behavioral economics
 |
Description
Book Introduction
A compilation of the global bestseller 『Nudge』 author Richard Thaler
The culmination of 40 years of behavioral economics research
Why do humans behave irrationally?
The Secret of Choice Design that Changes Minds and Behaviors
Daniel Kahneman, Malcolm Gladwell, Cass Sunstein, Richard Schiller, Chip Heath…
Praise from world-renowned scholars continues
“A vivid account of the most important insights in modern economics!”
One day in 1970, a young economist became intrigued by research findings showing that even intelligent people repeatedly make irrational choices.
Conventional economics has always explained all phenomena based on the assumption that humans act rationally, but reality is completely different.
Fascinated by this fact, he began to research cases that demonstrated the gap between economic models and the real world, one by one, and began a lifelong exploration of how "living humans" make decisions.
It was the moment when Richard Thaler, winner of the 2017 Nobel Prize in Economics, encountered behavioral economics.
Unlike traditional economics, which firmly believes in human rationality, behavioral economics focuses on the unpredictable nature and psychology of humans.
It is characterized by an attempt to more accurately explain the erratic human behavior by broadly applying various social sciences, including psychology, to economic models.
Furthermore, as Thaler nicknamed it "libertarian interventionism," it could be an effective solution that encourages people to make better choices through their own judgment without any commands or coercion.
This book, a compilation of 40 years of behavioral economics research by Nobel Prize winner Richard Thaler, vividly depicts the principles of behavioral science that form the basis of this innovative discipline, as well as the process of developing and developing it, as if in a movie.
The hidden stories surrounding economic giants such as Daniel Kahneman, Amos Tversky, Robert Shiller, and Paul Samuelson, as well as the fierce debates that unfolded among economists, are more than enough to satisfy intellectual curiosity.
The history of behavioral economics, which fundamentally undermined mainstream economics based on the false assumption of 'Homo economicus,' began to provide new answers to the question, 'So, what kind of beings are humans and how do they behave in what situations?'
This book, which contains all the insights and ideas of behavioral science, the most brilliant achievement of 20th-century social science, will enable readers to understand human nature at its deepest level.
The culmination of 40 years of behavioral economics research
Why do humans behave irrationally?
The Secret of Choice Design that Changes Minds and Behaviors
Daniel Kahneman, Malcolm Gladwell, Cass Sunstein, Richard Schiller, Chip Heath…
Praise from world-renowned scholars continues
“A vivid account of the most important insights in modern economics!”
One day in 1970, a young economist became intrigued by research findings showing that even intelligent people repeatedly make irrational choices.
Conventional economics has always explained all phenomena based on the assumption that humans act rationally, but reality is completely different.
Fascinated by this fact, he began to research cases that demonstrated the gap between economic models and the real world, one by one, and began a lifelong exploration of how "living humans" make decisions.
It was the moment when Richard Thaler, winner of the 2017 Nobel Prize in Economics, encountered behavioral economics.
Unlike traditional economics, which firmly believes in human rationality, behavioral economics focuses on the unpredictable nature and psychology of humans.
It is characterized by an attempt to more accurately explain the erratic human behavior by broadly applying various social sciences, including psychology, to economic models.
Furthermore, as Thaler nicknamed it "libertarian interventionism," it could be an effective solution that encourages people to make better choices through their own judgment without any commands or coercion.
This book, a compilation of 40 years of behavioral economics research by Nobel Prize winner Richard Thaler, vividly depicts the principles of behavioral science that form the basis of this innovative discipline, as well as the process of developing and developing it, as if in a movie.
The hidden stories surrounding economic giants such as Daniel Kahneman, Amos Tversky, Robert Shiller, and Paul Samuelson, as well as the fierce debates that unfolded among economists, are more than enough to satisfy intellectual curiosity.
The history of behavioral economics, which fundamentally undermined mainstream economics based on the false assumption of 'Homo economicus,' began to provide new answers to the question, 'So, what kind of beings are humans and how do they behave in what situations?'
This book, which contains all the insights and ideas of behavioral science, the most brilliant achievement of 20th-century social science, will enable readers to understand human nature at its deepest level.
