GDP ratio, 202, 210–11, 231, 266, 324 Declaration of Independence, 319 defaults, 102, 241, 338, 348 and debt mutualization, 243 deficit fetishism, 96 deficits, fiscal, xx, 15, 20, 93, 96, 106, 107–8, 122, 182, 384 and balanced-budget multiplier, 188–90, 265 constitutional amendment on, 339 and exit from euro, 273, 289–90 in Greece, 16, 186, 215, 233, 285–86, 289 limit of, 42, 87, 94–95, 122, 138, 141, 186, 243, 244, 265, 346, 367 primary, 188 problems financing, 110–12 structural, 245 deficits, trade, see trade deficits deflation, xii, 147, 148, 151, 166, 169, 277, 290 Delors, Jacques, 7, 332 democracy, lack of faith in, 312–14 Democracy in America (Tocqueville), xiii democratic deficit, 26–27, 35, 57–62, 145 democratic participation, xix Denmark, 45, 307, 313, 331 euro referendum of, 58 deposit insurance, 31, 44, 129, 199, 301, 354–55, 386–87 common in eurozone, 241, 242, 246, 248 derivatives, 131, 355 Deutsche Bank, 283, 355 devaluation, 98, 104–6, 254, 344 see also internal devaluation developing countries, and Washington Consensus, xvi discretion, 262–63 discriminatory lending practices, 283 disintermediation, 258 divergence, 15, 123, 124–44, 255–56, 300, 321 in absence of crisis, 128–31 capital flight and, 126–34 crisis policies’ exacerbation of, 140–43 free mobility of labor and, 134–36, 142–44, 242 in public investment, 136–38 reforms to prevent, 243 single-market principle and, 125–26 in technology, 138–39 in wealth, 139–40 see also capital flows; labor movement diversification, of production, 47 Dodd-Frank Wall Street Reform and Consumer Protection Act, 355 dollar peg, 50 downsizing, 133 Draghi, Mario, 127, 145, 156, 158, 165, 269, 363 bond market supported by, 127, 200, 201 Drago, Luis María, 371 drug prices, 219 Duisenberg, Willem Frederik “Wim,” 251 Dynamic Stochastic Equilibrium model, 331 East Asia, 18, 25, 95, 102–3, 112, 123, 202, 364, 381 convergence in, 138 Eastern Europe, 10 Economic Adjustment Programme, 178 economic distortions, 191 economic growth, xii, 34 confidence and, 232 in Europe, 63–64, 69, 73–74, 74, 75, 163 lowered by inequality, 212–13 reform of, 263–65 and structural reforms, 232–35 economic integration, xiv–xx, 23, 39–50 euro and, 46–47 political integration vs., 51–57 single currency and, 45–46 economic rents, 226, 280 economics, politics and, 308–18 economic security, 68 economies of scale, 12, 39, 55, 138 economists, poor forecasting by, 307 education, 20, 76, 344 investment in, 40, 69, 137, 186, 211, 217, 251, 255, 300 electricity, 217 electronic currency, 298–99, 389 electronics payment mechanism, 274–76, 283–84 emigration, 4, 68–69 see also migration employment: central banks and, 8, 94, 97 structural reforms and, 257–60 see also unemployment Employment Act (1946), 148 energy subsidies, 197 Enlightenment, 3, 318–19 environment, 41, 257, 260, 323 equality, 225–26 equilibrium, xviii–xix Erasmus program, 45 Estonia, 90, 331, 346 euro, xiv, 325 adjustments impeded by, 13–14 case for, 35–39 creation of, xii, 5–6, 7, 10, 333 creation of institutions required by, 10–11 divergence and, see divergence divorce of, 272–95, 307 economic integration and, 46–47, 268 as entailing fixed exchange rate, 8, 42–43, 46–47, 86–87, 92, 93, 94, 102, 105, 143, 193, 215–16, 240, 244, 249, 252, 254, 286, 297 as entailing single interest rate, 8, 85–88, 92, 93, 94, 105, 129, 152, 240, 244, 249 and European identification, 38–39 financial instability caused by, 131–32 growth promised by, 235 growth slowed by, 73 hopes for, 34 inequality increased by, xviii interest rates lowered by, 235 internal devaluation of, see internal devaluation literature on, 327–28 as means to end, xix peace and, 38 proponents of, 13 referenda on, 58, 339–40 reforms needed for, xii–xiii, 28–31 risk of, 49–50 weakness of, 224 see also flexible euro Eurobond, 356 euro crisis, xiii, 3, 4, 9 catastrophic consequences of, 11–12 euro-euphoria, 116–17 Europe, 151 free trade area in, 44–45 growth rates in, 63–64, 69, 73–74, 74, 75, 163 military conflicts in, 196 social models of, 21 European Central Bank (ECB), 7, 17, 80, 112–13, 117, 144, 145–73, 274, 313, 362, 368, 380 capture of, 158–59 confidence in, 200–201 corporate bonds bought by, 141 creation of, 8, 85 democratic deficit and, 26, 27 excessive expansion controlled by, 250 flexibility of, 269 funds to Greece cut off by, 59 German challenges to, 117, 164 governance and, 157–63 inequality created by, 154–55 inflation controlled by, 8, 25, 97, 106, 115, 145, 146–50, 151, 163, 165, 169–70, 172, 250, 256, 266 interest rates set by, 85–86, 152, 249, 302, 348 Ireland forced to socialize losses by, 134, 156, 165 new mandate needed by, 256 as political institution, 160–62 political nature of, 153–56 quantitative easing opposed by, 151 quantitative easing undertaken by, 164, 165–66, 170, 171 regulations by, 249, 250 unemployment and, 163 as unrepresentative, 163 European Commission, 17, 58, 161, 313, 332 European Court of Human Rights, 45 European Economic Community (EEC), 6 European Exchange Rate Mechanism (ERM), 30, 335 European Exchange Rate Mechanism II (ERM II), 336 European Free Trade Association, 44 European Free Trade Association Court, 44 European Investment Bank (EIB), 137, 247, 255, 301 European Regional Development Fund, 243 European Stability Mechanism, 23, 246, 357 European Union: budget of, 8, 45, 91 creation of, 4 debt and deficit limits in, 87–88 democratic deficit in, 26–27 economic growth in, 215 GDP of, xiii and lower rates of war, 196 migration in, 90 proposed exit of UK from, 4 stereotypes in, 12 subsidiarity in, 8, 41–42, 263 taxes in, 8, 261 Euro Summit Statement, 373 eurozone: austerity in, see austerity banking union in, see banking union counterfactual in, 235–36 double-dip recessions in, 234–35 Draghi’s speech and, 145 economic integration and, xiv–xx, 23, 39–50, 51–57 as flawed at birth, 7–9 framework for stability of, 244–52 German departure from, 32, 292–93 Greece’s possible exit from, 124 hours worked in, 71–72 lack of fiscal policy in, 152 and move to political integration, xvi, 34, 35, 51–57 Mundell’s work on dangers of, 87 policies of, 15–17 possible breakup of, 29–30 privatization avoided in, 194 saving, 323–26 stagnant GDP in, 12, 65–68, 66, 67 structure of, 8–9 surpluses in, 120–22 theory of, 95–97 unemployment in, 71, 135, 163, 177–78, 181, 331 working-age population of, 70 eurozone, proposed structural reforms for, 239–71 common financial system, see banking union excessive fiscal responsibility, 163 exchange-rate risks, 13, 47, 48, 49–50, 125, 235 exchange rates, 80, 85, 288, 300, 338, 382, 389 of China, 251, 254, 350–51 and competitive devaluation, 105–6 after departure of northern countries, 292–93 of euro, 8, 42–43, 46–47, 86–87, 92, 93, 94, 102, 105, 215–16, 240, 244, 249, 252, 254, 286, 297 flexible, 50, 248, 349 and full employment, 94 of Germany, 254–55, 351 gold and, 344–45 imports and, 86 interest rates and, 86 quantitative easing’s lowering of, 151 real, 105–6 and single currencies, 8, 42–43, 46–47, 86–87, 92, 93, 94, 97–98 stabilizing, 299–301 and trade deficits, 107, 118 expansionary contractions, 95–96, 208–9 exports, 86, 88, 97–99, 98 disappointing performance of, 103–5 external imbalances, 97–98, 101, 109 externalities, 42–43, 121, 153, 301–2 surpluses as, 253 extremism, xx, 4 Fannie Mae, 91 farmers, US, in deflation, xii Federal Deposit Insurance Corporation (FDIC), 91 Federal Reserve, US, 349 alleged independence of, 157 interest rates lowered by, 150 mandate of, 8, 147, 172 money pumped into economy by, 278 quantitative easing used by, 151, 170 reform of, 146 fiat currency, 148, 275 and taxes, 284 financial markets: lobbyists from, 132 reform of, 214, 228–29 short-sighted, 112–13 financial systems: necessity of, xix real economy of, 149 reform of, 257–58 regulations needed by, xix financial transaction system, 275–76 Finland, 16, 81, 122, 126, 292, 296, 331, 343 growth in, 296–97 growth rate of, 75, 76, 234–35 fire departments, 41 firms, 138, 186–87, 245, 248 fiscal balance: and cutting spending, 196–98 tax revenue and, 190–96 Fiscal Compact, 141, 357 fiscal consolidation, 310 fiscal deficits, see deficits, fiscal fiscal policy, 148, 245, 264 in center of macro-stabilization, 251 countercyclical, 244 in EU, 8 expansionary, 254–55 stabilization of, 250–52 fiscal prudence, 15 fiscal responsibility, 163 flexibility, 262–63, 269 flexible euro, 30–31, 272, 296–305, 307 cooperation needed for, 304–5 food prices, 169 forbearance, 130–31 forecasts, 307 foreclosure proposal, 180 foreign ownership, privatization and, 195 forestry, 81 France, 6, 14, 16, 114, 120, 141, 181–82, 331, 339–40, 343 banks of, 202, 203, 231, 373 corporate income tax in, 189–90 euro creation regretted in, 340 European Constitution referendum of, 58 extreme right in, xi growth in, 247 Freddie Mac, 91 Freefall (Stiglitz), 264, 335 free mobility of labor, xiv, 26, 40, 125, 134–36, 142–44, 242 Friedman, Milton, 151, 152–53, 167, 339 full employment, 94–97, 379 G-20, 121 gas: import of, 230 from Russia, 37, 81, 93 Gates Foundation, 276 GDP-indexed bonds, 267 German bonds, 114, 323 German Council of Economic Experts, 179, 365 Germany, xxi, 14, 30, 65, 108, 114, 141, 181–82, 207, 220, 286, 307, 331, 343, 346, 374 austerity pushed by, 186, 232 banks of, 202, 203, 231–32, 373 costs to taxpayers of, 184 as creditor, 140, 187, 267 debt collection by, 117 debt in, 105 and debt restructuring, 205, 311 in departure from eurozone, 32, 292–93 as dependent on Russian gas, 37 desire to leave eurozone, 314 ECB criticized by, 164 EU economic practices controlled by, 17 euro creation regretted in, 340 exchange rate of, 254–55, 351 failure of, 13, 78–79 flexible exchange of, 304 GDP of, xviii, 92 in Great Depression, 187 growing poverty in, 79 growth of, 78, 106, 247 hours worked per worker in, 72 inequality in, 79, 333 inflation in, 42, 338, 358 internal solidarity of, 334 lack of alternative to euro seen by, 11 migrants to, 320–21, 334–35, 393 minimum wage in, 42, 120, 254 neoliberalism in, 10 and place-based debt, 136 productivity in, 71 programs designed by, 53, 60, 61, 202, 336, 338 reparations paid by, 187 reunification of, 6 rules as important to, 57, 241–42, 262 share of global employment in, 224 shrinking working-age population of, 70, 78–79 and Stability and Growth Pact, 245 and structural reforms, 19–20 “there is no alternative” and, 306, 311–12 trade surplus of, 117, 118–19, 120, 139, 253, 293, 299, 350–52, 381–82, 391 “transfer union” rejected by, 22 US loans to, 187 victims blamed by, 9, 15–17, 177–78, 309 wages constrained by, 41, 42–43 wages lowered in, 105, 333 global financial crisis, xi, xiii–xiv, 3, 12, 17, 24, 67, 73, 75, 114, 124, 146, 148, 274, 364, 387 and central bank independence, 157–58 and confidence, 280 and cost of failure of financial institutions, 131 lessons of, 249 monetary policy in, 151 and need for structural reform, 214 originating in US, 65, 68, 79–80, 112, 128, 296, 302 globalization, 51, 321–23 and diminishing share of employment in advanced countries, 224 economic vs. political, xvii failures of, xvii Globalization and Its Discontents (Stig-litz), 234, 335, 369 global savings glut, 257 global secular stagnation, 120 global warming, 229–30, 251, 282, 319 gold, 257, 275, 277, 345 Goldman Sachs, 158, 366 gold standard, 148, 291, 347, 358 in Great Depression, xii, 100 goods: free movement of, 40, 143, 260–61 nontraded, 102, 103, 169, 213, 217, 359 traded, 102, 103, 216 Gordon, Robert, 251 governance, 157–63, 258–59 government spending, trade deficits and, 107–8 gravity principle, 124, 127–28 Great Depression, 42, 67, 105, 148, 149, 168, 313 Friedman on causes of, 151 gold standard in, xii, 100 Great Malaise, 264 Greece, 14, 30, 41, 64, 81, 100, 117, 123, 142, 160, 177, 265–66, 278, 307, 331, 343, 366, 367–68, 374–75, 386 austerity opposed by, 59, 60–62, 69–70, 207–8, 392 balance of payments, 219 banks in, 200–201, 228–29, 231, 270, 276, 367, 368 blaming of, 16, 17 bread in, 218, 230 capital controls in, 390 consumption tax and, 193–94 counterfactual scenario of, 80 current account surplus of, 287–88 and debt restructuring, 205–7 debt-to-GDP ratio of, 231 debt write-offs in, 291 decline in labor costs in, 56, 103 ECB’s cutting of funds to, 59 economic growth in, 215, 247 emigration from, 68–69 fiscal deficits in, 16, 186, 215, 233, 285–86, 289 GDP of, xviii, 183, 309 hours worked per worker in, 72 inequality in, 72 inherited debt in, 134 lack of faith in democracy in, 312–13 living standards in, 216 loans in, 127 loans to, 310 migrants and, 320–21 milk in, 218, 223, 230 new currency in, 291, 300 oligarchs in, 16, 227 output per working-age person in, 70–71 past downturns in, 235–36 pensions in, 16, 78, 188, 197–98, 226 pharmacies in, 218–20 population decline in, 69, 89 possible exit from eurozone of, 124, 197, 273, 274, 275 poverty in, 226, 261, 376 primary surplus of, 187–88, 312 privatization in, 55, 195–96 productivity in, 71, 342 programs imposed on, xv, 21, 27, 60–62, 140, 155–56, 179–80, 181, 182–83, 184–85, 187–88, 190–93, 195–96, 197–98, 202–3, 205, 206, 214–16, 218–23, 225–28, 229, 230, 231, 233–34, 273, 278, 308, 309–11, 312, 315–16, 336, 338 renewable energy in, 193, 229 social capital destroyed in, 78 sovereign spread of, 200 spread in, 332 and structural reforms, 20, 70, 188, 191 tax revenue in, 16, 142, 192, 227, 367–368 tools lacking for recovery of, 246 tourism in, 192, 286 trade deficits in, 81, 194, 216–17, 222, 285–86 unemployment in, xi, 71, 236, 267, 332, 338, 342 urgency in, 214–15 victim-blaming of, 309–11 wages in, 216–17 youth unemployment in, xi, 332 Greek bonds, 116, 126 interest rates on, 4, 114, 181–82, 201–2, 323 restructuring of, 206–7 green investments, 260 Greenspan, Alan, 251, 359, 363 Grexit, see Greece, possible exit from eurozone of grocery stores, 219 gross domestic product (GDP), xvii decline in, 3 measurement of, 341 Growth and Stability Pact, 87 hedge funds, 282, 363 highways, 41 Hitler, Adolf, 338, 358 Hochtief, 367–68 Hoover, Herbert, 18, 95 human capital, 78, 137 human rights, 44–45, 319 Hungary, 46, 331, 338 hysteresis, 270 Iceland, 44, 111, 307, 354–55 banks in, 91 capital controls in, 390 ideology, 308–9, 315–18 imports, 86, 88, 97–99, 98, 107 incentives, 158–59 inclusive capitalism, 317 income, unemployment and, 77 income tax, 45 Independent Commission for the Reform of International Corporate Taxation, 376–377 Indonesia, 113, 230–31, 314, 350, 364, 378 industrial policies, 138–39, 301 and restructuring, 217, 221, 223–25 Industrial Revolution, 3, 224 industry, 89 inequality, 45, 72–73, 333 aggregate demand lowered by, 212 created by central banks, 154 ECB’s creation of, 154–55 economic performance affected by, xvii euro’s increasing of, xviii growth’s lowering of, 212 hurt by collective action, 338 increased by neoliberalism, xviii increase in, 64, 154–55 inequality in, 72, 212 as moral issue, xviii in Spain, 72, 212, 225–26 and tax harmonization, 260–61 and tax system, 191 inflation, 277, 290, 314, 388 in aftermath of tech bubble, 251 bonds and, 161 central banks and, 153, 166–67 consequences of fixation on, 149–50, 151 costs of, 270 and debt monetization, 42 ECB and, 8, 25, 97, 106, 115, 145, 146–50, 151, 163, 165, 169–70, 172, 255, 256, 266 and food prices, 169 in Germany, 42, 338, 358 interest rates and, 43–44 in late 1970s, 168 and natural rate hypothesis, 172–73 political decisions and, 146 inflation targeting, 157, 168–70, 364 information, 335 informational capital, 77 infrastructure, xvi–xvii, 47, 137, 186, 211, 255, 258, 265, 268, 300 inheritance tax, 368 inherited debt, 134 innovation, 138 innovation economy, 317–18 inputs, 217 instability, xix institutions, 93, 247 poorly designed, 163–64 insurance, 355–356 deposit, see deposit insurance mutual, 247 unemployment, 91, 186, 246, 247–48 integration, 322 interest rates, 43–44, 86, 282, 345, 354 in aftermath of tech bubble, 251 ECB’s determination of, 85–86, 152, 249, 302, 348 and employment, 94 euro’s lowering of, 235 Fed’s lowering of, 150 on German bonds, 114 on Greek bonds, 4, 114, 181–82 on Italian bonds, 114 in late 1970s, 168 long-term, 151, 200 negative, 316, 348–49 quantitative easing and, 151, 170 short-term, 249 single, eurozone’s entailing of, 8, 85–88, 92, 93, 94, 105, 129, 152, 240, 244, 249 on Spanish bonds, 114, 199 spread in, 332 stock prices increased by, 264 at zero lower bound, 106 intermediation, 258 internal devaluation, 98–109, 122, 126, 220, 255, 388 supply-side effects of, 99, 103–4 International Commission on the Measurement of Economic Performance and Social Progress, 79, 341 International Labor Organization, 56 International Monetary Fund (IMF), xv, xvii, 10, 17, 18, 55, 61, 65–66, 96, 111, 112–13, 115–16, 119, 154, 234, 289, 309, 316, 337, 349, 350, 370, 371, 381 and Argentine debt, 206 conditions of, 201 creation of, 105 danger of high taxation warnings of, 190 debt reduction pushed by, 95 and debt restructuring, 205, 311 and failure to restore credit, 201 global imbalances discussed by, 252 and Greek debts, 205, 206, 310–11 on Greek surplus, 188 and Indonesian crisis, 230–31, 364 on inequality’s lowering of growth, 212–13 Ireland’s socialization of losses opposed by, 156–57 mistakes admitted by, 262, 312 on New Mediocre, 264 Portuguese bailout of, 178–79 tax measures of, 185 investment, 76–77, 111, 189, 217, 251, 264, 278, 367 confidence and, 94 divergence in, 136–38 in education, 137, 186, 211, 217, 251, 255, 300 infrastructure in, xvi–xvii, 47, 137, 186, 211, 255, 258, 265, 268, 300 lowered by disintermediation, 258 public, 99 real estate, 199 in renewable energy, 229–30 return on, 186, 245 stimulation of, 94 in technology, 137, 138–39, 186, 211, 217, 251, 258, 265, 300 investor state dispute settlement (ISDS), 393–94 invisible hand, xviii Iraq, refugees from, 320 Iraq War, 36, 37 Ireland, 14, 16, 44, 113, 114–15, 122, 178, 234, 296, 312, 331, 339–40, 343, 362 austerity opposed in, 207 debt of, 196 emigrants from, 68–69 GDP of, 18, 231 growth in, 64, 231, 247, 340 inherited debt in, 134 losses socialized in, 134, 156–57, 165 low debt in, 88 real estate bubble in, 108, 114–15, 126 surplus in, 17, 88 taxes in, 142–43, 376 trade deficits in, 119 unemployment in, 178 irrational exuberance, 14, 114, 116–17, 149, 334, 359 ISIS, 319 Italian bonds, 114, 165, 323 Italy, 6, 14, 16, 120, 125, 331, 343 austerity opposed in, 59 GDP per capita in, 352 growth in, 247 sovereign spread of, 200 Japan, 151, 333, 342 bubble in, 359 debt of, 202 growth in, 78 quantitative easing used by, 151, 359 shrinking working-age population of, 70 Java, unemployment on, 230 jobs gap, 120 Juncker, Jean-Claude, 228 Keynes, John Maynard, 118, 120, 172, 187, 351 convergence policy suggested by, 254 Keynesian economics, 64, 95, 108, 153, 253 King, Mervyn, 390 knowledge, 137, 138–39, 337–38 Kohl, Helmut, 6–7, 337 krona, 287 labor, marginal product of, 356 labor laws, 75 labor markets, 9, 74 friction in, 336 reforms of, 214, 221 labor movement, 26, 40, 125, 134–36, 320 austerity and, 140 capital flows and, 135 see also migration labor rights, 56 Lamers, Karl, 314 Lancaster, Kelvin, 27 land tax, 191 Latin America, 10, 55, 95, 112, 202 lost decade in, 168 Latvia, 331, 346 GDP of, 92 law of diminishing returns, 40 learning by doing, 77 Lehman Brothers, 182 lender of last resort, 85, 362, 368 lending, 280, 380 discriminatory, 283 predatory, 274, 310 lending rates, 278 leverage, 102 Lichtenstein, 44 Lipsey, Richard, 27 liquidity, 201, 264, 278, 354 ECB’s expansion of, 256 lira, 14 Lithuania, 331 living standards, 68–70 loans: contraction of, 126–27, 246 nonperforming, 241 for small and medium-size businesses, 246–47 lobbyists, from financial sector, 132 location, 76 London interbank lending rate (LIBOR), 131, 355 Long-Term Refinancing Operation, 360–361 Lucas, Robert, xi Luxembourg, 6, 94, 142–43, 331, 343 as tax avoidance center, 228, 261 luxury cars, 265 Maastricht Treaty, xiii, 6, 87, 115, 146, 244, 298, 339, 340 macro-prudential regulations, 249 Malta, 331, 340 manufacturing, 89, 223–24 market failures, 48–49, 86, 148, 149, 335 rigidities, 101 tax policy’s correction of, 193 market fundamentalism, see neoliberalism market irrationality, 110, 125–26, 149 markets, limitations of, 10 Meade, James, 27 Medicaid, 91 medical care, 196 Medicare, 90, 91 Mellon, Andrew, 95 Memorandum of Agreement, 233–34 Merkel, Angela, 186 Mexico, 202, 369 bailout of, 113 in NAFTA, xiv Middle East, 321 migrant crisis, 44 migration, 26, 40, 68–69, 90, 125, 320–21, 334–35, 342, 356, 393 unemployment and, 69, 90, 135, 140 see also labor movement military power, 36–37 milk, 218, 223, 230 minimum wage, 42, 120, 254, 255, 351 mining, 257 Mississippi, GDP of, 92 Mitsotakis, Constantine, 377–78 Mitsotakis, Kyriakos, 377–78 Mitterrand, François, 6–7 monetarism, 167–68, 169, 364 monetary policy, 24, 85–86, 148, 264, 325, 345, 364 as allegedly technocratic, 146, 161–62 conservative theory of, 151, 153 in early 1980s US, 168, 210 flexibility of, 244 in global financial crisis, 151 political nature of, 146, 153–54 recent developments in theory of, 166–73 see also interest rates monetary union, see single currencies money laundering, 354 monopolists, privatization and, 194 moral hazard, 202, 203 mortgage rates, 170 mortgages, 302 multinational chains, 219 multinational development banks, 137 multinationals, 127, 223, 376 multipliers, 211–12, 248 balanced-budget, 188–90, 265 Mundell, Robert, 87 mutual insurance, 247 mutualization of debt, 242–43, 263 national development banks, 137–38 natural monopolies, 55 natural rate hypothesis, 172 negative shocks, 248 neoliberalism, xvi, 24–26, 33, 34, 98–99, 109, 257, 265, 332–33, 335, 354 on bubbles, 381 and capital flows, 28 and central bank independence, 162–63 in Germany, 10 inequality increased by, xviii low inflation desired by, 147 recent scholarship against, 24 Netherlands, 6, 44, 292, 331, 339–40, 343 European Constitution referendum of, 58 New Democracy Party, Greek, 61, 185, 377–78 New Mediocre, 264 New World, 148 New Zealand, 364 Nokia, 81, 234, 297 nonaccelerating inflation rate of unemployment (NAIRU), 379–80 nonaccelerating wage rate of unemployment (NAWRU), 379–80 nongovernmental organizations (NGOs), 276 nonperforming loans, 241 nontraded goods sector, 102, 103, 169, 213, 217, 359 North American Free Trade Agreement (NAFTA), xiv North Atlantic Treaty Organization (NATO), 196 Norway, 12, 44, 307 referendum on joining EU, 58 nuclear deterrence, 38 Obama, Barack, 319 oil, import of, 230 oil firms, 36 oil prices, 89, 168, 259, 359 oligarchs: in Greece, 16, 227 in Russia, 280 optimal currency area, 345 output, 70–71, 111 after recessions, 76 Outright Monetary Transactions program, 361 overregulate, 132 Oxfam, 72 panic of 1907, 147 Papandreou, Andreas, 366 Papandreou, George, xiv, 60–61, 184, 185, 220, 221, 226–27, 309, 312, 366, 373 reform of banks suggested by, 229 paradox of thrift, 120 peace, 34 pensions, 9, 16, 78, 177, 188, 197–98, 226, 276, 370 People’s Party, Portugal, 392 periphery, 14, 32, 171, 200, 296, 301, 318 see also specific countries peseta, 14 pharmacies, 218–20 Phishing for Phools (Akerlof and Shiller), 132 physical capital, 77–78 Pinochet, Augusto, 152–53 place-based debt, 134, 242 Pleios, George, 377 Poland, 46, 333, 339 assistance to, 243 in Iraq War, 37 police, 41 political integration, xvi, 34, 35 economic integration vs., 51–57 politics, economics and, 308–18 pollution, 260 populism, xx Portugal, 14, 16, 64, 177, 178, 331, 343, 346 austerity opposed by, 59, 207–8, 315, 332, 392 GDP of, 92 IMF bailout of, 178–79 loans in, 127 poverty in, 261 sovereign spread of, 200 Portuguese bonds, 179 POSCO, 55 pound, 287, 335, 346 poverty, 72 in Greece, 226, 261 in Portugal, 261 in Spain, 261 predatory lending, 274, 310 present discount value, 343 Price of Inequality, The (Stiglitz), 154 prices, 19, 24 adjustment of, 48, 338, 361 price stability, 161 primary deficit, 188, 389 primary surpluses, 187–88 private austerity, 126–27, 241–42 private sector involvement, 113 privatization, 55, 194–96, 369 production costs, 39, 43, 50 production function, 343 productivity, 71, 332, 348 in manufacturing, 223–24 after recessions, 76–77 programs, 17–18 Germany’s design of, 53, 60, 61, 187–88, 205, 336, 338 imposed on Greece, xv, 21, 27, 60–62, 140, 155–56, 179–80, 181, 182–83, 184–85, 187–88, 190–93, 195–96, 197–98, 202–3, 205, 206, 214–16, 218–23, 225–28, 229, 230, 231, 233–34, 273, 278, 308, 309–11, 312, 315–16, 336, 338 of Troika, 17–18, 21, 155–57, 179–80, 181, 182–83, 184–85, 187–93, 196, 202, 205, 207, 208, 214–16, 217, 218–23, 225–28, 229, 231, 233–34, 273, 278, 308, 309–11, 312, 313, 314, 315–16, 323–24, 346, 366, 379, 392 progressive automatic stabilizers, 244 progressive taxes, 248 property rights, 24 property taxes, 192–93, 227 public entities, 195 public goods, 40, 337–38 quantitative easing (QE), 151, 164, 165–66, 170–72, 264, 359, 361, 386 railroads, 55 Reagan, Ronald, 168, 209 real estate bubble, 25, 108, 109, 111, 114–15, 126, 148, 172, 250, 301, 302 cause of, 198 real estate investment, 199 real exchange rate, 105–6, 215–16 recessions, recovery from, 94–95 recovery, 76 reform, 75 theories of, 27–28 regulations, 24, 149, 152, 162, 250, 354, 355–356, 378 and Bush administration, 250–51 common, 241 corporate opposition to, xvi difficulties in, 132–33 of finance, xix forbearance on, 130–31 importance of, 152–53 macro-prudential, 249 in race to bottom, 131–34 Reinhardt, Carmen, 210 renewable energy, 193, 229–30 Republican Party, US, 319 research and development (R&D), 77, 138, 217, 251, 317–18 Ricardo, David, 40, 41 risk, 104, 153, 285 excessive, 250 risk markets, 27 Rogoff, Kenneth, 210 Romania, 46, 331, 338 Royal Bank of Scotland, 355 rules, 57, 241–42, 262, 296 Russia, 36, 264, 296 containment of, 318 economic rents in, 280 gas from, 37, 81, 93, 378 safety nets, 99, 141, 223 Samaras, Antonis, 61, 309, 377 savings, 120 global, 257 savings and loan crisis, 360 Schäuble, Wolfgang, 57, 220, 314, 317 Schengen area, 44 schools, 41, 196 Schröeder, Gerhard, 254 self-regulation, 131, 159 service sector, 224 shadow banking system, 133 shareholder capitalism, 21 Shiller, Rob, 132, 359 shipping taxes, 227, 228 short-termism, 77, 258–59 Silicon Valley, 224 silver, 275, 277 single currencies: conflicts and, 38 as entailing fixed exchange rates, 8, 42–43, 46–47, 86–87, 92, 93, 94, 97–98 external imbalances and, 97–98 and financial crises, 110–18 integration and, 45–46, 50 interest rates and, 8, 86, 87–88, 92, 93, 94 Mundell’s work on, 87 requirements for, 5, 52–53, 88–89, 92–94, 97–98 and similarities among countries, 15 trade integration vs., 393 in US, 35, 36, 88, 89–92 see also euro single-market principle, 125–26, 231 skilled workers, 134–35 skills, 77 Slovakia, 331 Slovenia, 331 small and medium-sized enterprises (SMEs), 127, 138, 171, 229 small and medium-size lending facility, 246–47, 300, 301, 382 Small Business Administration, 246 small businesses, 153 Smith, Adam, xviii, 24, 39–40, 41 social cohesion, 22 Social Democratic Party, Portugal, 392 social program, 196 Social Security, 90, 91 social solidarity, xix societal capital, 77–78 solar energy, 193, 229 solidarity fund, 373 solidarity fund for stabilization, 244, 254, 264, 301 Soros, George, 390 South Dakota, 90, 346 South Korea, 55 bailout of, 113 sovereign risk, 14, 353 sovereign spreads, 200 sovereign wealth funds, 258 Soviet Union, 10 Spain, 14, 16, 114, 177, 178, 278, 331, 335, 343 austerity opposed by, 59, 207–8, 315 bank bailout of, 179, 199–200, 206 banks in, 23, 186, 199, 200, 242, 270, 354 debt of, 196 debt-to-GDP ratio of, 231 deficits of, 109 economic growth in, 215, 231, 247 gold supply in, 277 independence movement in, xi inequality in, 72, 212, 225–26 inherited debt in, 134 labor reforms proposed for, 155 loans in, 127 low debt in, 87 poverty in, 261 real estate bubble in, 25, 108, 109, 114–15, 126, 198, 301, 302 regional independence demanded in, 307 renewable energy in, 229 sovereign spread of, 200 spread in, 332 structural reform in, 70 surplus in, 17, 88 threat of breakup of, 270 trade deficits in, 81, 119 unemployment in, 63, 161, 231, 235, 332, 338 Spanish bonds, 114, 199, 200 spending, cutting, 196–98 spread, 332 stability, 147, 172, 261, 301, 364 automatic, 244 bubble and, 264 central banks and, 8 as collective action problem, 246 solidarity fund for, 54, 244, 264 Stability and Growth Pact, 245 standard models, 211–13 state development banks, 138 steel companies, 55 stock market, 151 stock market bubble, 200–201 stock market crash (1929), 18, 95 stock options, 259, 359 structural deficit, 245 Structural Funds, 243 structural impediments, 215 structural realignment, 252–56 structural reforms, 9, 18, 19–20, 26–27, 214–36, 239–71, 307 from austerity to growth, 263–65 banking union, 241–44 and climate change, 229–30 common framework for stability, 244–52 counterproductive, 222–23 debt restructuring and, 265–67 of finance, 228–29 full employment and growth, 256–57 in Greece, 20, 70, 188, 191, 214–36 growth and, 232–35 shared prosperity and, 260–61 and structural realignment, 252–56 of trade deficits, 216–17 trauma of, 224 as trivial, 214–15, 217–20, 233 subsidiarity, 8, 41–42, 263 subsidies: agricultural, 45, 197 energy, 197 sudden stops, 111 Suharto, 314 suicide, 82, 344 Supplemental Nutrition Assistance Program (SNAP), 91 supply-side effects: in Greece, 191, 215–16 of investments, 367 surpluses, fiscal, 17, 96, 312, 379 primary, 187–88 surpluses, trade, see trade surpluses “Swabian housewife,” 186, 245 Sweden, 12, 46, 307, 313, 331, 335, 339 euro referendum of, 58 refugees into, 320 Switzerland, 44, 307 Syria, 321, 342 Syriza party, 309, 311, 312–13, 315, 377 Taiwan, 55 tariffs, 40 tax avoiders, 74, 142–43, 227–28, 261 taxes, 142, 290, 315 in Canada, 191 on capital, 356 on carbon, 230, 260, 265, 368 consumption, 193–94 corporate, 189–90, 227, 251 cross-border, 319, 384 and distortions, 191 in EU, 8, 261 and fiat currency, 284 and free mobility of goods and capital, 260–61 in Greece, 16, 142, 192, 193–94, 227, 367–68 ideal system for, 191 IMF’s warning about high, 190 income, 45 increase in, 190–94 inequality and, 191 inheritance, 368 land, 191 on luxury cars, 265 progressive, 248 property, 192–93, 227 Reagan cuts to, 168, 210 shipping, 227, 228 as stimulative, 368 on trade surpluses, 254 value-added, 190, 192 tax evasion, in Greece, 190–91 tax laws, 75 tax revenue, 190–96 Taylor, John, 169 Taylor rule, 169 tech bubble, 250 technology, 137, 138–39, 186, 211, 217, 251, 258, 265, 300 and new financial system, 274–76, 283–84 telecoms, 55 Telmex, 369 terrorism, 319 Thailand, 113 theory of the second best, 27–28, 48 “there is no alternative” (TINA), 306, 311–12 Tocqueville, Alexis de, xiii too-big-to-fail banks, 360 tourism, 192, 286 trade: and contractionary expansion, 209 US push for, 323 trade agreements, xiv–xvi, 357 trade balance, 81, 93, 100, 109 as allegedly self-correcting, 98–99, 101–3 and wage flexibility, 104–5 trade barriers, 40 trade deficits, 89, 139 aggregate demand weakened by, 111 chit solution to, 287–88, 290, 299–300, 387, 388–89 control of, 109–10, 122 with currency pegs, 110 and fixed exchange rates, 107–8, 118 and government spending, 107–8, 108 of Greece, 81, 194, 215–16, 222, 285–86 structural reform of, 216–17 traded goods, 102, 103, 216 trade integration, 393 trade surpluses, 88, 118–21, 139–40, 350–52 discouragement of, 282–84, 299–300 of Germany, 118–19, 120, 139, 253, 293, 299, 350–52, 381–82, 391 tax on, 254, 351, 381–82 Transatlantic Trade and Investment Partnership, xv, 323 transfer price system, 376 Trans-Pacific Partnership, xv, 323 Treasury bills, US, 204 Trichet, Jean-Claude, 100–101, 155, 156, 164–65, 251 trickle-down economics, 362 Troika, 19, 20, 26, 55, 56, 58, 60, 69, 99, 101–3, 117, 119, 135, 140–42, 178, 179, 184, 195, 274, 294, 317, 362, 370–71, 373, 376, 377, 386 banks weakened by, 229 conditions of, 201 discretion of, 262 failure to learn, 312 Greek incomes lowered by, 80 Greek loan set up by, 202 inequality created by, 225–26 poor forecasting of, 307 predictions by, 249 primary surpluses and, 187–88 privatization avoided by, 194 programs of, 17–18, 21, 155–57, 179–80, 181, 182–83, 184–85, 187–93, 196, 197–98, 202, 204, 205, 207, 208, 214–16, 217, 218–23, 225–28, 229, 231, 233–34, 273, 278, 308, 309–11, 312, 313, 314, 315–16, 323–24, 348, 366, 379, 392 social contract torn up by, 78 structural reforms imposed by, 214–16, 217, 218–23, 225–38 tax demand of, 192 and tax evasion, 367 see also European Central Bank (ECB); European Commission; International Monetary Fund (IMF) trust, xix, 280 Tsipras, Alexis, 61–62, 221, 273, 314 Turkey, 321 UBS, 355 Ukraine, 36 unemployment, 3, 64, 68, 71–72, 110, 111, 122, 323, 336, 342 as allegedly self-correcting, 98–101 in Argentina, 267 austerity and, 209 central banks and, 8, 94, 97, 106, 147 ECB and, 163 in eurozone, 71, 135, 163, 177–78, 181, 331 and financing investments, 186 in Finland, 296 and future income, 77 in Greece, xi, 71, 236, 267, 331, 338, 342 increased by capital, 264 interest rates and, 43–44 and internal devaluation, 98–101, 104–6 migration and, 69, 90, 135, 140 natural rate of, 172–73 present-day, in Europe, 210 and rise of Hitler, 338, 358 and single currency, 88 in Spain, 63, 161, 231, 235, 332, 338 and structural reforms, 19 and trade deficits, 108 in US, 3 youth, 3, 64, 71 unemployment insurance, 91, 186, 246, 247–48 UNICEF, 72–73 unions, 101, 254, 335 United Kingdom, 14, 44, 46, 131, 307, 331, 332, 340 colonies of, 36 debt of, 202 inflation target set in, 157 in Iraq War, 37 light regulations in, 131 proposed exit from EU by, 4, 270 United Nations, 337, 350, 384–85 creation of, 38 and lower rates of war, 196 United States: banking system in, 91 budget of, 8, 45 and Canada’s 1990 expansion, 209 Canada’s free trade with, 45–46, 47 central bank governance in, 161 debt-to-GDP of, 202, 210–11 financial crisis originating in, 65, 68, 79–80, 128, 296, 302 financial system in, 228 founding of, 319 GDP of, xiii Germany’s borrowing from, 187 growing working-age population of, 70 growth in, 68 housing bubble in, 108 immigration into, 320 migration in, 90, 136, 346 monetary policy in financial crisis of, 151 in NAFTA, xiv 1980–1981 recessions in, 76 predatory lending in, 310 productivity in, 71 recovery of, xiii, 12 rising inequality in, xvii, 333 shareholder capitalism of, 21 Small Business Administration in, 246 structural reforms needed in, 20 surpluses in, 96, 187 trade agenda of, 323 unemployment in, 3, 178 united currency in, 35, 36, 88, 89–92 United States bonds, 350 unskilled workers, 134–35 value-added tax, 190, 192 values, 57–58 Varoufakis, Yanis, 61, 221, 309 velocity of circulation, 167 Venezuela, 371 Versaille, Treaty of, 187 victim blaming, 9, 15–17, 177–78, 309–11 volatility: and capital market integration, 28 in exchange rates, 48–49 Volcker, Paul, 157, 168 wage adjustments, 100–101, 103, 104–5, 155, 216–17, 220–22, 338, 361 wages, 19, 348 expansionary policies on, 284–85 Germany’s constraining of, 41, 42–43 lowered in Germany, 105, 333 wage stagnation, in Germany, 13 war, change in attitude to, 38, 196 Washington Consensus, xvi Washington Mutual, 91 wealth, divergence in, 139–40 Weil, Jonathan, 360 welfare, 196 West Germany, 6 Whitney, Meredith, 360 wind energy, 193, 229 Wolf, Martin, 385 worker protection, 56 workers’ bargaining rights, 19, 221, 255 World Bank, xv, xvii, 10, 61, 337, 357, 371 World Trade Organization, xiv youth: future of, xx–xxi unemployment of, 3, 64, 71 Zapatero, José Luis Rodríguez, xiv, 155, 362 zero lower bound, 106 ALSO BY JOSEPH E.

