I recently read Misbehaving: The Making of Behavioral Economicsby Richard
Thaler is winner of the Nobel Memorial Prize in Economic Sciences; he teaches in the University of Chicago Booth School of Business. In this book RT details his decades-long journey of attempting to influence the field of economics by better understanding human motivation as opposed to the more traditional approach of viewing economic behavior through the lens of rigidly rational decision-making.
My top takeaways include:
· A core premise of classic economic theory is that people make their decisions about the use of money via rational reasoning. Thaler believes that to be a flawed assertion.
· Thaler divides the world into two types of people, Econs (the automatons of economic theory who make their decisions based purely on rational thought processes) and Humans (the rest of us).
· “Loss” hurts us more than twice as much as “gain” gives us pleasure. This concept is known as loss aversion.
· Winners at auctions are often the bidder who most overvalues the object being sold.
· If you want people to do something, make it easy for them to do it.
Thaler proposes three ideas he believes useful toward impacting positive change:
1) Observe. See the world as it is, not as others wish it to be.
2) Collect data and learn from it. Humans and organizations have an urgent need to learn how to learn.
3) Speak up. Someone must be willing to tell the boss that something is going wrong.
My favorite quotes:
“If there is a number, people will use it.” (p. 275).
“Economists are really good at inventing rational explanations for behavior, no matter how dumb that behavior appears to be.” (p. 295)
“Because people are Humans, not Econs (terms we coined for Nudge), they make predictable errors. If we can anticipate those errors, we can devise policies that will reduce the error rate.” (p. 325)
“Good leaders must create environments in which employees feel that making evidence-based decisions will always be rewarded, no matter what outcome occurs.” (p. 357)
This book is a very interesting examination of human behavior, in general. It’s not just a book about economics. Well worth the time for anyone in a position of influencing others.