- You can preview some of the book's contents.
Preview
index
Before we go back in time and explore behavioral economics,
Ⅰ.
Behavioral Economics: The Beginning of a Long Journey
1.
Modern economics, starting from imaginary humans
- We are not all 'icons'
2.
What is greater, the joy of having it or the pain of losing it?
- The Secret of the Possession Effect
3.
“Barack Obama? I knew he’d win!”
- Post-judgment bias
4.
How do humans make decisions under uncertainty?
- Prospect theory and the graph of fate
5.
Focus on living people, not icons
- The beginning of a new adventure
6.
A Refutation of the Four Weapons of Traditional Economists
- The gap between the optimization model and reality
Ⅱ.
Psychological Accounting: How We View Money
7.
Why Honest Pricing Failed
- Discount coupons and transaction benefits
8.
Why You Can't Take Off Your New Shoes Even If Their Heels Are Scratched
- Sunk costs that are difficult to ignore
9.
Money has no labels
- Budget and psychological accounts
10.
The psychology of an ordinary person making an extreme investment at the last minute
- Poker games and the house money effect
Ⅲ.
Self-Control: Choosing Between Present and Future
11.
Is discounting future consumption a mistake?
- Inter-view selection problem
12.
Odysseus, the Sirens, and the Oath Strategy
- Planner-Activist Model
Take a break
13.
Psychological Accounting and Self-Control: Reviving a Sinking Company
- GM and GreekPick's Success Story
Ⅳ.
What makes a deal seem fair?
14.
The moment consumers become angry at companies
- First Chicago Bank, Coca-Cola, iTunes, and Uber
15.
What Economists Can Learn from Farmers
- Prisoner's Dilemma and Public Goods Game
16.
Would you rather have a lottery ticket or three dollars?
- Endowment effect and status quo bias
V.
When Economics and Psychology Meet
17.
30 years of debate
- Behaviorism vs. Rationalism
18.
The seemingly unimportant factor is actually very important.
- Exceptional phenomena that bypass economics
19.
From a nerd's field to mainstream economics
- Roundtable and Russell Sage Summer Camp
20.
“Sir, I don’t want to make such a risky investment!”
- A foolish owner and a tendency to avoid risks and losses
Ⅵ.
Financial Markets and Behavioral Bias Effects
21.
Stock investing is like a beauty contest.
- The efficient market hypothesis and wild impulses
22.
Are investors overreacting in the stock market?
- Benjamin Graham's PER
23.
How to explain the high returns of value stocks
Risk vs. Overreaction: The Death of the CAPM
24.
Are current prices a bubble or not?
- Robert Shiller's shocking research results
25.
Four Puzzles About Closed-End Funds
- The law of one price and the conflict between fund prices
26.
Does the market know how to add and subtract?
- An interesting story about Palm-Sricom stock.
Ⅶ.
There is no creature as interesting as humans.
27.
The Law and Economics Conference and the Chicago Rebels
- Cause theorem and interventionism
28.
Stupid things done by smart economists
- The University of Chicago professors' lab selection turmoil
29.
What is the most economical strategy for attracting talent?
- Becker's Conjecture and NFL Teams' Draft System
30.
When huge sums of money are involved, are people rational or biased in their behavior?
- 5 million euro game and path dependence
Ⅷ.
Behavioral Economics: Changing the World
31.
The power of default options that automatically increase savings rates
- Self-control research and retirement pensions
32.
Liberal interventionism and choice architecture
- Public policies proposed by Nudge
33.
Have you experienced a nudge today?
- The nudge craze sweeping the globe
Coming out | What's next for behavioral economics?
Americas
References
Ⅰ.
Behavioral Economics: The Beginning of a Long Journey
1.
Modern economics, starting from imaginary humans
- We are not all 'icons'
2.
What is greater, the joy of having it or the pain of losing it?
- The Secret of the Possession Effect
3.
“Barack Obama? I knew he’d win!”
- Post-judgment bias
4.
How do humans make decisions under uncertainty?
- Prospect theory and the graph of fate
5.