A First-Class Catastrophe: The Road to Black Monday, the Worst Day in Wall Street History
by Diana B. Henriques
Published 18 Sep 2017

Or were they, in fact, prone to panicky overreactions, herd instincts, stubborn misperceptions, and magical thinking? Anyone who observed how actual investors behaved during a crisis probably would not describe that behavior as cool or rational. Slowly, these skeptics began to find academic followers, and the course of research began to shift toward what would be called behavioral economics. Well into the twenty-first century, however, academic warnings about flaws in the efficient market hypothesis would be largely ignored by legislators, politicians, and financial policymakers. The notion that “markets cure themselves” without government interference had firmly taken root in Washington in the 1970s, and it would spread like kudzu over the policy-making landscape for decades

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The market’s inefficient inability to distinguish “information-less” trades by portfolio insurers from those motivated by knowledge of negative news proved critical in the years before Black Monday. Were human beings really the cool, rational investors envisioned: An excellent account of the development of this new “behavioral economics” can be found in Fox, The Myth of the Rational Market, especially on pp. 186–300. For deeper insights, see Daniel Kahneman, Thinking, Fast and Slow (New York: Farrar, Straus and Giroux, 2011); and Michael Lewis, The Undoing Project: A Friendship That Changed Our Minds (New York: W.W. Norton and Co., 2016).

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See also specific banks Black Monday and brokerage firms and commodities market and deregulation and Drysdale default and futures markets and Glass-Steagall and in-house traders interest rates and loans sold to other banks mergers and Mexican debt crisis and new businesses and payment system and Penn Square crisis and runs on S&P 500 index futures and silver crisis and size of swaps and bargain hunters Barron’s Batten, William M. “Mil” Bear, Stearns and Company bear markets of 1973–74 of 1981–82 of 1987 behavioral economics Bendix beta books Binns, W. Gordon, Jr. Birnbaum, Robert J. Black Monday (October 19, 1987) Brady Commission report on catastrophe averted by luck Chicago markets and days following efficient, rational markets and events of institutional investors and Lehman Monday of 2008 vs.

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

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 authors hoped that their investigation might allow them to design a society in which it was easier for people to do things that would make them happy instead.

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M., 222–24 Bandung Conference (1955), 190–91, 261, 262 Bank Dyalco, 124 Bank of America, 123–24 Bank of Canada, 136 Bank of England, 64–65, 115–16, 210 Covid Corporate Financing Facility (CCCF) and, 45–46, 155–56 Eurodollar trading and, 131 origins of, 125 Bank of Japan, 127–28, 210 banks and banking, see central banks; international finance system and names of specific banks and institutions Barak, Gregg, 107 Baran, Paul, 93–94, 96, 97, 99 Barbados, climate breakdown and, 70–71 Barkan, Joshua, 143 BASF, 45 Bayer, 45, 90, 91, 106, 123–24 Bear Stearns, 136 Beer, Stafford, 244–45 behavioral economics, 162–67 Bello, Walden, 176–77 Benn, Tony, 215, 247 Bernard L. Madoff Investment Securities LLC, 120–21 Bevins, Vincent, 191 Bezos, Jeff, 75–77, 80–81, 132 Biden, Joe, 69, 70–71, 136, 140–42 Big Three asset managers, 133, 135, 137 biopolitics (Foucault), 105 BlackRock, 69, 132–37, 257 Blackstone Financial Management, 44, 133 “black swan” events, 50, 114 Blackwater, 104 Bodie, Matthew, 254 Boeing, 3–10, 86, 87, 96, 225 agreements with Southwest Airlines, 5, 10, 16 Boeing 737 MAX, 3–9, 17, 218–19 Boeing 787 Dreamliner, 4–5, 8 capitalism and, 16–17 corporate welfare and, 7–8, 29 MCAS (Maneuvering Characteristics Augmentation System), 4, 5–7 merger with McDonnell Douglas, 4, 8–9 shareholder distributions, 6 Bolsonaro, Jair, 251 BP, 64 Braithwaite, Michael, 163–64 Braun, Benjamin, 129–30 Braverman, Harry, 99–100 Brazil Amazon environmental protections, 251 Fordlândia in, 22–23, 186 Porto Alegre model for participatory budgeting (PB), 232–33, 247 Bregman, Rutger, 224 Bretton Woods, 51 British Business Bank (BBB), 156–57 Brook House (UK), 102 Brown, Matthew, 237–38, 247 Brown, Wendy, 33, 34, 143, 167 Buffett, Warren, 95 Builders Labourers Federation (BLF, Australia), 227–29 Bukharin, Nikolai, 182 bureaucratization, 34–35, 147 Burke, Edmund, 103 Bush, George W., 140 C Calhoun, David, 9 Cameron, David, 54, 154–56, 162 campaign finance reform, 259 Canada COVID-19 aid to corporations, 46, 136 Ethyl Corp. lawsuit and, 197 resistance to the labor movement, 78 Toronto Community Housing Corporation (THTC) participatory budgeting, 232–33 Canada Infrastructure Bank, 136 Capita, 164 Capital (Marx), vii capitalism, 11–17 alliances among capitalists in, 13–14 centralization of power in, xvi–xvii, 92, 136–37 central vs. corporate planning and, x–xiv, xvi, xix–xx, 14–16 class divisions in, x, xix, 11–14, 38–39, 82–84, 108, 151, 158–60, 216–18, 252, 259, 268 democracy and, xiv–xv, 147, see also democratic planning dialectic/creative tension between markets and planning, xvi–xvii, 37, 53, 123, 126 distinction between capital and labor, 30–39 feudalism vs., 12–13, 266, 269–71 foundations of, 264–66, 268–71 free markets and competition and, ix, 11–14, 15–17, 30, 36–39, 97–98, 137, 221, 268–70 fusion of political and economic power in, xviii, 10, 13–15, 33, 80, 82–84, 95–96, 104–8, 183–85, 190, 264–65 fusion of public and private power in, 142–43, 159–60 human capital and, 33, 148, 166–67 as hybrid system of competitive pressure and centralized control, ix, 16, 37, 47, 123, 269 imperialism as highest stage of, 183 international finance system as time lords of, 109, 113–14 investor-capitalists, 118, 148 Keynes and, see Keynes, John Maynard Marx and, see Marx, Karl means of production in, 12–13, 247, 264 “mini-capitalists” and, 33, 118, 122–23 nature of capital and, 11, 12–13 need for business firms in, 81–85 negative externalities, 88–89 new industrial capitalism (Galbraith), 37 pursuit of profit in, xiii–xiv, 25, 29 rewards for competitiveness, 225–26 as rule by capital vs. free markets, 10–11, 36–39, 137 socialism vs., 221 socialized capitalism (Galbraith), 97–98 social relationships in, 11, 13, 143, 157–59, 164, 170, 172, 265–66 stakeholder capitalism, 35–36, 135–36, 148 state vs. markets and, 220–22 surveillance capitalism, 27, 54–58, 94, 98–100, 155 see also disaster capitalism CARES Act (2020), 9–10 Cayman Islands, as tax haven, 42, 132 central banks, 124–32 bank bailouts in the United Kingdom and, 31–32 BlackRock and, 136 democratizing, 258 emergence of central banking, 124–25 legitimacy questions, 129–32 loanable funds model and, 114–18 quantitative easing (QE) and, 127–28, 129, 136 swap lines among, 209–10 US dollar and, 178, 209–10 see also specific central banks Central Intelligence Agency (CIA, US), 175, 189, 241 centralized planning by Amazon, 75–81 in capitalist economies, 14–16, 24, 66–71, 98, 143, 266 collective action problem and, 47–48, 67, 70, 159–61, 166–67, 248–49, 253 corporatism/corporate planning vs., x–xiv, 14–16, 27, 30, 84 democratic, see democratic planning empires and, see empire planning financial crisis of 2008 and, 49–50 at Ford Motor Company, 19–24 Galbraith on, 97–98 Gramsci on, 24 Hayek on, x–xii international finance system and, 113–14 neoliberal revolution vs., 24–26 resisting, 71–72 by states, see state planning by Walmart, 88, 264, 265 Chamayou, Grégoire, 27, 30 Chan, Jackie, 168 Chang, Ha-Joon, 146, 180, 182 Chao, Elaine, 42–43 ChemChina, 90, 91, 124 Chemring Group, 46 Chevron, 64, 194–96, 205 Chicago School, 150–51, 199 Chile democratic socialism in, 241–46 National Telecommunications Enterprise, 245 Project Cybersyn, 245–46, 247, 265, 266 State Development Corporation (CORFO), 244–45 violence of the neoliberal state in, 34 Chiluba, Frederick, 206 China Belt and Road Initiative, 171–72, 182–83 COVID-19 surveillance and, 57–58 developmentalism and, 137, 170–72 Evergrande Group implosion, 167–69, 171 state planning in, 167–72 China CITIC Bank International, 124 Chiquita (formerly United Fruit Company, UFC), 186–89 Christophers, Brett, 136 Chrysler, 29 Citigroup, 120, 124 Civil War, 144 climate breakdown, viii, 66–71 Amazon and, 79 decarbonization efforts, 67, 69–71, 78, 135, 140–41, 250–51, 256, 263 economic power of capital and, 15 Extinction Rebellion and Fridays for Future, 251 fossil-fuel sector and, 66, 69, 139–43 Global North and, 263 Global South and, 263 Green New Deal proposal, 69, 248 need for cooperation and, 66–71, 216, 247–52 Climate Leviathan (Wainwright and Mann), 70 Coase, Ronald, 81, 83–85 Coca-Cola, 81 Cold War, ix, xx collective action problems, 47–48, 66–71, 159–61, 166–67, 248–49, 253, see also democratic planning Collins Aerospace, 219 Colombia, surveillance of Teleperformance workers, 99 Communist Manifesto (Marx), 152 Communist Party of China, 171 of Guatemala, 188 of Indonesia, 191 community wealth building (CWB), 237–38 comparative advantage (Ricardo), 179–81 computer technology ARPANET, 244 coop app platforms, 154–55, 254–55 data protection and privacy, 27, 54–58, 94, 99, 155 in democratizing the future, 264–66 dot-com bubble (1997–2001), 110–11, 120, 133 intellectual property rights and, 262 Project Cybersyn (Chile) and, 245–46, 247, 265, 266 surveillance capitalism and, 27, 54–58, 94, 98–100, 155 Walmart centralized planning and, 88, 264, 265 Connolly, James, 59, 61 conspiracy theories, xvi, 38, 43–44, 53 Cooley, Mike, 216–20 Coons, Chris, 141 COP26 (UN Climate Change Conference, 2021), 70–71 Coral Island, The (Ballantyne), 222–24 Corbyn, Jeremy, 250 Cornered (Lynn), 21 corporations central vs. corporate planning, x–xiv corporate crime and, 106–7, 119–24, 156–57, 220–21 corporate sovereignty, xiv, 22–23, 25, 80, 103–8, 143 corporatism and, x–xiv, 14–16, 27, 30, 84 COVID-19 pandemic programs, 9–10, 41–49, 59–60, 141–42, 155–56 democratic planning and, see democratic planning expanding collective ownership of, 253–55, 257 fusion of political and economic power of, xviii, 10, 13–15, 33, 80, 82–84, 95–96, 104–8, 183–85, 190, 264–65 lobbying by, 105–6, 140, 141–42, 151, 159, 259 managerialism and, 34–35, 84, 100, 108, 216 profit maximization by, xiii–xiv, 25, 29 see also taxes and taxation COVID-19 pandemic airline industry and, 9 BlackRock and, 136 call center workers and, 98–99 CARES Act (2020) and, 9–10 corporate beneficiaries of, 9–10, 41–49, 59–60, 141–42, 155–56 cost-of-living crisis, 48, 58, 63–66, 129 Evergrande (China) implosion and, 167–69, 171 fossil-fuel industry and, 64, 141–42 frauds and scams in, 156–57 housing crisis and, 43, 44–45 inflation and, 63–66 McKinsey & Company and, 53–58, 155 mortality measures during, 105 shareholder distributions/share buybacks during, 45–47, 59–60, 64 shipping companies and, 62–63, 64 state economic programs in, 41–48 supply chain financing and, 153–54 surveillance programs, 57–58, 98–99 UK responses to, 45–46, 53–61, 155–57, 162–63 US responses to, 41–45 WeWork business model and, 112 worker loss of income and poverty, 60, 63, 98–99 zoonotic disease and, 68 creative destruction (Schumpeter), 86, 95, 96 Credit Suisse, 52, 123–24, 153–54 crony capitalism, 34 Crothers, Bill, 155–56 Crown Commercial Service (CCS, UK), 155–56 Crown Prosecution Service (CPS, UK), 102 Cunningham, Ceri, 239–40 Curaçao, as tax haven, 45 D Dalton, David, 155 Danone, 46 Dark Waters (2019 film), 91 data protection and privacy, 27, 54–58, 94, 99, 155 Davis, Mike, 68 Dawn of Everything, The (Wengrow and Graeber), 224–25 Dayen, David, 89 Debt (Graeber), 125 Debt Collective (US), 249–50 Decree 900 (Guatemala), 188 de Guzman, Leody, 177 Delinquent Genius (Cooley), 217 democracy capitalism and, xiv–xv, 147 democratizing the state, 257–61 planning and, see democratic planning as synonymous with socialism (Meiksins Wood), xviii “unfreedom” and, xiv–xv Democratic Party (US) fossil-fuel industry and, 140–41, 142 in Mississippi, 236 democratic planning, 215–66 Argentina, Ciudad Futura, 234–35, 255 Australia, green bans, 227–29 Brazil, participatory budgeting, 232–33, 247 in Chile, 241–46 for the future, 264–66 human nature and, 222–26 Iceland, Better Reykjavik program, 235–36, 258–59 India, Kerala people’s planning, 233–34 international finance system and, 255–57 international institutions and, 261–64 Mississippi, Cooperation Jackson program, 236–37, 247, 251–52, 255 participatory budgeting (PB), 232–33, 235–36, 258–59 people-powered planning, 226–40, 247–52 Spain, Marinaleda workers’ collective, 229–30 state-level, 241–46, 257–61 UK, Blaenau Ffestiniog program (Wales), 238–40 UK, Greater London Enterprise Board, 216–17, 219–20 UK, Lucas Plan/Lucas Aerospace Corporation, xix, 215–22, 226, 229, 231, 247, 248, 266 UK, People’s Plan for the Royal Docks (London), 230–31 UK, Preston community wealth building (CWB) program, 237–38, 247, 255 for work and the corporation, 252–55 democratic socialism, 216–17, 241–48, 265 Democratic Socialists of America (DSA), 250 dependency theory, 184–86, 199, 205 deregulation, xv–xvi, 7, 31, 32, 51, 170, 206 Deutsche Bank, 49 developmentalism, 137, 170–72, 205–8 disaster capitalism, 41–71 climate breakdown and, 66–71 collective action problems and, 47–48, 67, 70, 159–61, 248–49, 253 corporate welfare programs and, 31–32 COVID-19 pandemic and, see COVID-19 pandemic financial crisis of 1987 and, 126–27 financial crisis of 1997 and, 51, 200 financial crisis of 2008 and, see financial crisis of 2008 (subprime bubble) nature of, 38 shock doctrine (N.

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human capital and, 33 international rules and norms in, 203–4 key stakeholders in, 35–36 managerialism and, 34–35, 84, 100, 108, 216 political vs. economic influence and, 33 post–World War II popularity of, x–xii, 24–26 as regime of “managerial governance,” 34–35 resistance to labor movements, 15, 31, 33–34, 62, 64–65, 77–78, 148, 160, 216–17, 218, 220, 221, 252–53 in South Africa, 203 state as rule-setter vs. planner, 149–52, 165, 204 state role in maintaining market competition, 148 structural adjustment programs (SAPs), 198–202 as term, x vested interests in, 10, 32, 34, 35–36, 52, 56, 119, 120, 151–52, 246, 259, 268–69 violence and coercive power of, 33–34 Neumann, Adam, 109–13 New Deal reforms, 26, 28 New Economics Foundation (UK), 255 New Economy Organisers Network (NEON), 250 New International Economic Order (NIEO), 261 New Taylorism, 100 Nielsen, Juanita, 228 Nine Years’ War (1688–97), 124–25 Nixon, Richard, 241, 242–43 Nkrumah, Kwame, 177, 190, 191, 200, 208 Non-Aligned Movement, 190–92, 193 Norway COVID-19 response, 57 developmentalism and, 137 Nudge (Thaler and Sunstein), 162–63 O Obama, Barack, 41, 251 Occupy movement, 249–50 oligopoly, prices and, 94–95 On the Principles of Political Economy and Taxation (Ricardo), 179–80 OpenSecrets, 43 opioid epidemic, 55–56 Our Lives in Their Portfolios (Christophers), 136 OxyContin, 55–56 P Palmer, Geoffrey H., 43 Paltrow, Gwyneth, 110 Paltrow, Rebekah, 110 Panama, as tax haven, 43, 132 Panama Papers, 43 Panitch, Leo, 31, 198, 210 parliamentary socialism (Miliband), 247 participatory budgeting (PB), 232–33, 235–36, 247, 258–59 Paulson, Henry, 49 Paycheck Protection Program (PPP, US), 41–45 Pelosi, Nancy, 42 People’s Asset Manager (PAM), 257 People’s Grocery Initiative (Mississippi), 237 People’s Republic of Walmart, The (Phillips and Rozworski), 88 pharmaceuticals industry, 55–56 Philip Morris, 194 Philippines, US colonialism and, 173–79 Philippon, Thomas, 87–88 Phillips, Leigh, 14, 88, 264 Pinochet, Augusto, 34, 246 Pistor, Katharina, 131 Platform Cooperative Consortium, 254 Poland Balcerowicz Plan, 201 labor movement and, 78 Polanyi, Karl, 143 Ponzi schemes, 120–21, 156–57 Poulantzas, Nicos, 158–59 Prebisch, Raúl, 184–85, 199 Prince, Erik, 104 Prior, David, 155 prison-industrial complex (US), 33–34 Prison Notebooks (Gramsci), 20 privatization, 32–33 of authority, 102–3 Global South and, 198–99, 206–8 private law and, 130–32 privatized Keynesianism, 117–18 in Russia (former Soviet Union), 201 in the United Kingdom, 218 in Zambia, 206–8 Project Cybersyn (Chile), 245–46, 247, 265, 266 Project on Government Oversight (US), 43 Protocols of the Elders of Zion, The, 19 Puerto Rico, US colonialism and, 173, 174 Pulse nightclub (Florida), 103 Purdue Pharma, 55–56 Putin, Vladimir, 44, 140, 208 Q quantitative easing (QE), 127–28, 129, 136 R Rajan, Raghuram, 114 Raymond, Lee, 139–40 Raytheon Technologies, 219 Reagan, Ronald, 31, 62, 176 Reconstructing the Corporation (Hayden and Bodie), 254 Republican Party (US) deregulation trend, 7 fossil-fuel industry and, 140, 141 Resistance Dairy (Argentina), 234 Ricardo, David, 146, 179–81 Road to Serfdom, The (Hayek), vii, xi, 34, 204 Robison, Peter, 6 Rockwell Collins, 219 Rodney, Walter, 185 Rolling Jubilee, 249–50 Röpke, Wilhelm, 150, 203, 208 Rostow, Walt, 181, 199 Roth, Joseph F., 43 Rothschild, 123–24 Roubini, Nouriel, 114 Roundup, 90, 124 Rozworski, Michal, 14, 88, 264 Ruffalo, Mark, 91 Russia (former Soviet Union) centralized planning and, ix Cold War and, ix, xx COVID-19 response, 57 dependency theory and, 185–86 fossil-fuel industry and, 140 Gosplan central planning agency, 109 privatization in, 201 Ukraine and, 44, 64, 201 World War II and, 181 Ruth’s Hospitality Group, 41 S Sachs, Jeffrey, 201 Sachs-Warner hypothesis, 181–82 Salomon Smith Barney, 120 Sánchez Gordillo, Juan Manuel, 229–30 Sanders, Bernie, 250 Sanofi, 46 Sato, Hajime, 172 Saudi Arabia, 46, 54, 140, 209, 220–21 Sawant, Kshama, 79–80 Schlumberger, 45 Schmidt, Robert, 23–24 Scholar, Tom, 156 Schumpeter, Joseph, 85–88, 94, 95–96, 117 Serageldin, Kareem, 52 service workers, 98–99 Shake Shack, 41 Shanahan, Patrick, 8 shareholder distributions of Boeing, 6 COVID-19 aid to corporations and, 45–47, 59–60, 64 of Ford Motor Company, 28, 29–30, 31 Shaxson, Nicholas, 131–32 Shell, 64 Shock Doctrine, The (Klein), 38, 193, 198 Siegel Group, 45 Silicon Valley Bank, 65 Sinema, Kyrsten, 141 Singapore, developmentalism and, 137 Slobocian, Quinn, 203 Smith, Adam, 14, 85, 103–4, 145–47, 151, 165 Smoke, Ben, 45 social contract theory, 143–52 social democracy cartelization problem, 259–60 democratizing the future and, 264–66 neoliberalism vs., 33–34 post–World War II, 24–25 socialism capitalism vs., 221 centralized planning and, 221 Coase and, 83, 84 COVID-19 pandemic and, xx, 59, 61 dangers of, x democracy as synonymous with (Meiksins Wood), xviii democratic socialism, 216–17, 241–48, 265 expanding collective ownership of firms, 253–55, 257 freedom in, xix Gramsci and, 20 Hayek and, x–xi lack of class divisions in, xix parliamentary (Miliband), 247 socialized capitalism (Galbraith), 97–98 state planning vs., 66 technology in transition to, 265 United Kingdom resistance to, 220, 221 Société Generale, 49 SoftBank, 110–13, 117, 154 Son, Masayoshi, 110–13, 154, 171 South Africa prison torture techniques, 102–3 vulture capitalism and, 202–4 South Korea, structural adjustment programs (SAPs) and, 200 Southwest Airlines, 5, 10, 16 Soviet Union, see Russia (former Soviet Union) Spain Barcelona, Decidim participatory budgeting program, 236, 258–59 labor movement and, 78, 229–30 Spanish Empire, 173 specialization, 180 Stages of Economic Growth (Rostow), 181 stakeholder capitalism, 35–36, 135–36, 148 State and Revolution, The (Lenin), 59 State in Capitalist Society, The (R. Miliband), 158 state planning, 139–72 behavioral economics and, 162–67 capitalist political economy and, 36, 65, 145–46, 165–66, 242 in Chile, 241–46 in China, 167–72 comparisons between state and corporation, 166 COVID-19 pandemic and, 41–48 developmentalism in, 137, 170–72, 205–8 fossil-fuel sector and, 139–43 fusion of public and private power in capitalism, 142–43, 159–60 Greensill Capital and supply chain financing, 152–59 Hayek and, see Hayek, Friedrich A.

