It’s no secret that human beings can be and often are irrational. (This point is especially evident if you’ve ever dealt with a customer who needed a few thousand castings yesterday.) But, for some strange reason, economics has been slow to accept this otherwise obvious truth. In this most applicable of the social sciences, humans were thought of as rational, reasoned and logical.
“Misbehaving: The Making of Behavioral Economics” by Richard H. Thaler is the story of one man’s crusade to change this fundamental assumption. The very term “behavioral economics” tells you that this book is dealing more with the human mind than the invisible hand.
Told in chronological order, from Thaler’s early work as a graduate student to a quick peek at what’s next, “Misbehaving” is simultaneously technically dense and easy to read. This is not to say you’ll be cracking this open while lounging by the pool. Rather, information is packaged and delivered in a way that’s easily consumed by relative novices.
If you’re looking for step-by-step instructions to better the bottom line, this isn’t your blueprint. But “Misbehaving” delivers more than a few eye-opening lessons for the business owner or manager. In the chapter on game shows—what better illustrations for people’s tendency for mental hiccups?—Thaler puts a few contestants from “Deal or No Deal” under the microscope.
For example, one unfortunate man was left with five possibilities: four relatively low payoffs and the highest payday possible. As it became evident he was nearing an all-or-almost-nothing proposition, he appeared ardent on going for it all—and he didn’t make it. Would you believe how the game progresses affects a contestant’s probability of accepting a particular offer? Of course it does, which is why it is an effective indictment of why economists have banked on the rationality of the individual for decades.
Beyond lessons for yourself and your business, “Misbehaving” is simply an interesting read in terms of psychology. Whether specific points change how you view yourself and your workforce, the book veers away from esoteric concepts and theories. The research is evident and the discussion is grounded in everyday examples or easily understood hypotheticals.
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