Focus on living people, not icons
- The beginning of a new adventure
6.
A Refutation of the Four Weapons of Traditional Economists
- The gap between the optimization model and reality
Ⅱ.
Psychological Accounting: How We View Money
7.
Why Honest Pricing Failed
- Discount coupons and transaction benefits
8.
Why You Can't Take Off Your New Shoes Even If Their Heels Are Scratched
- Sunk costs that are difficult to ignore
9.
Money has no labels
- Budget and psychological accounts
10.
The psychology of an ordinary person making an extreme investment at the last minute
- Poker games and the house money effect
Ⅲ.
Self-Control: Choosing Between Present and Future
11.
Is discounting future consumption a mistake?
- Inter-view selection problem
12.
Odysseus, the Sirens, and the Oath Strategy
- Planner-Activist Model
Take a break
13.
Psychological Accounting and Self-Control: Reviving a Sinking Company
- GM and GreekPick's Success Story
Ⅳ.
What makes a deal seem fair?
14.
The moment consumers become angry at companies
- First Chicago Bank, Coca-Cola, iTunes, and Uber
15.
What Economists Can Learn from Farmers
- Prisoner's Dilemma and Public Goods Game
16.
Would you rather have a lottery ticket or three dollars?
- Endowment effect and status quo bias
V.
When Economics and Psychology Meet
17.
30 years of debate
- Behaviorism vs. Rationalism
18.
The seemingly unimportant factor is actually very important.
- Exceptional phenomena that bypass economics
19.
From a nerd's field to mainstream economics
- Roundtable and Russell Sage Summer Camp
20.
“Sir, I don’t want to make such a risky investment!”
- A foolish owner and a tendency to avoid risks and losses
Ⅵ.
Financial Markets and Behavioral Bias Effects
21.
Stock investing is like a beauty contest.
- The efficient market hypothesis and wild impulses
22.
Are investors overreacting in the stock market?
- Benjamin Graham's PER
23.
How to explain the high returns of value stocks
Risk vs. Overreaction: The Death of the CAPM
24.
Are current prices a bubble or not?
- Robert Shiller's shocking research results
25.
Four Puzzles About Closed-End Funds
- The law of one price and the conflict between fund prices
26.
Does the market know how to add and subtract?
- An interesting story about Palm-Sricom stock.
Ⅶ.
There is no creature as interesting as humans.
27.
The Law and Economics Conference and the Chicago Rebels
- Cause theorem and interventionism
28.
Stupid things done by smart economists
- The University of Chicago professors' lab selection turmoil
29.
What is the most economical strategy for attracting talent?
- Becker's Conjecture and NFL Teams' Draft System
30.
When huge sums of money are involved, are people rational or biased in their behavior?
- 5 million euro game and path dependence
Ⅷ.
Behavioral Economics: Changing the World
31.
The power of default options that automatically increase savings rates
- Self-control research and retirement pensions
32.
Liberal interventionism and choice architecture
- Public policies proposed by Nudge
33.
Have you experienced a nudge today?
- The nudge craze sweeping the globe
Coming out | What's next for behavioral economics?
Americas
References
Detailed image
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Into the book
Since many Korean readers have already read Nudge, it might be worthwhile to briefly explain how this book differs from its predecessor.
First, I should explain the title of the book.
As noted in Nudge, standard economic theory assumes that people are highly rational and unemotional.
So, they can easily handle complex calculations and don't worry about self-control issues.
We call such virtual beings 'Econs'.
Compared to icons, real-life humans often commit wrong actions.
People make stupid decisions about what career to choose, who to marry, how much to drink on a Saturday night, how often to go to the gym, and so on.
This book explains common mistakes people make.
This book delves into the various ways humans make mistakes, providing a more complete introduction to the field of behavioral economics.
--- From 'To Korean Readers'
Changing people's minds about important and serious issues in life, as well as things as trivial as what to eat for breakfast, is never easy.
Many economists have long stubbornly rejected calls to base their theories on more accurate descriptions of human behavior.