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

The extensive research documenting this reality has been unkind to Milton Friedman’s 1953 dictate that profit maximization should drive executive suite behavior: “Whenever this determinant happens to lead to behavior consistent with rational and informed maximization of returns, the business will prosper and acquire resources with which to expand; when it does not, the business will tend to lose resources and can be kept in existence only by the addition of resources from outside.”6 Friedman’s market determinism has been discredited. Indeed, it’s unlikely that executives could manage to maximize profits instead of executive compensation even if actually interested in doing so. A large body of management and behavioral economics research has documented that, lack of motivation aside, guiding firms turns out to be too nuanced and demanding for managers to behave ideally and consistently, as Friedman suggests. Economists Mark Armstrong and Steffen Huck of University College London, for example, concluded in 2010 that executives are little better than consumers at resisting herding and other economically irrational human tendencies.

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Some 44 percent of all CEO employment contracts they examined required severance payments to CEOs even if convicted and fired for cause.70 One of the most dramatic ways options delink executive reward from shareholder returns in today’s managerial capitalism is by incentivizing risky and economically dubious mergers, which produce suboptimal firm performance. American and foreign research drawing on behavioral economics provides such evidence, portraying stock-optioned American CEOs as jittery children around a candy jar, constantly calculating the prize to the exclusion of shareholder returns or much else. Research by professors Donald C. Hambrick of Penn State University, and William Gerard Sanders of Brigham Young University, for example, caused them to conclude that: “The more that a CEO is paid in stock options, the more extreme the firm’s subsequent performance, and the greater the likelihood that the extreme performance will be a big loss rather than a big gain.”71 And the biggest losses occur when mergers go bad.

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Frank, “A Remedy Worse Than the Disease,” Pathways, Stanford Center for Poverty and Inequality, Summer 2010. 4 Jesse Eisinger, “Challenging the Long-held Belief in ‘Shareholder Value,’” New York Times, June 28, 2012. 5 Justin Fox and Jay W. Lorsch, “What Good Are Shareholders?,” Harvard Business Review, July–August 2012. 6 Milton Friedman, Essays in Positive Economics (Chicago: University of Chicago Press, 1953), 22. 7 Mark Armstrong and Steffen Huck, “Behavioral Economics As Applied to Firms: A Primer,” January 2010, University Library of Munich, MPRA paper no 20356. See also Anja Müller, “The Myth of the Rational Enterprise,” Handelsblatt, Oct. 14, 2010. 8 R. Hall and C. Hitch, “Price Theory and Business Behavior,” Oxford Economic Papers 2, 2–45, 1939. Nabil Al-Najjar, Sandeep Baliga, and David Besanko, “Market Forces Meet Behavioral Biases: Cost Misallocation and Irrational Pricing,” Rand Journal of Economics 39, 214–237, 2008. 9 Richard Roll, “The Hubris Hypothesis of Corporate Takeovers,” Journal of Business 59, 197–216, 1986. 10 Mark Armstrong and Steffen Huck, “Behavioral Economics As Applied to Firms: A Primer,” January 2010. 11 Robert Reich, Supercapitalism (New York: Vintage Books/Random House, 2008), 108. 12 David Cay Johnston, Perfectly Legal (New York: Portfolio/Penguin Group, 2003), 240. 13 Diane Coyle, The Economics of Enough: How to Run the Economy As If the Future Matters (Princeton, NJ: Princeton University Press, 2011). 14 Paul K.

The Complacent Class: The Self-Defeating Quest for the American Dream
by Tyler Cowen
Published 27 Feb 2017

He didn’t pursue one of the ads because the woman was a Boston Red Sox fan. He didn’t hate sports or baseball; rather, it was the attachment to the Red Sox that turned him off. The prospect of the perfect match has become, for this person, the enemy of the good match.23 There is now an extensive literature in behavioral economics about how, under some circumstances, having more choice can make it harder for us to be content with our final selections. Maybe too many of us are always looking elsewhere, always wondering if we really ended up with what is best, and always noticing the other possibilities paraded before us all the time.

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See also health care Airbnb Allen, Woody Amazon.com Andreessen, Marc antidepressants anti-establishment insurgence assortative mating. See also matching attention-deficit/hyperactivity disorder (ADHD) Attica prison riots Austen, Jane authenticity automation Babcock, Kendrick Charles Baltimore riots bank bailouts Bausum, Amm behavioral economics Bell, Daniel big data Birmingham Children’s March Black Lives Matter Black Panthers book sellers Bowling, Julia Brexit Brin, Sergei building restrictions business morale Canada capital services car culture Carter, Jimmy change and the Complacent Class and crime decelerating and dynamic society and education and gay culture and global affairs and government and higher education and innovation job switching and matching and mobility and politics and race relations resistance to and segregation and social protest chaos.

Never Split the Difference: Negotiating as if Your Life Depended on It
by Chris Voss and Tahl Raz
Published 3 Oct 1989

It just seemed so modern and smart. Halfway across the United States, a pair of professors at the University of Chicago was looking at everything from economics to negotiation from a far different angle. They were the economist Amos Tversky and the psychologist Daniel Kahneman. Together, the two launched the field of behavioral economics—and Kahneman won a Nobel Prize—by showing that man is a very irrational beast. Feeling, they discovered, is a form of thinking. As you’ve seen, when business schools like Harvard’s began teaching negotiation in the 1980s, the process was presented as a straightforward economic analysis. It was a period when the world’s top academic economists declared that we were all “rational actors.”

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See also tactical empathy BCSM and, 97 crisis negotiations and, 225 difficulty of listening, 27–28 effective pauses, 103 focusing on the other person, 28, 47 labeling and, 103 minimal encouragers, 103 mirroring and, 19, 103 paraphrasing and, 103 Schilling kidnapping case and, 102–4 silences, 19, 103 summaries, 103 uncovering Black Swans and, 228, 244–45 aggressiveness, 155, 160, 172, 173, 175 removing, 141, 152 agreement, 20, 52, 84, 143, 163, 195, 231 best/worst range, 253 clearing barriers to, 72 commitment “yes” and, 81 dynamic of, 157 execution of, 163, 171, 177 fairness and, 122 liars and, 172 “no” and, 89 Rule of Three and, 177–78, 186 Aladdin (film), 123 Al Qaeda, 140, 143 Ames, Daniel, 202 Analysts (bargaining style), 192, 193–94 “anchor and adjustment” effect, 130 anchoring bending reality with, 139 emotions and, 20, 128–29 establishing a range, 131–32, 139 extreme, 199, 200, 206–7, 212, 240 in kidnapping case, 133–35 monetary negotiations, 129–30 anger, 57–58, 158, 161, 202, 204 apologizing, 3, 58–59, 125, 152, 159, 181, 194 Aristide, Jean-Bertrand, 113 Assertive (bargaining style), 192, 193, 196–97 real anger, threats without anger, and strategic umbrage, 202 assumptions, 19, 24–26, 44, 47, 191 bargaining styles and, 197–98 of Fisher and Ury, 11 known knowns and, 218 bargaining hard, 20–21, 188–212 Accommodators, 192, 194–96 Ackerman model and, 205–8, 212 Analysts, 192, 193–94 Assertive style, 192, 193, 196–97 Black Swan rule, 198 effective ways to assert smartly, 201–5 example, MBA student soliciting funds, 200–201 “fall to your highest level of preparation,” 208, 211, 251 identifying your counterpart’s style, 197–98, 211 information gathering and, 199–200, 211–12 key lessons of, 211–12 lawyer-negotiators, 192–93 no deal is better than a bad deal, 115, 117, 204 outcome goals and, 253 personal negotiation styles, 192–98 pivoting to noncash terms, 199, 206, 258 psychological currents and, 191 punching back (using assertion), 201–5, 212 taking a punch, 198–201, 212 Voss and buying a truck, 188–90 Bargaining with the Devil: When to Negotiate, When to Fight (Mnookin), 2 BATNA (Best Alternative To a Negotiated Agreement), 8, 13, 252 Bazerman, Max H., 233 Beaudoin, Charlie, 24 Behavioral Change Stairway Model (BCSM), 97 behavioral economics, 11 behavior change BCSM and, 97 health issues and, 97 lessons that lay the foundation for, 112 psychological environment necessary for, 97–98 “that’s right” and, 98, 101–5, 107 “you’re right” as ineffective, 105–7 behind the table or Level II players, 171–72, 186 pronoun usage and, 179, 187 questions to identify, 256 bending reality, 126–35.

Cognitive Gadgets: The Cultural Evolution of Thinking
by Cecilia Heyes
Published 15 Apr 2018

Genetic evolution has given humans more powerful general purpose mechanisms of learning and memory, tweaked our temperaments, and biased our attention so that it is focused on other people from birth. But—drawing on comparative and developmental psychology, cognitive neuroscience, philosophy, anthropology, behavioral economics, and theoretical biology—I argue in this book that it is the information we get from others, handled by general purpose mechanisms, that builds distinctively human ways of thinking. The first three chapters lay some foundations for cultural evolutionary psychology. Chapter 1 says more about the cognitive gadgets theory—what it is, and what it is not—explaining how and why cultural evolutionary psychology builds on evolutionary psychology and cultural evolutionary theory.

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However, before plunging into the case studies in Chapters 5–8, we need to clarify what is meant by “cultural learning” and how it relates to other kinds of learning. Cultural evolutionary theorists, and others interested in social learning, tend to have disciplinary roots in anthropology, mathematics, behavioral ecology, or behavioral economics, not in cognitive science. Consequently, they have sliced and labeled individual learning, social learning, and cultural learning with reference to behavioral effects and folk psychological concepts. This needs to change if insights from cognitive science are to be added to the richly interdisciplinary field of cultural evolutionary theory.

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

Courses in accounting, finance and security analysis will equip the investor with the technical knowledge that is necessary for success but, in my opinion those courses are far from sufficient. The main element missing from them is an understanding of cyclical phenomena and how they develop as set forth in this book. Some cues will be found in the newly established fields of behavioral economics and behavioral finance, and I commend them to your attention. Psychology is an essential component in understanding the cycles that matter so much to investors. The greatest lessons regarding cycles are learned through experience . . . as in the adage “experience is what you got when you didn’t get what you wanted.”

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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.

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

Summers, “What Moves Stock Prices?” The Journal of Portfolio Management (Spring 1989): 4-12. 7 Peter Coy, “He Who Mines the Data May Strike Fool’s Gold,” BusinessWeek , June 16, 1997. 8 Gary Belsky 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), 137-38. 35. More Power to You 1 George Kingsley Zipf, National Unity and Disunity: The Nation as a Bio-Social Organism (Bloomington, Ind.: Principia Press, 1941), 398-99. 2 For example, in log 10 the scale would be 101 (= 10), 102 (= 100), and 103 (= 1,000) versus the more familiar 10, 11, 12. 3 Richard Koch, The 80/20 Principle: The Secret to Success by Achieving More with Less (New York: Currency, 1998). 4 Rob Axtell, “Zipf ’s Law of City Sizes: A Microeconomic Explanation Far from Equilibrium,” presentation at a RAND workshop, Complex Systems and Policy Analysis: New Tools for a New Millennium, September 27-28, 2000, Arlington, Va. 5 These modifications are lucidly explained in Murray Gell-Mann, The Quark and the Jaguar: Adventures in the Simple and the Complex (New York: W.

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“Deciding Advantageously Before Knowing the Advantageous Strategy.” Science 275 (February 1997): 1293-95. Beinhocker, Eric D. “Robust Adaptive Strategies.” Sloan Management Review 40, no. 3 (Spring 1999): 95-106. 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?”

Algorithms to Live By: The Computer Science of Human Decisions
by Brian Christian and Tom Griffiths
Published 4 Apr 2016

Instead, tackling real-world tasks requires being comfortable with chance, trading off time with accuracy, and using approximations. As computers become better tuned to real-world problems, they provide not only algorithms that people can borrow for their own lives, but a better standard against which to compare human cognition itself. Over the past decade or two, behavioral economics has told a very particular story about human beings: that we are irrational and error-prone, owing in large part to the buggy, idiosyncratic hardware of the brain. This self-deprecating story has become increasingly familiar, but certain questions remain vexing. Why are four-year-olds, for instance, still better than million-dollar supercomputers at a host of cognitive tasks, including vision, language, and causal reasoning?

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But it doesn’t necessarily close the book on the puzzle, or help us navigate all the explore/exploit tradeoffs of everyday life. For one, the Gittins index is optimal only under some strong assumptions. It’s based on geometric discounting of future reward, valuing each pull at a constant fraction of the previous one, which is something that a variety of experiments in behavioral economics and psychology suggest people don’t do. And if there’s a cost to switching among options, the Gittins strategy is no longer optimal either. (The grass on the other side of the fence may look a bit greener, but that doesn’t necessarily warrant climbing the fence—let alone taking out a second mortgage.)

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(The rule appears in Kelly, “Multi-Armed Bandits with Discount Factor Near One”; formally, it is optimal under geometric discounting in the limit as the discount rate approaches 1.) In a big city with plenty of new restaurants opening all the time, a Least Failures policy says quite simply that if you’re ever let down, there’s too much else out there; don’t go back. a variety of experiments in behavioral economics: See, for example, Kirby, “Bidding on the Future.” if there’s a cost to switching: This case is analyzed in Banks and Sundaram, “Switching Costs and the Gittins Index.” “Regrets, I’ve had a few”: Frank Sinatra, “My Way,” from My Way (1969), lyrics by Paul Anka. “For myself I am an optimist”: Prime Minister Winston Churchill, speech, Lord Mayor’s Banquet, London, November 9, 1954.

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

The Grandparent of Behavioral Finance Only recently has Markowitz, widely recognized as the founder of modern portfolio theory, been recognized as the grandparent of behavioral finance. Behavioral economics is a subfield of economics that attempts to explain the nonrational behavior of investors and financial markets. While most traditional models assume that all investors and decision makers are rational, behavioral finance recognizes that this is not always the case. The origin of behavioral economics is often traced to the development of prospect theory in 1979 by the famous social scientist duo of Daniel Kahneman and Amos Tversky.81 This theory describes the way individuals make risky choices when they are unsure about the probability of the outcome.

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He was inspired by two professors: Kenneth Boulding in the economics department, who promoted the idea of general systems that interconnected the sciences, and George Katona in the psychology department, who impressed upon Shiller the importance of psychology for economists, which eventually led him to the area of behavioral economics. Shiller struggled with a choice of graduate programs and seriously considered both physics and medicine. While medicine in particular was an attraction, he simply could not see himself in the typical role of a doctor with a structured day of appointments, and as a result, partly by chance, he chose economics.

Payoff: The Hidden Logic That Shapes Our Motivations
by Dan Ariely
Published 15 Nov 2016

They help us get a slightly improved understanding of what we do wrong, what we do right, and how we can improve our sorry state. And finally, I have learned a great deal about meaning and satisfaction with the help of my lovely wife, Sumi, and our two kids, Amit and Neta. I know that I have a lot more to learn, and I promise to keep on trying. © MAY R. Dan Ariely is the James B. Duke Professor of Psychology & Behavioral Economics at Duke University. He is the founder and director of the Center for Advanced Hindsight, cocreator of the film documentary (Dis)Honesty: The Truth About Lies, and a three-time New York Times bestselling author. His books include Predictably Irrational, The Upside of Irrationality, The Honest Truth About Dishonesty, and Irrationally Yours.

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

Decision research has become so sprawling that experts in one sub-area often don’t know experts in another, even if they are tackling the same questions. I decided, after a couple of years of thinking about decision-making and time, that in order to understand these concepts we should not look only to psychology or behavioral economics or neuroscience or law or finance or history—we should explore them all, simultaneously. I tried to assemble the mass of evidence from these disciplines as any good lawyer would, to illuminate and clarify arguments we might not see if we look from only one perspective. The essence of my case is this: given the fast pace of modern life, most of us tend to react too quickly.

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On his return, when a customs official at check-in told Stiglitz he had too many bags and would have to leave one behind, Stiglitz put the extra ornaments and clothes in a cardboard box and asked Akerlof to ship it back to the United States. Then Stiglitz flew home. Neither of them imagined that this box would form the basis of one of the most important theories in behavioral economics. Akerlof is charming and mild-mannered, a rigorous and focused scholar who has written dozens of important articles and several books. Recently, I asked him if he is a procrastinator, and he answered, “Absolutely not. I’m the opposite. I take care of the important things right away.” But when I mentioned Stiglitz’s box, he hesitated.

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

Good jobs, Gallup claims, are essential to a thriving economy, a growing middle class, a booming entrepreneurial sector, and, most important, human development. “Creating as many good jobs as possible should be the number one priority for business and government leaders everywhere.” It is hard to disagree with that. One of the most important findings from the relatively new field of behavioral economics is that one of the main determinants of happiness is having a job. That finding applies across countries and through time. Losing a job decreases well-being, while finding a job improves it. This book is about jobs, decent jobs that pay well and the lack of them. It is about looking at data and uncovering the deep underlying patterns.

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Pain 138 (2): 392–401. Teater, D. 2014. “Evidence for the Efficiency of Pain Medications.” National Safety Council, Washington, DC. https://www.nsc.org/Portals/0/Documents/RxDrugOverdoseDocuments/Evidence-Efficacy-Pain-Medications.pdf. Thaler, R. H. 2018. “From Cashews to Nudges: The Evolution of Behavioral Economics.” American Economic Review 108 (6): 1265–87. Thornberry, T., and R. Christensen. 1984. “Unemployment and Criminal Involvement: An Investigation of Reciprocal Causal Structures.” American Sociological Review 56: 609–27. Tomlinson, D. 2017. “You’re Hired: Lessons for President Trump from a Comparison of Living Standards and Inequality in the US and the UK.”

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See Monetary Policy Committee (MPC), Bank of England Bank of Japan (BOJ), 4, 83, 160, 161 Barber, Alan, 102–3 Barber, Brendan, 56 Barber, Tony, 281 Barclays, 187, 188 Barrie, J. M., 336 Barry, John M., 212–13 Basu, Sanjay, 232 Beal, Inga, 188 Bean, Charles, 164, 170–71 Becker, Sasha, 275–76 behavioral economics, 1, 169 Behavioral Risk Factor Surveillance System (BRFSS), 227 Behr, Rafael, 331 Beige Book, 48, 52–54, 198 Belgium, 78, 92; business and consumer confidence in, 77, 196; civil unrest in, 264, 271; declining trust in, 321; terror attacks in, 247; underemployment in, 136; unemployment in, 41; wages in, 61, 106 Bell, David N.

Originals: How Non-Conformists Move the World
by Adam Grant
Published 2 Feb 2016

Now, we’re willing to do whatever it takes to avoid that loss, even if it means risking an even bigger one. We’re going to lose thousands of jobs anyway, so we throw caution to the wind and make the big gamble, hoping that we’ll lose nothing. This line of research was conducted by psychologists Amos Tversky and Daniel Kahneman; it helped give rise to the field of behavioral economics and win Kahneman a Nobel Prize. It revealed that we can dramatically shift risk preferences just by changing a few words to emphasize losses rather than gains. This knowledge has major implications for understanding how to motivate people to take risks. If you want people to modify their behavior, is it better to highlight the benefits of changing or the costs of not changing?

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Trapnell, and David Chen, “Birth Order Effects on Personality and Achievement Within Families,” Psychological Science 1999 (10): 482–88; Sulloway, “Born to Rebel and Its Critics,” and “Why Siblings Are Like Darwin’s Finches: Birth Order, Sibling Competition, and Adaptive Divergence Within the Family,” in The Evolution of Personality and Individual Differences, eds. David M. Buss and Patricia H. Hawley (New York: Oxford University Press, 2010); Laura M. Argys, Daniel I. Rees, Susan L. Averett, and Benjama Witoonchart, “Birth Order and Risky Adolescent Behavior,” Economic Inquiry 44 (2006): 215–33; Daniela Barni, Michele Roccato, Alessio Vieno, and Sara Alfieri, “Birth Order and Conservatism: A Multilevel Test of Sulloway’s ‘Born to Rebel’ Thesis,” Personality and Individual Differences 66 (2014): 58–63. When identical twins grow up: Steven Pinker, “What Is the Missing Ingredient—Not Genes, Not Upbringing—That Shapes the Mind?

An Economist Gets Lunch: New Rules for Everyday Foodies
by Tyler Cowen
Published 11 Apr 2012

If so, crack a quiet smile, walk in the door, and order. Welcome to the glamorous world of good food. The Social Element in Eating Well Finally, economics isn’t just about how labor costs and capital costs and rent add up, there is also a significant human or “behavioral” element in our choices, as it is now called in the branch of behavioral economics. Human beings are fundamentally social creatures. We copy the social cues of others or sometimes we deliberately do something different to set ourselves apart from the crowd. When it comes to the social element in good dining, my first advice is this: Be meta-rational, to borrow a word from decision theory.

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See also pit barbecue hours of operation for restaurants, 93–96 and Laotian food, 212–13 by mail order, 259 mechanized barbecues, 100–107 and Mexican food, 86, 88, 96–100, 191 names of barbecue restaurants, 92–93 origin and styles of, 28, 89–93 overview of, 85–89 pit barbecues, 93–96, 101–7 and sauces, 89–91, 99, 100–107, 107–9, 111 and smoke, 109–11 Barcelona, Spain, 240 Bastiat, Frédéric, 15 Basu, Kaushik, 160 Batra, Neelam, 250 Battle Hymn of the Tiger Mother (Chua), 32 Bayless, Rick, 199, 248, 249 beef and Bangladeshi food, 126 and barbecue, 91, 96, 98, 102, 111 and Bolivian food, 244 and Chinese regional cuisines, 133, 135, 138 cultivating expensive taste in, 183–84 and ethnic supermarkets, 47 and home cooking, 246 and Mexican food, 190–94, 199, 246 and Singaporean food, 221 and Turkish foods, 241 and Vietnamese food, 114, 116 wartime scarcity of, 24 beer, 63 Begley, Ed, 167 behavioral economics, 78 Beijing style Chinese food, 131 Bengali food, 126 Benin, 163 Benton’s Smoky Mountain Country Hams, 259–60 Berlin, Germany, 235 biofuels, 155–56 bistillah pie, 28 Bittman, Mark, 248, 258 Black Forest of Germany, 233–34 Blue Smoke, 105–6 Bolivian food, 60, 76–77, 244 Borlaug, Norman, 145–46, 152, 155 Boswell, James, 13 Bourland, Charles T., 248 boycotts, 172–75, 181 Brazil, 111, 161, 183–84 breads, 185 breakfasts, 6, 52, 54 Bridgewater, Virginia, 137–39 brisket, 89, 91 Bronx, New York, 73–74 Brooklyn, New York, 73–74 Brûlé, Tyler, 176 Brunswick stew, 91–92, 109 Buddhist restaurants, 236 buffets, 136, 223–24 bul-gogi, 126–27 Burkina Faso, 163 cacao, 6 calamari, 72 Calcutta, India, 224 California, 21 Camilo, Juan, 160 Canada, 114, 129, 130, 135, 162 Cancún, Mexico, 207 canned foods, 25, 258 Cantonese style Chinese food, 131, 134, 220–21 capitalism, 14, 151–52 carbon footprints, 176–77 carbon taxes, 179–81 Caribbean, 89–90 cars, 90, 185–86 casinos, 61–63 cassava, 155 casseroles, 135 caterers, 244–45 cattle, 190.

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

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.

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Searchable Terms Abdul-Jabbar, Kareem abortion as birth control crime rates and illegal legalizing of moral questions and opposition to statistics on acne adoption foreign Adventures of Superman advertising African Americans: “acting white” by Bennett’s remarks on black culture and inequality of crime rates and dating websites and as game show contestants income of infant mortality among lifestyle gap between white Americans and naming of children by in street gangs see also civil rights movement; lynching; racism AIDS Akerlof, George Alan Gutmacher Institute Albany County Family Court Albany Medical Center Hospital Emergency Room Alcindor, Lew algorithms Amazon American Economic Association American Enterprise Institute American Folklife Center American Revolution American Society of Transplant Surgeons anchoring angioplasty anti-Catholicism anti-communism Anti-Defamation League anti-Semitism anti-smoking campaign Apple applied folklore Ariely, Dan Asia, financial crash in Asian-Americans Asinof, Eliot Atkins diet audits auto mechanics automobiles: airbags in children’s car seats in emissions inspections of fatal flying accidents vs. accidents in insurance for reduced value of safety of sale and resale of theft of Babb, Meredith Babywise (Ezzo) bagels, purchase of Baruch College baseball basketball beauty pageants Becker, Gary “Beer on the Beach” study (Thaler) Before His Time (Moore) behavioral economics Bennett, William Bias, Len Bible Bill Bennett’s Morning in America birth control Birth of a Nation, The birth rates: decline in delivery methods and increase in see also abortion Black Gangster Disciple Nation blackjack black market Blackmun, Harry A. Black Panthers Black Power movement Blagojevich, Rod Blandon, Oscar Danilo Blank Slate (Pinker) Bledsoe, Tempestt Blodget, Henry blood donors Bloomberg, Michael body parts: donation and transplant of values assigned to Booty (gang member) Boston Celtics Boston Tea Party Bouza, Anthony V.

Only Humans Need Apply: Winners and Losers in the Age of Smart Machines
by Thomas H. Davenport and Julia Kirby
Published 23 May 2016

Focusing on Behavioral Finance and Economics —Firms that step forward are also beginning to “step aside” a bit—taking on the aspects of their customer relationships that automated decisions can’t fully address. For example, where financial decisions are being automated, as with the “robo-advisors” we’ve discussed earlier, many leading financial firms are adding capabilities to better understand and act on investor behavior. You may have heard about “behavioral economics,” which brought the revolutionary (if seemingly obvious) conclusion to economics that humans are not always rational. Financial investment firms have a version of this for personal investing that is called “behavioral finance.” It means that no matter how good automated decision-making can be about what financial assets to buy and sell at what times, irrational humans may override the advice—whether human or automated—and make bad decisions.

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But with a lot of the basic information transmittal tasks now being handled by a machine, Vanguard executives felt that human advisors would have more time to work with clients on important financial behavior issues. As we pointed out in the previous chapter, the area of “behavioral finance” has developed (as something of an adjunct to “behavioral economics”) over the last decade or so. Vanguard embarked upon a strategy to equip its advisors with more behavioral coaching abilities. According to Karin Risi, “The new system gives advisors more freedom to interact with their clients. Many of them are now using face-to-face video for these meetings, since all of the informational details are in the system.

Free Money for All: A Basic Income Guarantee Solution for the Twenty-First Century
by Mark Walker
Published 29 Nov 2015

This sort of criticism is explored very capably in J. Reiman, As Free and as Just as Possible: The Theory of Marxian Liberalism (UK: WileyBlackwell, 2012). 5. Ting Wang, Ling Wang, and Tiffany Chen, “Secrets of Success: Innovation in the Silicon Valley: Business Development and Innovation of Tech Companies,” in Behavior, Economic and Social Computing (BESC), 2014 International Conference on (IEEE, 2014), 1–5, http:// ieeexplore.ieee.org/xpls/abs_all.jsp?arnumber=7059530. 6. I am lumping all public property under the federal banner simply for convenience. Municipal parks and state universities would also count as part of the assets of US citizens. 7.

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Hoboken, NJ: John Wiley, 2013. Wall, Steven. Liberalism, Perfectionism and Restraint. New York: Cambridge University Press, 1998. REFERENCES 245 Wang, Ting, Ling Wang, and Tiffany Chen. “Secrets of Success: Innovation in the Silicon Valley: Business Development and Innovation of Tech Companies.” In Behavior, Economic and Social Computing (BESC), 2014 International Conference, Oct. 30–Nov. 1. Shanghai , 1–5. IEEE, 2014. http://ieeexplore.ieee.org/xpls/abs_all.jsp?arnumber=7059530. Weber, Rebecca. “The Travel Agent Is Dying, but It’s Not yet Dead—CNN. com.” CNN. Accessed May 18, 2015. http://www.cnn.com/2013/10/03/ travel/travel-agent-survival/index.html.

Rebooting Democracy: A Citizen's Guide to Reinventing Politics
by Manuel Arriaga
Published 1 Jan 2014

Without this recognition, we are condemned to forever confuse our short- and long-term interests. This issue deserves special attention because we are, both at the individual level and as a society, terrible at checking our short-term urges and acting in our own long-term interest. We know from research in psychology and behavioral economics how aggressively we tend to “discount” outcomes far in the future. This means that we give much less importance to events that will happen in the distant (or not-so-distant) future than to events that will happen soon. For example, the threat of catching a cold today might be enough to prevent us from greeting a sneezing friend with a peck on the cheek, while, at the same time, the threat of a slow death many years into the future deters comparably few smokers.

