I finished reading Misbehaving:
The Making of Behavioral Economics by Richard
Thaler two weekends ago. It was a relatively easy read considering that
many casual readers will be put off by the fact that it is a book about
economics. I consider myself firmly in the casual reader camp even if I did
survive majoring in Economics many years ago.
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| Misbehaving by Richard Thaler |
The book is written in such a way that Mr Thaler is able to
narrate his work (along with the work of other key colleagues and
collaborators) in developing the field of behavioral
economics without actually getting into the overly technical details. He uses
his keen eye for observation and curiosity to identify how humans can behave in
ways that go against conventional and widely accepted thinking.
Some of my key takeaways:
Don’t be afraid to challenge conventional
wisdom.
It won’t be easy and many people will get in your way, but if you have the
data to back up your theory then go for it. For someone who claims to be lazy
(he says so in his book), Mr Thaler went out of his way to probably take the
toughest path to the top of his field. Instead of towing the line and sticking
to traditional economic models, he helped build an entirely different school of
thought, one centered on human behavior.
Humans can act irrationally.
The whole
behavioral economics movement was built on exposing how humans can act in ways
that seem to defy reason. For example, we tend to overvalue the present and
will overpay to get something today instead of tomorrow.
This was illustrated
in the chapter in the book that talked about the NFL Draft. Mr Thaler took a
look at the data and made an estimation of the value of each pick. One
conclusion made is that it is not worth trading up to grab a particular player
if the team has to give up multiple picks. Another conclusion made is that it
is better to trade away a pick today for a better and/or multiple picks next
year. Despite having this knowledge, the manager of the team still decided to
do things the “usual way” come draft day.
The field of behavioral economics can and has
had real applications in society.
Even if we’re not scientists, academics or even
expert economists, we can apply the framework developed and discussed in the
book. The way that Mr Thaler looks at things with a critical eye while using
quick experimentation and then adjusting and reacting to the results is a
framework that many of today’s top companies use. Companies (and everyone
individually in my opinion) must keep an open mind while remaining flexible and
agile. Learning and growing should never stop.
Have you read this book? Happy to hear what you think about
it in the comments section.