However, recently, a new generation of creative young economists has emerged who are willing to take risks and boldly break away from the traditional economic methods, and the dream of a rich economic theory is gradually becoming a reality.
The field that pursues these efforts today is called 'behavioral economics'.
Behavioral economics is not a completely different discipline from traditional economics.
It still falls under the category of economics, but it broadly embraces various social sciences, including psychology.
--- From 'Modern Economics Starting from Imaginary Humans'
Of course, for icons, both methods are the same.
When the credit card price is $1.03 and the cash price is $1.00, it doesn't matter whether you call the 3 cent difference a discount or a surcharge.
Still, card companies preferred to explicitly call it a discount.
Many years later, Danny and Amos defined the difference with the concept of "framing," but marketers already instinctively understood the importance of framing before the concept.
Paying the extra fee is a real cost out of your pocket, but not getting the discount is simply an opportunity cost.
I explain this phenomenon as the "endowment effect," in that the things we own are part of our assets.
And I've encountered cases that show that people value things that are already part of their assets more than things that could become part of their assets—things they could have but don't yet own.
The endowment effect directly influences the behavior of people who are highly interested in special concerts or sports events.
In fact, tickets are often sold for more than their original price.
Those who get in line early or get lucky enough to grab a ticket by quickly accessing the internet will face a moment of decision.
Will you go to that concert or game, or will you sell tickets?
--- From 'What is greater, the joy of having or the pain of losing?'
However, a unique feature of the NFL draft system, which differs from the case of the University of Chicago professors' lab selection, is that all teams can buy and sell their picks.
For example, you could give up your fourth pick and in return get two picks lower in the rankings.
There were enough trades (our study included more than 400) to gauge how much each team values its draft picks.
Additionally, it is possible to trade this year's picks with picks for future years.
This allowed us to determine NFL teams' time preferences.
Before we began this research project, Massey and I anticipated that seriously flawed behavior would emerge within these systems.
Specifically, we expected each team to place excessive value on early picks in the draft.
This expectation stemmed from several previous extreme cases.
The most famous of these is the case of Mike Ditka, the legendary NFL player and later coach of the New Orleans Saints.
--- From 'What is the most economical strategy for attracting talent?'
The prediction of mean reversion in the stock market is hardly a radical hypothesis, except for one thing.
The only thing that is true here is that the efficient market hypothesis says that such a phenomenon can never happen.
In this hypothesis, the 'price is justified' element states that the stock price cannot differ from its intrinsic value, and therefore, in principle, cheap stocks cannot exist.
Next, the 'there is no free lunch' factor says that you can never beat the market because all information is already reflected in the current price.
Because the past is clearly reflected in the stock's return or PER, future price changes cannot be predicted.
They are just SIFs.
Any attempt to find evidence for mean reversion would constitute a clear violation of the efficient market hypothesis.
In this context, we decided to see for ourselves whether we could actually find the evidence.
--- From 'Are investors overreacting in the stock market?'
Also, I must not forget that I was sitting at the 'children's table'.
The conference was scheduled to feature presentations by two Nobel laureates (Arrow and Simon).
Also, many great figures were watching in the audience, including five or six people who would later win the Nobel Prize.
How can I make my point on this important stage without seeming arrogant?
First, I should explain the title of the book.
As noted in Nudge, standard economic theory assumes that people are highly rational and unemotional.
So, they can easily handle complex calculations and don't worry about self-control issues.
We call such virtual beings 'Econs'.
Compared to icons, real-life humans often commit wrong actions.
People make stupid decisions about what career to choose, who to marry, how much to drink on a Saturday night, how often to go to the gym, and so on.
This book explains common mistakes people make.
This book delves into the various ways humans make mistakes, providing a more complete introduction to the field of behavioral economics.
--- From 'To Korean Readers'
Changing people's minds about important and serious issues in life, as well as things as trivial as what to eat for breakfast, is never easy.
Many economists have long stubbornly rejected calls to base their theories on more accurate descriptions of human behavior.
However, recently, a new generation of creative young economists has emerged who are willing to take risks and boldly break away from the traditional economic methods, and the dream of a rich economic theory is gradually becoming a reality.