#Republic: Divided Democracy in the Age of Social Media
by Cass R. Sunstein
Published 7 Mar 2017

Algorithms are increasingly able to produce accurate filters, and they’re getting better every day. As with self-selection, so too with algorithms: they make life easier and more convenient. If you’re interested only in books about basketball, you shouldn’t be sent advertisements for books about behavioral economics. But here as well, horizons can become narrowed, and people can get smaller. I have emphasized throughout that a republic is not a direct democracy, and that a good democratic system contains institutions designed to ensure a measure of reflection and debate—not immediate responses to whatever people happen, at any particular moment in time, to say that they want.

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Heartfelt thanks as well to many people at Harvard’s amazing Berkman Center for creative thinking of various sorts; I single out Sandra Cortesi, Briggs DeLoach, Rob Faris, and Urs Gasser for help of multiple kinds. Many thanks to Jack Goldsmith, a reader as well of both grandfather and grandchild, who provided terrific suggestions on how to improve the manuscript. I am grateful to Martha Minow, too, for support of many kinds, and in particular the Harvard Law School’s Program on Behavioral Economics and Public Policy. A more general thanks to the countless people over the years who have either worried with me about the risks of echo chambers or suggested, contrary to my arguments, that there is absolutely no reason for concern. Included among the first group are many friends and colleagues from the Obama administration—an extended family, truly—who have been concerned about political polarization.

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

And the folks at the Fed were vexed by an even more fundamental question: how and why had bankers suddenly transformed from cautious stewards to seemingly reckless traders? Historically, bankers have been cautious. That was a fundamental requirement for their job, but also part of their nature. A fundamental part of all our natures, in fact. Behavioral economics research shows that most people are highly risk averse. Send the average person to Las Vegas, and the sting of losing $100 at the craps table far outweighs the joy of winning $100. Take away the ability to calculate odds with dice and cards, and the risk aversion increases even more. We are hardwired to avoid uncertainty as much as we can.

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What started out as a valuation recipe for obscure contracts became a crucial tool for generating information that allowed traders to make risk management or investment decisions. It is hard to overemphasize the impact of this financial revolution. The neoclassical economic paradigm of equilibrium, efficiency, and rational expectations may have reeled under the weight of unrealistic assumptions and assaults of behavioral economics. But here was the classic “show me the money” riposte. A race of superhumans had emerged at hedge funds and investment banks whose rational self-interest made the theory come true and earned them billions in the process. If there was a high priest behind this, it had to be Merton, who in a 1990 speech talked about “blueprints” and “production technologies” that could be used for “synthesizing an otherwise nonexistent derivative security.”7 He wrote of a “spiral of innovation,” wherein the existence of markets in simpler derivatives would serve as a platform for the invention of new ones.

Rewriting the Rules of the European Economy: An Agenda for Growth and Shared Prosperity
by Joseph E. Stiglitz
Published 28 Jan 2020

Particularly worrisome today are the threats to competitive markets that arise from platforms like Amazon, Google, and Facebook. While Europe has done a better job than the United States at curbing these behemoths and their anticompetitive and antisocial practices (including invasion of privacy), there is no reason to be content. ■ Behavioral economics helped explain systematic deviations from behavior predicted by models that assumed a world populated by fully rational individuals with unbounded capacity to calculate. ■ The standard competitive model underlying neoliberalism ignores the costs of adjustment, and hence the challenges posed by structural adjustment.

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See also central banks; ECB banking union creation (see banking union) big bank risk, managing, 166–69, 202 capital requirements increase, opposing, 163–64 common deposit insurance and, 90–91, 178, 179–80 common resolution and, 181–83 common supervision of, 180–81 cooperatives and local institutions, 184–86 decision-making impact of, 160–61 downturn affecting, 108 euro impacting, 175–79 globalization and, 309–10 housing finance and, 233, 234–35 lending caution of, 80–81 public (national) banks, 183 public development banks, 116–18 regulating and supervising, 84–85, 85–86, 161–63, 180–81 regulation and change, resisting, 159 shadow banking, 169–74 Single Market and, 37 too-big-to-fail banks, 164–69, 202 banking union common deposit insurance, 90–91, 178, 179–80 common resolution, 181–83 common supervision, 180–81 lack of, 90–91, 178 problems related to, 175–79 bankruptcy, 40–41 Banks-Know-Best Doctrine, 20–21 Bank Structural Reform, Report of the European Commission’s High-level Expert Group on, 167 Banque de France, 38–39 bargaining power. See also collective bargaining restoring workers’, 260, 262–65 weakened, 257, 258–59 base erosion and profit shifting, 197 Basel III, 167 behavioral economics, 16 BEPS initiative, 197 bonds. See government bonds; quantitative easing Britain, 31, 86, 88, 114, 140–41, 155, 247 Brown, Gordon, 308 budget deficits Austerity Doctrine related to, 17 limiting (see Stability and Growth Pact) policies impacting, 33–34, 47–48, 58–59 2008 crisis impacting, 35 businesses.

Unfinished Business
by Tamim Bayoumi

More generally, Professor Robert Shiller of Yale, one of the few prominent economists who recognized that the US housing market was in a massive bubble before the crisis, has been one of several financial economists to suggest that financial market bubbles can be modeled as social waves in which ideas catch fire and become self-reinforcing before eventually deflating.7 Such social eruptions can be modeled using similar tools to those used to examine epidemics, involving the probability of passing on an infection from one person to the other and a rate at which people stop being infectious, which define the height and longevity of the craze. Examples of crazes include hit records, Rubik’s Cubes, and smart phone apps. This approach provides a way of thinking about asset price bubbles and the madness of crowds in a structured manner. The increasing interest in behavioral economics provides another platform for considering how individuals deviate from pure rationality.8 Behavioral economics, which examines how individuals actually behave in various economic situations rather than how they are supposed to behave, provides many insights but remains a specialized field. It has had only a limited effect on economic theory, in part because it is often difficult to generalize the results.

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

Jung, Jeeman, and Robert Shiller, 2005. “Samuelson’s Dictum and the Stock Market,” Economic Inquiry, Vol. 43, No. 5, pp. 221–228. Kahneman, Daniel, 2002. Autobiography and Nobel Address. Available at http://nobelprize.org/economics/laureates/2002. Kahneman, Daniel, 2003. “Maps of Bounded Rationality: Psychology for Behavioral Economics,” American Economic Review, Vol. 93, No. 5 ( Fall), pp. 1449–1475. Kahneman, Daniel, Harry Markowitz, Robert C. Merton, Myron Scholes, Bill Sharpe, and Peter Bernstein, 2005. “Most Nobel Minds,” CFA Magazine, November-December, pp. 36–43. Kahneman, Daniel, Paul Slovic, and Amos Tversky, 1974.

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Treasury inf lation-protected bonds (TIPs), 12 Valuation arbitrage explanation for disparities in, 25–28 asset, 167 CAPM standard for risky asset, 93 market search for, 113–114 of options as f inancial innovation spiral source, 52–53 See also Alphas ( beating the market); Beta (systematic risk) Vertin, Jim, 128, 129, 146 Vishny, Robert, 26, 27 Volatility diversif ication as control over, 221 endogenous, 72 excess volatility phenomenon, 68–71 exogenous, 72 Goldman Sachs focus on, 218, 223 Volcker, Paul, 29 Voth, Hans-Joachim, 29 Warhal, Sumil, 13 Weiss, Allan, 82, 83 Wells Fargo Bank, 128, 131 Wells Fargo Investment Advisors ( WFIA) Grauer placed as CEO of, 131 low-cost index fund strategies of, 134 –136, 170, 240 origins of, 127–128 Stagecoach Fund of, 128, 132–133 transformation into BGI by, 136–137 See also Barclays Global Investors ( BGI); Grauer, Fred Wells Fargo Trust Department, 127–128, 130 Wells Fargo Yield-Tilt Fund, 128, 130, 140 When Genius Failed: The Rise and Fall of Long-Term Capital Management ( Lowenstein), 77 White noise, 41 Williamson, Gregory, 175–176 Wilshire 5000, 160 The Winner ’s Curse: Paradoxes and Anomalies of Economic Life (Thaler), 15 World Bank-IBM f inancial swap transaction, 151 Yale Investment Committee, 149, 152–153 Yale University endowment alpha role in portfolio of, 169–170 challenges of managing, 149–150 control over spending by, 163 market value and growth of, 148–149 Policy Portfolio strategy of, 156–163 portfolio performance of, 148–150, 154 –158, 160 –161, 162–163 Swensen’s nonconformist approach at, 151–156 U.S. equities of, 160 –161 See also Swensen, David The yield book, 199–200 Yield-Tilt Fund ( Wells Fargo), 128, 130, 140 bern_z04bindex.qxd 4/3/07 8:20 AM Page 283 Index 283 bern_z04bindex.qxd 284 4/3/07 8:20 AM Page 284 INDEX bern_z04bindex.qxd 4/3/07 8:20 AM Page 285 Index 285 bern_bins.qxd 3/23/07 10:44 AM Page 1 Daniel Kahneman, Professor of Psychology at Princeton, received a Nobel Prize in 2002 for his ground-breaking work in the development of Behavioral Economics. His writings analyze the quirks of decision making, such as how attitudes about risk differ depending on whether gains or losses are involved. But Kahneman would deny that most people are irrational. Rather, he believes “the failure in the rational model is . . . in the human brain it requires.

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

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.

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See Statistical arbitrage Archimedes (yacht), 267, 320 Armstrong, Neil, 170 Artin, Emil, 69 Asness, Clifford, 256–57 Association for Computing Machinery (ACM), 37 astrology, 121–22 autism, xviii, 268, 287, 323–24 Automated Proprietary Trading (APT), 131–32, 133 AWK, 233–34 Ax, Frances, 98 Ax, James, xi, 37, 68–69, 324 at Axcom Limited, 78–83 backgammon, 69, 76–77 background of, 68–69 at Berkeley, 68–69 Berlekamp and, 95–102 conspiracy theories of, 77–78, 99 at Cornell, 69, 70–71 death of, 103 focus on mathematics, 69–70 at Monemetrics, 51–52, 72–73 personality of, 68, 70, 71–72, 98–99 Simons and, 34, 68–69, 99–103, 107 at Stony Brook, 34, 71–72 trading models, 73, 74–75, 77–78, 81–86, 95–101, 107 Axcom Limited, 78–83 disbanding of, 118 trading models, 95–101, 107–18 Ax-Kochen theorem, 69, 70, 103 Bachelier, Louis, 128 backgammon, 69, 76–77 backtesting, 3 Bacon, Louis, 140 Baker House, 15–16 Baltimore City Fire and Police Employees’ Retirement System, 299–300 Bamberger, Gerry, 129–30 BankAmerica Corporation, 212 Bannon, Steve, 279, 280, 280n break with Mercers, 304 at Breitbart, 278–79, 299–300, 301–2 midterm elections of 2018, 304 presidential election of 2016, xviii, 281–82, 284–85, 288–90, 293, 294–95 Barclays Bank, 225, 259 bars, 143–44 Barton, Elizabeth, 272 basket options, 225–27 Baum, Julia Lieberman, 46, 48, 50, 62–63, 65 Baum, Leonard “Lenny,” xi, 45–46, 63–66 background of, 46 currency trading, 28–29, 49–53, 54–60, 62–64, 73 death of, 66 at Harvard, 46 at IDA, 25, 28–29, 46–49, 81 at Monemetrics, 45, 49–60, 63–65 move to Bermuda, 64–65 rift with Simons, 63–65 trading debacle of 1984, 65, 66 Baum, Morris, 46 Baum, Stefi, 48, 62, 63 Baum–Welch algorithm, 47–48, 174, 179 Bayes, Thomas, 174 Bayesian probability, 148, 174 Beane, Billy, 308 Beat the Dealer (Thorp), 127, 163 Beautiful Mind, A (Nasar), 90 behavioral economics, 152, 153 Bell Laboratories, 91–92 Belopolsky, Alexander, 233, 238, 241, 242, 252–54 Bent, Bruce, 173 Berkeley Quantitative, 118 Berkshire Hathaway, 265, 309, 333 Berlekamp, Elwyn, xi at Axcom, 94–97, 102–3, 105–18 background of, 87–90 at Bell Labs, 91–92 at Berkeley, 92–93, 95, 115, 118, 272 at Berkeley Quantitative, 118 death of, 118 at IDA, 93–94 Kelly formula and, 91–92, 96, 127 at MIT, 89–91 Simons and, 2–3, 4, 93–95, 109–10, 113–14, 116–18, 124 trading models and strategies, 2–3, 4, 95–98, 106–18, 317 Berlekamp, Jennifer Wilson, 92 Berlekamp, Waldo, 87–88 Berlin Wall, 164 Bermuda, 64–65, 254 Bernard L.

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

I’m cautious about the idea that we’re biased toward bad news, because in general we tend to be rather optimistic; psychologist Tali Sharot reckons that 80 percent of us suffer from an “optimism bias,” systematically overestimating our longevity, our career prospects, and our talents while being blind to the risk of illness, incompetence, or divorce.12 Daniel Kahneman, Nobel laureate and one of the fathers of behavioral economics, calls overconfidence “the most significant of the cognitive biases.”13 In many ways we humans are actually pretty positive creatures—perhaps a little too positive, sometimes. A more plausible explanation is that we are drawn to surprising news, and surprising news is more often bad than good.14 If media outlets had a bias merely toward the negative, one might expect them to report regularly on, say, smoking-related deaths.

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See also official statistics affirmative action, 33–34 age data and childhood mortality trends, 66–67, 91 and criminal justice data, 178 and defining “children,” 70n and divorce rates, 253n and evaluation of statistical claims, 133 and incidence of strokes, 98 and misuse of statistical methods, 117–19 and “priming” research, 121 and scale of numerical comparisons, 93–94 and self-harm statistics, 75 and smoking research, 4–5 and teen pregnancy, 55 and vaccination research, 53–54 aggressive behavior, defining, 70–71 AIDS, 28 alchemy, 171, 173–75, 173n, 179, 207 algorithms alchemy analogy, 175 and consumer data, 159–64 criminal justice applications, 176–79 and excessive credulity of data, 164–67 and found data, 149, 151, 154 and Google Flu Trends, 153–57 vs. human judgment, 167–71 pattern-recognizing, 183 and proliferation of big data, 157–59 and systematic bias, 166 and teacher evaluations, 163–64 trustworthiness of, 179–82 See also big data Allegory of Faith, The (Vermeer), 29–30 Allied Art Commission, 21 alternative sanctions, 176–79 altimeters, 172–73 Amazon, 148, 175, 181 American Economic Association, 186n American Statistical Association, 194 Anderson, Chris, 156 Angwin, Julia, 176 anorexia, 75 antidepressants, 126 anti-vaccination sentiment, 53–54 Apple, 175 Argentina, 194–95, 211 Army Medical Board (UK), 215 art forgeries, 19–23, 29–32, 42–45 Asch, Solomon, 135–38, 141–42, 260 assessable decisions, 180 astrology, 124 Atkinson, Tony, 83 atomic weapons, 90, 249–50 Attenborough, David, 277–78 authority, deference to, 138–39 autism, 53–54 automation, 128 Avogadro’s number, 246 Babbage, Charles, 219 Babcock, Linda, 27 Babson, Roger, 263 backfire effect, 129 Bad Science (Goldacre), 2 bail recommendations, 158, 169, 180 Bakelite, 32 Bank for International Settlements, 100–101 Bank of England, 256, 258 Bannon, Steve, 13 bar charts, 228, 234, 235 Bargh, John, 121, 122 barometric pressure, 172–73 Barrack Hospital, Scutari (Istanbul), 213–14, 220, 225, 233, 235 base rates, 253–54, 253n Battistella, Annabelle (Fanne Foxe), 185–86, 212 battlefield awareness, 58–59 Baumeister, Roy, 121, 122 BBC, 10, 276 behavioral data, 69–70 behavioral economics, 25, 27, 41, 96, 271. See also choice research Bell, Vanessa, 256–57 Bem, Daryl, 111, 113–14, 119–23 benefits of statistical analysis, 9 Berti, Gasparo, 172 Bevacqua, Graciela, 194–95, 212 Beyth, Ruth, 248–49, 251, 254 biases biased assimilation, 35–36 confirmation bias, 33 current offense bias, 169 and motivated reasoning, 27–29, 32–36, 38, 131, 268 negativity bias, 95–99 non-response bias, 146–47 novelty bias, 95–99, 113, 114, 122 optimism bias, 96 and power of doubt, 13 publication bias, 113–16, 118–23, 125–27 racial bias in criminal justice, 176–79 in sampling, 135–38, 142–45, 147–51 selection bias, 2, 245–46 survivorship bias, 109–10, 112–13, 122–26 systematic bias in algorithms, 166 and value of statistical knowledge, 17 big data and certification of researchers, 182 and criminal justice, 176–79 and excessive credulity in data, 164–67 and found data, 149, 151, 152, 154 and Google Flu Trends, 153–57 historical perspective on, 171–75 influence in today’s world, 183 limitations and misuse of, 159–63, 170–71 proliferation of, 157–59 and teacher evaluations, 163–64 See also algorithms Big Data (Cukier and Mayer-Schönberger), 148, 157 “Big Duck” graphics, 216–18, 217, 229–30 Big Issue, The, 226n “Billion Pound-O-Gram, The” (infographic), 223 billionaires, 78–80 binge drinking, 75 Bird, Sheila, 68 bird’s-eye view of data, 61–64, 203, 221, 265 BizzFit, 108 Black Swan, The (Taleb), 101 Blastland, Michael, 10, 68, 93 blogs, 76 Bloomberg TV, 89 body count metrics, 58 Boijmans Museum, 20 Boon, Gerard, 19, 30–31 border wall debate, 93–94 Borges, Jorge Luis, 118 Boyle, Robert, 172–75 brain physiology, 270 Bredius, Abraham, 19–23, 29–32, 35, 43–45, 78, 242, 262 Bretton Woods conference, 262 Brettschneider, Brian, 224 Brexit, 71, 277 British Army, 213–14, 220–21 British Election Study, 145–46 British Medical Journal, 6, 67 British Treasury, 256–57 Broward County Sheriff’s Office, 176 Brown, Derren, 115 Brown, Zack “Danger,” 108 Buchanan, Larry, 229, 232 budget deficits, 188, 192–93, 195 Buffett, Warren, 259 Bureau of Economic Analysis, 190, 205 Bureau of Labor Statistics, 190, 205, 212 business-cycle forecasting, 258–59 business writing, 123–24 Butoyi, Imelda, 62–63 Cairo, Alberto, 227 Cambridge Analytica, 158 Cambridge University, 162.

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

Inevitabilism: The Trojan horse of computer mediation—devices, apps, connection—enters the scene in a relentless deluge of inevitabilist rhetoric, successfully distracting us from the highly intentional and historically contingent surveillance capitalism within. New institutional facts proliferate and stabilize the new practices. We fall into resignation and a sense of helplessness. 14. The ideology of human frailty: In addition to inevitabilism, surveillance capitalism has eagerly weaponized behavioral economics’ ideology of human frailty, a worldview that frames human mentation as woefully irrational and incapable of noticing the regularity of its own failures. Surveillance capitalists employ this ideology to legitimate their means of behavior modification: tuning, herding, and conditioning individuals and populations in ways that are designed to elude awareness. 15.

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Only such objective descriptions can render measurable behavioral facts that, in turn, lead to patterns and ultimately to the documentation of causal relationships between environment and behavior.53 Skinner published Science and Human Behavior in 1951, positing that all observation, even of one’s own behavior, must be enacted from the viewpoint of the Other-One. This discipline makes it possible to take almost anything as an object of behavioral analysis, including inferred behaviors such as “making choices” or “problem solving,” the very perspective that would later be amply exploited by the new discipline of behavioral economics: When a man controls himself, chooses a course of action, thinks out the solution to a problem, or strives toward an increase in self-knowledge, he is behaving. He controls himself precisely as he would control the behavior of anyone else—through the manipulation of variables of which behavior is a function.

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Thus gambling devices could be ‘improved’—from the point of view of the proprietor—by introducing devices which would pay off on a variable-interval basis, but only when the rate of play is exceptionally high.”63 Technologies of behavioral engineering would not be restricted to “devices” but would also encompass organizational systems and procedures designed to shape behavior toward specific ends. In 1953 Skinner anticipated innovations such as Michael Jensen’s incentive systems designed to maximize shareholder value and the “choice architectures” of behavioral economics designed to “nudge” behavior along a preferred path: “Schedules of pay in industry, salesmanship, and the professions, and the use of bonuses, incentive wages, and so on, could also be improved from the point of view of generating maximal productivity.”64 Skinner understood that the engineering of behavior risked violating individual sensibilities and social norms, especially concerns about privacy.

The Moral Landscape: How Science Can Determine Human Values
by Sam Harris
Published 5 Oct 2010

The reasons why such a terrifying inversion of priorities does not tend to maximize human happiness are susceptible to many levels of analysis—ranging from biochemistry to economics. But do we need further information in this case? It seems to me that we already know enough about the human condition to know that killing cartoonists for blasphemy does not lead anywhere worth going on the moral landscape. There are other results in psychology and behavioral economics that make it difficult to assess changes in human well-being. For instance, people tend to consider losses to be far more significant than forsaken gains, even when the net result is the same. For instance, when presented with a wager where they stand a 50 percent chance of losing $100, most people will consider anything less than a potential gain of $200 to be unattractive.

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But what if the mental suffering associated with loss is simply bound to be greater than that associated with forsaken gains? If so, it may be appropriate to take this difference into account, even when we cannot give a rational explanation of why it is worse to lose something than not to gain it. This is another source of difficulty in the moral domain: unlike dilemmas in behavioral economics, it is often difficult to establish the criteria by which two outcomes can be judged equivalent.36 There is probably another principle at work in this example, however: people tend to view sins of commission more harshly than sins of omission. It is not clear how we should account for this bias either.

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

After the Houston Rockets and everyone else in the NBA neglected to see Jeremy Lin’s value in the draft (he signed after the draft as a free agent), the league shut down. A dispute between players and owners led to a lockout, and no one was allowed to work. Morey enrolled in an executive education course at Harvard Business School and took a class in behavioral economics. He’d heard of the discipline (“I’m not an idiot”) but had never studied it. At the start of the first class, the professor asked him and everyone else in the class to write down the last two digits of their cell phone on a sheet of paper. Then she asked the class to write down their best estimate of the number of African countries in the United Nations.

…

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. “People tried to ignore it,” said Thaler. “Old economists never change their minds.” By 2016 every tenth paper published in economics would have a behavioral angle to it, which is to say it had at least a whisper of the work of Danny and Amos.

The Organized Mind: Thinking Straight in the Age of Information Overload
by Daniel J. Levitin
Published 18 Aug 2014

And, as Northwestern University psychologist Eli Finkel points out, this streamlined access to a pool of thousands of potential partners “can elicit an evaluative, assessment-oriented mind-set that leads online daters to objectify potential partners and might even undermine their willingness to commit to one of them.” It can also cause people to make lazy, ill-advised decisions due to cognitive and decision overload. We know from behavioral economics—and decisions involving cars, appliances, houses, and yes, even potential mates—that consumers can’t keep track of more than two or three variables of interest when evaluating a large number of alternatives. This is directly related to the capacity limitations of working memory, discussed in Chapter 2.

…

Alternatively, if you are facing an 80% chance of a catastrophic outcome and you can reduce that by 25%, to a 60% chance, this seems worth doing—the 25% reduction is more meaningful at the top end of the scale. Just about all of us have this personality. We know because of ideas worked out in psychology and behavioral economics, known as prospect theory and expected utility. For most of us nonrational human decision-makers, losses loom larger than gains. In other words, the pain of losing $100 is greater than the pleasure of winning $100. To put it another way, most of us would do more to avoid losing a year of life than we would to gain a year.

…

abstraction, 184–85, 186 Ace Hardware, 78–80 Ackerman, Diane, 364–65 active sorting, 33–35 Adams, James L., 111 addiction, 101–2, 170, 209 ad hoc organizational structures, 318–19 advertising, 21, 366 affordances, 35–36, 83, 84 age and aging, 164, 190–91, 194, 196, 211, 216–17 Age of Paperwork, 269 alcohol, 167, 187–88 alert system, 37, 406n45 Alexa.com, 342, 476n342 Allen, David, 68–69, 71, 88 alternative medicine, 251, 256–57, 260 altruism, 158–59 Alzheimer’s disease, 19, 107–8, 217, 306 Amber Alert system, 113–14, 159 American Heart Association, 350–51, 352 American Library Association, 365 anger, 52–53 angioplasty, 239, 259 antibiotics, 264, 264 Apple, 284, 377 approximation, 352–55, 355–64 Area 47, 287 Argentina, 156 Ariely, Dan, 311 Aristotle, 58, 340 Armstrong, Louis, 283 arousal system, 170 assimilation, 184, 186 associational networks, 55, 299 At Home (Bryson), 121 attention, 37–74 and the alert system, 406n45 attentional filters, 7–11, 16–18, 39, 41, 45, 46–47, 81, 113, 304 attentional network, 43–44 attentional switching, 16, 41–42, 45, 98, 171–72, 174–75, 206, 281–83, 320, 405n42 attention deficit disorder (ADD), 167–68, 171, 195, 304 attention-saving devices, 218 and brain physiology, 37–45 capacity for, 87, 368 and emotion, 405n42 and memory, 48–54 neurochemistry of, 45–48 and “productivity hours,” 102 and remembering names, 374–75 and sleep, 188 Avogadro, Amedeo, 252–53 Babylonians, 163 base rates of occurrence, 227–33, 235–36, 249–50, 261 Bayesian reasoning, 229–30, 230–48, 248–50, 254, 261, 267, 385–96 Beall, Jeffrey, 341 The Beatles, 287 behavioral economics, 129–30, 132, 262 belief perseverance, 151 Bell Laboratories, 311, 313, 314 Benchley, Robert, 209 Berlin, Brent, 30 biases cognitive biases, 20–22, 21 in-group/out-group bias, 152–56, 159 intrinsic bias, 331 latent bias, 344 novelty bias, 96, 126–27, 170, 209, 215 partisan bias, 339–40 positivity bias, 217 status quo bias, 331 Big Five personality dimensions, 305 bimodal sleep patterns, 189–90 binomial theorem, 245–47 biological classification, 24–25, 28, 32–33 biopsies, 243–48, 257, 259 blind spots, cognitive, 11–12, 48 Bloomberg, Michael, 280 Booz Allen Hamilton, 273–74, 318 boundary conditions, 352–53, 355, 360–62 Boutin, Paul, 322 brain damage and trauma, 64, 160–62, 187 brain extenders, 67–74 brain physiology and aging, 217 and attention, 16–18, 37, 39, 41–43, 45–48, 171–72, 405n42 and categorization, 62–63 and creativity, 201–3, 206 and electronic communication, 101 and home organization, 82 and information overload, 7–8, 10 and memory, 49–50 and multitasking, 98 and neuronal clusters, xvi–xvii, xvii and organizational decision-making, 276–77, 282 and procrastination, 198 and sleep, 188, 192, 194 and social relations, 126, 129, 142–43, 152 and time organization, 161, 168, 173, 176–77 See also central executive function; hippocampus; prefrontal cortex browsing, 377–78 Bryson, Bill, 121 Buffett, Warren, 5, 292–93 Burd, Steven, 307 Bush, George W., 52–53 business world, 268–326 and data organization, 293–306 and decision-making, 276–82 and information theory, 308–19 and leadership, 283–93 and locus of control, 287–92 and multitasking, 306–8 and organizational causes of failures, 268–70 and organizational structures, 270–76 and planning for failure, 319–26 Byrne, David, 15 caffeine, 192 calendars, 213–14 Callimachus, 14 Camus, Albert, 288 cancer, 240–42, 244–48, 250, 257–58, 349, 351–52 cannabis, 97, 143 capacity limits, 11, 16, 78–79 cardiac bypass surgery, 239 Carlsen, Magnus, 84 Carr, Nicholas, 377 Carter, Jimmy, 9 categorization appearance-based categories, 61 and brain extenders, 67–74 and brain physiology, 32–36 and contact files, 123 and filing systems, 94 fuzzy and hard boundaries, 64–67, 370–71 historical perspective, 22–32 and home organization, 87 and junk drawers, 87–91 liquor organization at bars, 88–89 and memory, 13, 56–67, 370–71 and neuronal networks, xvii, xviii and retail store organization, 79–80 scheduling task types, 175–76 and social relations, 122–24, 158–59 and temporal resolution, 180–81 typical and defining features, 65–66 Wisconsin Card Sorting Test, 176–77 causation, 346–51 cell phones, 19, 96–97, 312 central executive function and attention, 39, 41–42, 44–46 and categorization, 57, 62 and creativity, 202, 210, 375–76 and externalizing memory, 74 and flow state, 207 and home organization, 87 and information overload, 310 and memory, 48, 68–69 and multitasking, 98 and online dating, 132 and organizational systems, 304 and reading, 169 and time organization, 166, 174 Chabris, Christopher, 12 chain of command, 275, 277–79 Challenger space shuttle accident, 191 change detection, 9–11, 84, 209 childhood education, xxi, 336, 365 children’s television, 368 Chivers, C.

Tyler Cowen - Stubborn Attachments A Vision for a Society of Free, Prosperous, and Responsible Individuals
by Meg Patrick

Wortman, and Alan F. Williams. 1987. “Long-term effects of losing a spouse or child in a motor vehicle crash.” Journal of Personality and Social Psychology 52(1): 218-231. Lenman, James. "Consequentialism and Cluelessness." Philosophy and Public Affairs, 2000, 29, 4. Levinson, Arik. “Happiness, Behavioral Economics, and Public Policy, NBER Working Paper 19329, August 2013. Lind, Robert C., Kenneth J. Arrow, Gordon R. Corey, Partha Dasgupta, Amartya K. Sen, Thomas Stauffer, Joseph E. Stiglitz, J.A. Stockfisch. 1982. Discounting for Time and Risk in Energy Policy. New York: Resources for the Future. Lindert, Peter H.

State-Building: Governance and World Order in the 21st Century
by Francis Fukuyama
Published 7 Apr 2004

This view has given way in recent years to the attempt to incorporate organizations into broader economic theory, an effort that has yielded certain important and useful insights for public sector reform. In the end, the behavioral assumptions on which neoclassical economics rests—in particular, the assumption that people in organizations are motivated primarily by individual self-interest—are too limited to provide understanding of key aspects of organizational behavior. Economics as a science likes to generate theories that produce optimizing solutions, which is precisely what is not possible in many aspects of public administration. The black box indeed may resemble more of a black hole from the standpoint of theory. The domination of the field of organizational theory by economists in the 1980s and 1990s has eclipsed an earlier sociological vein of theory about organizations and has obscured some of the major insights of that tradition.

Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals
by Tyler Cowen
Published 15 Oct 2018

Williams. 1987. “Long-Term Effects of Losing a Spouse or Child in a Motor Vehicle Crash.” Journal of Personality and Social Psychology 52, no. 1: 218–231. Lenman, James. 2000. “Consequentialism and Cluelessness.” Philosophy and Public Affairs 29, no. 4: 342–370. Levinson, Arik. 2013. “Happiness, Behavioral Economics, and Public Policy.” NBER Working Paper No. 19329. Lind, Robert C., Kenneth J. Arrow, Gordon R. Corey, Partha Dasgupta, Amartya K. Sen, Thomas Stauffer, Joseph E. Stiglitz, and J.A. Stockfisch. 1982. Discounting for Time and Risk in Energy Policy. New York: Resources for the Future. Lindert, Peter H. 2004.

How I Invest My Money: Finance Experts Reveal How They Save, Spend, and Invest
by Brian Portnoy and Joshua Brown
Published 17 Nov 2020

, AEI.org. Dan Egan Dan Egan is the Managing Director of Behavioral Finance and Investing at Betterment. He has spent his career using behavioral finance to help people make better financial and investment decisions. Dan is a published author of multiple publications related to behavioral economics. He lectures at New York University, London Business School, and the London School of Economics on the topic. How I invest for myself is either incredibly boring, or very challenging, depending on your perspective. But it starts with the idea that money is always a servant, never a master.

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

is my attempt to answer those questions. Inside Google we don’t have a lot of rule books and policy manuals, so this isn’t the official corporate line. Instead, it’s my interpretation of why and how Google works, viewed through the lens of what I believe to be true—and what the latest research in behavioral economics and psychology has revealed—about human nature. As the SVP of People Operations, it continues to be a privilege and delight to play a role, along with a cast of literally thousands of Googlers, in shaping how Googlers live and lead. The first time Google was named the Best Company to Work For in the United States was a year after I joined (not thanks to me—but my timing was good).

…

James J. 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.

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

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. The first comes from my friend, colleague, and mentor Amos Tversky. When asked once what he thought about artificial intelligence, Amos quipped that he didn’t know much about it, his specialty was natural stupidity.

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

They can push the notion of fiction to the extreme, going well beyond logical worlds and more pragmatic world building. Although technically a fictional world can be impossible and incomplete, whereas a possible world needs to be plausible, the limit for us is scientific possibility (physics, biology, etc.) everything elseethics, psychology, behavior, economics, and so on-can be stretched to the breaking point. Fictional worlds are not just figments of a person's imagination; they circulate and exist independently of us and can be called up, accessed, and explored when needed. The artist Matthew Barney has created extraordinarily complex fictional worlds.

Capital Allocators: How the World’s Elite Money Managers Lead and Invest
by Ted Seides
Published 23 Mar 2021

I have wondered what happened that day in the committee meeting ever since. * * * All the information gleaned from interviewing and conducting due diligence on managers can go for naught if an allocator does not follow an effective decision-making process. And here’s the problem: we are hardwired to make poor decisions. The field of behavioral economics sheds light on this unfortunate set of conditions. The human brain is designed to survive in the wild. Generations ago a fight or flight response was the difference between life and death. Daniel Kahneman referred to this instinct for action as System 1 thinking in his book, Thinking, Fast and Slow.17 Most decisions we make are based on instinctive reactions.

Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis
by Anatole Kaletsky
Published 22 Jun 2010

Despite the near-monopoly enjoyed by rational expectations and mathematical modeling in elite university departments since the 1980s, many new and interesting approaches to economics based on psychology, sociology, control engineering, chaos theory, psychiatry, and practical business insights have been developing in the shadows of the official doctrine. Some of these will doubtless spring to life in the years ahead. The approach receiving widest publicity during the crisis was behavioral economics. Popularized by Robert Shiller, behavioral economics considers a world in which investors and businesses are motivated by crowd psychology rather than the obsessive calculation of rational expectations. It is, however, the least radical of the alternative approaches because it does not challenge the central assumption of REH—that booms, busts, and recessions are all caused by various types of market failure and therefore that breakdowns in laissez-faire capitalism could, at least in principle, be prevented by making markets more perfect, for example, by disseminating information or strengthening the regulations against fraud.

Obliquity: Why Our Goals Are Best Achieved Indirectly
by John Kay
Published 30 Apr 2010

Matt Ridley’s Origins of Virtue introduced me to the idea that many of our social and economic institutions can best be explained with the aid of evolutionary psychology; in a very different style, Ken Binmore and Herbert Gintis explore similar themes. And the attack on Franklin’s rule as the epitome of rational thought comes today from many quarters, especially the projects on decision making led by Gerd Gigerenzer. Behavioral economics tends, as I have described, to persist in the notion that the failure of standard concepts of rationality is a problem in our own behavior rather than in our models, but the work of Dan Kahneman and Amos Tversky must nevertheless be credited with a transformation in the way I—and many others—think about economic behavior.

The Scandal of Money
by George Gilder
Published 23 Feb 2016

Most alert to the problem, the Austrian school of economics, led by Friedrich Hayek and Ludwig von Mises, laboriously makes room for human creativity and entrepreneurship, “opportunity scouts” and arbitrageurs.5 Then they explain it all away as a function of “spontaneous order,” apparently restricting human beings to finding price differences and “assembling or reassembling chemical elements” in an effort to restore “equilibrium.” We are back again to the great machine purring away as deterministically as the stars and planets of Newton’s galaxy. In recent years, some pioneers of what is called behavioral economics—led by the psychologists Daniel Kahneman and Amos Tversky—have caused a stir by challenging our faith in Homo economicus.6 Kahneman won a Nobel Prize. But astonishingly enough, the behavioralists question the concept only to diminish it further, by denying the rationality that makes the machine operational and its outcomes just.

The Fifth Risk
by Michael Lewis
Published 1 Oct 2018

What happens to the finances of a community hit by a tornado, for instance. The work interested her, but she also felt something was missing. “I just felt that classical economics wasn’t really hitting on the questions that meteorologists were asking,” she said. Her frustration led her first into behavioral economics, which was no more than psychology made respectable to the sort of people who tended to think psychology was all bullshit. She set out to investigate a problem: How do people respond to risk? How might you influence that response, to their benefit? If you told someone that a tornado might be headed his way in a week, he’d give you a funny look and go about his business.

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

He once pointed out, “Some extraordinary results could have been obtained since 1933 by buying each year the shares of the six companies in the Dow Jones Industrial Average which sold at the lowest multiplier of their recent earnings.”8 What made Graham so brilliant is not the calculations he performed to determine intrinsic value, but rather the understanding that determining exact values are both impossible and not a prerequisite for success. “It is quite possible to decide by inspection that a woman is old enough to vote without knowing her age or that a man is heavier than he should be without knowing his exact weight.”9 Graham was far ahead of his time, writing about behavioral economics, the study of how psychology affects financial decision making, long before the term even existed. Security Analysis was published the same year that Nobel laureate Daniel Kahneman, who took this field mainstream, was born. Graham identified some of the cognitive and emotional biases that caused investors to send a strong company diving 50% in 12 months.

Rendezvous With Oblivion: Reports From a Sinking Society
by Thomas Frank
Published 18 Jun 2018

In 2010, for example, Charles Koch, of Wichita oil fame, circulated to his “network of business and philanthropic leaders” an invitation to a meeting at which—if their previous meeting’s agenda is any indication—they were to discuss strategies for beating back environmentalism and the “threat” of financial regulation. This is a kind of philanthropy that pays dividends. * * * If the affluent no longer possess the capacity to interpret facial expressions, let alone maintain a social conscience, can we find a way, with the help of behavioral economics, to make them act as if they do? One idea out there is to turn the rich, via a little marketing jujitsu that exploits their well-known taste for prestigious consumer goods, into supporters of more benevolent trends. The means by which this might be done were actually the subject of a 2010 study on “green” consumerism by a psychologist and two marketing professors.

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

As the initial offerings of the proprietary networks plateaued, the Internet saw developments in technology that in turn led to developments in content and ultimately in social and economic interaction: the Web and Web sites, online shopping, peer-to-peer networking, wikis, and blogs. The hostility of AT&T toward companies like Hush-A-Phone and of the proprietary networks to the innovations of enterprising subscribers is not unusual, and it is not driven solely by their status as monopolists. Just as behavioral economics shows how individuals can consistently behave irrationally under particular circumstances,18 and how decision-making within groups can fall prey to error and bias,19 so too can the incumbent firms in a given market fail to seize opportunities that they rationally ought to exploit. Much of the academic work in this area draws from further case studies and interviews with decision-makers at significant firms.

…

CHRISTENSEN, THE INNOVATOR’S DILEMMA: WHEN NEW TECHNOLOGIES CAUSE GREAT FIRMS TO FAIL xiii—xvii (1997); Rebecca Henderson, The Innovator’s Dilemma as a Problem of Organizational Competence, 23 J. PRODUCT INNOVATION MGMT. 5, 6—7 (2006). 17. 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.

The Fissured Workplace
by David Weil
Published 17 Feb 2014

Unified personnel policies and simplified compensation structures for workers with varying levels of productivity play a fundamental role in reducing frictions among workers. Fairness and Wage Determination Fairness matters. In contrast to assumptions of traditional economics that individuals maximize gains solely for themselves, a large empirical literature from psychology, decision science, and more recently behavioral economics reveals that people care not only about their own gains but also about those of others. In fact, people frequently gauge the magnitude of their own benefits relative to those of others. And they are often willing to sacrifice some of their own gains because of equally important beliefs about fairness.

…

Relationships are an intrinsic part of the workplace, and fairness perceptions are therefore basic to how decisions are made within it. The factors driving wage setting arise not just from an employer’s consideration of the additional output a worker might provide if given a higher wage, but on the worker’s perceptions of the fairness of that wage. For example, Daniel Kahneman, one of the pioneers of behavioral economics, showed that people’s perception of the fairness of a wage cut depends on why they feel it was done: cuts driven by increases in unemployment (and therefore more people looking for work) are viewed as unfair; a company that cuts wages because it is on the brink of bankruptcy is judged more favorably.

The Case Against Education: Why the Education System Is a Waste of Time and Money
by Bryan Caplan
Published 16 Jan 2018

“The Prevalence and Effects of Occupational Licensing.” British Journal of Industrial Relations 48 (4): 676–87. Kling, Arnold. 2006. “College Customers vs. Suppliers.” EconLog. August 16. http://econlog.econlib.org/archives/2006/08/college_custome.html. Koch, Alexander, Julia Nafziger, and Helena Nielsen. 2015. “Behavioral Economics of Education.” Journal of Economic Behavior and Organization 115: 3–17. Koppel, Nathan. 2009. “Job Discrimination Cases Tend to Fare Poorly in Court.” Wall Street Journal. February 19. http://www.wsj.com/articles/SB123500883048618747. Kotkin, Minna. 2007. “Outing Outcomes: An Empirical Study of Confidential Employment Discrimination Settlements.”

…

What to Expect When No One’s Expecting: America’s Coming Demographic Disaster. New York: Encounter Books. Latzer, Barry. 2004. “The Hollow Core: Failure of the General Education Curriculum.” Washington, DC: American Council of Trustees and Alumni. Lavecchia, Adam, Heidi Liu, and Philip Oreopoulos. 2016. “Behavioral Economics of Education: Progress and Possibilities.” In Handbook of the Economics of Education, vol. 5, edited by Eric Hanushek, Stephen Machin, and Ludger Woessmann, 1–74. Amsterdam: Elsevier. Layard, Richard, and George Psacharopoulos. 1974. “The Screening Hypothesis and the Returns to Education.”

The Rise and Fall of the Neoliberal Order: America and the World in the Free Market Era
by Gary Gerstle
Published 14 Oct 2022

Becker was among the first to subject to economic analysis aspects of human existence, most famously the family, that until that time were thought to belong to a private sphere of life insulated from the hurly-burly character and contractual imperatives of the marketplace.36 Not surprisingly, turning private life into a branch of behavioral economics divided scholars and critics. A libertarian French-Canadian economist, Jean-Luc Migue, wrote excitedly in 1976 about the potential of this development, using a human capital analysis of household relations as an example of the large dividends it could yield. “One of the great recent contributions to economic analysis,” he wrote, “has been the full application to the domestic sector of the analytical framework traditionally reserved for the firm and the consumer.”

…

” Just as firms benefited from ordering relations between employers and employees through contracts, Migue wrote, so too “the two parties [of a household] settle the general terms of the exchange in a long-term contract.” The alternative was to engage “incessantly and expensively [in] renegotiating and supervising the innumerable contracts inherent in the exchanges of everyday domestic life.”37 The political theorist, Wendy Brown, surveying the spread of behavioral economics across the forty years after Migue wrote these words, came to a much less sanguine conclusion about the effects of this neoliberal governing strategy. “Neoliberalism,” she wrote in 2015, “transmogrifies every human domain and endeavor, along with humans themselves, according to a specific image of the economic.

Trend Commandments: Trading for Exceptional Returns
by Michael W. Covel
Published 14 Jun 2011

When a market is healthy, co-movement is low. But in the months and years before a crash, co-movement seems to grow. “The financial crisis has shown that mainstream economic theories have limitations that need to be overcome,” said Dirk Helbing of the Swiss Federal Institute of Technology, who specializes in modeling crowd behavior. “Economic systems have become much more complex, and complex systems have certain features—cascading effects, systemic shifts. This calls for new theoretical approaches.”3 When will mainstream publications, the ones who love to reveal new thinking, learn that strategies that take advantage of crashes already exist?

Keeping Up With the Quants: Your Guide to Understanding and Using Analytics
by Thomas H. Davenport and Jinho Kim
Published 10 Jun 2013

Even if you have a lot of experience in the domain of the decision, it might not be representative of broad situations. Guessing is always risky. In general, you should mistrust intuition. Most people value it much too highly as a guide to decision making. There is a whole school of economics, for example—called behavioral economics—based on the recognition that people are not good intuitive decision makers about economic issues. Despite the advantages of analytics, it’s still not always sensible to use them for a decision. If it’s not important or it’s a matter of personal preference, don’t bother with collecting and analyzing data.

The Gone Fishin' Portfolio: Get Wise, Get Wealthy...and Get on With Your Life
by Alexander Green
Published 15 Sep 2008

Shermer, a columnist for Scientific American and the founder of Skeptic magazine writes, “We are remarkably irrational creatures, driven as much (if not more) by deep and unconscious emotions that evolved over the eons as we are by logic and conscious reason developed in the modern world.” He backs up this claim with plenty of examples from the new science of behavioral economics. Studies show, for example, that most people are willing to drive five blocks if they can buy a $100 cell phone for half price. But they are far less willing to drive five blocks to save $50 on a $1,000 plasma TV. Why? After all, fifty bucks is fifty bucks, no matter how you spend it—or save it.

Demystifying Smart Cities
by Anders Lisdorf

If we look at Figure 5-1, we can see that this is only one part of the picture. Figure 5-1Forces affecting AI solutions in the city Human nature – As we saw previously, human nature has its quirks that are difficult but no less important to understand in order to be successful in implementing AI solutions. The field of behavioral economics is dedicated to studying the different biases that guide how we humans form opinions and make decisions. This should be an integral part of any deployment of an AI system, which is something completely new to technology solution development. This has traditionally just been one where a requirement specification guides development.

All the Devils Are Here
by Bethany McLean
Published 19 Oct 2010

A brilliant mathematics student at Yale, Redleaf became an options trader who searched for anomalies between the prices of two different but related securities. By taking advantage of those anomalies, he made money. From a standing start in 1999, Redleaf built Whitebox into a $4 billion hedge fund. An advocate of the new field of behavioral economics, Redleaf believed that markets were not always rational, that models were not always right, and that Wall Street’s blind adherence to both gave him plenty of opportunity to make money. To him, the mortgage market was as good an example of Wall Street’s shortsightedness as anything you could possibly find.

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See Federal bailouts Bair, Sheila Baker, Richard Bankers Trust, swap deal lawsuit Bank of America Countrywide acquired by Merrill Lynch acquired by subprime branches, closing Barnes, Roy Bartiromo, Maria Basel Committee on Banking Supervision, capital reserves rule Basis Yield Alpha Fund Bear Stearns ABS index Bank of America lawsuit CDOs foreclosures, plan to prevent hedge funds, collapse of High-Grade Structured Credit Fund High-Grade Structured Credit Strategies Enhanced Leverage Limited Partnership J.P. Morgan acquisition of Beattie, Richard Behavioral economics Beneficial Bensinger, Steve Bernanke, Ben Berson, David Birnbaum, Josh BlackRock Black-Scholes formula Black swans Blankfein, Lloyd during collapse compensation from Goldman Goldman Sachs under Blue sky laws, MBSs exemption from Blum, Michael Blumenthal Stephen BNC Mortgage BNP Paribas Bolten, Joshua Bomchill, Mark Bond, Kit Bond ratings CDOs and credit enhancements failures, examples of public trust in ratings shopping system of for tranches Value at Risk (VaR) applied to See also Moody’s; Standard & Poor’s Bonuses, post-TARP Born, Brooksley biographical information derivatives, regulatory efforts style/personality of Bothwell, James Bowsher, Charles Bradbury, Darcy Brandt, Amy Breit, John Brennan, Mary Elizabeth Brickell, Mark Brightpoint fraud Broad Index Secured Trust Offering (BISTRO) AIG FP credit protection features of Broderick, Craig Bronfman, Edward and Peter Bruce, Kenneth Buffett, Warren Burry, Michael Bush, George W.

Economic Gangsters: Corruption, Violence, and the Poverty of Nations
by Raymond Fisman and Edward Miguel
Published 14 Apr 2008

See specific countries and issues Agnelli, Giovanni, 49 Amassalik Inuit, 138 Amazon (company), 25 Angola, 96, 120b, 175; diamond mining and, 181b–85b; economic revival of, 184b antiparasitic drugs, school attendance and, 193–95 armed conflict, 148–55; Africa and, 114–16, 174–78; civil versus foreign, 173–74; disarmament and, 175–76; economic factors and, 116–17, 120–22; GDP and, 124; government stability and, 176–78; infrastructure investment and, 162–63, 170–71; OECD and, 120–21; political transformation and, 163–64; rainfall and, 122–27, 149; reconciliation and, 179–81; selection bias and, 174; technological inno- vation and, 164; tribal hatreds and, 116–17 Bakrie, Aburizal, 34, 38 behavioral economics, 96–97, 222n8 Bellow, Adam: In Praise of Nepotism, 30 Bimantara Citra, 33–40 Blood Diamond, 183b Bloomberg, Michael, 104 Bono, 9 Borsuk, Rick, 37–38 Botswana, 20–21; Drought Relief Program, 152–53, 199–200 bribery, commerce and, 66–67 Bush, George W., 32, 73–74, 174, 217n4 Busia (Kenya), 193–95, 232n9 Canada: corruption in, 95; United States and, 94–95 Capone, Al, 5–7 Chad, 17–18; corruption and, 156; economic decline of, 111–12; I N DEX Chad (continued) global warming and, 131; Lake Chad, 111–12; paperwork delays in, 66–67; petroleum deposits in, 155–58; political turmoil in, 112–13; rainfall and, 114; violence in, 175; World Bank and, 156–58 cheap talk, 18–20; violence and, 118b–19b Cheney, Dick, 29, 51–52 China: 1998 anticorruption campaign and, 70–73; global warming and, 127–29; smuggling and, 55–57; tariffs and, 60–64, 221n4, 221n6 China National Petroleum Company (CNPC), 185b Clodfelter, Michael, 160–61 coffee, 117–18, 149–50 Collier, Paul, 215n9, 228n20, 230n13 Colombia, 76–78, 102–3, 142 commodity prices, 117–18, 149–50, 227n15 conflict traps, Chad and, 113–14 containerization, 56–57 corruption: bottom line on, 102–3; cheap talk and, 18–20; culture and, 80–81, 87, 102–3; definition of, 18, 83, 216n12; economic growth and, 41–46; income level and, 91–92; mea sur ing, stock markets and, 24–29; national pride and, 100–102; outsiders and, 41–43; poverty and, 15–17; “Scramble for Africa” and, 101–2; stock markets and, 24–27; wages and, 189, 230n3.

House of Debt: How They (And You) Caused the Great Recession, and How We Can Prevent It From Happening Again
by Atif Mian and Amir Sufi
Published 11 May 2014

For example, suppose some consumers have a constant desire to consume immediately at the expense of their longer-term consumption. Such consumers are often referred to as “myopic” or “hyperbolic” in economics.17 The overspending is irrational in the sense that the individual will regret the decision in the future. In the language of behavioral economics, the individual’s future self will come to regret why their present self over-consumed today to leave them a pauper in the future. Myopic consumers have a tendency to borrow excessively. When tempted with cheap credit or a cash windfall, they will overspend. They may even recognize this personal failing, and they may attempt to restrict themselves through various devices.

Data-Ism: The Revolution Transforming Decision Making, Consumer Behavior, and Almost Everything Else
by Steve Lohr
Published 10 Mar 2015

Initially, Matsuoka wrote the software so that after the person dialed in target temperature ranges, the learning algorithms took over. If Nest’s smart software discerned more energy-efficient settings, up or down a couple of degrees, the thermostat did so automatically. Many people hated that, she recalls; they didn’t want a machine to be in control. So she took a page from behavioral economics, nudging people to make better choices with encouragement. The Nest thermostat offers a visual reward—a green-leaf icon on its display, when the user chooses an energy-saving setting. The green-leaf rewards are individualized, based on local weather conditions and a household’s history of energy use.

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

This sign did outperform the no-sign option. 117 BRIAN MULLANEY, SMILE TRAIN, AND “ONCE-AND-DONE”: This section was drawn primarily from author interviews with Mullaney, an unpublished memoir by Mullaney, and the research reflected in Amee Kamdar, Steven D. Levitt, John A. List, and Chad Syverson, “Once and Done: Leveraging Behavioral Economics to Increase Charitable Contributions,” University of Chicago working paper, 2013. See also: Stephen J. Dubner and Levitt, “Bottom-Line Philanthropy,” New York Times Magazine, March 9, 2008; and James Andreoni, “Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving,” The Economic Journal 100, no. 401 (June 1990).

Bulletproof Problem Solving
by Charles Conn and Robert McLean
Published 6 Mar 2019

Depending on who is counting,3 there are upwards of one hundred different kinds of cognitive biases and mistakes that humans are prone to make in problem solving, some related to type 1 fast thinking errors, some driven by other processing biases, including many related to our relationship with resources. The enumeration of cognitive biases in decision making coming out of experimental psychology and behavioral economics is both interesting and important for anyone who cares about problem solving. But to believe some of the literature, these biases render people incapable of rational thought entirely! In our experience good problem solving design and team processes can address most of these, and in addition encourage creativity.

Safe Haven: Investing for Financial Storms
by Mark Spitznagel
Published 9 Aug 2021

And this is particularly so in investing because the math of the sum—or of arithmetic averaging—is so intuitive, while the math of the whole—or of compounding—is so counterintuitive. Portfolio components thus stick out as line items. They are not perceived as soluble in a portfolio, like (just a pinch of) salt; rather, they are perceived as insoluble, like oil. The challenge in general even has a formal name in the field of behavioral economics known as narrow framing. This is the habit or blind spot that people tend to have when looking at investments as parts rather than as wholes—as line items rather than as overall portfolios. It's a small, harmless error by a wide‐eyed little boy seeing the workings of his grandpa's cuckoo clock for the first time; but for investors, it leads to incoherent and costly decisions.

Dopamine Nation: Finding Balance in the Age of Indulgence
by Anna Lembke
Published 24 Aug 2021

At first they begged and cajoled for a phone of their own, but after a while came to see this difference as a core part of their identity, along with our insistence that we bike instead of drive whenever possible, and spend time together as a family without devices. I’m convinced that our kids’ swim coach has a secret PhD in behavioral economics. He leverages sacrifice and stigma on a regular basis to strengthen club goods. First, there’s the prodigious time commitment, up to four hours a day of swim practice for kids in high school, and the covert shaming that happens when kids miss practice. There’s recognition and rewards for high attendance (not unlike AA’s token for thirty meetings in thirty days), including the opportunity to participate in travel meets.

Strategy: A History
by Lawrence Freedman
Published 31 Oct 2013

When the empirical work demonstrated strong and consistent patterns of behavior this might reflect the rational pursuit of egotistical goals, but alternatively these patterns might reflect the influence of powerful conventions that inclined people to follow the pack. Building upon Simon’s work, Amos Tversky and Daniel Kahneman introduced further insights from psychology into economics. To gain credibility, they used sufficient mathematics to demonstrate the seriousness of their methodology and so were able to create a new field of behavioral economics. They demonstrated how individuals used shortcuts to cope with complex situations, relying on processes that were “good enough” and interpreted information superficially using “rules of thumb.” As Kahneman put it, “people rely on a limited number of heuristic principles which reduce the complex tasks of assessing probabilities and predicting values to simpler judgmental operations.

…

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. These were not the same as experiments in the natural sciences which should not be context dependent.

…

The experiments employed to explore the degree of actual rationality reflected the preoccupations with a particular sort of choice, a type “with clearly defined probabilities and outcomes, such as choosing between monetary gambles.”28 It was almost by accident that as researchers sought to prove the rational actor models through experiments they came to appreciate the importance of social pressures and the value attached to cooperation. Within the complex social networks of everyday life, truly egotistical and self-regarding behavior was, in a basic sense, irrational. Attempts were made to recast formal theories to reflect the insights of behavioral psychology, in the guise of behavioral economics, but they made limited progress. The most important insight from the new research was that rather than studying individuals as more complex and rounded than the old models assumed, it was even more important to study them in their social context. Only a very particular view of rationality considered cooperation irrational and failed to understand why it made sense to make sacrifices to punish the uncooperative and free riders in order to uphold norms and sustain cooperative relationships.

The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse
by Mohamed A. El-Erian
Published 26 Jan 2016

The judgment and decision making of companies as well as governments were driven by traditional, familiar, and the comforting thought processes—the relatively easy option that involves analytical shortcuts and allows one to draw from past experiences. Unfortunately, this was not what was needed, and it didn’t work well. This phenomenon relates to the popular work of Daniel Kahneman, the psychologist who won a Nobel Prize for his contributions to behavioral economics—particularly as to how we tend to resort to two modes of thinking, and do so in quite an asymmetrical manner.2 A lot of the time, our automatic, intuitive mind (Daniel Kahneman calls it “System 1”)3 is in charge and for good reason, as it speaks to the characteristics of the world we normally operate in—one that is underpinned by the notion of comforting bell-shaped distribution of expected outcomes.

The Inner Lives of Markets: How People Shape Them—And They Shape Us
by Tim Sullivan
Published 6 Jun 2016

German POW camps, 10–13 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, 34 Sweden, market-like approach to education in, 151–152 Sword, Morgan, 99–100 talk-is-cheap expressions, 62–66 Tanaka, Masahiro, 99 tattoos, as gang markings, 61–62, 67–68 Tauson, Bob, 62 taxi drivers, Uber vs., 169–170, 172 technology, market friction and, 169–173 Tenney, Lester, 12–13, 176 “terms of service” agreements, 6 Theory of Games and Economic Behavior (Morgenstern and von Neumann), 25–27 Theory of Industrial Organization (Tirole), 117–118 There’s Something About Mary (movie), 172 Thiel, Peter, 173 third-party merchants, Amazon, 52 “Thirteen Reasons Why the Vickrey-Clarke-Groves Process Is Not Practical” (article), 99 Tietzel, Manfred, 90–91 Tiffany jewelry counterfeits, 52–53 time-interval auctions, 82 Tirole, Jean, 117–118 Torres, Robert, 61 Toshiba’s HD DVD format war, 125–126 traditional economics, 110, 133 Trafigura company, 168 two-sided markets, 108–112, 118–124 Uber, 2, 3, 5, 16, 50, 109, 111, 119, 125, 128, 129, 132, 169–173 unethical conduct, in competition, 180–181 uninformed parties, trade with, 166–169 unnetworked products, 121–122 US Department of War, 25 used car markets See lemon markets theory usury, 180 value debate on, 23 of person’s life, 166–167 van Hengel, John, 154–155 Vickrey, William, 84–87 Vickrey auctions example of, 87–89 Goethe’s precursor to, 89–92, 101 origin of, 83–84 problems with, 98–103 stamp collecting and, 82–84 versatility of, 92–97 Vickrey-Clarke-Groves algorithm, 93, 99 video game system platform, 116 Vieweg, Mr., 90–92, 101 Visa, 115 Vlascho, Jonas, 151–152, 174 von Neumann, John, 25–27 Wald, Abraham, 32 Wall Street game, 178–179 Walras, Léon, 20 warm glow hypothesis, 74–75 Wealth of Nations (Smith), 21 welfare principle, Pareto efficiency, 22 West Michigan Food Bank, 157, 160 Williams, Joseph, 113–114 Wilson, Robert, 102–103 wireless spectrum auction theory, 102–103 Woods, Percy P., 1–2 World War II Japanese and German POW camp treatment compared, 10–13 Prisoners of War Data File, 11 Stalag VII-A POW camp market, 7–10, 13 World Wide Web, 41–43 worldly philosophers, economists as, 21 write-in bids, for auctions, 84 Yellen, Janet, 44 yvonne9903, 52–54 Zelizer, Viviana, 153 Zhu, Feng, 128–129 Ziporyn, Terra, 42 Ray Fisman is the Slater Chair in Behavioral Economics at Boston University. Previously, he was Lambert Family Professor of Social Enterprise and codirector of the Social Enterprise Program at the Columbia Business School. He is the author of The Org, with Tim Sullivan, and Economic Gangsters, with Ted Miguel. Credit: Ray Fisman ©Jackie Ricciardi Tim Sullivan is the editorial director of Harvard Business Review Press and has worked at Basic Books, Portfolio, and Princeton University Press, where he helped build one of the most successful academic economics lists in the world.

Deep Work: Rules for Focused Success in a Distracted World
by Cal Newport
Published 5 Jan 2016

Her curiosity piqued, Gallagher set out to better understand the role that attention—that is, what we choose to focus on and what we choose to ignore—plays in defining the quality of our life. After five years of science reporting, she came away convinced that she was witness to a “grand unified theory” of the mind: Like fingers pointing to the moon, other diverse disciplines from anthropology to education, behavioral economics to family counseling, similarly suggest that the skillful management of attention is the sine qua non of the good life and the key to improving virtually every aspect of your experience. This concept upends the way most people think about their subjective experience of life. We tend to place a lot of emphasis on our circumstances, assuming that what happens to us (or fails to happen) determines how we feel.

Final Jeopardy: Man vs. Machine and the Quest to Know Everything
by Stephen Baker
Published 17 Feb 2011

He hadn’t run nearly as many numbers as the IBM team, but he knew that if one player missed a Final Jeopardy clue, it was probably a hard one, and the chances were much higher that others would miss it as well. Craig bolstered his Jeopardy studies with readings on evolutionary psychology and behavioral economics, including books by Dan Ariely and Daniel Kahneman. They reinforced what he already knew as a poker player: When it comes to betting, most people are scared of losing and bet too small. (In Jeopardy’s lingo, which some might consider sexist, timid bets are “venusian,” audacious ones, “martian.”)

