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Richard Thaler and the animal spirits


Cigarbutt
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Richard Thaler won the Economics Nobel Prize.

His topics of predilection are relevant to recent posts discussed on this Board: price gouging, personal disposition etc

 

He contributed to the relatively new field of behavioral economics. His papers have the typical fancy equations and model orientation but, for a theorist, he showed an unusual capacity for practical applications of ideas.

 

The essential ingredient for his works is that people sometimes depart from rationality(!). Interesting to remember that the main part of mainstream modern economics is based on the assumption that people are rational(!). His challenge was trying to show that people behaved in a non-rational manner but in a consistent way(!!).

 

He is behind many useful concepts: the endowment effect, inadequate mental accounting but I especially liked the "nudge" concept.

 

For those interested, he produced a paper on overconfidence (topic is the drafting of NFL players, side note to rukawa, this is not intended to be a political discussion).

 

http://www.nber.org/papers/w11270.pdf

 

In a way, this paper may have something to do with how much you are ready to pay, rationally or not, for growth.

Then, you may want to compare with Moneyball: The Art of Winning an Unfair Game.

 

Growth or Value?

 

 

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  • 2 years later...

 

He is behind many useful concepts: the endowment effect, inadequate mental accounting but I especially liked the "nudge" concept.

 

 

 

The kindle version of his book "Nudge" is on sale today,

 

https://www.amazon.com/Nudge-Improving-Decisions-Health-Happiness-ebook/dp/B00A5DCALY?_bbid=13541439&tag=ebookdealspagesite-20

 

I haven't read it, but  haveI read his book Misbehaving: The Making of Behavioral Economics and thought it was good.

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^I suggest the book too if you have an inclination to this sort behavior analysis. An interesting aspect is that it can be a source of ideas, from a practical standpoint, for applications in activities of daily living. Productivity and the KISS principle have been central in my activities and, maybe, that's why I'm doing nothing these days. Anyways, a while back, my contribution to an infrastructure project was to suggest painting footsteps of different colors on the floor in order to 'nudge' people in the right direction. Scientific evaluation of the input (asking volunteers who had first-line contact with the "clients"): amazingly positive NPV. I've always been amazed how small things can make a huge difference, at the margin.

 

A problem though is that nudging can easily become manipulation and one has to be careful when Mr. Thaler suggests application to the societal level. It think it may form an acceptable compromise of paternalism with adequate checks in place and first-do-no-harm principles.

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