The field that pursues these efforts today is called 'behavioral economics'.
Behavioral economics is not a completely different discipline from traditional economics.
It still falls under the category of economics, but it broadly embraces various social sciences, including psychology.
--- From 'Modern Economics Starting from Imaginary Humans'
Of course, for icons, both methods are the same.
When the credit card price is $1.03 and the cash price is $1.00, it doesn't matter whether you call the 3 cent difference a discount or a surcharge.
Still, card companies preferred to explicitly call it a discount.
Many years later, Danny and Amos defined the difference with the concept of "framing," but marketers already instinctively understood the importance of framing before the concept.
Paying the extra fee is a real cost out of your pocket, but not getting the discount is simply an opportunity cost.
I explain this phenomenon as the "endowment effect," in that the things we own are part of our assets.
And I've encountered cases that show that people value things that are already part of their assets more than things that could become part of their assets—things they could have but don't yet own.
The endowment effect directly influences the behavior of people who are highly interested in special concerts or sports events.
In fact, tickets are often sold for more than their original price.
Those who get in line early or get lucky enough to grab a ticket by quickly accessing the internet will face a moment of decision.
Will you go to that concert or game, or will you sell tickets?
--- From 'What is greater, the joy of having or the pain of losing?'
However, a unique feature of the NFL draft system, which differs from the case of the University of Chicago professors' lab selection, is that all teams can buy and sell their picks.
For example, you could give up your fourth pick and in return get two picks lower in the rankings.
There were enough trades (our study included more than 400) to gauge how much each team values its draft picks.
Additionally, it is possible to trade this year's picks with picks for future years.
This allowed us to determine NFL teams' time preferences.
Before we began this research project, Massey and I anticipated that seriously flawed behavior would emerge within these systems.
Specifically, we expected each team to place excessive value on early picks in the draft.
This expectation stemmed from several previous extreme cases.
The most famous of these is the case of Mike Ditka, the legendary NFL player and later coach of the New Orleans Saints.
--- From 'What is the most economical strategy for attracting talent?'
The prediction of mean reversion in the stock market is hardly a radical hypothesis, except for one thing.
The only thing that is true here is that the efficient market hypothesis says that such a phenomenon can never happen.
In this hypothesis, the 'price is justified' element states that the stock price cannot differ from its intrinsic value, and therefore, in principle, cheap stocks cannot exist.
Next, the 'there is no free lunch' factor says that you can never beat the market because all information is already reflected in the current price.
Because the past is clearly reflected in the stock's return or PER, future price changes cannot be predicted.
They are just SIFs.
Any attempt to find evidence for mean reversion would constitute a clear violation of the efficient market hypothesis.
In this context, we decided to see for ourselves whether we could actually find the evidence.
--- From 'Are investors overreacting in the stock market?'
Also, I must not forget that I was sitting at the 'children's table'.
The conference was scheduled to feature presentations by two Nobel laureates (Arrow and Simon).
Also, many great figures were watching in the audience, including five or six people who would later win the Nobel Prize.
How can I make my point on this important stage without seeming arrogant?
--- From '30 Years of Controversy'
Publisher's Review
If you want to truly understand 'nudge', you should start by reading this book!
A masterpiece that compiles a lifetime of research and insights from a pioneer in behavioral economics.
Modern economics has developed on the premise that “all humans act rationally.”
In any theory or model, there always exists a human being, an 'Econ', who has the amazing ability to make rational decisions and select the optimal combination of options.
But what about us, living in the real world? We buy unnecessary items just because they're on sale, and we continue to exercise at the gym despite severe pain, feeling guilty about paying the membership fee, ultimately harming our health.
Sometimes, even after diligently calculating, they make extreme investments at the last minute.
If humans are truly rational, as economists say, why do we behave so 'wrongly'?
Forty years ago, economist Richard Thaler began to question these things and became interested in the irrational human behavior that traditional economic models could not explain.
And this process begins a long journey of exploring what really determines human behavior and what is needed to make optimal choices.