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

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. Klarreich, “Best Guess,” 251, 253. 63. For an overview of optimistic bias, see Christine Jolls, “Behavioral Economics Analysis of Redistributive Legal Rules,” Vanderbilt Law Review 51 (1998): 1658–63. 64. Donald Granberg and Edward Brent, “When Prophesy Bends: The Preference-Expectation Link in U.S. Presidential Elections, 1952–1980,” Journal of Personality and Social Psychology 45 (1983): 479. 250 / Notes to Pages 132–38 65.

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

Marla Blow contrasted her prior experience at Capital One with the environment she’s working in now: “There’s just not that culture in large banks to really do a project and see if there’s a sign of life and then if there is, slowly add to it and grow it,” she says. “They weirdly have this idea that if something is not worth five billion dollars right out of the gate, then they’re not going to do it.” The products and services that innovators are bringing to market not only rely on new technology—they often leverage new research from fields like behavioral economics and psychology. Some innovations are designed explicitly to achieve a “double bottom line”—to make a profit for investors while also delivering better products at better prices to those who are not currently well served by the financial-services industry. Unlike the mega-banks that put profit above all else, many innovators are explicitly working to do well by doing good.

Shorter: Work Better, Smarter, and Less Here's How
by Alex Soojung-Kim Pang
Published 10 Mar 2020

We’re sitting in the meeting room in The Mix’s offices in Bermondsey, a southeastern London neighborhood whose Victorian-era mercantile exchanges and warehouses are now filled with creative workers. “The starting point of our business is ‘How can you understand people better?’ If you are at all interested in behavioral economics, which we are”—I glance over at the wall, at a picture of Princeton economist Daniel Kahneman photoshopped into a religious icon—“you will get fascinated by ‘Why do people do certain things? Why do they like certain things? What do they do when they go out into the markets?’ “Our whole business is about understanding people, and finding new ways of doing that that are allowing us to explore the edges of what it is to be a person in the world today,” she continues.

Uncanny Valley: A Memoir
by Anna Wiener
Published 14 Jan 2020

It did leave something to be desired. At a party in Noe Valley, I fell into an argument with an enthusiastic participant in the online rationality community. Rationalism was considered a truth-seeking movement, at least by its practitioners. In an effort to see the world more clearly, rationalists sampled from behavioral economics, psychology, and decision theory. They talked about argumentation techniques, mental models, and steel men, and deployed the language of science and philosophy: “On balance,” they would say, “on margin”: “n is net positive”—or “n is net negative,” “n is overrated,” “n is underrated.” I could get on board with truth-seeking, and as far as I could tell, rationality primarily offered frameworks for living that bordered on self-help.

Dual Transformation: How to Reposition Today's Business While Creating the Future
by Scott D. Anthony and Mark W. Johnson
Published 27 Mar 2017

But Bertolini and his leadership team believed that inexorable forces would lead to long-term industry transformation. Consumers were increasingly arming themselves with information from WebMD and related websites. Wearable technology created the possibility for more-advanced diagnostics and remote monitoring. Big data analytics and behavioral economics could change the face of prevention. As Bertolini and his leadership team sifted through these trends, three opportunities emerged. First, the company could shift from selling insurance policies and administrative services to large companies, which then provided them to their employees, to directly targeting consumers.

The War on Normal People: The Truth About America's Disappearing Jobs and Why Universal Basic Income Is Our Future
by Andrew Yang
Published 2 Apr 2018

In college, I learned about the efficient capital market hypothesis: stock market prices reflect all available information, and attempts to beat the market are going to be ineffective over time. Now, most every investment professional believes that this is grossly incorrect or at least incomplete given the financial crash, the rise of behavioral economics, the success of certain hedge funds, and the fact that trading firms are investing millions in having a faster pipe to the exchanges to front-run other traders. The labor market is assumed to be similarly high-functioning, too. That is, if someone gets fired or their job gets automated, they’ll find a new job that’s the right fit.

Cultish: The Language of Fanaticism
by Amanda Montell
Published 14 Jun 2021

They’re the same reasons you might put off a necessary breakup: denial, listlessness, social stresses, fear they might seek revenge, lack of money, lack of outside support, doubt that you’ll be able to find something better, and the sheer hope that your current situation will improve—go back to how it was at the start—if only you hold on a few more months, commit a fraction more. The behavioral economic theory of loss aversion says that human beings generally feel losses (of time, money, pride, etc.) much more acutely than gains; so psychologically, we’re willing to do a lot of work to avoid looking defeats in the eye. Irrationally, we tend to stay in negative situations, from crappy relationships to lousy investments to cults, telling ourselves that a win is just around the corner, so we don’t have to admit to ourselves that things just didn’t work out and we should cut our losses.

Birth of the Euro
by Otmar Issing
Published 20 Oct 2008

In so doing, it had to take account of the particular conditions of its start as a new institution and the complexity of the euro area. Its approach to communication was a very conscious decision, rejecting demands (above all for the publication 27 28 29 Information theory has developed numerous different approaches to this. See D. Kahneman, ‘Maps of bounded rationality: psychology for behavioral economics’, American Economic Review, 93 (2003). For an overview of the various instruments, channels and target groups and the practice at major central banks, see Issing, ‘Communication, transparency, accountability?. www.ecb.int/ecb/educational/html/index.en.html. Monetary policy and the exchange rate • 169 of voting records) that it considered wrong.

Testosterone Rex: Myths of Sex, Science, and Society
by Cordelia Fine
Published 13 Jan 2017

Olofsson, A., & Rashid, S. (2011). The white (male) effect and risk perception: Can equality make a difference? Risk Analysis, 31(6), 1016–1032. 37. Slovic, P., Finucane, M., Peters, E., & MacGregor, D. G. (2002). Rational actors or rational fools: Implications of the affect heuristic for behavioral economics. Journal of Socio-Economics, 31(4), 329–342. Quoted on p. 333. Confirmatory evidence was also found by Weber et al. (2002), ibid., who similarly found negative correlations between perceived risks and perceived benefits. 38. Flynn et al. (1994), ibid. Quoted on p. 1107. 39. Kahan (2012), ibid. 40.

The Drunkard's Walk: How Randomness Rules Our Lives
by Leonard Mlodinow
Published 12 May 2008

In the past few decades a new academic field has emerged to study how people make judgments and decisions when faced with imperfect or incomplete information. Their research has shown that when chance is involved, people’s thought processes are often seriously flawed. The work draws from many disciplines, from mathematics and the traditional sciences as well as cognitive psychology, behavioral economics, and modern neuroscience. But although such studies were legitimated by a recent Nobel Prize (in Economics), their lessons for the most part have not trickled down from academic circles to the popular psyche. This book is an attempt to remedy that. It is about the principles that govern chance, the development of those ideas, and the manner in which they play out in politics, business, medicine, economics, sports, leisure, and other areas of human affairs.

Who Gets What — and Why: The New Economics of Matchmaking and Market Design
by Alvin E. Roth
Published 1 Jun 2015

See also labor markets for college admissions, 5–6, 169, 170–73 in law firm recruiting, 65–68 signaling in, 169–73 strategic decision making in, 10–11 apps, 21–22 Arunta people, 71–72 Ashlagi, Itai, 48, 149, 239, 243, 244 auctions, 121–22, 180–89 ascending bid, 182, 184, 188–89 eBay, 104–5 first-price, 184–85 package bidding in, 188–89, 225–26 price discovery in, 185–89 sealed bid, 182–84 second-price sealed, 182–84 simultaneous ascending, 187–89 for spectrum licenses, 185–89 for targeted ads, 189–92 automatic teller machines, 24 Avery, Chris, 91, 239 BandwidthX, 105 bankruptcy, 201 banks and banking, 178, 200–201 banner ads, 191–92 barriers to entry, 24 barter kidney donation as, 31–32 repugnant markets and, 202–5 Becker, Gary, 245 behavioral economics, 52 Beran, Bob, 146 Beth Israel Deaconess Medical Center (Boston), 42 Bitcoin, 24 BlackBerry, 22 black markets, 207 blocking pairs, 139–43 Bloomberg, Michael, 106, 107 Bolton, Gary, 118, 240 Boston Globe, 126 Boston Pool Plan, 138 Boston Public Schools, 11, 122–28, 162–65. See also algorithms Bowl Championship Series, 63–64 boxing, 7 Brigham and Women’s Hospital (Boston), 42 British National Health Service, 140–41 Brown, Janice Rogers, 97 Budish, Eric, 82, 86, 88, 239, 246 Burns, Adele, 42 Burns, Jack, 42 busing, 166–67 California Penal Code, 195–97 Carnegie Mellon University, 180 Catholic Church, 207 cell phones, 186.

Simple Rules: How to Thrive in a Complex World
by Donald Sull and Kathleen M. Eisenhardt
Published 20 Apr 2015

Enter Farhan Zaidi, the A’s director of baseball operations since 2009, who was named assistant general manager in 2014. Zaidi’s background is rare by the standards of professional baseball. He is one of the few Muslims in the sport, grew up in the Philippines, and is Canadian. He also has a PhD in behavioral economics. But make no mistake, Zaidi is not just another quant jock. As his boss, Billy Beane, acknowledged, “Farhan could do whatever he wants to do, not just in this game, but in any sport or business. I’m more worried about losing him to Apple or Google than I am to another team.” Zaidi’s quantitative skills would prove essential as the A’s tried to reverse their decline.

The Perfect Bet: How Science and Math Are Taking the Luck Out of Gambling
by Adam Kucharski
Published 23 Feb 2016

Guardian, November 18, 2011. http://www.theguardian.com/uk/2011/nov/18/national-lottery-scratchcard-sales-boom. 26American state lotteries earn tens of billions: Scratchcards.org. “The Lottery Industry.” http://www.scratchcards.org/featured/57121/the-lottery-industry. 26To quote statistician William Gossett: Ziliak, Stephen. “Balanced Versus Randomized Field Experiments in Economics: Why W. S. Gosset aka ‘Student’ Matters.” Review of Behavioral Economics 1, no. 1–2 (2014): 167–208. http://dx.doi.org/10.1561/105.00000008. 26how the lottery keeps track: Lehrer, “Cracking the Scratch Lottery Code.” 26he’d known Bill Tutte: Yang, Jennifer. “Toronto Man Cracked the Code to Scratch-Lottery Tickets.” Toronto Star, February 4, 2011. http://www.thestar.com/news/gta/2011/02/04/toronto_man_cracked_the_code_to_scratchlottery_tickets.html. 26British mathematician who had broken the Nazi Lorenz cipher: William Tutte obituary.

Exponential Organizations: Why New Organizations Are Ten Times Better, Faster, and Cheaper Than Yours (And What to Do About It)
by Salim Ismail and Yuri van Geest
Published 17 Oct 2014

[In general, up to five objectives and four key results per initiative are optimal, and key results should see an achievement rate of 60 to 70 percent; if they don’t, the bar has been set too low.] ExOs have more than taken this technique to heart. Many are now implementing high-frequency OKRs—that is, a target per week, month or quarter for each individual or team within a company. Scientific results in neuroscience, gamification and behavioral economics have shown the importance of both specificity and frequent feedback in driving behavioral change and, ultimately, having an impact. Specificity and rapid feedback cycles energize, motivate and drive company morale and culture. As a result, a number of services, including OKR Hub, Cascade, Teamly and 7Geese, have been formed to help businesses track these measures.

The Doomsday Calculation: How an Equation That Predicts the Future Is Transforming Everything We Know About Life and the Universe
by William Poundstone
Published 3 Jun 2019

He traded futures contracts, meaning that he placed bets on the future prices of things like silver, cocoa, unleaded gas, and the Japanese yen. The actual commodity is the least important thing in commodity trading; all that matters are the ups and downs of its price. Successful trading is an exercise in behavioral economics, in predicting how fellow traders will fail to guess probabilities accurately. Eckhardt and Dennis often debated the origin of their wealth. Was it brains, luck, or something else? Dennis believed it was an algorithm. Their system boiled down to a few rules. It had taken creativity and hard work to devise their moneymaking recipe, but now that it existed, it could be implemented by anyone off the street.

Emotional Labor: The Invisible Work Shaping Our Lives and How to Claim Our Power
by Rose Hackman
Published 27 Mar 2023

Emotional labor may have been at the beginning of what we think of as civilization, but it also must be in our future, as we live more and more globally, collectively, as our planet feels smaller and smaller, as we as humans seek to survive. In a follow-up conversation, Chamorro-Premuzic confirmed that he was not using the phrase “rational society” to describe societies that believed that 2+2=4, in opposition to societies that believed 2+2=5. Rather, he was using the term in a behavioral economics context, where rational agents are described as those who maximize individual gains and profits regardless of collective impact. In a so-called rational society, if too many people act only out of self-interest, say if no individual or corporation recycles, the planet collapses—for everyone.

Heads I Win, Tails I Win
by Spencer Jakab
Published 21 Jun 2016

Some exceptionally bright people who understand investing foibles far better than I do still are prone to money mistakes, particularly near market extremes when most of the damage is done to our portfolios. Take Daniel Kahneman, the psychologist who won the Nobel Prize in Economics for his pioneering work in behavioral economics whom I’ve mentioned throughout this book. I was amused to read a recent interview with him about his own financial decisions. He said that even though he knows all about cognitive errors—heck, he discovered many of them—he continues to make those mistakes again and again with his own portfolio.

The Man Who Knew: The Life and Times of Alan Greenspan
by Sebastian Mallaby
Published 10 Oct 2016

Investors were mainly rational—they responded to real events with real business consequences, whether these were technological breakthroughs from industrial laboratories or policy proposals from Congress. But investors filtered such news through their own moods and emotions; their judgments were too slippery and fragile to be called efficient. Anticipating the findings of behavioral economics in the 1970s and 1980s, Greenspan noted that lurches toward fear were generally more sudden and dramatic than lurches toward confidence. Markets could crash instantly, triggered by a modest shift in fundamentals. In contrast, bubbles inflated only gradually.37 If markets could be irrational, how could an observer know when they were overshooting?

…

As illustrated repeatedly in this book, the common view of Greenspan as a believer in efficient markets is mistaken. He believed that markets are efficient to a first order of approximation, which they are; he never believed they were perfectly efficient or, for that matter, stable. After retiring from the Fed, Greenspan announced a conversion to behavioral economics, implying that he had previously viewed investors as rational. But he had actually seen markets as prone to overshooting since the 1950s. As will be argued later in this book, it is hard to take his supposed conversion at face value. 67. Senate Committee on Banking, Housing, and Urban Affairs, Testimony by Alan Greenspan, Chairman, Board of Governors of the Federal Reserve System Before the Committee on Banking, Housing, and Urban Affairs, 100th Cong., 2nd sess., 1988. 68.

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Congress, 522–23, 525 under Volcker, 283–85, 298–99 See also deregulation; Glass-Steagall Act; Regulation Q caps BankAmerica, 526 Bankers Club, 43–44, 81 Bankers Trust, 313, 442, 466–70, 619–20 banking “free,” 90–91 reform, 9, 403–10, 522–23, 525, 558–60, 678–79 system, 90–92, 285, 302, 397–98, 407, 558 Banking Act of 1933, 312 bankruptcy, 195–200, 233, 282–85, 300, 343, 377, 383–85, 397, 465–68, 476, 501, 515, 531, 598, 601, 654, 660–61, 676 bankruptcy code, 205 banks, 48, 264, 442 and 1987 crash, 351, 354–57, 359–60, 520 and 1990–91 recession, 413–14 assets of, 92, 362, 413, 539 attract savings to, 136, 148, 303 and bond trading, 442 capital cushions of, 301–4, 628, 663, 670 commercial, 312–13, 315, 631–32 community, 408–9, 582–83, 636 and customer disclosure, 205 failure of, 239, 304, 343, 383, 385, 397, 403, 406, 536–44, 558, 628, 631, 654–60 first electronic run of, 297, 662 foreign, 313, 517–18, 587, 594 global, 314, 342 and Greenspan, 211, 304, 407–9, 467, 662 issue private money, 90–91 lending of, 47–48, 92, 136, 297, 312–13, 351, 381, 394, 403–4, 406, 414, 450, 469, 522 mergers of, 313, 320, 323, 368, 522–26, 530, 535, 541–42, 558–60 and money supply, 232 and mortgages, 218, 294–96 private, 90–91, 328 public shaming of, 467–68 reckless lending of, 472, 541–43, 663–64, 667 regional, 149, 282–83, 328, 330 and securities, 311–14, 321, 403, 522, 525, 559, 628 and Sept. 11, 2001, 584, 586–87 shadow, 151, 631–32, 662–64, 675, 678 and South Korean crisis, 515, 518–21 state, 406 “too big to fail”, 301, 313–14, 320, 362, 408–9, 470, 472, 558–59, 628, 670 trading of, 465, 468 universal, 312, 314, 523, 525 Barron’s, 74, 130 Basel, Switzerland, 4, 583, 631 Beame, Abraham, 196, 199 Bear Stearns, 631, 654, 656–60, 662, 664 behavioral economics, 56, 360–61 Belgrade, Yugoslavia, 228–31, 381 Benchley, Peter, 223 Bentsen, Lloyd, 424–26, 429, 440, 458 Berkeley business school, 537, 540 Bernanke, Ben, 339, 363–64, 413–14, 442 appointed to Fed board, 611–12 on falling house prices, 675–76 on FOMC communications, 612–13, 643 as Greenspan’s successor, 553, 632, 648, 652, 670 Jackson speech of, 552–56, 558, 611 on “savings glut,” 641 on targeting inflation, 553–55, 611–13 Berry, John, 388 Biden, Joe, 158–60, 176 big business, 74–75, 78, 86, 314, 361, 408–9, 442, 526, 674 big government, 575, 674 big labor, 78, 86 black capitalism, 116–17 Black Monday, 345–63, 366, 371–73, 378, 380, 386, 388, 393, 414, 439, 448, 473, 586, 590 Blair House, 279–80 Blinder, Alan, 423–24, 426, 446–51, 456–58, 461–63, 484, 506, 555, 611, 646–47, 680 Boehne, Ed, 377–78 The Bogey of Economic Maturity (Terborgh), 33 bond market, 47, 300, 420, 430–33, 436, 440–42 booms, 496 bubbles, 433–35, 443–45, 642 crash, 444–45, 448, 450, 461, 497, 642, 683 and the Fed, 612, 654 Greenspan on, 640, 683 and interest rates, 495, 551 rise in, 546, 561 and Sept. 11, 2001, 587 bonds, 148, 214, 219, 312, 362, 466, 472, 536, 539 decline in, 342, 393 dollar-dominated, 149, 151, 268 federal, 40, 42, 92, 264, 300, 441–42, 524, 633, 641 gold, 267–69 high-yielding, 129, 385 inflation-proof, 269 and interest rates, 219, 257, 502 junk, 385–88, 394 and NYC bailout, 196, 198–200 rates of, 420–21, 426–27, 430–34, 440, 443, 495, 634 trading in, 420, 423, 441–42 See also hedge funds Born, Brooksley, 531–36, 538, 542, 544–45, 559, 660, 663, 666 borrowing, 196, 218, 524, 616, 633, 643, 660 and 1990–91 recession, 413–14 of banks, 559, 634, 636 by conglomerates, 135–36 cost of, 41, 77, 264, 311, 379, 393, 420, 423, 427, 435, 437, 441, 444, 450, 554, 597, 601, 634 and credit checks, 617–19, 622 decline in, 400, 432–33 and the Fed, 328 of foreign countries, 282–85, 287, 514 government, 171, 233, 264, 421, 432–33, 441–42 imprudent, 621–25 increase in, 47–48, 53, 129, 208–10, 496–97, 606, 614 by low-income people, 619, 622 lowest rates of, 416 risky, 604–5 and stock market crash, 347–48, 356, 363 Boskin, Michael, 383, 411–12 Boston Federal Reserve, 372, 385, 395, 431, 495, 500, 550, 563, 633 Bosworth, Barry P., 451 Bradfield, Michael, 348, 353–54, 360 Brady, Nicholas, 375, 377, 384, 400–406, 408, 410–12, 415, 429, 572 Branden, Barbara, 65, 69 Branden, Nathaniel, 65–66, 69, 79, 82, 85–86, 89–90, 112 Brash, Donald, 455–57 Brazil, 234, 540 Bretton Woods conference, 145, 183–84, 191 Brinkley, David, 337–39, 342 British Embassy, 179, 410 Broaddus, Al, 540 Brookings Institute, 203, 214, 221, 451, 632, 670 Brown Brothers Harriman, 34–35, 210 Brown, Edmund, 96 Brown, Gordon, 645, 648–49, 651 Brown, Jerry, 203, 224 Bryan, William Jennings, 111–12, 503 Buchanan, Pat, 102–3, 107–8, 110–12, 117–22, 677 Buckley, William F.

The WEIRDest People in the World: How the West Became Psychologically Peculiar and Particularly Prosperous
by Joseph Henrich
Published 7 Sep 2020

At the time, 96 percent of experimental participants were drawn from northern Europe, North America, or Australia, and about 70 percent of these were American undergraduates. Psychological diversity: Psychological differences between populations appeared in many important domains, indicating much greater variation than one might expect from reading the textbooks or major journals in either psychology or behavioral economics. Psychological peculiarity: When cross-cultural data were available from multiple populations, Western samples typically anchored the extreme end of the distribution. They were psychologically weird. Taken together, these three findings meant that almost everything we—scientists—knew about human psychology derived from populations that seemed to be rather unusual along many important psychological and behavioral dimensions.

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Despite actively and energetically promoting the Church’s incest taboos, both Merovingian and Carolingian rulers were polygynous. Charlemagne had 10 known primary and secondary wives. 54.  Herlihy, 1995; Todd, 1985. 9. Of Commerce and Cooperation   1.  For the Montesquieu and Paine quotations, see Hirschman, 1982.   2.  Henrich, 1997; Henrich and Henrich, 2007.   3.  For an introduction to behavioral economics, see Camerer (2003). The game-theoretical analysis also assumes that individuals believe that everyone else is a rational selfish maximizer, too.   4.  These patterns arise from nonstudent adults in WEIRD societies (Ensminger and Henrich, 2014; Henrich et al., 2004). Most experiments, however, have been done among university students, who make lower offers and are generally less prosocial (Bellemare, Kröeger, and Van Soest, 2008).   5.  

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

But people have been infected by E. coli from eating the raw dough, and so it is now pretreated with a “kill step” before being packaged and shipped. These examples show how the industry copes not just with the danger posed by its own practices, but with the danger customers pose to themselves. Why do we go to such lengths to create this sense of certainty? The answer can be found in behavioral economics, an amalgam of traditional economics and psychology that in recent decades has yielded valuable insights into bubbles and panics. The main finding of this research is that people evaluate risks quite differently than the idealized “economic man” would. Consider, for example, the following test.

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

E., Goldstein, D.G., Sharpe, W. F., Fox, J., Yeykelis, L., Carstensen, L .L. and Bailenson, J. N., ‘Increasing Saving Behavior Through Age-Progressed Renderings of the Future Self’, Journal of Marketing Research 48 (supp.) (2011): S23–37. 22www.acorns.com 23Thaler, R. and Benartzi, S., ‘Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving’, Journal of Political Economy 112 (supp.) (2004): S164–87 24Salthouse, T., ‘Executive Functioning’, in Park, D. C. and Schwarz, N. (eds), Cognitive Aging: A Primer, 2nd edn (Psychology Press, 2008). 25Bernheim, D., Shleifer, A. and Summers, L., ‘The Strategic Bequest Motive’, Journal of Political Economy 93 (1985): 1045–76. 26Although clearly aspects of the strategic bequest motive have always been in operation.

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

Dan Wegner, one of psychology’s most creative minds and its biggest goofball, pushed me to write this book and then told me how to do it. Sadly, he died before I was able to finish it. I hope he would have been proud of what he made me do. And Dick Thaler has nudged, and sometimes shoved, me to make the right decision every time I’ve asked him (which is probably not often enough). Few people know that the Father of Behavioral Economics is also the fairy godmother. I developed the idea for this book while on sabbatical at the Center for Advanced Studies in the Behavioral Sciences at Stanford University, where my family and I truly spent the best year of our lives. The University of Chicago Booth School of Business funded that sabbatical.

The End of College: Creating the Future of Learning and the University of Everywhere
by Kevin Carey
Published 3 Mar 2015

By 2014, edX was offering hundreds of free online courses in subjects including the Poetry of Walt Whitman, the History of Early Christianity, Computational Neuroscience, Flight Vehicle Aerodynamics, Shakespeare, Dante’s Divine Comedy, Bioethics, Contemporary India, Historical Relic Treasures and Cultural China, Linear Algebra, Autonomous Mobile Robots, Electricity and Magnetism, Discrete Time Signals and Systems, Introduction to Global Sociology, Behavioral Economics, Fundamentals of Immunology, Computational Thinking and Data Science, and an astrophysics course titled Greatest Unsolved Mysteries of the Universe. Doing this seemed to contradict five hundred years of higher-education economics in which the wealthiest and most sought-after colleges enforced a rigid scarcity over their products and services.

Leading From the Emerging Future: From Ego-System to Eco-System Economies
by Otto Scharmer and Katrin Kaufer
Published 14 Apr 2013

It’s a mission-critical process for millions of institutions and enterprises that is being facilitated by leaders, change-makers, coaches, and consultants. Despite their practical relevance, consciousness and awareness are not variables in the framework of mainstream economics and management. They are a blind spot. With the notable exception of some recent work in behavioral economics, economic theory has built models of competition and transactions based on assumptions about given preferences. Little knowledge is being developed or attention being paid to the conditions that allow a system to shift from one state of operating to another—for example, from ego-system awareness to eco-system awareness.

Learn Algorithmic Trading
by Sebastien Donadio
Published 7 Nov 2019

In this race to get the biggest part of the pie first, it is important to know the basic foundation of analysis in order to create trading strategies. When predicting the market, we mainly assume that the past repeats itself in future. In order to predict future prices and volumes, technical analysts study the historical market data. Based on behavioral economics and quantitative analysis, the market data is divided into two main areas. First, are chart patterns. This side of technical analysis is based on recognizing trading patterns and anticipating when they will reproduce in the future. This is usually more difficult to implement. Second, are technical indicators.

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

In fact, without recourse to the economist’s toolkit, we cannot even begin to make sense of the crisis. What, for example, is the link between China’s decision to accumulate large amounts of foreign reserves and a mortgage lender in California taking excessive risks? It is impossible to decipher such interrelationships without relying on elements from behavioral economics, agency theory, information economics, and international economics. The academic literature is chock-full of models of financial bubbles, asymmetric information, incentive distortions, self-fulfilling crises, and systemic risk. Pretty much everything needed to explain the crisis and its aftermath was in the research journals!

Infonomics: How to Monetize, Manage, and Measure Information as an Asset for Competitive Advantage
by Douglas B. Laney
Published 4 Sep 2017

Quantifying an information asset’s potential or probable or actual value provides us useful indicators to prove or justify ways to improve how we manage and monetize it. But such models fall short of telling us how information behaves or how we can bend its behavior to our benefit. For this we must turn to the field of economics. Although designed for traditional goods and services and human behavior, economic principles and models can be applied to information assets as well—with some tweaking. In the next chapter, we’ll examine how certain economic concepts can provide guidance to CDOs and other information leaders, along with business, enterprise, and application architects, by substituting the concept of information assets into established economic models.

Late Bloomers: The Power of Patience in a World Obsessed With Early Achievement
by Rich Karlgaard
Published 15 Apr 2019

By turning indignity into commitment, these processes combine our intense desire to belong with our intense desire to justify our actions. Yet refusing to abandon our investment in a college major, a job, or a path that’s not right for us can be costly. For every moment we double down on something that’s not working, we’re forgoing other potentially valuable opportunities. As behavioral economics and psychology show us, the real waste is not in sacrificing our past by quitting a failing endeavor. It is in sacrificing our future by not pursuing something better. * * * Call it a strategic retreat. Think of it as a pivot or a rebirth. For those who are cardplayers, think of it as “knowing when to fold ’em.”

Deep Value
by Tobias E. Carlisle
Published 19 Aug 2014

This observation is now so well-accepted as to be known as The Golden Rule of Predictive Modeling.64 Rory Sutherland, the vice-chairman of Ogilvy Group UK—the advertising agency founded by David Ogilvy, who was an early advocate of quantification and research in advertising—is a self-described champion of the application of behavioral economics in advertising. Sutherland believes that we are more likely to follow simple, absolute rules—“if X, then Y”—that work 142 DEEP VALUE with our nature than others that are subtle, and require a “continuous exercise of self-restraint:”65 Let’s consider the old rule of restricting yourself to a maximum number of units of alcohol a week.

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

Amos Tversky and Eldar Shafir (1992), “Choice Under Conflict: The Dynamics of Deferred Decision,” Psychological Science 3: 358–61. 5 Decided to eliminate submission deadlines. The Economic and Social Research Council example is from Colin Camerer, et al. (2003), “Regulation for Conservatives: Behavioral Economics and the Case for ‘Asymmetric Paternalism,’ ” University of Pennsylvania Law Review 151: 1211–54. 6 Partitioning study. The cookie study is from Dilip Soman and Amar Cheema, “The Effects of Partitioning on Consumption,” Rotman, Spring 2008, pp. 20–24. The day-laborer study is from Dilip Soman, “Earmarking Money,” Rotman, Fall 2009, pp. 96–98. 7 Mental budgets and escalation.

Private Equity: A Memoir
by Carrie Sun
Published 13 Feb 2024

I felt a compulsion to go into a field where I’d belong, where my sangfroid would be not only welcomed but also rewarded: finance. Which happened to satisfy my middle- and high-school interests and my need to be independent from my parents as quickly as possible. I vowed I would never again allow myself to be trapped. I turned my incompletes into grades, took extra classes, did behavioral economics research, and fell in love, at the start of sophomore year, with a man whom I ended up dating for three years. He was eight years older than me. He told me he had heard of my reputation, had even been warned by others to stay away, but he believed me and my story without asking me to explain myself (he’d been a soccer player at MIT and knew the culture, he’d said) and I fell instantly for him.

Rationality: From AI to Zombies
by Eliezer Yudkowsky
Published 11 Mar 2015

For further reading I recommend Slovic’s fine summary article, “Rational Actors or Rational Fools: Implications of the Affect Heuristic for Behavioral Economics.”7 * 1. Christopher K. Hsee and Howard C. Kunreuther, “The Affection Effect in Insurance Decisions,” Journal of Risk and Uncertainty 20 (2 2000): 141–159, doi:10.1023/A:1007876907268. 2. Kimihiko Yamagishi, “When a 12.86% Mortality Is More Dangerous than 24.14%: Implications for Risk Communication,” Applied Cognitive Psychology 11 (6 1997): 461–554. 3. Paul Slovic et al., “Rational Actors or Rational Fools: Implications of the Affect Heuristic for Behavioral Economics,” Journal of Socio-Economics 31, no. 4 (2002): 329–342, doi:10.1016/S1053-5357(02)00174-9. 4.

