The dean of behavioral economics—the study of how people behave in practice rather than in theory when it comes to dollars and cents—gives a spry account of his field.
“The real point of behavioral economics is to highlight behaviors that are in conflict with the standard rational model,” writes Thaler (Behavioral Science and Economics/Univ. of Chicago Graduate School of Business; co-author: Nudge: Improving Decisions About Health, Wealth, and Happiness, 2008, etc.), who carved out his own field at the University of Chicago in the 1970s and, with a few other renegades, brought it to academic respectability in the ’80s. Now the branch is pretty well orthodox, and its heavy hitters command all kinds of respect, even if the young wild-eyed acolytes of the Freakonomics set steal the thunder these days. Without the oldsters there would be no such acolytes, just as without Thaler’s explorations of how people tick, irrationally and against expectation, there wouldn’t be any Levitts and Dubners. Thaler’s accounts of what he spends his days thinking about are illuminating: if controlling your impulses involves a metaphorical angel on one shoulder and a devil on the other, why did this not have an appropriately twofold theory behind it? “Self-control,” writes the author with customary clarity, “is, centrally, about conflict. And, like tango, it takes (at least) two to have a conflict. Maybe I needed a model with two selves.” People are risk-averse by nature; does that have any sort of evolutionary component? And why, conversely, are people so bad at making the right choices? In part, it’s because we’re not very bright, but it’s also because there’s a rub in that “right choices” business—assuming that we’re capable of rationality when, as Thaler writes, “the premises on which economic theory rests are flawed.”
Readers with even the remotest interest in how the world really works will enjoy this work of the dismal science pleasingly, and even exuberantly, done.