This book presents, in a solid and in-depth manner, not only the extensive research of Thaler, who is called the "pioneer of behavioral economics," but also the key ideas of behavioral economics, which started as a curiosity among a group of eccentrics and has now firmly established itself as a mainstream academic discipline.
If the previous work, "Nudge," sparked a fervent interest in ingenious problem-solving methods, this book, published seven years later, is significant in that it contains the essence of the process of forming the theoretical foundation of "Nudge," as well as the latest research and trends in behavioral economics.
Prospect theory, psychological accounts, hindsight bias, path dependence…
Solving the mysteries surrounding human 'choice' and 'action'!
From taxi drivers to the American football league, the stock market, and TV shows.
Focusing on the unpredictable nature of human psychology
Interesting ideas from behavioral economics
Sally was looking to buy a radio when she found one she liked, but it was priced at $45.
However, the store employee said that another store about 10 minutes away was having a huge sale and that I could get the same product for $35.
Should Sally drive there? The next day, while browsing TVs in the store, she came across one for $495.
The clerk again informed me that the same product was being sold for $485 at another store 10 minutes away.
Will Sally try to drive there again this time?
According to traditional economics, Sally should either drive to the other store or not drive at all in both cases.
Because any rational human being would give equal value to the same amount of time, say 10 minutes.
However, as Thaler observed, people behave differently in the two cases.
I'd be willing to invest 10 minutes to save $10 on a $45 radio than on a $495 TV.
This has to do with what psychology calls a 'just noticeable difference'.
It's similar to how you might not realize 30 grams when you weigh yourself, but when you buy vegetables, 30 grams makes a huge difference.
At first glance, this may seem like an obvious statement, but the point is that no traditional economic model has been able to explain the inconsistent behavior of humans.
Thaler clearly explains this capricious human reaction by applying the principles of behaviorism, which are combined with psychology.
These are interesting ideas that established today's behavioral economics, such as the 'endowment effect', which compares the pleasure of having something and the pain of losing it; the 'hindsight bias', which causes people to mistakenly believe that something will turn out the way it did after it has already happened; 'prospect theory', which reveals the principles of decision-making in uncertain situations; the 'psychological account', which deals with people's perspectives on money; and the 'overreaction hypothesis' of investors in the stock market.
In addition, various examples that anyone can easily observe in their daily lives add vitality to the vast theory that could otherwise become boring.
As you follow these fascinating examples, including the absurd irrationality shown by economics professors at the University of Chicago, famous for their belief in rationalism, in their lab lottery processes, the high-stakes competitions that actually took place in the US and Europe, the unexpected backlash from consumers resulting from the decisions of Uber, Coca-Cola, and iTunes, and the hidden pitfalls of the National Football League's draft system that spends a lot of money on recruiting players, you will find yourself drawn into the world of behavioral economics.
Overdue taxes, ski resorts struggling with sluggish sales, GM struggling with excess inventory…
How does behavioral economics solve complex real-world problems?
The power of 'choice architecture' that leads to optimal results
In addition to shedding the illusion of rationality and explaining human behavior more accurately, behavioral economics has another attractive aspect as an academic discipline.
The fact is that we can more effectively solve the real-world problems we face by utilizing the principles of behaviorism.
And that too, without any orders or coercion, so that people can make better choices for themselves.
Let's take an example.
The British government wanted to get 120,000 taxpayers who were owed various amounts of tax to pay their taxes voluntarily.
The British government, after consulting Thaler, sent a letter to delinquent taxpayers with the following sentence added:
* The majority of people in the UK pay their taxes on time.
* The majority of citizens in your area pay their taxes on time.
* You are now part of a small group of people who are delinquent on their taxes.
The result? The number of tax delinquents who paid their overdue taxes within 23 days of sending the notice increased by more than 5 percentage points, and approximately 9 million pounds (approximately 14 billion won) in taxes were paid during that period.
The government succeeded in bringing about desired results by changing people's thoughts and behavior without resorting to coercive methods.
Moreover, considering that adding sentences to official documents does not require a separate budget, this can be considered a very efficient strategy.
Thaler calls this problem-solving approach that utilizes behaviorism “libertarian paternalism.”