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Like nearly all AGI wannabes, Eliezer2001 thought in terms of techniques, methods, algorithms, building up a toolbox full of cool things he could do; he searched for tools, not understanding. Bayes’s Rule was a really neat tool, applicable in a surprising number of cases. Then there was my initiation into heuristics and biases. It started when I ran across a webpage that had been transduced from a Powerpoint intro to behavioral economics. It mentioned some of the results of heuristics and biases, in passing, without any references. I was so startled that I emailed the author to ask if this was actually a real experiment, or just anecdotal. He sent me back a scan of Tversky and Kahneman’s 1973 paper. Embarrassing to say, my story doesn’t really start there.

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Frog Books, 1995. Slovic, Paul. “Numbed by Numbers.” Foreign Policy (March 2007). http://foreignpolicy.com/2007/03/13/numbed-by-numbers/. Slovic, Paul, Melissa Finucane, Ellen Peters, and Donald G. MacGregor. “Rational Actors or Rational Fools: Implications of the Affect Heuristic for Behavioral Economics.” Journal of Socio-Economics 31, no. 4 (2002): 329–342. doi:10.1016/S1053-5357(02)00174-9. Smith, Edward Elmer. Second Stage Lensmen. Old Earth Books, 1998. Smith, Edward Elmer, and Ric Binkley. Gray Lensman. Old Earth Books, 1998. Smith, Edward Elmer, and A. J. Donnell. First Lensman.

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

A consumption tax would damp down the futile arms race for ever more lavish cars, houses, and watches and compensate people with resources that provably increase happiness, such as leisure time, safer streets, and more pleasant commuting and working conditions. Finally, Darwinian leftists have been examining the evolutionary psychology of economic inequality. The economists Samuel Bowles and Herbert Gintis, formerly Marxists and now Darwinians, have reviewed the literature from ethnography and behavioral economics which suggests that people are neither antlike altruists nor self-centered misers.57 As we saw in Chapter 14, people share with others who they think are willing to share, and punish those who are not. (Gintis calls this “strong reciprocity,” which is like reciprocal altruism or “weak reciprocity” but is aimed at other people’s willingness to contribute to public goods rather than at tit-for-tat exchanges.)58 This psychology makes people oppose indiscriminate welfare and expansive social programs not because they are callous or greedy but because they think such programs reward the indolent and punish the industrious.

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The evocative significance of kin terms in patriotic speech. In V. Reynolds, V. Falger, & I. Vine (Eds.), The sociobiology of ethnocentrism. London: Croon Helm. Jones, O. 2000. Reconsidering rape. National Law Journal, February 21, A21. Jones, O. 2001. Time-shifted rationality and the Law of Law’s Leverage: Behavioral economics meets behavioral biology. Northwestern University Law Review, 95, 1141–1205. Jones, O. D. 1997. Evolutionary analysis in law: An introduction and application to child abuse. North Carolina Law Review, 75, 1117–1242. Jones, O. D. 1999. Sex, culture, and the biology of rape: Toward explanation and prevention.

The Misbehavior of Markets: A Fractal View of Financial Turbulence
by Benoit Mandelbrot and Richard L. Hudson
Published 7 Mar 2006

Reality: People simply do not think in terms of some theoretical utility measurable in dollars and cents, and are not always rational and self-interested. The refutation of this one assumption of modern financial theory has in the past twenty-five years created a fertile new field of inquiry, called behavioral economics. It studies how people misinterpret information, how their emotions distort their decisions, and how they miscalculate probabilities. For instance, suppose you offer somebody a choice: They can flip a coin to win $200 for heads and nothing for tails, or they can skip the toss and collect $100 immediately.

Hacking Growth: How Today's Fastest-Growing Companies Drive Breakout Success
by Sean Ellis and Morgan Brown
Published 24 Apr 2017

A wealth of fascinating research has provided powerful insights into the psychology of why people make purchases that growth teams can use as inspirations for experiments to increase earnings. Daniel Kahneman, the Nobel Prize–winning psychologist who has studied and written extensively about behavioral economics, shared many such insights in his book Thinking, Fast and Slow. Similarly, economist Daniel Ariely covers eye-opening experiments he has conducted about how consumers make purchasing decisions, such as we saw earlier with The Economist subscription example in his book Predictably Irrational.

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

Because the things we own can help define who we are, buying 1989 identifies you, both to others and to yourself, as a Taylor Swift fan in a way that a Spotify playlist might not. That, in turn, helps transform casual listeners into the sort of fans who can sustain an artist’s career. The value we place on ownership also finds support from the field of behavioral economics. Over the past twenty-five years, dozens of experiments have established what researchers call the endowment effect—the widespread tendency of people to assign greater value to things they own. In one well-known example, researchers gave some participants coffee mugs. When presented the opportunity to sell or trade their mugs to other participants, mug owners demanded nearly twice as much compensation as nonowners were willing to pay.34 Subjectively, they valued the mugs they owned well above the market rate.

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. So I should guess 33. At this point, I’m feeling pretty pleased with myself.

The Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do About It
by Ian Goldin and Mike Mariathasan
Published 15 Mar 2014

The high degree of integration and interconnectedness across the financial system calls not only for vertical regulation but also for horizontal regulation across all silos of governance. The good news is that financial regulators are beginning to acknowledge the value of simplicity in regulation. Drawing on behavioral economics work, Andrew Haldane made the issue of complexity a central one in global financial regulation in his 2012 speech at the annual Jackson Hole Symposium.90 This constitutes an important step in the right direction. In our view, it is not only regulators that need to become aware that growing complexity cannot be fought with ever more complex rules but also managers and others, who should allow themselves to rely more on basic ethics and intuition.

Present Shock: When Everything Happens Now
by Douglas Rushkoff
Published 21 Mar 2013

John Hagel, “The 2011 Shift Index: Measuring the Forces of Long-Term Change,” Deloitte & Touche—Edge Report, 2011, www.deloitte.com/us/shiftindex. 22. See my book Life Inc. (New York: Random House, 2009), 120. 23. Liz Moyer, “Fund Uses Behavioral Finance to Find Value Plays,” CBS MarketWatch, June 28, 2011, www.marketwatch.com. 24. Uttara Choudhury, “Behavioral Economics has Never Been Hotter,” Braingainmag.com. 25. Robert D. Manning, Credit Card Nation: The Consequences of America’s Addiction to Credit (New York: Basic Books, 2000). 26. “Corelogic Reports Negative Equity Increase in Q4 2011,” BizJournals, March 1, 2012, http://assets.bizjournals.com/orlando/pdf/CoreLogic%20underwater%20mortgage%20list.pdf.

Time Paradox
by Philip G. Zimbardo and John Boyd
Published 1 Jan 2008

This book is about a puzzle that many thinkers have pondered over the last two millennia, and it uses their ideas (and a few of my own) to explain why we seem to know so little about the hearts and minds of the people we are about to become. The story is a bit like a river that crosses borders without benefit of passport because no single science has ever produced a compelling solution to the puzzle. Weaving together facts and theories from psychology, cognitive neuroscience, philosophy, and behavioral economics, this book allows an account to emerge that I personally find convincing but whose merits you will have to judge for yourself. Writing a book is its own reward, but reading a book is a commitment of time and money that ought to pay clear dividends. If you are not educated and entertained, you deserve to be returned to your original age and net worth.

Lectures on Urban Economics
by Jan K. Brueckner
Published 14 May 2011

An experimental program called Moving to Opportunity (MTO) tried to overcome these effects by relocating some public-housing residents to subsidized dwellings in nonpoor neighborhoods. Because the residents were chosen randomly, the effects of a better neighborhood on various household behavioral outcomes (mental health, risky youth behavior, economic self-sufficiency of adults) can be measured without concerns about self-selection. These concerns would be present, for example, if only those households with the strongest capacities to achieve better outcomes had signed up for the relocation program. According to Kling, Liebman, and Katz (2007), the effects of living in a better neighborhood aren’t as pronounced as might have been expected.

Keeping at It: The Quest for Sound Money and Good Government
by Paul Volcker and Christine Harper
Published 30 Oct 2018

I recall one of the new deans, a respected economist from another university. Knowing of my interest, he visited me in New York and asked a simple question: “What is public administration all about?” Then: “Should we be hiring psychologists?” (I don’t think he had in mind the now fashionable behavioral economics.) A new dean apparently absent any sense of mission or real interest epitomized my concern. In a memorandum to Harold Shapiro, who succeeded Bill Bowen as Princeton’s president in 1988, I objected forcibly to the lack of attention to the core mission of public affairs and management. Whether by coincidence or otherwise, I later learned that Princeton’s provost had herself initiated a review of the school—not by the usual accrediting body, but by a special three-man committee of outside experts.

Messing With the Enemy: Surviving in a Social Media World of Hackers, Terrorists, Russians, and Fake News
by Clint Watts
Published 28 May 2018

The only two constants during my professional career have been curiosity and contempt for bureaucracy. When I learn new skills or read something intriguing, I don’t say, Oh, that’s interesting. I think, How I can use this? I read as much as I can, and I find myself drawn to books about personality types, behavioral economics, and machine learning as much as militant Islam and Soviet espionage. If I’m not learning and the daily work gets routine, I quickly get restless. I’m not disrespectful—I do what I’m told, follow the boss’s orders, and hit my marks. But internally, my mind drifts and I start trying to figure out new ways to do something, or dream up elaborate pranks on my colleagues.

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

“They just drove a lot”: Ibid. Even a hint of caution: Scott Campbell, Jr., “Making ‘The Deadliest Catch’ Less Deadly,” Wall Street Journal, November 14, 2011. “You know that a fisherman”: Jenkins, “Most Cooked-Up Catch.” “the greatest unknown policy”: Eric Pooley, “How Behavioral Economics Could Save Both the Fishing Industry and the Oceans,” Harvard Business Review, January 24, 2013. “the biggest environmental scandal”: Christopher Booker, “The Clean Development Mechanism Delivers the Greatest Green Scam of All,” Telegraph, August 28, 2010. Five years into the trading program: Mark Schapiro, “ ‘Perverse’ Carbon Payments Send Flood of Money to China,” Yale Environment 360, December 13, 2010.

Reimagining Capitalism in a World on Fire
by Rebecca Henderson
Published 27 Apr 2020

So I started reading the Upanishads, the Bhagavad Gita, went to retreats, learned some chanting, studied some Sanskrit, and was like, “This is like amazing.”11 In response, he began to drastically reconfigure Aetna’s strategy. He hoped to use Aetna to transform his members’ health care by making it much more personal and much more connected. He set up two distinct initiatives. The first was the creation of a leading-edge digital platform built on big data and world-class behavioral economics. The platform would not only simplify the way in which Aetna’s members interacted with Aetna (a major pain point in the current business) but also offer a range of applications that would support Aetna’s members in taking care of their own health in real time. In the United States, for example, 20 to 30 percent of medication prescriptions are never filled and approximately half of all the medications prescribed for chronic disease are never taken.12 This leads to approximately 125,000 deaths a year13 and increases health care costs by between $100 billion and $289 billion annually.14 One senior member of Mark’s team described the way in which the platform might help fix this problem: A simple thing that we can do is institute a reminder program, and specifically target members during the first six prescription fills.

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

In January 1999, he forecast that the Nikkei index would soon recover from some fourteen years of doldrums, rebounding by 50 percent by the end of that year—which it did. His financial research culminated in the 2003 book Why Stock Markets Crash: Critical Events in Complex Financial Systems. An astonishing high-wire act of historical market analysis, the book applies concepts taken from complexity theory, fractal geometry, network theory, behavioral economics, evolutionary biology, chaos theory, the study of earthquakes, and more to the study of bubbles and crashes. As he had first argued in his 1995 paper with Bouchaud, bubbles begin rationally, with investors purchasing a stock in a company they believe will grow earnings in the future. More buyers come in, causing more buyers to join, chasing and pushing prices higher and higher, leading to an irrational herding effect that inflates the bubble.

50 Psychology Classics
by Tom Butler-Bowdon
Published 14 Oct 2007

That is, we spend most of our time doing things that we hope will make us happy in the future, but our understanding of that future and how we will feel when we get there is far from reliable. Though people have been puzzling over the question of foresight for thousands of years, Gilbert claims that Stumbling on Happiness is the first book to bring together ideas from psychology, neuroscience, philosophy, and behavioral economics to provide an answer. This is quite a complex area of psychology in which the author is pre-eminent, yet he spins the material into a fascinating and often fun read. With a style reminiscent of Bill Bryson, there are at least one or two chuckles per page. Anticipation machines Gilbert notes that most psychology books have somewhere in them the phrase, “Human beings are the only animals that…” In his case, he fills in the sentence by saying that we are the only animals that are able to think about the future.

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

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.

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

Despite our evolved brains, despite our ability to argue and think in abstract ways, despite the amazing power of our neocortex, our innermost feelings are still at the base of our behavior. Neurological observations indicate that instinctive areas of the brain are active most of the time. Our nervous system is constantly at the mercy of neurotransmitters and hormones that determine levels of emotional responses. Observations from experimental psychology and behavioral economics show that people do not always try to maximize present or future profits. Rational expectations, once thought of as the main characteristic of Homo economicus, are not neurologically sustainable anymore. Sometimes people want only to satisfy a desire right here, right now, no matter what. Human beings do have unique rational capacities.

Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever
by Robin Wigglesworth
Published 11 Oct 2021

See also iShares Grauer’s departure, 192–93, 195 Barrickman, Josh, 261 Barron’s, 60, 283 Basu, Sanjoy, 154 Batterymarch Financial Management, 66–68, 78–80, 81, 106 Batterymarch Market Portfolio, 67–68, 78 Battle of the Nile, 103–4, 126 Battle of Waterloo, 92 Bay of Pigs Invasion, 96 BBVA (Banco Bilbao Vizcaya Argentaria), 253n bear markets, 11, 67, 82, 84, 96, 97, 277n “beat the market,” 2, 3, 5, 7 Beautiful Mind, A (film), 43 Bebchuk, Lucian, 298 behavioral economics, 154–55 “Behavior of Stock-Market Prices, The” (Fama), 48–50 Bell, Alexander Graham, 83 Belle Époque Paris, 20, 22 Bellevue Hospital, 90–91 Bennett, Benjamin, 254 Berkshire Hathaway, 1, 267n, 295 annual meetings, 9 2006, 1–2, 3 2009, 11 2010, 11 2017, 12–14, 19 Berlin, Isaiah, 88 Bernstein, Peter, 41, 69, 77n, 82 Bezos, Jeff, 9 BGI.

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

Experience and memory Some psychologists have called into question the very notion that there is one self whose preferences are sovereign in the way that Harsanyi’s principle of preference autonomy suggests. Most prominent among these psychologists is my former Berkeley colleague Daniel Kahneman. Kahneman, who won the 2002 Nobel Prize for his work in behavioral economics, is one of the most influential thinkers on the topic of human preferences. His recent book, Thinking, Fast and Slow,43 recounts in some detail a series of experiments that convinced him that there are two selves—the experiencing self and the remembering self—whose preferences are in conflict.

The Deep Learning Revolution (The MIT Press)
by Terrence J. Sejnowski
Published 27 Sep 2018

Brain imaging, and especially noninvasive functional magnetic resonance imaging (fMRI), has opened up new ways to study social interactions and decision making, spawning a new field called “neuroeconomics.”16 Because humans are not the rational actors often assumed in classical economics, we need to build a behavioral economics based on actual not Nature Is Cleverer Than We Are 255 idealized human judgment and motivation as these emerge from complex internal brain states.17 As noted in chapter 10, dopamine neurons have a powerful influence on motivation by representing reward prediction error. Brain imaging of social interactions has probed human motivation in ways that purely behavioral experiments could not.

Don't Be Evil: How Big Tech Betrayed Its Founding Principles--And All of US
by Rana Foroohar
Published 5 Nov 2019

Lynn and Lina Khan, “The Slow-Motion Collapse of American Entrepreneurship,” Washington Monthly, July/August 2012. 19. “The Next Capitalist Revolution,” The Economist, November 15, 2018. 20. David Carr, “How Good (or Not Evil) Is Google?” The New York Times, June 21, 2009. 21. Adam Candeub, “Behavioral Economics, Internet Search, and Antitrust,” ISJLP 9, no. 407 (2014), https://digitalcommons.law.msu.edu/​cgi/​viewcontent.cgi?article=1506&context=facpubs. 22. David Leonhardt, “The Monopolization of America,” The New York Times, November 25, 2018. 23. Wu, Curse of Bigness, 45. 24. Ibid. 25.

The Crux
by Richard Rumelt
Published 27 Apr 2022

It is also possible that synergies exist but that their effect is too small to pay-off a (high) acquisition premium.”5 The largest premium is due to hubris—overconfidence. This is not the problem of hidden faults, as in the used-car market. It is, rather, the problem of grossly overestimating “synergies,” of overoptimism in growth prospects, and overweening pride in one’s ability to fix persistent managerial problems in the target company. Within the behavioral economics tradition, this overconfidence is often attributed to reference-group neglect.6 This occurs when a person focuses on their own history and apparent skills and does not consider the skills and outright trickery of adversaries. As a professor in a graduate school, I would sometimes ask students to privately estimate their rank in my class, based on their test performances to date.

Traffic: Genius, Rivalry, and Delusion in the Billion-Dollar Race to Go Viral
by Ben Smith
Published 2 May 2023

He’d bring in Duncan Watts, the six degrees of separation expert, as Facebook’s “chief sociologist.” They’d work together with Jonah’s old MIT friend Cameron Marlow, who was already in the process of creating Facebook’s data science team, and “take the best from data science and machine learning, sociology and behavioral economics, and build enhanced publisher relationships” to make News Feed—the ever-changing column of content that still rules most people’s experience of Facebook—“live up to its name.” Jonah had other ideas too. He thought Facebook could track incoming and outgoing traffic to the rest of the web more deeply.

Understanding Sponsored Search: Core Elements of Keyword Advertising
by Jim Jansen
Published 25 Jul 2011

Retrieved August 6, 2009, from http://www.searchengineguide.com/jennifer-laycock/understanding-t.php [33] Broder, A. 2002. “A Taxonomy of Web Search,” SIGIR Forum, vol. 36(2), pp. 3–10. [34] Slovic, P., Finucane, M., Peters, E., and MacGregor, D. G. 2002. “Rational Actors or Rational Fools: Implications of the Affect Heuristic for Behavioral Economics.” Journal of SocioEconomics, vol. 31(4), pp. 329–342. [35] Simon, H. A. 1957. Models of Man: Social and Rational. New York: John Wiley and Sons. 108 Understanding Sponsored Search [36] Pirolli, P. 2007. Information Foraging Theory: Adaptive Interaction with Information. Oxford: Oxford University Press. [37] Ray, M. 1974.

The Third Industrial Revolution: How Lateral Power Is Transforming Energy, the Economy, and the World
by Jeremy Rifkin
Published 27 Sep 2011

Cross-disciplinary academic associations, journals, and curricula have proliferated in recent years, reflecting the burgeoning interest in the interconnectedness of knowledge. A younger generation of academics is beginning to cross over traditional academic categories to create a more integrated approach to research. Several hundred interdisciplinary fields like behavioral economics, ecopsychology, social history, ecophilosophy, biomedical ethics, social entrepreneurship, and holistic health are shaking up the academy and portend a paradigm shift in the educational process. Meanwhile, the globalization of education has brought together people from diverse cultures, each having his or her own anthropological point of reference, offering up a plethora of fresh, new ways of studying phenomena that are shaped by a different cultural history and narrative.

Poisoned Wells: The Dirty Politics of African Oil
by Nicholas Shaxson
Published 20 Mar 2007

Accepted economic theories work well enough in western societies; these theories are usually painted on one large canvas. But when the canvas is rent into pieces, as it is in many African states, the theories fail or work strangely. In Africa, economics usually is politics; rulers decide who gets what. Perhaps recent advances in behavioral economics, game theory, or evolutionary economics, which focus on the behavior of individuals and groups instead of on the behavior of whole economies, will help. In fact, Africa’s oil states should help us understand African poverty better. Oil money is a bit like foreign aid, but without the conditions and technical support.

A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation
by Richard Bookstaber
Published 5 Apr 2007

This is a point made by John Danaher in the introduction to Brazilian JiuJitsu: Theory and Technique, by Renzo Gracie and Royler Gracie with Kid Peligro and John Danaher (Montpelier, VT: Invisible Cities Press, 2001). 270 bindex.qxd 7/13/07 2:44 PM Page 271 INDEX Accidents/organizations, 159–161 Accountants, failure (reasons), 135 Accounting conventions, problems, 138 Accounting orientation, 137–138 Adaptation, best measure, 232–233 Adverse selection, 191–192 American depositary receipts (ADRs), 68 America Online (AOL), 139 Amex Major Market Index (XMI) futures, 12 Analytically driven funds, 248 Analytical Proprietary Trading (APT), 44–45 initiation, 189 remnant, form, 190 A Programming Language (APL), 43–47 asset, problem, 45 Armstrong, Michael, 130 Arthur Andersen, failure, 135 Artificial markets, 229 Asia Crisis (1997), 3, 115 Asian currency crisis, 114 Asian economies, 118 Asia-Pacific Economic Cooperation (APEC), 63 Assets class, hedge fund classification, 245 direction, hedge fund classification, 246 Asynchronous pricing, 225 AT&T Wireless Services IPO, SSB underwriting, 130 Back-office functions, 39 Bacon, Louis, 165 Bamberger, Gerry, 185–187, 251 Bankers Trust lawsuit, 38 purchase announcement, 75 Bank exposure, 146–147 Bank failures, 146 Bank of Japan, objectives/strategies, 166 Baptist Foundation, restatements/liability, 135 Barings (bank) bankruptcy, 39 clerical trading error, 38–39 derivatives cross-trading, 143 Beard, Anson, 13 Beder, Tanya, 204 Behavior, economic theory, 231 Berens, Rod, 73 Bernard, Lewis, 42, 52 Biggs, Barton, 11 Black, Fischer, 9 Black Monday (1929), 17 Black-Scholes formula, 9, 252 Block desk, 184–185 trading positions, 186 Bond positions, hedging, 30 Booth, David, 29 Breakdowns, explanation, 5–6 Broker-dealer block-trading desk, usage, 184 price setting role, 213–214 Bucket shop era, 177 Buffett, Warren, 62, 99, 181, 198 arb unit closure, 87–88 Bushnell, Dave, 129–131 Butterfly effect, essence, 227 Capital cushions, 106 Capitalism, 250 Cash futures, 251 arbitrageurs, 19, 23 spread, 19 trade, 19 Cerullo, Ed, 41 Cheapest-to-deliver bond, 251 Chicago Board Options Exchange (CBOE), 252 Black-Scholes formula, impact, 9–10 Citigroup Associates First Capital Corporation, 128 consolidation, impact, 132–134 Japanese private banking arm, 133 management change, Fed reaction, 133 organizational complexity/structural uncertainty, 126 Citron, Robert, 38 Coarse behavior benefits, 232–233 consistency, 236–237 271 bindex.qxd 7/13/07 2:44 PM Page 272 INDEX Coarse behavior (Continued) decision rules, 233 in humans, 235–237 measurement of, 238–239 response based on, 236 rules, optimality, 238 Cockroach example, 232–233, 235 Collateral, usage, 218 Collateralized mortgage obligations (CMOs), 71–75, 250 Commercial Credit, Primerica purchase, 126 Competitive prices, 36 Complexity by-product, 143 implications, 156 importance, 144–146 Consumer lending violations, Federal Reserve fine, 132 Control-oriented risk management, 200 Convergence Capital, 80 Convergence trades, 122 Convertible bond (CB) strategy, 57–58 Cooke, Bill, 185–187 Corporate defaults, possibility, 29–30 Corporate political risk, 140 Corrigan, Gerald, 196–198 Countervailing trades, 213 Credit Suisse First Boston, 72–73 Crises, causes, 240 da Vinci, Leonardo, 136 Denham, Bob, 62–63, 99, 195 Derivatives customization, 143 trading strategy, 30 Deterministic nonperiodic flow, 228 Detroit Edison, Fermi-1 experimental breeder reactor, 161–164 Deutsche Bank, investment banking (problems), 72–73 Dimon, Jamie, 77–78, 91, 97–98, 126 Distressed debt, event risk, 248–249 Dow Jones Industrial Average (DJIA), 2, 12 Dynamic hedge, 12, 161 Dynamic system, 228–229 Ebbers, Bernard, 70 Economic catastrophe, 257 Efficient markets hypothesis, 211 Einstein, Albert, 224–226 Emerging market bonds, 71 Enron restatements/liability, 135 U.S.

The Blue Sweater: Bridging the Gap Between Rich and Poor in an Interconnected World
by Jacqueline Novogratz
Published 15 Feb 2009

Le Guin (Creative Education) Purple Hibiscus by Chimamanda Ngozi Adichie (Anchor) Season of Migration to the North by Tayeb Salih (NYRB Classics) Shadow Lines by Amitav Ghosh (Mariner Books) Shooting an Elephant by George Orwell (Penguin Books) The Tempest by William Shakespeare Things Fall Apart by Chinua Achebe (Heinemann) Train to Pakistan by Khushwant Singh (Grove Press) BOOKS AND ARTICLES ON INNOVATIVE SOLUTIONS TO POVERTY ALLEVIATION “A Behavioral-Economics View of Poverty” by Marianne Bertrand, Sendhil Mullainathan, and Eldar Shafir (American Economic Review 94, no. 2) The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It by Paul Collier (Oxford University Press) Capitalism as if the World Matters by Jonathon Porritt and Amory B.

The Power of Habit: Why We Do What We Do in Life and Business
by Charles Duhigg
Published 1 Jan 2011

Weick, “The Vulnerable System: An Analysis of the Tenerife Air Disaster,” Journal of Management 16 (1990): 571–93; Karl E. Weick, “The Collapse of Sensemaking in Organizations: The Mann–Gulch Disaster,” Administrative Science Quarterly 38 (1993): 628–52; H. M. Weiss and D. R. Ilgen, “Routinized Behaviour in Organisations,” Journal of Behavioral Economics 14 (1985): 57–67; S. G. Winter, “Economic ‘Natural Selection’ and the Theory of the Firm,” Yale Economic Essays 4 (1964): 225–72; S. G. Winter, “Optimization and Evolution in the Theory of the Firm,” in Adaptive Economic Models, ed. R. Day and T. Groves (New York: Academic Press, 1975), 73–118; S.

The New Trading for a Living: Psychology, Discipline, Trading Tools and Systems, Risk Control, Trade Management
by Alexander Elder
Published 28 Sep 2014

The man who speaks from both sides of his mouth can claim that he was right regardless of what the market did, but editors of tracking services have plenty of experience pinning down such lizards. When the original Trading for a Living came out, only two services tracked advisory opinions: Investors Intelligence and Market Vane. In recent years, there has been an explosion of interest in behavioral economics, and today many services track advisors. My favorite resource is SentimenTrader.com, whose slogan is “Make emotion work for you instead of against you.” Jason Goepfert, its publisher, does a solid job of tracking mass market sentiment. Signals from the Press To understand any group of people, you must know what its members crave and what they fear.

Smarter Than You Think: How Technology Is Changing Our Minds for the Better
by Clive Thompson
Published 11 Sep 2013

When a dozen friends spread across a city use a Facebook thread and a cute little voting app to pick which film they’ll see on Friday night—“vote for your favorite!”—they are engaging in the same collective decision making that was previously available only to well-funded organizations. This, again, is basic behavioral economics: If you make it easier for people to do something, they’ll do more of it. Finding your way around Skyrim or resolving conundrums like “Which movie are we seeing tonight?” are problems that traditionally couldn’t afford Ronald Coase–style transactional costs—they fell “under the Coasean floor,” as Shirky puts it.

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

It would be the equivalent of pointing the Bureau of Reclamation’s leader at every bit of evidence and calling out the potential for trouble, or laying out a list of reasons, complete with documentation, for Ann Freedman as to why Glafira Rosales might not be what she said, and then looking to see if their behavior would change. The researchers began with a classic behavioral economics problem. People were told that they have tickets for two ski trips, one to Michigan for $100 and one to Wisconsin for $50. The trip to Wisconsin is likely to be the more enjoyable one. Alas, it ends up that the tickets are for the same weekend and neither is refundable. Which do you keep? Over half the participants elected to stick with the more expensive trip—even though they knew they would enjoy the other one more.

What’s Your Type?
by Merve Emre
Published 16 Aug 2018

The test is “designed to meet the needs of the kids today [and] to help them to get ready to have strong families in the future,” one middle school teacher from Fairfax, Virginia, explains to a reporter from the Washington Post. Knowing the positive and negative attributes of each type helps construct a thoroughly “modern view” of the family as a complex behavioral-economic unit; “both parents work and are trying to balance careers and personal lives” in different and often incompatible ways. Some kids rely on after-school specials or Seventeen magazine to hone their basic life skills. These kids lean on type to learn how to be healthy and wholesome. A half decade later, the teenager who used her type knowledge to learn how she could just say no to drugs and alcohol and yes to the right man applies to college.

Why We Drive: Toward a Philosophy of the Open Road
by Matthew B. Crawford
Published 8 Jun 2020

The last two decades saw the rise of new currents in the social sciences that emphasize the cognitive incompetence of human beings. The “rational actor” model of human behavior—a simplistic premise that had underwritten the party of the market for the previous half century—was deposed by the more psychologically informed school of behavioral economics, which teaches that we need all the help we can get in the form of external “nudges” and cognitive scaffolding if we are to do the rational thing. There are two things to be noted. First, this was a needed correction in our understanding of how the mind works. Second, it is a philosophy that nicely dovetails with the project of enlightened social engineering, and has reemboldened the authoritarian tendencies of technocratic rule.

Arguing With Zombies: Economics, Politics, and the Fight for a Better Future
by Paul Krugman
Published 28 Jan 2020

On the first point: even during the heyday of the efficient-market hypothesis, it seemed obvious that many real-world investors aren’t as rational as the prevailing models assumed. Larry Summers once began a paper on finance by declaring: “THERE ARE IDIOTS. Look around.” But what kind of idiots (the preferred term in the academic literature, actually, is “noise traders”) are we talking about? Behavioral finance, drawing on the broader movement known as behavioral economics, tries to answer that question by relating the apparent irrationality of investors to known biases in human cognition, like the tendency to care more about small losses than small gains or the tendency to extrapolate too readily from small samples (e.g., assuming that because home prices rose in the past few years, they’ll keep on rising).

The Messy Middle: Finding Your Way Through the Hardest and Most Crucial Part of Any Bold Venture
by Scott Belsky
Published 1 Oct 2018

They consist of questions or riddles, unknown resolutions, violated expectations, access to information known by others, and reminders of something forgotten. The best advertisements, and most-clicked headlines, play on most if not all of these triggers. More recent neural studies on curiosity support Loewenstein’s information-gap theory. In one experiment from professor of behavioral economics Colin Camerer’s Caltech lab, “test participants had their brains scanned while they read a trivia question, guessed at the answer, and then saw it revealed,” Jaffe reports. “The research team (working with Loewenstein) found that curiosity activated the neural circuitry that’s connected with rewards (including the left caudate region).”

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.

