Misbehaving: The Making of Behavioural Economics
By Richard Thaler
Review by Lydia (PPE)
Misbehaving: The Making of Behavioural Economics is about the growth of the field of behavioural economics from the 1970s onwards, detailing its journey from a topic “dismissed at first by economists as an amusing sideshow” to one of the fastest growing fields of economics. As someone who knew almost nothing about economics before deciding to apply for PPE, this book was both very helpful and entertaining.
Most of Thaler’s discussions begin with looking at classic economic models and then demonstrating how they fail due to the inaccurate representation of human behaviour. This allowed me both to gain some understanding of basic economic principles and assumptions, and to think critically about the methodology of economics – particularly in relation to “homo economicus”. This is the assumption that human behaviour is always completely rational and selfish and Thaler refers to the imaginary people who always act in line with this as “econs”. “Econs” don’t care about things like sunk costs (money you have already spent) or the endowment effect (valuing things you own more than things you don’t) or any other number of “supposedly irrelevant factors” which affect the decisions of real people. The dozens of real life stories and experiments Thaler details demonstrate how this assumption undermines even basic supply and demand models. This creates a strong argument for the importance of “the field” to understanding economics and an explanation for its recent explosion in popularity.
Described as “when economics meets psychology”, Thaler does not presume any prior economic knowledge and smoothly intertwines the story of behavioural economics as a field and the key problems it attempts to address with a good deal of humour and entertaining tales. I found the book useful also in demonstrating how wide the field is – spanning maths to sociology to politics to psychology and countless other topics. I found this really encouraging and it really made me excited to begin exploring what else economics has to offer.
Misbehaving: The Making of Behavioural Economics by Richard Thaler