This means that through a very simple 'design' we are ultimately guided to make the most beneficial choice.
From the successful revival of a struggling New York ski resort to GM's inventory management and increasing retirement savings and organ donation pledges, the book vividly illustrates a variety of examples of how behavioral economics has successfully achieved desired outcomes in business and the public sector.
“All his talent and creativity are contained in this book!”
Adding light humor and intellectual fun to extensive and in-depth research
A new economics classic for this era
In 2017, Richard Thaler won the Nobel Prize in Economics for his research on bounded rationality and decision-making.
In fact, Thaler was known as a "behavioral heretic" at the University of Chicago, the birthplace of traditional economics and a place where notoriously stubborn masters gathered, until behavioral economics became the mainstream discipline it is today.
His interactions with renowned scholars such as Daniel Kahneman, Amos Tversky, George Lowenstein, and Paul Samuelson over the course of 40 years, establishing behavioral economics and sometimes engaging in fierce debates with the opposing camp, add to the enjoyment of watching a movie.
Thaler's exceptional sense of humor, evident throughout the book, helps readers explore behavioral economics without getting tired while following the extensive research.
As if to prove the point made by world-renowned scholars who call Thaler a "seasoned storyteller," this book provides a surprisingly engaging account of the most important revolution in economics over the past 40 years.
Offering brilliant insights into human behavior and choices, this book will provide insight into the world we live in from a different perspective.
* This book is a revised edition of 『Stupid Choices of Smart People』, published in 2016.
A masterpiece that compiles a lifetime of research and insights from a pioneer in behavioral economics.
Modern economics has developed on the premise that “all humans act rationally.”
In any theory or model, there always exists a human being, an 'Econ', who has the amazing ability to make rational decisions and select the optimal combination of options.
But what about us, living in the real world? We buy unnecessary items just because they're on sale, and we continue to exercise at the gym despite severe pain, feeling guilty about paying the membership fee, ultimately harming our health.
Sometimes, even after diligently calculating, they make extreme investments at the last minute.
If humans are truly rational, as economists say, why do we behave so 'wrongly'?
Forty years ago, economist Richard Thaler began to question these things and became interested in the irrational human behavior that traditional economic models could not explain.
And this process begins a long journey of exploring what really determines human behavior and what is needed to make optimal choices.
This book presents, in a solid and in-depth manner, not only the extensive research of Thaler, who is called the "pioneer of behavioral economics," but also the key ideas of behavioral economics, which started as a curiosity among a group of eccentrics and has now firmly established itself as a mainstream academic discipline.
If the previous work, "Nudge," sparked a fervent interest in ingenious problem-solving methods, this book, published seven years later, is significant in that it contains the essence of the process of forming the theoretical foundation of "Nudge," as well as the latest research and trends in behavioral economics.
Prospect theory, psychological accounts, hindsight bias, path dependence…
Solving the mysteries surrounding human 'choice' and 'action'!
From taxi drivers to the American football league, the stock market, and TV shows.
Focusing on the unpredictable nature of human psychology
Interesting ideas from behavioral economics
Sally was looking to buy a radio when she found one she liked, but it was priced at $45.
However, the store employee said that another store about 10 minutes away was having a huge sale and that I could get the same product for $35.
Should Sally drive there? The next day, while browsing TVs in the store, she came across one for $495.
The clerk again informed me that the same product was being sold for $485 at another store 10 minutes away.
Will Sally try to drive there again this time?
According to traditional economics, Sally should either drive to the other store or not drive at all in both cases.
Because any rational human being would give equal value to the same amount of time, say 10 minutes.
However, as Thaler observed, people behave differently in the two cases.
I'd be willing to invest 10 minutes to save $10 on a $45 radio than on a $495 TV.
This has to do with what psychology calls a 'just noticeable difference'.
It's similar to how you might not realize 30 grams when you weigh yourself, but when you buy vegetables, 30 grams makes a huge difference.
At first glance, this may seem like an obvious statement, but the point is that no traditional economic model has been able to explain the inconsistent behavior of humans.
Thaler clearly explains this capricious human reaction by applying the principles of behaviorism, which are combined with psychology.