Influence: Science and Practice
by Robert B. Cialdini
Published 1 Jan 1984

Journal of Experimental Social Psychology, 10, 248–263. Zellinger, D. A., Fromkin, H. L., Speller, D. E., & Kohn, C. A. (1974). A commodity theory analysis of the effects of age restrictions on pornographic materials. (Paper No. 440). Lafayette, IN: Purdue University, Institute for Research in the Behavioral, Economic and Management Sciences. Zimmatore, J. J. (1983). Consumer mindlessness: I believe it, but I don’t see it. Proceedings of the Division of Consumer Psychology, American Psychological Association Convention, Anaheim, CA. Zitek, E. M., & Hebl, M. R. (2007). The role of social norm clarity in the influenced expression of prejudice over time.

Smarter Faster Better: The Secrets of Being Productive in Life and Business
by Charles Duhigg
Published 8 Mar 2016

“The highest-impact science is primarily grounded in exceptionally conventional combinations of prior work yet simultaneously features an intrusion of unusual combinations.” It was this combination of ideas, rather than the ideas themselves, that typically made a paper so creative and important. If you consider some of the biggest intellectual innovations of the past half century, you can see this dynamic at work. The field of behavioral economics, which has remade how companies and governments operate, emerged in the mid-1970s and ’80s when economists began applying long-held principles from psychology to economics, and asking questions like why perfectly sensible people bought lottery tickets. Or, to cite other juxtapositions of familiar ideas in novel ways, today’s Internet social networking companies grew when software programmers borrowed public health models that were originally developed to explain how viruses spread and applying them to how friends share updates.

Warnings
by Richard A. Clarke
Published 10 Apr 2017

They did perform somewhat better than undergraduates subjected to the same exercises, and they outperformed the proverbial “chimp with a dart board,” but they didn’t come close to the predictive accuracy of formal statistical models. Later books have looked at Tetlock’s foundational results in some additional detail. Dan Gardner’s 2012 Future Babble draws on recent research in psychology, neuroscience, and behavioral economics to detail the biases and other cognitive processes that skew our judgment when we try to make predictions about the future. And building on a successful career in sports and political forecasting, Nate Silver discusses in his book, The Signal and the Noise, how thinking more probabilistically can help us distill more accurate predictions from a sea of raw data.

Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else
by Chrystia Freeland
Published 11 Oct 2012

But the most potent currency at this and comparable gatherings is neither fame nor money. Rather, it’s what author Michael Lewis has dubbed “the new new thing”—the insight or algorithm or technology with the potential to change the world. Hence the presence of three Nobel laureates, including Daniel Kahneman, a pioneer in behavioral economics. One of the business stars in attendance was then thirty-six-year-old entrepreneur Tony Hsieh, who had sold his Zappos online shoe retailer to Amazon for more than a billion dollars the previous summer. And the most popular session of all was the one in which Google showed off some of its new inventions, including the Nexus phone.

The Village Effect: How Face-To-Face Contact Can Make Us Healthier, Happier, and Smarter
by Susan Pinker
Published 30 Sep 2013

While face-to-face contact can bring increased performance, customer loyalty, satisfaction, and profits, it can also lead to big-time betrayal. Affinity Fraud How could so many people fall for the outsized promises of Earl Jones—or Bernie Madoff, for that matter? As social animals, “the default is to trust until there’s a reason not to,” said the late Robyn Dawes, a psychologist at Carnegie Mellon who was one of the pioneers of behavioral economics.7 When it comes to having confidence in other people, our group or religious affiliations work as a stand-in for family relationships. Trusting others who look and sound like us feels natural; there’s a visceral satisfaction that accompanies letting down one’s guard. Believing and helping others within a family or its extension, the group—even if such altruism means there will be less food, money, energy, sexual opportunity, or other goodies for ourselves—just feels good.

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

Quasi-Rational Economics. New York: Russell Sage Foundation. Thaler, Richard H., 1992. The Winner's Curse: Paradoxes and Anomalies of Economic Life. New York: The Free Press. Thaler, Richard H., 1993. Advances in Behavioral Finance. New York: Russell Sage Foundation.* Thaler, Richard H., 1995. "Behavioral Economics." NBER Reporter, National Bureau of Economic Research, Fall, pp. 9-13. Thaler, Richard H., and Hersh Shefrin, 1981. "An Economic Theory of SelfControl." Journal of Political Economy, Vol. 89, No. 2 (April), pp. 392-406. In Thaler, 1991. Thaler, Richard H., Amos Tversky, and Jack L. Knetsch, 1990.

Bourgeois Dignity: Why Economics Can't Explain the Modern World
by Deirdre N. McCloskey
Published 15 Nov 2011

In 2010: Segundo Congreso Latinoamericano de Historia Económica, Mexico City; Loyola University of Chicago; Economic History Seminar, All Souls College, Oxford; London School of Economics, Department of Economic History; Ratio Institute, Stockholm; Stockholm School of Economics, Heckscher Lecture; Free-Market Road Show (Barbara Kolm, director); Engelsberg Seminar, Sweden; Oxford Libertarian Society, Oxford; Society for Advances in Behavioral Economics, San Diego State University; Beloit College; Social Science History Association, Chicago; Jepsen School of Leadership Studies, University of Richmond. In 2011: American Sociological Association, Chicago; keynote address to World Economic History Congress, Stellenbosch, South Africa;; Association of Private Enterprise Education, Bahamas; Christopher Newport University; James Madison University; Pennsylvania State University; Dennison University; Middlebury College; Latin American and Caribbean Economic Association, Santiago, Chile; Centro de Estudios Publicos, Santiago; Harvard University, Program on Constitutional Government; European Economic History Association, Dublin; Scandinavian Economic History Association, Gothenburg; keynote to European Group for Organizational Studies, 27th Colloquium, Gothenburg; Odyssey Lecture, Political Theory Project, Brown University; Social Science Festival (S3F), Salamanca, Spain; Thematicus Veerstichting, St.

…

Thus around 1280 CE one Walter of Henley, well before our modern times devoted to gauging value in money, wrote in French an estate manual for English lords filled with quantitative prudence of a wholly rational sort.20 So was Mesopotamia four millennia earlier filled with quantitative prudence in accounts. Nowadays the behavioral economics of, say, Dan Ariely does a job of demolishing claims of individual rationality in moderns. Yet it too commits the Weberian mistake of focusing on individual psychology instead of group sociology and market economics. The experimental economics of Vernon Smith, Bart Wilson, Erik Kimbrough, and others, by contrast, works always with groups, showing that a wisdom of crowds often prevails over psychological shortsightedness and calculative confusion.

Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World
by Don Tapscott and Alex Tapscott
Published 9 May 2016

It became clear to those who read the 2008 paper that a new era of the digital economy was about to begin. Where the first era of the digital economy was sparked by a convergence of computing and communications technologies, this second era would be powered by a clever combination of computer engineering, mathematics, cryptography, and behavioral economics. Folksinger Gordon Lightfoot crooned, “If you could read my mind, love, what a tale my thoughts could tell.” Satoshi has been incommunicado since 2011 (though the name pops up on discussion boards from time to time), but we think the trust protocol he bootstrapped lends itself to principles for reconfiguring our institutions and economy.

The Science of Fear: How the Culture of Fear Manipulates Your Brain
by Daniel Gardner
Published 23 Jun 2009

It lasted for decades, but Kahneman and Tversky ultimately prevailed. The idea of “bounded rationality” is now widely accepted, and its insights are fueling research throughout the social sciences. Even economists are increasingly accepting that Homo sapiens is not Homo economicus, and a dynamic new field called “behavioral economics” is devoted to bringing the insights of psychology to economics. Amos Tversky died in 1996. In 2002, Daniel Kahneman experienced the academic equivalent of a conquering general’s triumphal parade: He was awarded the Prize in Economic Sciences in Memory of Alfred Nobel. He is probably the only winner in the history of the prize who never took so much as a single class in economics.

Pedigree: How Elite Students Get Elite Jobs
by Lauren A. Rivera
Published 3 May 2015

Organizational Behavior and Human Decision Processes 116:104–15. Durkheim, Émile. (1912) 1995. The Elementary Forms of the Religious Life. New York: Free Press. Dynarski, Susan, and Judith Scott-Clayton. 2006. “The Cost of Complexity in Federal Student Aid: Lessons from Optimal Tax Theory and Behavioral Economics.” National Tax Journal 59:319–56. Eagly, Alice, and Linda Carli. 2007. Through the Labyrinth: The Truth about How Women Become Leaders. Boston: Harvard Business School Press. Ellwood, David, and Thomas Kane. 2000. “Who Is Getting a College Education? Family Background and the Growing Gaps in Enrollment.”

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

But in 1987 many did not get back into the market until it had already passed its previous highs. And many of the bears of the most recent decline are still out of the market, despite the fact that most market averages have hit all-time highs. In the long run, getting out of the market at the peak does not guarantee that you will beat the buy-and-hold investor. 2 Chapter 19 on behavioral economics analyzes how investors’ aversion to taking losses, no matter how small, affects portfolio performance. 28 PART 1 The Verdict of History FIGURE 2–2 Average Total Real Returns after Major Twentieth-Century Market Peaks ($100 Initial Investment) STANDARD MEASURES OF RISK The risk—defined as the standard deviation of average real annual returns—for stocks, bonds, and bills based on the historical sample of over 200 years is displayed in Figure 2-3.

If You're So Smart, Why Aren't You Happy?
by Raj Raghunathan
Published 25 Apr 2016

I should also thank my collaborators on various projects—Aaron Rochlen, Alok Kumar, Ashesh Mukherjee, Bin Gu, Chip Heath, Christopher Blazina, Eunjoo Han, Hyunkyu Jang, Jae Hong, Jeff Loewenstein, Julie Irwin, Kaavya Bector, Kim Corfman, Mark Alpert, Michael Luchs, Michel Pham, Michelle Chen, Prabhudev Konana, Ravi Chitturi, Rebecca Reczek, Sridhar Balasubramanian, Sunaina Chugani, Suresh Ramanathan, Vijay Mahajan, Wayne Hoyer, and Yaacov Trope—for helping me arrive at the “seven sins/habits/exercises” framework that formed the backbone of this book. A huge shout-out also goes to the social scientists from a variety of disciplines, including behavioral economics, neuroscience, organizational behavior, consumer behavior and, of course, positive psychology, for generating the set of insights on which I have leaned heavily. In particular, I’d like to thank the following for sharing their ideas with me through informal chats: Art Markman, Barbara Fredrickson, Dan Ariely, Ed Diener, Jamie Pennebaker, Jerry Burger, Ken Pargament, Kristin Neff, Kristina Durante, Marshall Goldsmith, Melanie Rudd, Mike Norton, Mihaly Csikszentmihalyi, Nipun Mehta, Phillip Shaver, Reb Rebele, Richie Davidson, Sonja Lyubomirsky, Shauna Shapiro, Srikumar Rao, Steven Tomlinson, Sunaina Chugani, Swati Desai, Tom Gilovich, and Vijay Bhat.

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

EFFICIENTLY INEFFICIENT MARKETS To search for trading strategies that consistently make money over time, we need to understand the markets where securities are traded. The fundamental question concerning financial markets is whether they are efficient, a question that remains hotly debated. For instance, the Nobel Prize in economics in 2013 was awarded jointly to Eugene Fama, the father and defender of efficient markets, Robert Shiller, the father of behavioral economics, and Lars Hansen, who developed tests of market efficiency.2 As seen in Overview Table I, an efficient market, as defined by Fama, is one where market prices reflect all relevant information. In other words, the market price always equals the fundamental value and, as soon as news comes out, prices immediately react to fully reflect the new information.

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

I owe this observation to Stephen Skye, president of the Neversink Valley Museum of History and Innovation. Chapter 6 1. Irving Fisher, et al., How to Invest When Prices Are Rising, Scranton, PA: G. Lynn Sumner & Co., 1912, p. 6. 2. R. Arnott, “Bonds, Why Bother?,” Journal of Indexes, May/June 2009. 3. Chapter 22 on behavioral economics analyzes how investors’ aversion to taking losses, no matter how small, affects portfolio performance. 4. This would mean that bond yields and stock prices move in the same direction. 5. This section, which contains some advanced material, can be skipped without loss of continuity. 6. For an excellent review of this literature, see Luis M.

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

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. Policymakers can “rig the system,” as it were, so that people act more prudently—for example, by putting fruit at eye level in a school cafeteria to encourage healthy eating.

The Billionaire Raj: A Journey Through India's New Gilded Age
by James Crabtree
Published 2 Jul 2018

Rajeev Gowda, a gregarious economist turned Congress MP, whom I had met about six months before my trip to UP, was an exception. In 2014, Gowda took a seat in the Rajya Sabha, India’s upper house of parliament, representing the southern state of Karnataka. Educated at Wharton and Berkeley, he spent much of his career in the US, churning out academic papers on behavioral economics and financial risk. I came across him via a more recent article on the malign influence of money on politics, written after he returned home to Bangalore. His interest in campaign finance flowed from frustration, he told me over email, as he initially tried and failed to stand for parliament himself.

The Hype Machine: How Social Media Disrupts Our Elections, Our Economy, and Our Health--And How We Must Adapt
by Sinan Aral
Published 14 Sep 2020

I realized that a great deal of what we thought was unexplainable (the variance in the “independent” models) might be explained by how we are connected to one another, how information and knowledge ebb and flow between us, and how our peers’ behaviors and opinions affect our own. In 2001 there were no large digital social networking sites, but we did have lots of digital network connections through email, instant messaging, and texting. In that moment, sitting in Dewey Library, I had an epiphany: Digital social networking was going to turbocharge how information, behavior, economic opportunity, and political ideology flowed between people. It was going to transform society as we knew it and affect everything from business to politics to public health. I remember running to the nearest Pine terminal (a computer program for sending email) and sending an email to my PhD adviser, Erik Brynjolfsson, to request a meeting.

ZeroMQ
by Pieter Hintjens
Published 12 Mar 2013

Breaking the market is great, but we cannot afford to subsidize our competitors. The BSD networking stack ended up putting Windows on the Internet. We cannot afford battles with those with whom we should naturally be allies. We cannot afford to make fundamental business errors because in the end, that means we have to fire people. It comes down to behavioral economics and game theory. The license we choose modifies the economics of those who use our work. In the software industry there are friends, foes, and food. BSD makes most people see us as lunch. Closed source makes most people see us as enemies (do you like paying people for software?). GPL, however, makes most people, with the exception of the Patricks of the world, our allies.

Data and Goliath: The Hidden Battles to Collect Your Data and Control Your World
by Bruce Schneier
Published 2 Mar 2015

This was nicely explained: Charlie Rose, Inc. (29 Jul 2013), “General Michael Hayden, former director of the NSA and the CIA and principal with the Chertoff Group,” The Charlie Rose Show, http://www.charlierose.com/watch/60247615. organizations are less likely: Nassim Nicholas Taleb and Constantine Sandis (1 Oct 2013), “The skin in the game heuristic for protection against tail events,” Review of Behavioral Economics 1, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2298292. Advancing technology adds: Any complex system that is both nonlinear and tightly coupled will have catastrophic failures. Charles Perrow (1984), Normal Accidents: Living with High-Risk Technologies, Princeton University Press, https://encrypted.google.com/books?

Being Wrong: Adventures in the Margin of Error
by Kathryn Schulz
Published 7 Jun 2010

As someone who tried to review the literature on wrongness, I can tell you that, first, it is vast; and, second, almost none of it is filed under classifications having anything to do with error. Instead, it is distributed across an extremely diverse set of disciplines: philosophy, psychology, behavioral economics, law, medicine, technology, neuroscience, political science, and the history of science, to name just a few. So too with the errors in our own lives. We file them under a range of headings—“embarrassing moments,” “lessons I’ve learned,” “stuff I used to believe”—but very seldom does an event live inside us with the simple designation “wrong.”

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

Despite this sea change, these innovations are in many respects a byproduct of the democratization of investment, for many of the clients for alternative products are larger institutional clients like insurance companies and pension plans, whose assets come from a much wider percentage of the population. However, the investment of these democratized assets in new products and independent firms has also resulted in the creation of vast wealth for a “new elite” in the investment management industry. INDEPENDENCE AND ENTREPRENEURSHIP: ENVIRONMENT, MOTIVES, AND BEHAVIORS Economic leaders have long recognized the benefits of enterprise and independent action in producing superior outcomes and returns. Even the early history of agriculture in ancient Mesopotamia reveals the emergence of private farmers contracting with state-owned agricultural entities in order to improve their efficiency.

Economic Dignity
by Gene Sperling
Published 14 Sep 2020

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.

Tailspin: The People and Forces Behind America's Fifty-Year Fall--And Those Fighting to Reverse It
by Steven Brill
Published 28 May 2018

* * * — Forty-eight years after Inky Clark gave me my ticket on the meritocracy express in 1967, a professor at Yale Law School (from which I had graduated after completing four years at Yale College) jarred the school’s graduation celebration. Daniel Markovits, who specializes in the intersection of law and behavioral economics, told the graduating class that their success getting accepted into, and getting a degree from, the country’s most selective law school—long associated with progressive politics and public service—actually marked their entry into a newly entrenched aristocracy that had been snuffing out the American Dream for almost everyone else.

The-General-Theory-of-Employment-Interest-and-Money
by John Maynard Keynes
Published 13 Jul 2018

First, was Keynes right to eschew maximizing theory? Second, did his successors betray his legacy by bringing maximization back in? Introduction by Paul Krugman    xxxvii The answer to the first question is, it depends. Keynes was surely right that there is a strong non-rational element in economic behavior. The rise of behavioral economics and behavioral finance is a belated recognition by the profession of this fact. On the other hand, some of Keynes’s attempted generalizations about behavior now seem excessively facile and misleading in important ways. In particular, he argued on psychological grounds that the average savings rate would rise with per capita income (see p. 97).

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

American Political Science Review 97, no. 2: 261–280. Bendor, Jonathan, and Piotr Swistak. 1997. “The Evolutionary Stability of Cooperation.” American Political Science Review 91: 290–307. Bendor, Jonathan, and Scott E. Page. 2018. “A Model of Team Problem Solving.” Unpublished manuscript. Berg, Nathan, and Gerd Gigerenzer. 2010. “As-If Behavioral Economics: Neoclassical Economics in Disguise?” History of Economic Ideas 18, no. 1: 133–166. Bergemann, Dirk, and Juuso Välimäki. 2008. “Bandit Problems.” In The New Palgrave Dictionary of Economics, 2nd ed., ed. Steven N. Durlauf and Lawrence E. Blume. London: Palgrave Macmillan. Berlekamp, Elwyn R., John H.

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

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.

Coders: The Making of a New Tribe and the Remaking of the World
by Clive Thompson
Published 26 Mar 2019

Send the Sunshine: Ian Leslie, “The Scientists Who Make Apps Addictive,” 1843, October/November 2016, accessed August 18, 2018, https://www.1843magazine.com/features/the-scientists-who-make-apps-addictive. “get the psychology right”: Stephen Wendel, Designing for Behavior Change: Applying Psychology and Behavioral Economics (Sebastapol, CA: O’Reilly Media, 2013), location 189 of 7988, Kindle. uploaded every second: Alyson Shontell, “Meet the 13 Lucky Employees and 9 Investors Behind $1 Billion Instagram,” Business Insider, April 9, 2012, accessed August 18, 2018, https://www.businessinsider.com/instagram-employees-and-investors-2012-4; Marty Swant, “This Instagram Timeline Shows the App’s Rapid Growth to 600 Million,” AdWeek, December 15, 2016, accessed August 18, 2018, https://www.adweek.com/digital/instagram-gained-100-million-users-6-months-now-has-600-million-accounts-175126/; Nancy Messieh, “Instagram Could Hit 1bn Photos by April, Twice as Fast as Flickr Managed,” The Next Web, January 19, 2012, accessed August 18, 2018, https://thenextweb.com/socialmedia/2012/01/19/instagram-could-hit-1bn-photos-by-april-twice-as-fast-as-flickr-managed/.

Animal Spirits: The American Pursuit of Vitality From Camp Meeting to Wall Street
by Jackson Lears

The neoliberal self intrudes instrumentalist market assumptions into every corner of human experience, accelerating the pricing of everyday life—down to and including the calculation of a human being’s monetary value. Irving Fisher would be pleased. What was eccentric in the 1910s has become mainstream in our own time. The capitalization of the self has had wide and deep impact. An hour’s worth of NPR commercials suggests the emergence of a new model psyche, reflected in the current obsession with behavioral economics and neuroscience generally. These enterprises claim to point the way beyond old, static, rational-actor models while at the same time encouraging self-modification to conform to the ever more pervasive and relentless demands of market rationality. The cultivation of expertise becomes essential—not merely to the management of corporations and governments but also to the management of personal identity.

The Sullivanians: Sex, Psychotherapy, and the Wild Life of an American Commune
by Alexander Stille
Published 19 Jun 2023

Michael Cohen and several other recent defectors also got together to bring a lawsuit to recover the money they had invested in the building at 100th Street and Broadway. They had purchased what they’d been told were ownership shares in the building. Now that they were not living there, they simply wanted their money back. Reflecting on how long it took him to leave the group, Paul later offered an idea from behavioral economics. “It’s like the ‘sunk cost fallacy,’” he wrote in a court affidavit. “Every year the cost of leaving got higher and higher because you have invested so much in it. It’s like the British and the French governments putting more and more money into the Concorde because they don’t want to walk away from all the money they’ve put into it even though it’s just going to keep on losing money.

WTF?: What's the Future and Why It's Up to Us
by Tim O'Reilly
Published 9 Oct 2017

Because they are shaped by rules crafted by our imperfect understanding, entire economies can go awry in much the same way that simpler digital marketplaces like Google and Facebook, Uber and Airbnb can. Their fundamental fitness functions can be wrong. They can have bias in the data used to train their algorithms. They can be gamed by participants. Behavioral economics has convincingly refuted the idealized model of “homo economicus,” the rational actor whose pursuit of self-interest can be neatly modeled with mathematical formulae. Modern economics is increasingly looking to historical data rather than to theory, trying to build a better map. Unfortunately, what James Kwak calls “economism,” the reduction of real-world problems to fit a simplistic version of economic theory—that is, substituting looking at the map for looking at the territory, continues to rule the thinking of most politicians and business leaders.

America's Bitter Pill: Money, Politics, Backroom Deals, and the Fight to Fix Our Broken Healthcare System
by Steven Brill
Published 5 Jan 2015

First was a straight mandate, with no exceptions, which would require “generous subsidies so as not to pose an undue burden on the people being mandated.” The second was something called automatic enrollment, in which people would be automatically enrolled but could then opt out and not pay any penalty the way they would if there was a mandate. DeParle noted that “experts in behavioral economics” believed this would work nearly as well as a mandate. However, she added, “others, including the MIT model we have been using”—meaning Jonathan Gruber—believed it would not work. The final option was an “individual requirement with an exemption process.” As in Massachusetts, those who could demonstrate that the premiums they would have to pay, even with subsidies, would take too much of a bite (such as more than 7 percent) out of their incomes would not have to pay the mandate’s penalties.

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

The growing appeal of self-tracking, nudges, gamification, and even situational crime prevention and digital preemption can only be understood in the broader intellectual context of the last few decades. As already noted, the sad reality is that philosophy, with its preoccupation with virtue and the good life, has been all but defeated by psychology, neuroscience, economics (of the rational-choice variety), and their various combinations, like behavioral economics. Hence, instead of investigating and scrutinizing the motivations for our actions, trying to separate the good ones from the bad, policymakers fixate on giving us the right incentives or removing the option to do the wrong thing altogether. Better safe than sorry, as the saying goes. Of course, even within philosophy it’s no longer fashionable to talk about virtue and the good life; those who do are viewed as die-hard conservatives.

Alpha Trader
by Brent Donnelly
Published 11 May 2021

To write this book, I sifted through thousands of pages of academic research, talked to dozens of veteran traders, and dug through 25 years of my own memories and experience, all in an effort to define the ideal trader. No one can achieve trading perfection; that is not the goal. To achieve excellence, though, we must first identify what perfection looks like, then head in that direction. This is not a behavioral economics textbook and it is not a boring, theoretical deep dive into trading psychology. It’s a practical guide full of actionable information, concisely distilled research, exciting and relevant trading floor stories, and real-life examples that explain and reinforce critical concepts. Trading involves a deeply personal journey of struggle, continuous adaptation, and self-improvement.

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

Minimizing taxes would starve the beast, decreasing its ability to fund unproductive programs. The agenda reflected the social conservatism of the principals. The Cold War shaped resistance against socialism, which Keynesian economics was associated with. Chicago Business School Professor Merton Miller’s distrust of behavioral economics was based on an antipathy toward “commies.”12 Ayn Rand, the Russian-born philosopher and writer, was a major influence. Her 1943 novel The Fountainhead portrayed the struggle of Howard Roark, a young architect who fought against compromise in a world dominated by “second handers.” The New York Times review was favorable: “a hymn in praise of the individual...this masterful book [raises] some of the basic concepts of our time.”

Reminiscences of a Stock Operator
by Edwin Lefèvre and William J. O'Neil
Published 14 May 1923

Proponents of the efficient market hypothesis—the consensus paradigm of stock behavior of the 1970s and 1980s—believe that prices on traded assets reflect all known knowledge and quickly change to reflect new data. In other words, they believe that price always tells the truth. A new school of thought, called behavioral economics, upended that view in the 1990s by asserting that investors regularly hold false beliefs due to cognitive biases such as overconfidence, overreaction, and improper use of linear reasoning. It is likely that Livermore would have leaned toward the latter camp, as he believed his role as a thinking speculator was to find people who held false beliefs about price and trade against them.

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

Adam Smith once asked (Smith 2007: 41). As Janet Roitman suggests, within the social sciences debt is usually viewed as “something contracted, exterior to a primary, original situation,” and thus as “a perversion of deviation in human relations—an abnormal situation that needs to be rectified” (Roitman 2003: 212). In behavioral economics, researchers have suggested that consumers tend to display an aversion to debt, preferring to enjoy consumption without thinking about the need to pay for it in the future (Prelec and Loewenstein 1998). Other forms of debtor behavior, such as patterns of paying off credit card debt, strongly suggest that consumers typically want to be debt free (Amar, Ariely, et al. 2011; Besharat 2012).

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

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. The finding from twin studies that political and ideological views are substantially heritable opens up another set of possibilities.

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

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.

Debt: The First 5,000 Years
by David Graeber
Published 1 Jan 2010

The problem comes when it enables some (often these same economists) to declare that anyone who ignores the dictates of the market shall surely be punished—or that since we live in a market system, everything (except government interference) is based on principles of justice: that our economic system is one vast network of reciprocal relations in which, in the end, the accounts balance and all debts are paid. These principles get tangled up in each other and it’s thus often difficult to tell which predominates in a given situation—one reason that it’s ridiculous to pretend we could ever reduce human behavior, economic or otherwise, to a mathematical formula of any sort. Still, this means that some degree of reciprocity can be detected as potentially present in any situation; so a determined observer can always find some excuse to say it’s there. What’s more, certain principles appear to have an inherent tendency to slip into others.

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

Early studies assumed a stable structural model whose structure agents know. More realistic hypotheses allow agents to rationally learn about evolving economic structures. This learning process over time could explain apparently biased expectations (predictable forecast errors) in empirical data. Behavioral economics and finance have challenged this paradigm. Fully rational behavior requires quite complex calculations from Homo economicus, prompting the alternative idea that investors exhibit bounded rationality—rationality that is limited by their cognitive resources and observational powers. Psychological biases predict specific systematic deviations from rationality (to be discussed in Chapter 6).

Global Catastrophic Risks
by Nick Bostrom and Milan M. Cirkovic
Published 2 Jul 2008

Viewed on 23 January 2006. Sides, A., Osherson, D . , Bonini, N., and Viale, R. (2002). On the reality of the conjunction fallacy. Memory Cogn.., 30(2), 191-198. Slavic, P., Finucane, M., Peters, E., and MacGregor, D. (2002). Rational actors or rational fools: implications of the affect heuristic for behavioral economics. ]. Socio-Econ.., 3 1 , 329-342. Cognitive biases potentially affectingjudgement ofglobal risks 1 19 Slovic, P., Fischoff, B . , and Lichtenstein, S. (1982). Facts versus fears: understanding perceived risk. In Kahneman, D . , Slovic, P., and Tversky, A. (eds.), judgment Under Uncertainity: Heuristics and Biases, pp. 463-492 (Cambridge: Cambridge University Press) .

Security Analysis
by Benjamin Graham and David Dodd
Published 1 Jan 1962

Academics, broadly speaking, are so entrenched in their theories that they cannot accept that value investing works. Instead of launching a series of studies to understand the remarkable 50-year investment record of Warren Buffett, academics instead explain him away as an aberration. Greater attention has been paid recently to behavioral economics, a field recognizing that individuals do not always act rationally and have systematic cognitive biases that contribute to market inefficiencies and security mispricings. These teachings—which would not seem alien to Graham—have not yet entered the academic mainstream, but they are building some momentum.

Behave: The Biology of Humans at Our Best and Worst
by Robert M. Sapolsky
Published 1 May 2017

Instead subjects from all cultures consistently contributed. Perhaps as an explanation, subject from all cultures punished people who made lowball contributions, and to roughly equal extents. Where the startling difference came was with a behavior that I’d never even seen before in the behavioral economics literature, something called “antisocial punishment.” Free-riding punishment is when you punish another player for contributing less than you (i.e., being selfish). Antisocial punishment is when you punish another player for contributing more than you (i.e., being generous). What is that about?

The Coming Plague: Newly Emerging Diseases in a World Out of Balance
by Laurie Garrett
Published 31 Oct 1994

As he and the rest of the pre-antibiotic era physicians of the developed world retire and age, Bernard asks if doctors of the year 2000 will be better or worse equipped to treat bacterial pneumonia than were physicians in his pre-antibiotic days. Preparedness demands understanding. To comprehend the interactions between Homo sapiens and the vast and diverse microbial world, perspectives must be forged that meld such disparate fields as medicine, environmentalism, public health, basic ecology, primate biology, human behavior, economic development, cultural anthropology, human rights law, entomology, parasitology, virology, bacteriology, evolutionary biology, and epidemiology. The Coming Plague tells the stories of men and women who struggled to understand and control the microbial threats of the post-World War II era. As these disease vanquishers retire, the college laboratories and medical schools grow full of youthful scientific energy, but it is not focused on the seemingly old-fashioned, passé tasks that were invaluable in humanity’s historic ecological struggles with the microbes.

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

For these reasons, oxytocin is sometimes called the cuddle hormone. The reuse of the hormone in so many forms of human closeness supports a suggestion by Batson that maternal care is the evolutionary precursor of other forms of human sympathy. 30 In one of the odder experiments in the field of behavioral economics, Ernst Fehr and his collaborators had people play a Trust game, in which they hand over money to a trustee, who multiplies it and then returns however much he feels like to the participant.31Half the participants inhaled a nasal spray containing oxytocin, which can penetrate from the nose to the brain, and the other half inhaled a placebo.