These are interesting ideas that established today's behavioral economics, such as the 'endowment effect', which compares the pleasure of having something and the pain of losing it; the 'hindsight bias', which causes people to mistakenly believe that something will turn out the way it did after it has already happened; 'prospect theory', which reveals the principles of decision-making in uncertain situations; the 'psychological account', which deals with people's perspectives on money; and the 'overreaction hypothesis' of investors in the stock market.
In addition, various examples that anyone can easily observe in their daily lives add vitality to the vast theory that could otherwise become boring.
As you follow these fascinating examples, including the absurd irrationality shown by economics professors at the University of Chicago, famous for their belief in rationalism, in their lab lottery processes, the high-stakes competitions that actually took place in the US and Europe, the unexpected backlash from consumers resulting from the decisions of Uber, Coca-Cola, and iTunes, and the hidden pitfalls of the National Football League's draft system that spends a lot of money on recruiting players, you will find yourself drawn into the world of behavioral economics.
Overdue taxes, ski resorts struggling with sluggish sales, GM struggling with excess inventory…
How does behavioral economics solve complex real-world problems?
The power of 'choice architecture' that leads to optimal results
In addition to shedding the illusion of rationality and explaining human behavior more accurately, behavioral economics has another attractive aspect as an academic discipline.
The fact is that we can more effectively solve the real-world problems we face by utilizing the principles of behaviorism.
And that too, without any orders or coercion, so that people can make better choices for themselves.
Let's take an example.
The British government wanted to get 120,000 taxpayers who were owed various amounts of tax to pay their taxes voluntarily.
The British government, after consulting Thaler, sent a letter to delinquent taxpayers with the following sentence added:
* The majority of people in the UK pay their taxes on time.
* The majority of citizens in your area pay their taxes on time.
* You are now part of a small group of people who are delinquent on their taxes.
The result? The number of tax delinquents who paid their overdue taxes within 23 days of sending the notice increased by more than 5 percentage points, and approximately 9 million pounds (approximately 14 billion won) in taxes were paid during that period.
The government succeeded in bringing about desired results by changing people's thoughts and behavior without resorting to coercive methods.
Moreover, considering that adding sentences to official documents does not require a separate budget, this can be considered a very efficient strategy.
Thaler calls this problem-solving approach that utilizes behaviorism “libertarian paternalism.”
This means that through a very simple 'design' we are ultimately guided to make the most beneficial choice.
From the successful revival of a struggling New York ski resort to GM's inventory management and increasing retirement savings and organ donation pledges, the book vividly illustrates a variety of examples of how behavioral economics has successfully achieved desired outcomes in business and the public sector.
“All his talent and creativity are contained in this book!”
Adding light humor and intellectual fun to extensive and in-depth research
A new economics classic for this era
In 2017, Richard Thaler won the Nobel Prize in Economics for his research on bounded rationality and decision-making.
In fact, Thaler was known as a "behavioral heretic" at the University of Chicago, the birthplace of traditional economics and a place where notoriously stubborn masters gathered, until behavioral economics became the mainstream discipline it is today.
His interactions with renowned scholars such as Daniel Kahneman, Amos Tversky, George Lowenstein, and Paul Samuelson over the course of 40 years, establishing behavioral economics and sometimes engaging in fierce debates with the opposing camp, add to the enjoyment of watching a movie.
Thaler's exceptional sense of humor, evident throughout the book, helps readers explore behavioral economics without getting tired while following the extensive research.
As if to prove the point made by world-renowned scholars who call Thaler a "seasoned storyteller," this book provides a surprisingly engaging account of the most important revolution in economics over the past 40 years.
Offering brilliant insights into human behavior and choices, this book will provide insight into the world we live in from a different perspective.
* This book is a revised edition of 『Stupid Choices of Smart People』, published in 2016.
GOODS SPECIFICS
- Publication date: March 11, 2021
- Format: Hardcover book binding method guide
- Page count, weight, size: 604 pages | 1,080g | 165*243*42mm
- ISBN13: 9788901248684
- ISBN10: 8901248689
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